Nego Cases

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Negotiable Instrument Cases
Contents
Introduction: Function & Importance Of Negotiable.....................................................................................................2
Instruments......................................................................................................................................................................2
A. Substitute for Money but not legal tender.............................................................................................................2
PAPA vs. VALENCIA GR No. 105188, Jan. 23, 1998..........................................................................................2
CEBU INTERNATIONAL vs. CA GR No. 123031 Oct. 12, 1999...............................................................8
RUEDA vs. SANDIGANBAYAN GR No. 129064 Nov. 29, 2000.....................................................................16
BARRETTO vs. CA GR No. 132362 June 28, 2001...........................................................................................29
B. Medium of Commercial Transactions..................................................................................................................37
PEOPLE vs. TONGKO GR No. 123567 June 5, 1998........................................................................................37
C. Medium of credit transaction...............................................................................................................................41
(Evidence of indebtedness).......................................................................................................................................41
PACHECO vs. CA GR No. 126670 Dec. 2, 1999................................................................................................41
GO vs. BACARON GR No. 159048 October 11, 2005.......................................................................................46
SPS. TAN vs. VILLAPAZ GR No. 160892 Nov. 22, 2005.................................................................................56
CHUA GAW vs. CHUA GR No. 160855 April 16, 2008....................................................................................64
Section 1...................................................................................................................................................................74
TRADERS vs. CA GR No. 93397 March 3, 1997...............................................................................................74
FIRESTONE vs. CA GR No. 113236 March 5, 2001..........................................................................................86
ASTRO vs. PHIL EXPORT GR No. 136729 Sept. 23, 2003...............................................................................90
GARCIA vs. LLAMAS GR No. 154127 Dec. 8, 2003........................................................................................94
TRANSFIELD vs. LUZON HYDRO GR No. 146717 Nov. 22, 2004..............................................................103
PEOPLE vs. REYES GR No. 154159 March 31, 2005.....................................................................................115
ANDAYA vs. PEOPLE GR No. 168486 June 27, 2006....................................................................................124
BATULANON vs. PEOPLE GR No. 139857 Sept. 15, 2006...........................................................................135
Section 1 (NIL and Tax).........................................................................................................................................146
BAAS vs. CA GR No. 102967 Feb. 10, 2000.................................................................................................146
BPI vs. CA GR No. 117319 July 19, 2006.........................................................................................................156
BPI vs. CIR GR No. 137002 July 27, 2006.......................................................................................................160
SECURITY BANK vs. CIR GR No. 130838 August 22, 2006.........................................................................166
INTERNATIONAL vs. CIR GR No. 171266 April 4, 2007..............................................................................175
Section 2.................................................................................................................................................................182
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Introduction: Function & Importance Of Negotiable
Instruments
A. Substitute for Money but not legal tender
PAPA vs. VALENCIA GR No. 105188, Jan. 23, 1998
[G.R. No. 105188. January 23, 1998]
MYRON C. PAPA, Administrator of the Testate Estate of Angela M. Butte, petitioner, vs. A. U. VALENCIA and
CO. INC., FELIX PEARROYO, SPS. ARSENIO B. REYES & AMANDA SANTOS, and DELFIN JAO,
respondents.
DECISION
KAPUNAN, J.:
In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Myron C. Papa seeks to
reverse and set aside 1) the Decision dated 27 January 1992 of the Court of Appeals which affirmed with
modification the decision of the trial court; and, 2) the Resolution dated 22 April 1992 of the same court, which
denied petitioners motion for reconsideration of the above decision.
The antecedent facts of this case are as follows:
Sometime in June 1982, herein private respondents A.U. Valencia and Co., Inc. (hereinafter referred to as
respondent Valencia, for brevity) and Felix Pearroyo (hereinafter called respondent Pearroyo), filed with the
Regional Trial Court of Pasig, Branch 151, a complaint for specific performance against herein petitioner Myron C.
Papa, in his capacity as administrator of the Testate Estate of one Angela M. Butte.
The complaint alleged that on 15 June 1973, petitioner Myron C. Papa, acting as attorney-in-fact of Angela M.
Butte, sold to respondent Pearroyo, through respondent Valencia, a parcel of land, consisting of 286.60 square
meters, located at corner Retiro and Cadiz Streets, La Loma, Quezon City, and covered by Transfer Certificate of
Title No. 28993 of the Register of Deeds of Quezon City; that prior to the alleged sale, the said property, together
with several other parcels of land likewise owned by Angela M. Butte, had been mortgaged by her to the Associated
Banking Corporation (now Associated Citizens Bank); that after the alleged sale, but before the title to the subject
property had been released, Angela M. Butte passed away; that despite representations made by herein respondents
to the bank to release the title to the property sold to respondent Pearroyo, the bank refused to release it unless and
until all the mortgaged properties of the late Angela M. Butte were also redeemed; that in order to protect his rights
and interests over the property, respondent Pearroyo caused the annotation on the title of an adverse claim as
evidenced by Entry No. P.E. - 6118/T-28993, inscribed on 18 January 1977.
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The complaint further alleged that it was only upon the release of the title to the property, sometime in April 1977,
that respondents Valencia and Pearroyo discovered that the mortgage rights of the bank had been assigned to one
Tomas L. Parpana (now deceased), as special administrator of the Estate of Ramon Papa, Jr., on 12 April 1977; that
since then, herein petitioner had been collecting monthly rentals in the amount of P800.00 from the tenants of the
property, knowing that said property had already been sold to private respondents on 15 June 1973; that despite
repeated demands from said respondents, petitioner refused and failed to deliver the title to the property. Thereupon,
respondents Valencia and Pearroyo filed a complaint for specific performance, praying that petitioner be ordered to
deliver to respondent Pearroyo the title to the subject property (TCT 28993); to turn over to the latter the sum of
P72,000.00 as accrued rentals as of April 1982, and the monthly rental of P800.00 until the property is delivered to
respondent Pearroyo; to pay respondents the sum of P20,000.00 as attorneys fees; and to pay the costs of the suit.
In his Answer, petitioner admitted that the lot had been mortgaged to the Associated Banking Corporation (now
Associated Citizens Bank). He contended, however, that the complaint did not state a cause of action; that the real
property in interest was the Testate Estate of Angela M. Butte, which should have been joined as a party defendant;
that the case amounted to a claim against the Estate of Angela M. Butte and should have been filed in Special
Proceedings No. A-17910 before the Probate Court in Quezon City; and that, if as alleged in the complaint, the
property had been assigned to Tomas L. Parpana, as special administrator of the Estate of Ramon Papa, Jr., said
estate should be impleaded. Petitioner, likewise, claimed that he could not recall in detail the transaction which
allegedly occurred in 1973; that he did not have TCT No. 28993 in his possession; that he could not be held
personally liable as he signed the deed merely as attorney-in-fact of said Angela M. Butte. Finally, petitioner
asseverated that as a result of the filing of the case, he was compelled to hire the services of counsel for a fee of
P20,000.00, for which respondents should be held liable.
Upon his motion, herein private respondent Delfin Jao was allowed to intervene in the case. Making common cause
with respondents Valencia and Pearroyo, respondent Jao alleged that the subject lot which had been sold to
respondent Pearroyo through respondent Valencia was in turn sold to him on 20 August 1973 for the sum of
P71,500.00, upon his paying earnest money in the amount of P5,000.00. He, therefore, prayed that judgment be
rendered in favor of respondents Valencia and Pearroyo; and, that after the delivery of the title to said respondents,
the latter in turn be ordered to execute in his favor the appropriate deed of conveyance covering the property in
question and to turn over to him the rentals which aforesaid respondents sought to collect from petitioner Myron C.
Papa.
Respondent Jao, likewise, averred that as a result of petitioners refusal to deliver the title to the property to
respondents Valencia and Pearroyo, who in turn failed to deliver the said title to him, he suffered mental anguish
and serious anxiety for which he sought payment of moral damages; and, additionally, the payment of attorneys fees
and costs.
For his part, petitioner, as administrator of the Testate Estate of Angela M. Butte, filed a third-party complaint
against herein private respondents, spouses Arsenio B. Reyes and Amanda Santos (respondent Reyes spouses, for
short). He averred, among others, that the late Angela M. Butte was the owner of the subject property; that due to
non-payment of real estate tax said property was sold at public auction by the City Treasurer of Quezon City to the
respondent Reyes spouses on 21 January 1980 for the sum of P14,000.00; that the one-year period of redemption
had expired; that respondents Valencia and Pearroyo had sued petitioner Papa as administrator of the estate of
Angela M. Butte, for the delivery of the title to the property; that the same aforenamed respondents had
acknowledged that the price paid by them was insufficient, and that they were willing to add a reasonable amount or
a minimum of P55,000.00 to the price upon delivery of the property, considering that the same was estimated to be
worth P143,000.00; that petitioner was willing to reimburse respondent Reyes spouses whatever amount they might
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have paid for taxes and other charges, since the subject property was still registered in the name of the late Angela
M. Butte; that it was inequitable to allow respondent Reyes spouses to acquire property estimated to be worth
P143,000.00, for a measly sum of P14,000.00. Petitioner prayed that judgment be rendered cancelling the tax sale
to respondent Reyes spouses; restoring the subject property to him upon payment by him to said respondent Reyes
spouses of the amount of P14,000.00, plus legal interest; and, ordering respondents Valencia and Pearroyo to pay
him at least P55,000.00 plus everything they might have to pay the Reyes spouses in recovering the property.
Respondent Reyes spouses in their Answer raised the defense of prescription of petitioners right to redeem the
property.
At the trial, only respondent Pearroyo testified. All the other parties only submitted documentary proof.
On 29 June 1987, the trial court rendered a decision, the dispositive portion of which reads:
WHEREUPON, judgment is hereby rendered as follows:
1) Allowing defendant to redeem from third-party defendants and ordering the latter to allow the former to redeem
the property in question, by paying the sum of P14,000.00 plus legal interest of 12% thereon from January 21, 1980;
2) Ordering defendant to execute a Deed of Absolute Sale in favor of plaintiff Felix Pearroyo covering the
property in question and to deliver peaceful possession and enjoyment of the said property to the said plaintiff, free
from any liens and encumbrances;
Should this not be possible, for any reason not attributable to defendant, said defendant is ordered to pay to plaintiff
Felix Pearroyo the sum of P45,000.00 plus legal interest of 12% from June 15, 1973;
3) Ordering plaintiff Felix Pearroyo to execute and deliver to intervenor a deed of absolute sale over the same
property, upon the latters payment to the former of the balance of the purchase price of P71,500.00;
Should this not be possible, plaintiff Felix Pearroyo is ordered to pay intervenor the sum of P5,000.00 plus legal
interest of 12% from August 23, 1973; and
4) Ordering defendant to pay plaintiffs the amount of P5,000.00 for and as attorneys fees and litigation expenses.
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SO ORDERED.[1]
Petitioner appealed the aforesaid decision of the trial court to the Court of Appeals, alleging among others that the
sale was never consummated as he did not encash the check (in the amount of P40,000.00) given by respondents
Valencia and Pearroyo in payment of the full purchase price of the subject lot. He maintained that what said
respondents had actually paid was only the amount of P5,000.00 (in cash) as earnest money.
Respondent Reyes spouses, likewise, appealed the above decision. However, their appeal was dismissed because of
failure to file their appellants brief.
On 27 January 1992, the Court of Appeals rendered a decision, affirming with modification the trial courts decision,
thus:
WHEREFORE, the second paragraph of the dispositive portion of the appealed decision is MODIFIED, by ordering
the defendant-appellant to deliver to plaintiff-appellees the owners duplicate of TCT No. 28993 of Angela M. Butte
and the peaceful possession and enjoyment of the lot in question or, if the owners duplicate certificate cannot be
produced, to authorize the Register of Deeds to cancel it and issue a certificate of title in the name of Felix
Pearroyo. In all other respects, the decision appealed from is AFFIRMED. Costs against defendant-appellant
Myron C. Papa.
SO ORDERED.[2]
In affirming the trial courts decision, respondent court held that contrary to petitioners claim that he did not encash
the aforesaid check, and therefore, the sale was not consummated, there was no evidence at all that petitioner did
not, in fact, encash said check. On the other hand, respondent Pearroyo testified in court that petitioner Papa had
received the amount of P45,000.00 and issued receipts therefor. According to respondent court, the presumption is
that the check was encashed, especially since the payment by check was not denied by defendant-appellant (herein
petitioner) who, in his Answer, merely alleged that he can no longer recall the transaction which is supposed to
have happened 10 years ago.[3]
On petitioners claim that he cannot be held personally liable as he had acted merely as attorney-in-fact of the
owner, Angela M. Butte, respondent court held that such contention is without merit. This action was not brought
against him in his personal capacity, but in his capacity as the administrator of the Testate Estate of Angela M.
Butte.[4]
On petitioners contention that the estate of Angela M. Butte should have been joined in the action as the real party
in interest, respondent court held that pursuant to Rule 3, Section 3 of the Rules of Court, the estate of Angela M.
Butte does not have to be joined in the action. Likewise, the estate of Ramon Papa, Jr., is not an indispensable party
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under Rule 3, Section 7 of the same Rules. For the fact is that Ramon Papa, Jr., or his estate, was not a party to the
Deed of Absolute Sale, and it is basic law that contracts bind only those who are parties thereto.[5]
Respondent court observed that the conditions under which the mortgage rights of the bank were assigned are not
clear. In any case, any obligation which the estate of Angela M. Butte might have to the estate of Ramon Papa, Jr. is
strictly between them. Respondents Valencia and Pearroyo are not bound by any such obligation.
Petitioner filed a motion for reconsideration of the above decision, which motion was denied by respondent Court
of Appeals.
Hence, this petition wherein petitioner raises the following issues:
I. THE CONCLUSION OR FINDING OF THE COURT OF APPEALS THAT THE SALE IN QUESTION WAS
CONSUMMATED IS GROUNDED ON SPECULATION OR CONJECTURE, AND IS CONTRARY TO THE
APPLICABLE LEGAL PRINCIPLE.
II. THE COURT OF APPEALS, IN MODIFYING THE DECISION OF THE TRIAL COURT, ERRED BECAUSE
IT, IN EFFECT, CANCELLED OR NULLIFIED AN ASSIGNMENT OF THE SUBJECT PROPERTY IN FAVOR
OF THE ESTATE OF RAMON PAPA, JR. WHICH IS NOT A PARTY IN THIS CASE.
III. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ESTATE OF ANGELA M. BUTTE
AND THE ESTATE OF RAMON PAPA, JR. ARE INDISPENSABLE PARTIES IN THIS CASE.[6]
Petitioner argues that respondent Court of Appeals erred in concluding that the alleged sale of the subject property
had been consummated. He contends that such a conclusion is based on the erroneous presumption that the check
(in the amount of P40,000.00) had been cashed, citing Art. 1249 of the Civil Code, which provides, in part, that
payment by checks shall produce the effect of payment only when they have been cashed or when through the fault
of the creditor they have been impaired.[7] Petitioner insists that he never cashed said check; and, such being the
case, its delivery never produced the effect of payment. Petitioner, while admitting that he had issued receipts for
the payments, asserts that said receipts, particularly the receipt of PCIB Check No. 761025 in the amount of
P40,000.00, do not prove payment. He avers that there must be a showing that said check had been encashed. If,
according to petitioner, the check had been encashed, respondent Pearroyo should have presented PCIB Check No.
761025 duly stamped received by the payee, or at least its microfilm copy.
Petitioner finally avers that, in fact, the consideration for the sale was still in the hands of respondents Valencia
and Pearroyo, as evidenced by a letter addressed to him in which said respondents wrote, in part:
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x x x. Please be informed that I had been authorized by Dr. Ramon Papa, Jr., heir of Mrs. Angela M. Butte to pay
you the aforementioned amount of P75,000.00 for the release and cancellation of subject propertys mortgage. The
money is with me and if it is alright with you, I would like to tender the payment as soon as possible. x x x.[8]
We find no merit in petitioners arguments.
It is an undisputed fact that respondents Valencia and Pearroyo had given petitioner Myron C. Papa the amounts of
Five Thousand Pesos (P5,000.00) in cash on 24 May 1973, and Forty Thousand Pesos (P40,000.00) in check on 15
June 1973, in payment of the purchase price of the subject lot. Petitioner himself admits having received said
amounts,[9] and having issued receipts therefor.[10] Petitioners assertion that he never encashed the aforesaid
check is not subtantiated and is at odds with his statement in his answer that he can no longer recall the transaction
which is supposed to have happened 10 years ago. After more than ten (10) years from the payment in part by cash
and in part by check, the presumption is that the check had been encashed. As already stated, he even waived the
presentation of oral evidence.
Granting that petitioner had never encashed the check, his failure to do so for more than ten (10) years undoubtedly
resulted in the impairment of the check through his unreasonable and unexplained delay.
While it is true that the delivery of a check produces the effect of payment only when it is cashed, pursuant to Art.
1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditors unreasonable delay in
presentment. The acceptance of a check implies an undertaking of due diligence in presenting it for payment, and if
he from whom it is received sustains loss by want of such diligence, it will be held to operate as actual payment of
the debt or obligation for which it was given.[11] It has, likewise, been held that if no presentment is made at all,
the drawer cannot be held liable irrespective of loss or injury[12] unless presentment is otherwise excused. This is
in harmony with Article 1249 of the Civil Code under which payment by way of check or other negotiable
instrument is conditioned on its being cashed, except when through the fault of the creditor, the instrument is
impaired. The payee of a check would be a creditor under this provision and if its non-payment is caused by his
negligence, payment will be deemed effected and the obligation for which the check was given as conditional
payment will be discharged.[13]
Considering that respondents Valencia and Pearroyo had fulfilled their part of the contract of sale by delivering the
payment of the purchase price, said respondents, therefore, had the right to compel petitioner to deliver to them the
owners duplicate of TCT No. 28993 of Angela M. Butte and the peaceful possession and enjoyment of the lot in
question.
With regard to the alleged assignment of mortgage rights, respondent Court of Appeals has found that the conditions
under which said mortgage rights of the bank were assigned are not clear. Indeed, a perusal of the original records
of the case would show that there is nothing there that could shed light on the transactions leading to the said
assignment of rights; nor is there any evidence on record of the conditions under which said mortgage rights were
assigned. What is certain is that despite the said assignment of mortgage rights, the title to the subject property has
remained in the name of the late Angela M. Butte.[14] This much is admitted by petitioner himself in his answer to
respondents complaint as well as in the third-party complaint that petitioner filed against respondent-spouses
Arsenio B. Reyes and Amanda Santos.[15] Assuming arquendo that the mortgage rights of the Associated Citizens
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Bank had been assigned to the estate of Ramon Papa, Jr., and granting that the assigned mortgage rights validly exist
and constitute a lien on the property, the estate may file the appropriate action to enforce such lien. The cause of
action for specific performance which respondents Valencia and Pearroyo have against petitioner is different from
the cause of action which the estate of Ramon Papa, Jr. may have to enforce whatever rights or liens it has on the
property by reason of its being an alleged assignee of the banks rights of mortgage.
Finally, the estate of Angela M. Butte is not an indispensable party. Under Section 3 of Rule 3 of the Rules of
Court, an executor or administrator may sue or be sued without joining the party for whose benefit the action is
presented or defended, thus:
Sec. 3. Representative parties. - A trustee of an express trust, a guardian, executor or administrator, or a party
authorized by statute, may sue or be sued without joining the party for whose benefit the action is presented or
defended; but the court may, at any stage of the proceedings, order such beneficiary to be made a party. An agent
acting in his own name and for the benefit of an undisclosed principal may sue or be sued without joining the
principal except when the contract involves things belonging to the principal.[16]
Neither is the estate of Ramon Papa, Jr. an indispensable party without whom, no final determination of the action
can be had. Whatever prior and subsisting mortgage rights the estate of Ramon Papa, Jr. has over the property may
still be enforced regardless of the change in ownership thereof.
WHEREFORE, the petition for review is hereby DENIED and the Decision of the Court of Appeals, dated 27
January 1992 is AFFIRMED.
SO ORDERED.
CEBU INTERNATIONAL vs. CA GR No. 123031 Oct. 12, 1999
[G.R. No. 123031. October 12, 1999]
CEBU INTERNATIONAL FINANCE CORPORATION, petitioner, vs. COURT OF APPEALS, VICENTE

ALEGRE, respondents.
DECISION
QUISUMBING, J.:
This petition for review on certiorari assails respondent appellate courts Decision,[1] dated December 8, 1995, in
CA G.R. CV No. 44085, which affirmed the ruling of the Regional Trial Court of Makati, Branch 132. The
dispositive portion of the trial courts decision reads:
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WHEREFORE, judgment is hereby rendered ordering defendant [herein petitioner] to pay plaintiff [herein private
respondent]:
(1)
paid; and
(2)
the principal sum of P514,390.94 with legal interest thereon computed from August 6, 1991 until fully
the costs of suit.
SO ORDERED.[2]
Based on the records, the following are the pertinent facts of the case:
Cebu International Finance Corporation (CIFC), a quasi-banking institution, is engaged in money market operations.
On April 25, 1991, private respondent, Vicente Alegre, invested with CIFC, five hundred thousand (P500,000.00)
pesos, in cash. Petitioner issued a promissory note to mature on May 27, 1991. The note for five hundred sixteen
thousand, two hundred thirty-eight pesos and sixty-seven centavos (P516,238.67) covered private respondents
placement plus interest at twenty and a half (20.5%) percent for thirty-two (32) days.
On May 27, 1991, CIFC issued BPI Check No. 513397 (hereinafter the CHECK) for five hundred fourteen
thousand, three hundred ninety pesos and ninety-four centavos (P514,390.94) in favor of the private respondent as
proceeds of his matured investment plus interest. The CHECK was drawn from petitioners current account number
0011-0803-59, maintained with the Bank of the Philippine Islands (BPI), main branch at Makati City.
On June 17, 1991, private respondents wife deposited the CHECK with Rizal Commercial Banking Corp. (RCBC),
in Puerto Princesa, Palawan. BPI dishonored the CHECK with the annotation, that the Check (is) Subject of an
Investigation. BPI took custody of the CHECK pending an investigation of several counterfeit checks drawn
against CIFCs aforestated checking account. BPI used the check to trace the perpetrators of the forgery.
Immediately, private respondent notified CIFC of the dishonored CHECK and demanded, on several occasions, that
he be paid in cash. CIFC refused the request, and instead instructed private respondent to wait for its ongoing bank
reconciliation with BPI. Thereafter, private respondent, through counsel, made a formal demand for the payment of
his money market placement. In turn, CIFC promised to replace the CHECK but required an impossible condition
that the original must first be surrendered.
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On February 25, 1992, private respondent Alegre filed a complaint[3] for recovery of a sum of money against the
petitioner with the Regional Trial Court of Makati (RTC-Makati), Branch 132.
On July 13, 1992, CIFC sought to recover its lost funds and formally filed against BPI, a separate civil action[4] for
collection of a sum of money with the RTC-Makati, Branch 147. The collection suit alleged that BPI unlawfully
deducted from CIFCs checking account, counterfeit checks amounting to one million, seven hundred twenty-four
thousand, three hundred sixty-four pesos and fifty-eight centavos (P1,724,364.58). The action included the prayer to
collect the amount of the CHECK paid to Vicente Alegre but dishonored by BPI.
Meanwhile, in response to Alegres complaint with RTC-Makati, Branch 132, CIFC filed a motion for leave of court
to file a third-party complaint against BPI. BPI was impleaded by CIFC to enforce a right, for contribution and
indemnity, with respect to Alegres claim. CIFC asserted that the CHECK it issued in favor of Alegre was genuine,
valid and sufficiently funded.
On July 23, 1992, the trial court granted CIFCs motion. However, BPI moved to dismiss the third-party complaint
on the ground of pendency of another action with RTC-Makati, Branch 147. Acting on the motion, the trial court
dismissed the third-party complaint on November 4, 1992, after finding that the third party complaint filed by CIFC
against BPI is similar to its ancillary claim against the bank, filed with RTC-Makati Branch 147.
Thereafter, during the hearing by RTC-Makati, Branch 132, held on May 27, and June 22, 1993, Vito Arieta, Bank
Manager of BPI, testified that the bank, indeed, dishonored the CHECK, retained the original copy and forwarded
only a certified true copy to RCBC. When Arieta was recalled on July 20, 1993, he testified that on July 16, 1993,
BPI encashed and deducted the said amount from the account of CIFC, but the proceeds, as well as the CHECK
remained in BPIs custody. The banks move was in accordance with the Compromise Agreement[5] it entered with
CIFC to end the litigation in RTC-Makati, Branch 147. The compromise agreement, which was submitted for the
approval of the said court, provided that:
1. Defendant [BPI] shall pay to the plaintiff [CIFC] the amount of P1,724,364.58 plus P 20,000 litigation expenses
as full and final settlement of all of plaintiffs claims as contained in the Amended Complaint dated September 10,
1992. The aforementioned amount shall be credited to plaintiffs current account No. 0011-0803-59 maintained at
defendants Main Branch upon execution of this Compromise Agreement.
2. Thereupon, defendant shall debit the sum of P 514,390.94 from the aforesaid current account representing
payment/discharge of BPI Check No. 513397 payable to Vicente Alegre.
3. In case plaintiff is adjudged liable to Vicente Alegre in Civil Case No. 92-515 arising from the alleged dishonor
of BPI Check No. 513397, plaintiff cannot go after the defendant: otherwise stated, the defendant shall not be liable
to the plaintiff. Plaintiff [CIFC] may however set-up the defense of payment/discharge stipulated in par. 2
above.[6]
10
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On July 27, 1993, BPI filed a separate collection suit[7] against Vicente Alegre with the RTC-Makati, Branch 62.
The complaint alleged that Vicente Alegre connived with certain Lina A. Pena and Lita A. Anda and forged several
checks of BPIs client, CIFC. The total amount of counterfeit checks was P 1,724,364.58. BPI prevented the
encashment of some checks amounting to two hundred ninety five thousand, seven hundred seventy-five pesos and
seven centavos (P295,775.07). BPI admitted that the CHECK, payable to Vicente Alegre for P514,390.94, was
deducted from BPIs claim, hence, the balance of the loss incurred by BPI was nine hundred fourteen thousand, one
hundred ninety-eight pesos and fifty-seven centavos (P914,198.57), plus costs of suit for twenty thousand
(P20,000.00) pesos. The records are silent on the outcome of this case.
On September 27, 1993, RTC-Makati, Branch 132, rendered judgment in favor of Vicente Alegre.
CIFC appealed from the adverse decision of the trial court. The respondent court affirmed the decision of the trial
court.
Hence this appeal,[8] in which petitioner interposes the following assignments of errors:
1. The Honorable Court of Appeals erred in affirming the finding of the Honorable Trial Court holding that
petitioner was not discharged from the liability of paying the value of the subject check to private respondent after
BPI has debited the value thereof against petitioners current account.
2. The Honorable Court of Appeals erred in applying the provisions of paragraph 2 of Article 1249 of the Civil
Code in the instant case. The applicable law being the Negotiable Instruments Law.
3. The Honorable Court of Appeals erred in affirming the Honorable Trial Courts findings that the petitioner was
guilty of negligence and delay in the performance of its obligation to the private respondent.
4. The Honorable Court of Appeals erred in affirming the Honorable Trial Courts decision ordering petitioner to
pay legal interest and the cost of suit.
5. The Honorable Court of Appeals erred in affirming the Honorable Trial Courts dismissal of petitioners thirdparty complaint against BPI.
These issues may be synthesized into three:
1. WHETHER OR NOT ARTICLE 1249 OF THE NEW CIVIL CODE APPLIES IN THE PRESENT CASE;
11
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2. WHETHER OR NOT BPI CHECK NO. 513397 WAS VALIDLY DISCHARGED; and
3. WHETHER OR NOT THE DISMISSAL OF THE THIRD PARTY COMPLAINT OF PETITIONER AGAINST
BPI BY REASON OF LIS PENDENS WAS PROPER?
On the first issue, petitioner contends that the provisions of the Negotiable Instruments Law (NIL) are the pertinent
laws to govern its money market transaction with private respondent, and not paragraph 2 of Article 1249 of the
Civil Code. Petitioner stresses that it had already been discharged from the liability of paying the value of the
CHECK due to the following circumstances:
1)
There was ACCEPTANCE of the subject check by BPI, the drawee bank, as defined under the Negotiable
Instruments Law, and therefore, BPI, the drawee bank, became primarily liable for the payment of the check, and
consequently, the drawer, herein petitioner, was discharged from its liability thereon;
2) Moreover, BPI, the drawee bank, has not validly DISHONORED the subject check; and,
3)
The act of BPI, the drawee bank of debiting/deducting the value of the check from petitioners account
amounted to and/or constituted a discharge of the drawers (petitioners) liability under the instrument/subject
check.[9]
Petitioner cites Section 137 of the Negotiable Instruments Law, which states:
Liability of drawee retaining or destroying bill - Where a drawee to whom a bill is delivered for acceptance
destroys the same, or refuses within twenty-four hours after such delivery or such other period as the holder may
allow, to return the bill accepted or non-accepted to the Holder, he will be deemed to have accepted the same.
Petitioner asserts that since BPI accepted the instrument, the bank became primarily liable for the payment of the
CHECK. Consequently, when BPI offset the value of CHECK against the losses from the forged checks allegedly
committed by the private respondent, the check was deemed paid.
Article 1249 of the New Civil Code deals with a mode of extinction of an obligation and expressly provides for the
medium in the payment of debts. It provides that:
12
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The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such
currency, then in the currency, which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce
the effect of payment only when they have been cashed, or when through the fault of the creditor they have been
impaired.
In the meantime, the action derived from the original obligation shall be held in abeyance.
Considering the nature of a money market transaction, the above-quoted provision should be applied in the present
controversy. As held in Perez vs. Court of Appeals,[10] a money market is a market dealing in standardized shortterm credit instruments (involving large amounts) where lenders and borrowers do not deal directly with each other
but through a middle man or dealer in open market. In a money market transaction, the investor is a lender who
loans his money to a borrower through a middleman or dealer.[11]
In the case at bar, the money market transaction between the petitioner and the private respondent is in the nature of
a loan. The private respondent accepted the CHECK, instead of requiring payment in money. Yet, when he
presented it to RCBC for encashment, as early as June 17, 1991, the same was dishonored by non-acceptance, with
BPIs annotation: Check (is) subject of an investigation. These facts were testified to by BPIs manager. Under
these circumstances, and after the notice of dishonor,[12] the holder has an immediate right of recourse against the
drawer,[13] and consequently could immediately file an action for the recovery of the value of the check.
In a loan transaction, the obligation to pay a sum certain in money may be paid in money, which is the legal tender
or, by the use of a check. A check is not a legal tender, and therefore cannot constitute valid tender of payment. In
the case of Philippine Airlines, Inc. vs. Court of Appeals,[14] this Court held:
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 (citation omitted). A check, whether a managers 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.)[15]
Turning now to the second issue, when the bank deducted the amount of the CHECK from CIFCs current account,
this did not ipso facto operate as a discharge or payment of the instrument. Although the value of the CHECK was
deducted from the funds of CIFC, it was not delivered to the payee, Vicente Alegre. Instead, BPI offset the amount
against the losses it incurred from forgeries of CIFC checks, allegedly committed by Alegre. The confiscation of the
value of the check was agreed upon by CIFC and BPI. The parties intended to amicably settle the collection suit
filed by CIFC with the RTC-Makati, Branch 147, by entering into a compromise agreement, which reads:
13
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xxx
2. Thereupon, defendant shall debit the sum of P 514,390.94 from the aforesaid current account representing
payment/discharge of BPI Check No. 513397 payable to Vicente Alegre.
3. In case plaintiff is adjudged liable to Vicente Alegre in Civil Case No. 92-515 arising from the alleged dishonor
of BPI Check No. 513397, plaintiff cannot go after the defendant; otherwise stated, the defendant shall not be liable
to the plaintiff. Plaintiff however (sic) set-up the defense of payment/discharge stipulated in par. 2 above.[16]
A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end
to one already commenced.[17] It is an agreement between two or more persons who, for preventing or putting an
end to a lawsuit, adjust their difficulties by mutual consent in the manner which they agree on, and which everyone
of them prefers in the hope of gaining, balanced by the danger of losing.[18] The compromise agreement could not
bind a party who did not sign the compromise agreement nor avail of its benefits.[19] Thus, the stipulations in the
compromise agreement is unenforceable against Vicente Alegre, not a party thereto. His money could not be the
subject of an agreement between CIFC and BPI. Although Alegres money was in custody of the bank, the banks
possession of it was not in the concept of an owner. BPI cannot validly appropriate the money as its own. The codal
admonition on this issue is clear:
Art. 1317 -
No one may contract in the name of another without being authorized by the latter, or unless he has by law a right
to represent him.
A Contract entered into in the name of another by one who has no authority or legal representation, or who has
acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose
behalf it has been executed, before it is revoked by the other contracting party.[20]
BPIs confiscation of Alegres money constitutes garnishment without the parties going through a valid proceeding
in court. Garnishment is an attachment by means of which the plaintiff seeks to subject to his claim the property of
the defendant in the hands of a third person or money owed to such third person or a garnishee to the defendant.[21]
The garnishment procedure must be upon proper order of RTC-Makati, Branch 62, the court who had jurisdiction
over the collection suit filed by BPI against Alegre. In effect, CIFC has not yet tendered a valid payment of its
obligation to the private respondent. Tender of payment involves a positive and unconditional act by the obligor of
offering legal tender currency as payment to the obligee for the formers obligation and demanding that the latter
accept the same.[22] Tender of payment cannot be presumed by a mere inference from surrounding circumstances.
With regard to the third issue, for litis pendentia to be a ground for the dismissal of an action, the following
requisites must concur: (a) identity of parties or at least such as to represent the same interest in both actions; (b)
14
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identity of rights asserted and relief prayed for, the relief being founded on the same acts; and (c) the identity in the
two cases should be such that the judgment which may be rendered in one would, regardless of which party is
successful, amount to res judicata in the other.[23]
The trial courts ruling as adopted by the respondent court states, thus:
A perusal of the complaint in Civil Case No. 92-1940, entitled Cebu International Finance Corporation vs. Bank of
the Philippine Islands now pending before Branch 147 of this Court and the Third Party Complaint in the instant
case would readily show that the parties are not only identical but also the cause of action being asserted, which is
the recovery of the value of BPI Check No. 513397 is the same. In Civil Case No. 92-1940 and in the Third Party
Complaint the rights asserted and relief prayed for, the reliefs being founded on the facts, are identical.
xxx
WHEREFORE, the motion to dismiss is granted and consequently, the Third Party Complaint is hereby ordered
dismissed on ground of lis pendens.[24]
We agree with the observation of the respondent court that, as between the third party claim filed by the petitioner
against BPI in Civil Case No. 92-515 and petitioners ancillary claim against the bank in Civil Case No. 92-1940,
there is identity of parties as well as identity of rights asserted, and that any judgment that may be rendered in one
case will amount to res judicata in another.
The compromise agreement between CIFC and BPI, categorically provided that In case plaintiff is adjudged liable
to Vicente Alegre in Civil Case No. 92-515 arising from the alleged dishonor of BPI Check No. 513397, plaintiff
(CIFC) cannot go after the defendant (BPI); otherwise stated, the defendant shall not be liable to the plaintiff.[25]
Clearly, this stipulation expressed that CIFC had already abandoned any further claim against BPI with respect to
the value of BPI Check No. 513397. To ask this Court to allow BPI to be a party in the case at bar, would amount to
res judicata and would violate terms of the compromise agreement between CIFC and BPI. The general rule is that
a compromise has upon the parties the effect and authority of res judicata, with respect to the matter definitely stated
therein, or which by implication from its terms should be deemed to have been included therein.[26] This holds true
even if the agreement has not been judicially approved.[27]
WHEREFORE, the instant petition is hereby DENIED. The Decision of the Court of Appeals in CA-G.R. CV No.
44085 is AFFIRMED. Costs against petitioner.
SO ORDERED.
15
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RUEDA vs. SANDIGANBAYAN GR No. 129064 Nov. 29, 2000
[G.R. No. 129064. November 29, 2000]
JUAN A. RUEDA, JR., petitioner, vs. HONORABLE SANDIGANBAYAN and PEOPLE OF THE PHILIPPINES,
respondents.
DECISION
PARDO, J.:
The Case
The case is an appeal via certiorari from the decision of the Sandiganbayan[1] finding petitioner Juan A. Rueda, Jr.
guilty of malversation of public funds, and sentencing him to an indeterminate penalty of ten (10) years and one (1)
day of prision mayor, as minimum, to seventeen (17) years, four (4) months and one (1) day of reclusion temporal,
as maximum, to pay a fine of P107,299.02 with subsidiary imprisonment in case of insolvency,[2] and to suffer
perpetual disqualification from holding any public office, and to pay the costs, and resolution[3] denying
reconsideration.
The Charge
On April 19, 1991, Special Prosecution Officer I Gregorio G. Pimentel, Jr., Office of the Ombudsman filed with the
Sandiganbayan an information charging petitioner Juan A. Rueda, Jr., with malversation of public funds, defined and
penalized under Article 217 of the Revised Penal Code, to wit:
That on or about the period of February 8, 1989 to September 20, 1989, in Tigaon, Camarines Sur, Philippines, and
within the jurisdiction of this Honorable Court, the above-named accused, a public officer, being then the Municipal
Treasurer of Tigaon, Camarines Sur, and as such was accountable for all public funds collected and received by him
by reason of the duties of his office, taking advantage of his official position and with grave abuse of confidence, did
then and there, willfully, unlawfully and feloniously misappropriate, embezzle and convert to his own personal use
and benefit the total sum of P107,299.02, Philippine Currency, to the damage and prejudice of the Philippine
government in the amount aforesaid.[4]
Upon arraignment on November 29, 1991, petitioner entered a plea of not guilty.[5] Trial ensued.
The facts, as found by the Sandiganbayan,[6] are as follows:
16
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At times material hereto, petitioner Rueda was the municipal treasurer of Tigaon, Camarines Sur. On September 20,
1989, a team of state auditors, headed by Amparo O. Albeus, conducted an audit examination of the accountabilities
of petitioner Rueda as municipal treasurer of Tigaon, Camarines Sur, covering the period February 8, 1989 to
September 20, 1989. As a result of the audit, it was assumed that petitioner had a cash shortage of P107,299.02
(Exh. A-2). The corresponding report of cash examination was thereafter accomplished. When confronted
therewith, petitioner affixed his signature (Exh. A-1) on the certification on the dorsal portion of the report to the
effect that his accountability for the funds of the municipal government of Tigaon, Camarines Sur was correctly
stated.
On October 3, 1989, the auditors sent a formal written demand to petitioner Rueda, requiring him to immediately
produce the sum of P107,299.02, representing the shortage on his accountabilities as municipal treasurer of
Tigaon, Camarines, Sur, and to explain in writing within seventy-two (72) hours why the shortage occurred (Exh.
B). Notwithstanding receipt of the letter (Exh. B-1), petitioner failed to have the said amount forthcoming or to
tender his written explanation why the shortage occurred.
In his defense, petitioner Rueda disclaimed any criminal liability on the ground that the assumed shortage was the
result of unliquidated cash advances made by several municipal officials and employees of Tigaon, Camarines Sur,
spanning the period covered by the audit as evidenced by various chits or vales (Exhs. 11-15), and expenses of
the municipal government of Tigaon as evidenced by several disbursement vouchers (Exhs. 16, 17, 18, 20, 21, 25,
26, 27,28, 29 and 30).
Petitioner Rueda declared that the municipal officials and employees took the cash advances from the cash
collections of the municipal collectors before the cash collections, in the total amount of P41,234.71, were turned
over to him as municipal treasurer. What they turned over to him were the chits and vales evidencing such cash
advances. Although he never tolerated the practice and had verbally warned the municipal officials and employees
from making those cash advances, they continued to do so.[7]
Petitioner Rueda stressed that the cash advances were made with the consent of the municipal mayor, and had been
the practice in the municipality of Tigaon long before he assumed office as municipal treasurer. He would later on
deduct the cash advances made from their respective salaries in installment, and after they were paid, he would turn
over the amount to the office of the municipal treasurer. With respect to the subject chits and vales, petitioner
Rueda declared that after the same were paid, he turned over the amount to the office of the municipal treasurer who
then credited those payments as restitution of the shortage on his total cash accountability.[8] Thus, the debtors
themselves liquidated the cash advances and petitioners accountabilities had been fully restituted before the start of
the preliminary investigation in the office of the Ombudsman.
A day before the state auditors from the Commission on Audit conducted an audit examination of his cash
accountabilities, the internal auditors from the provincial treasurers office conducted a similar examination. This
group of internal auditors advised him not to bring the matter about vales or cash advances to the COA audit team
because they would only disallow them for lack of supporting documents. This is the reason why he did not present
the disbursement vouchers in the course of the audit conducted by the State Auditors on September 20, 1989.
17
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After the audit of September 20, 1989, petitioner Rueda began completing the supporting documents of those
disbursement vouchers. Upon completion of those vales and chits as supporting documents, he submitted the
same together with the disbursement vouchers to the in-charge-of office of the municipal treasurer, who credited the
amounts reflected on those disbursement vouchers as restitution of the shortage on his total accountability.
Consequently, petitioner Rueda stated that as of July 11, 1990, before the start of the preliminary investigation in the
Office of the Ombudsman, all his financial accountabilities had been fully restituted. The cash advances, in the form
of chits and vales amounting to P41,234.71, had been wholly paid or redeemed by their respective debtors. The
disbursement vouchers of P53,700.00 representing various legitimate expenses of the municipality of Tigaon,
Camarines Sur and the collection deposits in the amount of P12,384.06 were all liquidated. The in-charge-of office
of the municipal treasurer of Tigaon, Camarines Sur issued eight official receipts, for various amounts received from
petitioner Rueda, to wit:
1. Official Receipt No. 0382089 dated 12/14/89 for

P65,000.00
2. Official Receipt No. 0129158 (O) dated 12/29/89 for
P618.56
3. Official Receipt No. 0382090 (N) dated 1/08/90 for
P6,000.00
P12,000.00
P15,000.00
P3,000.00
7. Official Receipt No. 4846890 (P) dated 7/09/90 for
P666.40
8. Official Receipt No. 4833595 (P) dated 7/11/90 for
P5,014.06
Total
P107,299.02
A certification dated July 11, 1990, signed by Mr. Francisco N. Briguera, in-charge-of office of the municipal
treasurer of Tigaon, Camarines Sur, and verified and found correct by Melanio C. Alarcon, state auditing examiner
(Exh. 9), showed that petitioner Rueda had fully restituted the cash shortage discovered during the cash
examination. As such, petitioner claimed innocence and therefore must be acquitted.[9]
18
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On March 19, 1996, the Sandiganbayan (Third Division) promulgated its decision finding petitioner Rueda guilty
beyond reasonable doubt of malversation of public funds, defined and penalized under Article 217 (4) of the Revised
Penal Code, the dispositive portion of which reads as follows:
WHEREFORE, judgment is hereby rendered, finding the accused GUILTY beyond reasonable doubt, of the crime
of Malversation of Public Funds, under paragraph 4 of Article 217 of the Revised Penal Code and considering the
mitigating circumstance of full restitution of the amount malversed, and applying the Indeterminate Sentence Law,
this Court hereby sentences the accused to suffer an indeterminate penalty of imprisonment for a period of TEN
(10) YEARS and ONE (1) DAY of prision mayor, as minimum, to SEVENTEEN (17) YEARS, FOUR (4)
MONTHS and ONE (1) DAY reclusion temporal, as maximum; to pay a fine of P107,299.02 with subsidiary
imprisonment in case of insolvency, and to suffer perpetual special disqualification from holding any public office;
and to pay the costs.
SO ORDERED.
Manila, Philippines, January 25, 1996.[10]
On March 29, 1996, petitioner filed with the Sandiganbayan a motion for reconsideration of the decision.[11]
However, on May 07, 1997, the Sandiganbayan found the motion not meritorious and denied the same.[12]
The Appeal
Hence, this appeal.[13]
Issues
(1) Is petitioner liable for malversation of public funds due to a shortage of P107,299.02 which consisted of
chits and vales evidencing cash advances from cash collections of the municipal collectors before these were
turned over to petitioner municipal treasurer as part of his accountability?
19
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(2) Is he presumed to have put the missing public funds to his personal use or allowed others to take such funds
when it is an admitted fact that the cash advances were given by the municipal collectors from their cash collections,
not from funds in the custody of petitioner?
Petitioner submits that the Sandiganbayan erred:
(1) In finding that the rulings in Villacorta v. People, 145 SCRA 425 [1986] and Quizo v. Sandiganbayan, 149 SCRA
108 [1987] do no apply to the case at bar as they have been reversed by the pronouncement in Meneses v.
Sandiganbayan, 232 SCRA 441 [1994] which relied on the ruling in Cabello v. Sandiganbayan, 197 SCRA 94
[1991];
(2) In rejecting petitioners submission that the evidence must be appreciated under the rulings in Villacorta and
Quizo, as the events occurred when the prevailing doctrines were the rulings in Villacorta and Quizo;
(3) In not finding that he succeeded to overthrow the prima facie evidence of conversion/misappropriation under
Article 217 of the Revised Penal Code;
(4) In rejecting petitioners explanation as regards the disbursement vouchers and collection deposits such that they
do not make out a criminal offense.[14]
Actually, the issues really boil down to whether or not petitioner has incurred a shortage in his cash accountability
as municipal treasurer of the municipality of Tigaon, Camarines Sur.
The Courts Ruling
We sustain petitioners submissions primarily because he did not take or misappropriate or through abandonment or
negligence, permit any other person to take or malverse public funds or property in his custody for which he is
accountable. He did not put public funds to his personal use. He was able to properly explain and account fully
for his cash accountability of public funds upon demand by the auditors. The assumed shortage does not exist and
in any event has been restituted in full.
Generally, the factual findings of the Sandiganbayan are conclusive on the Court. However, there are established
exceptions to that rule, such as, sans preclusion, when (1) the conclusion is a finding grounded entirely on
speculation, surmise and conjecture; (2) the inference made is manifestly an error or founded on a mistake; (3) there
is grave abuse of discretion; (4) the judgment is based on misapprehension of facts; and (5) the findings of fact are
premised on the absence of evidence and are contradicted by evidence on record.[15] In these instances, this Court is
bound to review the facts in order to avoid a miscarriage of justice.[16] The instant case falls within such exceptions.
20
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Considering the evidence on record, we find that the Sandiganbayan convicted petitioner on probabilities and
conjecture, not on hard facts duly established.[17] We are thus justified to re-examine, as we do, the evidence.
After an assiduous scrutiny, we find petitioner not guilty of malversation of public finds. The Sandiganbayan found
that petitioner admitted his accountability and failed to have duly forthcoming his cash shortage in the amount of
P107,299.02 with which he is chargeable, and that he did not tender the required written explanation as to why the
shortage was incurred. His failure to do so instantly created a prima facie evidence pursuant to the last paragraph of
Article 217 of the Revised Penal Code that he had put such missing funds to personal use.
We disagree. Petitioner did not admit any shortage. The mere fact that he signed the dorsal side of the report of
cash examination is not an admission of shortage. His signature was only evidence that he received a copy of the
report. Thus, it is incorrect to say that petitioner admitted his shortage when he signed the audit report prepared by
the audit team.[18] For one thing, he was made to sign it right away; for another, his signature only meant an
acknowledgment that a demand from him to produce all his cash, money and paid vouchers had been made. It did
not mean that he admitted any shortage. In fact, subsequent events showed that he had fully explained his
accountability. Thus, he satisfactorily explained the shortage.[19] In other words, there was no direct evidence or
proof that he put public funds to personal use.[20] When absence of funds was not due to personal use, the
presumption is completely destroyed.[21] The taking or conversion of public funds for personal use must be
affirmatively proved.[22] When there is no shortage, taking, appropriation, conversion or loss, there is no
malversation.[23]
The crime of malversation of public funds is defined and penalized as follows:
ART. 217. Malversation of public funds or property - Presumption of malversation.- Any public officer who, by
reason of the duties of his office, is accountable for public funds or property, shall appropriate the same, or shall take
or misappropriate or shall consent, or through abandonment or negligence, shall permit any other person to take such
public funds or property, wholly or partially, or shall otherwise be guilty of the misappropriation or malversation of
such funds or property, xxx.
xxx xxx
xxx
The failure of the public officer to have duly forthcoming such public funds or property, upon demand by a duly
authorized officer, shall be prima facie evidence that he has put such missing funds or property to personal
use.[24]
The elements of malversation, essential for the conviction of an accused, under the above penal provision are that:
21
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(a) the offender is a public officer;
(b) he has the custody or control of funds or property by reason of the duties of his office;
(c) the funds or property involved are public funds or property for which he is accountable; and
(d) he has appropriated, taken or misappropriated, or has consented to, or through abandonment or negligence
permitted, the taking by another person of, such funds or property.[25]
The felony involves breach of public trust, and whether it is committed through dolo or culpa the law makes it
punishable and prescribes a uniform penalty therefor. Even when the information charges willful malversation,
conviction for malversation through negligence may still be adjudged if the evidence ultimately proves that mode of
commission of the offense.[26]
Concededly, the first three elements are present in this case. It is the last element, i.e., whether or not petitioner
really has misappropriated public funds, where the instant petition focuses itself. In convicting petitioner, the
Sandiganbayan cites the presumption in Article 217 of the Revised Penal Code that the failure of a public officer to
have duly forthcoming any public funds with which he is chargeable, upon demand by any duly authorized officer,
shall be prima facie evidence that he has put such missing funds or property to personal uses. The presumption is,
of course, rebuttable. Accordingly, if the accused is able to present adequate evidence that can nullify any likelihood
that he had put the funds or property to personal use, then that presumption would be at an end and the prima facie
case is effectively negated. This Court has repeatedly said that when the absence of funds is not due to the personal
use thereof by the accused, the presumption is completely destroyed; in fact, the presumption is deemed never to
have existed at all.[27]
The prosecution, upon whose burden was laden the task of establishing by proof beyond reasonable doubt that
petitioner had committed the offense charged, mainly relied on the statutory presumption aforesaid and failed to
present any substantial piece of evidence to indicate that petitioner had used the funds for personal gain. The
evidence submitted, just to the contrary, would point out that not a centavo of the so-called missing funds was
spent for personal use x x x.[28]
In Salamera v. Sandiganbayan,[29] we emphatically declared that the 4th element requires that a public officer
must take public funds, money or property, and misappropriate it to his own private use or benefit. There must be
asportation of public funds or property, akin to the taking of anothers property in theft. The funds, money or
property taken must be public funds or private funds impressed with public attributes or character for which the
public officer is accountable.
We are convinced that the evidence in this case has not proved beyond reasonable doubt that petitioner is guilty of
malversation of public funds.
22
Choco Notes
We explain why. To begin with, there was no evidence of cash shortage. The letter of demand dated October 3,
1989 (Exh. B-1) to petitioner for him to produce immediately the missing funds in the total amount of
P107,299.02 and to submit within seventy-two hours why the shortage occurred, states:
x x x It was found that your cash was short of P107,229.02.
This shortage was arrived at as follows:
Accountability:
Balance per audit as of Sept. 20, 1989

Certified correct by you.
General Fund
Infrastructure Fund
P165,078.78
39,904.77
Special Education
Fund
28,398.29
Trust Fund
10,983.84
Balgu Fund
33,128.60
P277,494.28
Credit to accountability:
Cash and valid cash items produced

by you and counted by us
Shortage
P170,195.26
P107,229.02[30]
The auditors finding of a cash shortage is definitely wrong. In fact and under accounting principles, there is no
cash shortage. The cash and other valid cash items were produced by petitioner and counted by the auditors in the
total amount of P170,195.26. The amount is intact in cash. The assumed shortage of P107,229.02 represented
vales, chits and disbursement vouchers considered as part of the general fund. This is an auditing error. It is
a generally accepted auditing principle that cash means cash on hand or in bank. Standard text in accounting
defines Cash as consisting of those items that serve as a medium of exchange and provide a basis for accounting
measurement. To be reported as cash, an item must be readily available and not restricted for use in the payment
23
Choco Notes
of current obligations. A general guideline is whether an item is acceptable for deposit at face value by a bank or
other financial institution.
Items that are classified as cash include coin and currency on hand, and unrestricted funds available on deposit in a
bank, which are often called demand deposits since they can be withdrawn upon demand. Petty cash funds or
change funds and negotiable instruments, such as personal checks, travelers checks, cashiers checks, bank drafts,
and money orders are also items commonly reported as cash. The total of these items plus undeposited coin and
currency is sometimes called cash on hand. Interest-bearing accounts, or time deposits, also are usually classified as
cash, even though a bank legally can demand prior notification before a withdrawal can be made. In practice, banks
generally do not exercise this legal right.
Deposits that are not immediately available due to withdrawal or other restrictions require separate classification as
restricted cash or temporary investments. They are not cash.[31]
In short, there was no shortage on petitioners cash accountability. Evidence of shortage is necessary before there
could be any taking, appropriation, conversion, or loss of public funds that would amount to malversation.[32] The
law requires that the shortage must be clearly established as a fact that over and above the funds found by the
auditors in the actual possession of the accountable officers, there is an additional amount which could not be
produced or accounted for at the time of audit.
In this case, there was absolutely no shortage as to petitioners cash accountability. The auditors mistakenly
included as cash items collectibles in the form of vales and chits and disbursement vouchers for legitimate
expenses of the municipality.
An accountable officer under Article 217 of the Revised Penal Code must receive money or property of the
government which he is bound to account for. It is the nature of the duties of, not the nomenclature used for, or the
relative significance of the title to, the position, which controls in that determination.[33]
Based on this definition, to be held accountable the public officer must receive the money or property, and later fails
to account for it. When a public officer is asked to account for the cash in his accountability, this necessarily means
that he has to produce the cash in bills and coins and other cash items that he received. It does not include
collectibles and receivables or even promissory notes.
Petitioner Rueda did not receive the money (cash), which he was supposed to produce or account for at the time of
the audit.[34] In fact, the audit team found that sum of P170,195.26 intact in bills and notes. Nonetheless, the
auditors declared a shortage because petitioner Rueda could not produce as cash items the collectibles and
receivables in the form of chits and vales and disbursement vouchers for legitimate expenses of the municipality.
This is an auditing error because the collectibles and receivables are not cash items. The money did not reach the
hands of petitioner. Therefore, it is not part of his cash accountability.
24
Choco Notes
The amount of P107,299.02, was divided as follows: (1) P41,234.71 representing the chits and vales taken by the
municipal officials and employees from the municipal collections prior to the remittance of these cash collections to
petitioner; (2) P53,700.00 representing the legitimate expenses of the municipality subject to liquidation; and (3)
P12,384.06 unsettled cash collections.
With regard to the P41,234.71 cash advances, petitioner did not receive the cash nor gave the cash advances for they
were taken from the cash collections of the municipal collectors before the cash collections were turned over to him.
Q: The cash collections of the municipal collectors from which the chits and vales, from which the amount
represented by the chits and vales are made by the municipal employees and officials, from the amount covered by
those chits and vales were already turned over to you or not yet, when the chits and vales were made?
A: They were not yet turned over to me, sir. The employees have their cash advances from the municipal
collectors before their cash collections were turned over to me. So, I got only the chits or vales; the cash was not yet
turned over to me.[35]
Clearly, petitioner Rueda did not receive the above-mentioned amount at the time of the audit.[36] In fact, no cash
was ever given or turned over to petitioner. At any rate, the respective debtors, not the petitioner, wholly redeemed
the cash advances and vales amounting to P41,234.71, to wit:[37]
Q: Where are now those chits and/or vales covering those cash advances?
A: Those chits and vales were redeemed by the employees and then, some of them were redeemed by the employees
and then, as I accumulated the amount, I turned it over, the cash, I turned it over to the In-Charge of Office and then,
issued an official receipt for the amount and credited against my shortage as restitution.[38]
As heretofore stated, in Salamera vs. Sandiganbayan,[39] we ruled that one essential element of malversation is that
a public officer must take public funds, money or property, and misappropriate it to his own private use or benefit.
There must be asportation of public funds or property, akin to the taking of anothers property in theft. Hence, how
can there be taking or misappropriation when the funds did not even reach the hands or custody of petitioner Rueda?
As regards the amount of P P53,700.00, these referred to legitimate expenses of the municipality. At the time of the
audit, petitioner failed to present the vouchers for these legitimate expenses because they lacked documents in
support of the vouchers, to wit:
Q: You mentioned about these vouchers. What are these vouchers that you mentioned?
25
Choco Notes
A: May I refer to my list, Your Honor.
AJ DEL ROSARIO:
The witness may refresh his memory.
WITNESS: These vouchers, there are 11 of them, from the Will Print, one voucher from the printing realty taxes,
tax declaration, I mean; and, another two vouchers from the same Will Print, for printing also the Real Tax
Declaration; third voucher is from Angel Bongulto, cash advance for Manila to get the law books and references
from the Supreme Court for the RTC, Branch 30, at Tigaon, Cam. Sur; one voucher is for Kagawad Redito Clario,
cash advance for seminar workshop for the municipal kagawad at Los Baos, Laguna; another voucher is for
Orlando Asiado, cash advance for supporting the athletic uniform of the municipal team for the Summer Basketball
Tournament; next voucher is for Hector Bongat, cash advance for constructing 50 pieces market stalls, and, next is
Leo Cea, a cash advance for the summer basketball tournament referees; next voucher is for Mayor Eleonor Lelis,
cash advance in going to Manila, with the INP Station Commander and 3 Patrolmen to get our Fire truck for the
municipality; next voucher is for Leonida Peaflor, a cash advance for the terminal leave of her deceased husband,
my assistant municipal treasurer, Domingo Peaflor; next voucher is for Arturo Pascua, cash advance for delivering
sand and gravel for the cementing of a municipal street and the last is for Iigo Zape, cash advance for COLA.
These were the unsubmitted vouchers, sir.
Q: You said, you did not present these vouchers during the audit by the COA team because these lack supporting
documents and you were advised by the internal audit team not to present them anymore because there will be, for
sure, is lacking. [sic] Can you still recall what supporting documents were lacking to these vouchers, for which
reason you did not present them, if you can still recall the supporting documents lacking?
A: Some of them lacks the canvass paper; some of them were partially paid but also lacking supporting papers,
sir.[40]
After the audit, petitioner prepared the supporting documents that these vouchers lacked and turned them over to the
in-charge-of office who replaced him, Mr. Francisco Briguera.[41]
Petitioner satisfactorily explained the unsettled cash collection deposits in the amount of P12,384.06. This amount
represented the cash collections of the market collectors, which had been turned over to the invoicing officer of the
treasury, Mrs. Delicias Galvante. During the audit examination, this amount had been reflected as unaccounted
because it lacked some requirements, such as the labor payroll. It was only after the audit examination that the
invoicing officer turned over the labor payroll corresponding to the amount of P6,000.00. The remainder of the
P12,384.06 was given as cash advances in the form of chits and vales, which had been taken from the collections,
again, prior to its remittance to petitioner.
26
Choco Notes
Hence, petitioner satisfactorily explained the cash shortages found in his accountability at the time of the audit
examination. No portion of his cash accountability has been malversed by him or put to his personal use.[42]
In Meneses vs. Sandiganbayan,[43] the Court reiterated an earlier ruling in Cabello v. Sandiganbayan,[44] that the
practice of disbursing public funds under the vale system is not a meritorious defense in malversation cases. The
grant of loans through the vale system is a clear case of an accountable officer consenting to the improper or
unauthorized use of public funds by other persons, which is punishable by law. To tolerate such a practice is to give
a license to every disbursing officer to conduct a lending operation with the use of public funds.
However, the ruling in Cabello and Meneses cannot be applied to the case at bar. The circumstances obtaining in
those cases are not present in the case at bar. An important moiety in the instant case is that petitioner did not grant
the cash advances or vales to the municipal officials. They took the cash advances from the collections of the
municipal collectors. However, they restored or liquidated the amounts prior to the conduct of preliminary
investigation before the office of the Ombudsman. The liquidation was done, not by petitioner, but by the respective
debtors. Liquidation simply means the settling of indebtedness.[45]
Liquidation does not necessarily signify payment, and to liquidate an account, can mean to ascertain the balance
due, to whom it is due, and to whom it is payable; hence, an account that has been liquidated can also mean that the
item has been made certain as to what, and how much, is deemed to be owing.[46]
Neither can petitioner Rueda be considered guilty of passive malversation. He did not tolerate the practice of
making cash advances by the municipal officials and employees. He warned them about the illegality of such
practice. However, he was helpless about the situation because it was done with the consent of the municipal mayor.
They were not indicted for malversation. Why? The prosecution did not explain. The Sandiganbayan did not even
inquire. Instead of the cash collections being remitted to petitioner, pieces of paper called chits or vales were
given as evidence of the cash advances. He never had the opportunity to disburse public funds under the vale
system, for in the first place, the public funds were not turned over to him.
Consequently, the prima facie evidence that public funds have been put to the personal use of petitioner has been
obliterated by the fact that he did not receive the money as municipal treasurer. In Zambrano v. Sandiganbayan,[47]
we said that if the accused did not receive the public funds, there was no malversation. In Diaz vs. Sandiganbayan,
[48] we held that when the absence of funds is not due to the personal use thereof by the accused, the presumption is
completely destroyed; in fact, the presumption is deemed never to have existed at all.
In malversation, it is necessary to prove that the accused received public funds, and that he could not account for
them and did not have them in his possession and that he could not give a reasonable excuse for the disappearance of
the same.[49] In this case, the prosecution failed to establish this important element of malversation. In fact, it did
not really exist. Petitioner gave a reasonable and satisfactory explanation of his cash accountability of public funds
that were duly liquidated. The Court must not reject arbitrarily an explanation consistent with the presumption of
innocence.[50]
27
Choco Notes
In Narciso v. Sandiganbayan,[51] we said that where there is no evidence whatever that over and above the funds
found by the auditors in his actual possession, Narciso had received the additional amount of P14,500.00, which he
could no longer produce or account for at the time of the audit, there being no shortage, there has been no taking,
appropriation, conversion, or loss of public funds; there is no malversation. We could very well be speaking of the
case of petitioner Rueda.
In our criminal justice system, the overriding consideration is not whether the court doubts the innocence of the
accused but whether it entertains a reasonable doubt as to his guilt. This determinant, with the constitutional
presumption of innocence which can be overthrown only by the strength of the prosecutions own evidence proving
guilt beyond reasonable doubt, irresistibly dictate an exoneration in this case.[52]
The evidence against petitioner is not enough to engender moral certainty of his guilt. This moral certainly is that
which convinces and satisfies the conscience of those who are to act upon it.[53]
Accordingly, the presumption of innocence which the Constitution guarantees the petitioner has remained
untarnished in this case for want of proof to the contrary. It is safely entrenched in our jurisprudence that unless the
prosecution discharges its burden to prove the guilt of an accused beyond reasonable doubt, the latter need not even
offer evidence in his behalf.[54]
The prosecution must overthrow the presumption of innocence with proof of guilt of the accused beyond
reasonable doubt. The proof against him must survive the test of reason; the strongest suspicion must not be
permitted to sway judgment.[55] Even if the defense is weak, the case against the accused must fail if the
prosecution is even weaker, for the conviction of the accused must rest not on the weakness of the defense but on the
strength of the prosecution.[56]
In order to convict an accused, the circumstances of the case must exclude all and each and every hypothesis
consistent with his innocence.[57]
In conclusion, we find that the guilt of the petitioner has not been proved beyond reasonable doubt. The petitioner
must be acquitted. Every accused is presumed innocent until the contrary is proved; that presumption is solemnly
guaranteed by the Bill of Rights. The contrary requires proof beyond reasonable doubt, or that degree of proof,
which produces conviction in an unprejudiced mind. Short of this, it is not only the right of the accused to be freed;
it is even the constitutional duty of the court to acquit him.[58]
The Fallo
28
Choco Notes
WHEREFORE, the petition is GRANTED and the decision of respondent SANDIGANBAYAN promulgated on
March 19, 1996 and the resolution adopted on May 7, 1997 are REVERSED and SET ASIDE. Petitioner JUAN A.
RUEDA, JR. is hereby ACQUITTED on reasonable doubt of the charge of malversation of public funds, defined
and penalized under Article 217 (4) of the Revised Penal Code. His bail bond is ordered cancelled.
Costs de oficio.
SO ORDERED.
BARRETTO vs. CA GR No. 132362 June 28, 2001
[G.R. No. 132362. June 28, 2001]
PIO BARRETTO REALTY DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS, JUDGE
PERFECTO A. S. LAGUIO, JR., RTC-Branch 18, Manila, and HONOR P. MOSLARES, respondents.
DECISION
BELLOSILLO, J.:
This petition for review on certiorari assails the Decision dated 30 June 1997 of the Court of Appeals in CA-G.R. SP
No. 33982, "Pio Barretto Realty Development Corporation v. Hon. Perfecto A. Laguio, et al.," which dismissed the
special civil action for certiorari filed by petitioner, as well as its Resolution dated 14 January 1998 denying
reconsideration.
On 2 October 1984 respondent Honor P. Moslares instituted an action for annulment of sale with damages before the
Regional Trial Court of Manila against the Testate Estate of Nicolai Drepin represented by its Judicial Administrator
Atty. Tomas Trinidad and petitioner Pio Barretto Realty Development Corporation. Moslares alleged that the Deed
of Sale over four (4) parcels of land of the Drepin Estate executed in favor of the Barretto Realty was null and void
on the ground that the same parcels of land had already been sold to him by the deceased Nicolai Drepin. The case
was docketed as Civil Case No. 84-27008 and raffled to respondent Judge Perfecto A. S. Laguio, Jr., RTC-Br. 18,
Manila.
On 2 May 1986 the parties, to settle the case, executed a Compromise Agreement pertinent portions of which are
quoted hereunder -
1. The Parties agree to sell the Estate, subject matter of the instant case, which is composed of the following real
estate properties, to wit:
29
Choco Notes
a. Three (3) titled properties covered by TCT Nos. 50539, 50540 and 50541[1] of the Registry of Deeds for the
Province of Rizal, with a total area of 80 hectares, more or less, and
b. Untitled Property, subject matter of (a) Land Registration Case No. 1602 of the Regional Trial Court, Pasig, Metro
Manila, with an area of 81 hectares, more or less,
subject to the following situations and conditions, to wit:
a. If plaintiff Honor P. Moslares x x x buys the property, he is under obligation, as follows:
1. To reimburse and pay Defendant Pio Barretto Realty Development Corporation, represented by Anthony Que, its
capital investment of Three Million Pesos (P3,000,000.00), Philippine Currency, and
2. To pay the Estate of Nicolai Drepin, represented by the Judicial Administrator, Atty. Tomas Trinidad, the sum of
One Million Three Hundred Fifty Thousand (P1,350,000.00) Pesos, Philippine Currency
b. If defendant Pio Barretto Realty Development Corporation, represented by Mr. Anthony Que x x x continue[s] to
buy the property, it shall pay for the interests of plaintiff Honor P. Moslares:
1. The sum of One Million (P1,000.000.00) Pesos, Philippine Currency to plaintiff Honor P. Moslares personally
and
2. Pay to the Estate of Nicolai Drepin, through the Judicial Administrator, Atty. Tomas Trinidad, the balance of the
agreed purchase price subject to negotiation and verification of payments already made.
2. In the event that plaintiff Honor P. Moslares buys the Estate and pays in full the amount of Three Million
(P3,000,000.00) Philippine Currency to defendant Pio Barretto Realty Development Corporation, and the full sum of
One Million Three Hundred Fifty Thousand (P1,350,000.00) Pesos, Philippine Currency, to the Estate of Nicolai
Drepin, through Atty. Tomas Trinidad, defendant Pio Barretto shall execute the corresponding Deed of Conveyance
in favor of plaintiff Honor P. Moslares and deliver to him all the titles and pertinent papers to the Estate.
IN WITNESS WHEREOF, the parties hereto hereby sign this Compromise Agreement at Manila, Philippines,
this 2nd day of May 1986 x x x x
xxxx
xxxx
30
Choco Notes
On 24 July 1986 the trial court rendered a decision approving the Compromise Agreement.[2] However, subsequent
disagreements arose on the question of who bought the properties first.
It must be noted that the Compromise Agreement merely gave Moslares and Barretto Realty options to buy the
disputed lots thus implicitly recognizing that the one who paid first had priority in right. Moslares claimed that he
bought the lots first on 15 January 1990 by delivering to Atty. Tomas Trinidad two (2) PBCom checks, one (1) in
favor of Barretto Realty for P3 million, and the other, in favor of the Drepin Estate for P1.35 million.
But petitioner Barretto Realty denied receiving the check. Instead, it claimed that it bought the properties on 7
March 1990 by tendering a Traders Royal Bank Manager's Check for P1million to Moslares, and a Far
East Bank and Trust Company Cashier's Check for P1 million and a Traders Royal Bank Manager's Check for
P350,000.00 to Atty. Tomas Trinidad as Judicial Administrator of the Estate. However, Moslares and Atty. Trinidad
refused to accept the checks.
Consequently, Barretto Realty filed a motion before the trial court alleging that it complied with its monetary
obligations under the Compromise Agreement but that its offers of payment were refused, and prayed that a writ of
execution be issued to compel Moslares and Atty. Trinidad to comply with the Compromise Agreement and that the
latter be directed to turn over the owner's duplicate certificates of title over the lots.
On 10 May 1990[3] Judge Laguio, Jr. ordered that "a writ of execution be issued for the enforcement of the decision
of this Court for the parties to deposit with this Court, thru the City Treasurer's Office of Manila, their respective
monetary obligations under the compromise agreement that had been executed by them x x x x"
Reacting to the order, Atty. Trinidad for the Estate filed an urgent motion to hold the execution in abeyance on the
ground that there was another case involving the issue of ownership over subject lots pending before the Regional
Trial Court of Antipolo City. Moslares in turn filed a motion for reconsideration while Barretto Realty moved to
amend the order since the lower court did not exactly grant what it prayed for.
On 14 June 1990, ruling on the three (3) motions, Judge Laguio, Jr., issued his Order -
Considering Defendant Judicial Administrator's urgent motion to hold in abeyance x x x the plaintiff's motion for
reconsideration, and the Defendant Pio Barretto Realty Development, Inc.'s opposition to both motions x x x this
Court finds the two motions without merit and are accordingly, denied.
As regards Pio Barretto Realty Development, Inc.'s ex-parte motion to amend order x x x the same is hereby granted
and the deputy sheriff of this Court is allowed to deliver to the parties concerned thru their counsels the bank
certified checks mentioned in par. 2 of the motion (underscoring ours).[4]
31
Choco Notes
On 20 June 1990 Deputy Sheriff Apolonio L. Golfo of the RTC-Br. 18, Manila, implemented the order by personally
delivering the checks issued by Barretto Realty in favor of Moslares and the Estate to Atty. Pedro S. Ravelo, counsel
for Moslares, and to Atty. Tomas Trinidad, respectively, as recorded in a Sheriff's Return dated 25 June 1990.[5]
However, on 17 September 1993, or more than three (3) years later, Moslares filed a Motion for Execution alleging
that he bought the lots subject of the Compromise Agreement on 15 January 1990 and that he paid the amounts
specified as payment therefor. He asked that Barretto Realty be directed to execute a deed of conveyance over
subject lots in his favor. In a Supplement to his motion Moslares contended that the previous tender of the checks
by Barretto Realty did not produce the effect of payment because checks, according to jurisprudence, were not legal
tender.
Respondent Judge granted Moslares' Motion for Execution. Consequently, on 8 November 1993 Barretto Realty
was ordered to execute a deed of conveyance over the subject lots in favor of Moslares.
Aggrieved, Barretto Realty moved for reconsideration alleging that respondent Judge could no longer grant
Moslares' motion since the prior sale of subject lots in its favor had already been recognized when the court sheriff
was directed to deliver, and did in fact deliver, the checks it issued in payment therefor to Moslares and Atty.
Trinidad.
On 7 December 1993 respondent Judge granted the motion of Barretto Realty for reconsideration and ruled -
Considering the motion for reconsideration and to quash writ of execution filed by defendant Pio Barretto Realty
Corporation, Inc., dated 16 November 1993, together with the plaintiff's comment and/or opposition thereto, dated
18 November 1993, and the movant's reply to the opposition etc., dated 20 November 1993, this Court finds the
motion well taken. The record shows that on 10 May 1990, a writ of execution was issued by this Court for the
parties to deposit with the Court, thru the City Treasurer's Office of Manila, their respective monetary obligations
under the compromise agreement that they had executed, and that it was only defendant Pio Barretto Realty
Corporation Inc. that had complied therewith, per the return of this Court's deputy sheriff, Apolonio L. Golfo, dated
June 25, 1990. Such being the case, Defendant Pio Barretto Realty Corporation Inc., is the absolute owner of the
real properties in question and the issue on such ownership is now a closed matter.
WHEREFORE, Defendant Pio Barretto Realty Corporation Inc.'s motion for reconsideration etc., dated November
16, 1993, is hereby granted; this Court's order, dated November 8, 1993, is reconsidered and set aside, and the writ
of execution of the same date against Defendant Pio Barretto Realty Corporation Inc. is ordered quashed
(underscoring ours).[6]
Within a reglementary period Moslares moved to reconsider insisting that Barretto Realty's payment by check was
not valid because (a) the check was not delivered personally to him but to his counsel Atty. Pedro Ravelo, (b) the
check was not encashed hence did not produce the effect of payment; and, (c) the check was not legal tender per
judicial pronouncements. Barretto Realty opposed the motion, but to no avail. On 11 February 1994 respondent
Judge granted the motion for reconsideration and set aside his Order of 7 December 1993. Judge Laguio ruled that
32
Choco Notes
Barretto Realty's payment through checks was not valid because "a check is not legal tender and it cannot produce
the effect of payment until it is encashed x x x x the check in question has neither been negotiated nor encashed by
the plaintiff."[7] At the same time, however, Moslares' alleged payment of P3,000,000.00 on 15 January 1990
intended for Barretto Realty but delivered to Atty. Tomas Trinidad was likewise decreed as not valid because the
latter was not authorized to accept payment for Barretto Realty.
Invoking interest of justice and equity, respondent Judge resolved to: (a) set aside its ruling contained in its order
of 7 December 1993 that "(d)efendant Pio Barretto Realty Corporation, Inc., is the absolute owner of the property in
question and the issue on such ownership is now a closed matter;" (b) order the plaintiff (should he desire to
exercise his option to buy the real property in question) to pay defendant Pio Barretto Realty Corporation, Inc., the
sum of P3,000,000.00 within five (5) days from notice thereof by way of reimbursement of the latter's capital
investment; and, (c) order defendant Pio Barretto Realty Development Corporation, Inc., to pay the plaintiff (in the
event the latter should fail to exercise his said option and the former would want to buy the real property in question)
the sum of P1,000,000.00.
But Moslares failed to exercise his option and pay the amount within the five (5)-day period granted him. Instead,
he filed a Supplemental Motion to Pay praying that he be given additional seven (7) days within which to do so.
Barretto Realty opposed and invoked par. 3 of the Order of 11 February 1994 granting it the option to buy the lots in
the event that Moslares should fail to pay within the period given him. Barretto Realty prayed that the P1 million
cashier's check still in Moslares' possession be considered as sufficient compliance with the pertinent provision of
the court's order. Later, Barretto Realty offered to exchange the check with cash. When Moslares did not appear
however at the designated time for payment on 10 March 1994 before the Branch Clerk of Court, Barretto Realty
filed a motion for consignation praying that it be allowed to deposit the P1,000,000.00 payment with the cashier of
the Office of the Clerk of Court.
Respondent Judge however failed to act on the motion as he went on vacation leave. For reasons which do not
clearly appear in the record, Judge Rosalio G. dela Rosa, Executive Judge of the RTC, Manila, acted on the motion
and granted the prayer of Barretto Realty.[8] Upon the return of respondent Judge Laguio from his vacation,
petitioner Barretto Realty immediately filed a motion for his inhibition on the ground that he had already lost the
cold neutrality of an impartial judge as evident from his "seesaw" orders in the case. On 28 March 1994 respondent
Judge denied the motion for his inhibition. Moslares for his part moved for reconsideration of Executive Judge dela
Rosa's Order of 10 March 1994.
On 15 April 1994, in a Consolidated Order, respondent Judge Laguio set aside the questioned order of Executive
Judge dela Rosa on the ground that the motion for consignation should have been referred to the pairing judge of
Branch 18, Judge Zenaida Daguna of Branch 19. Respondent Judge further ruled that the questioned order was
premature since there were pending motions, namely, Moslares' Supplemental Motion to Pay dated 1 March 1994,
and Motion to Deposit dated 9 March 1994 which were both filed earlier than Barretto Realty's Motion for
Consignation which however remained unresolved.
Respondent Judge Laguio found Moslares' motions meritorious and granted them. Moslares was thus given a nonextendible grace period of three (3) days within which to pay the P3,000,000.00 to Barretto Realty. Moslares then
deposited the amount with the Branch Clerk of Court of Br. 18 within two (2) days from receipt of the order of
respondent Judge, and on 25 April 1994 filed a motion for the Clerk of Court to be authorized to execute the
necessary deed of conveyance in his favor.
33
Choco Notes
On 2 May 1994 Barretto Realty filed a petition for certiorari and prohibition with prayer for a temporary restraining
order and/or preliminary injunction with the Court of Appeals assailing the Orders of respondent Judge dated 28
March 1994 and 15 April 1994 on the ground that they were issued with grave abuse of discretion.
Meanwhile, on 12 October 1994 or during the pendency of the petition, respondent Judge granted Moslares' motion
and authorized the Clerk of Court to execute the deed of conveyance in his favor. The implementation of the order
however was enjoined by the Court of Appeals on 9 December 1994 when it issued a writ of preliminary injunction
barring the issuance of the writ until further orders from the court.
In its Petition and Memorandum petitioner specifically alleged that respondent Judge's Orders of 8 November 1993,
[9] 11 February 1994,[10] 15 April 1994,[11] and 12 October 1994[12] were all issued with grave abuse of
discretion as the trial court had no more jurisdiction to issue such orders since the Compromise Agreement of 2 May
1986 which was the basis of the decision of 24 July 1986 had already been executed and implemented in its favor
way back on 20 June 1990.
Petitioner likewise contended that the Order of 28 March 1994[13] denying petitioner's motion for inhibition was
void because it did not state the legal basis thereof; that respondent Judge displayed obvious bias and prejudice
when he issued "seesaw" orders in the case; and, that the bias in favor of Moslares was apparent when respondent
Judge granted the former another three (3)-day period within which to pay the P3 million notwithstanding the fact
that Moslares failed to comply with the original five (5)-day period given him. With respect to Executive Judge dela
Rosa's Order of 10 March 1994, petitioner contended that there was no rule of procedure prohibiting the Executive
Judge from acting on an urgent motion even if the pairing judge of the judge to whom the case was raffled was
present.
The Court of Appeals dismissed the petition. It ruled that the denial by respondent Judge of the motion for his
inhibition was not tainted with grave abuse of discretion correctible by certiorari. Aside from the fact that judges are
given a wide latitude of discretion in determining whether to voluntarily recuse themselves from a case, which is not
lightly interfered with, the appellate court however observed that the orders and resolutions issued by respondent
Judge in the five (5) years he had been presiding over Civil Case No. 84-27008 indicated that they were not
uniformly issued in favor of one or the other party. As petitioner itself aptly described, respondent Judge's
actuations in the case "seesawed" between the parties.
On the matter of the validity of Judge dela Rosa's Order of 10 March 1994 granting petitioner's motion for
consignation, the Court of Appeals ruled that the order was precipitate and unauthorized not only because the motion
did not comply with the requisites for litigated motions but also because Judge dela Rosa had no judicial authority to
act on the case. His duties as Executive Judge were purely administrative and did not include acting on a case
assigned to another judge.
With respect to the two (2) writs of execution, one dated 10 May 1990 in favor of petitioner, and the other dated 11
February 1994 in favor of respondent, the Court of Appeals ruled -
34
Choco Notes
Lastly, anent the existence of two writs of execution, first one for petitioner and the second for Moslares which the
former has repeatedly cited as capricious and whimsical exercise of judicial discretion by respondent Judge, the
records reveal that on 10 May 1990 a writ of execution was issued in favor of the petitioner upon its motion. For
reasons of its own, petitioner did not pursue its effective and fruitful implementation in accordance with the decision
based on a compromise agreement, spelling out the respective monetary obligations of petitioner and Moslares.
Hence, after the lapse of at least one year, Moslares filed a motion for execution of the same decision x x x x [I]t
cannot be said that respondent Judge issued two conflicting orders sans any legal basis. What really happened was
that the matter of the first order granting execution in favor of petitioner was repeatedly put at issue until the order of
the court dated 11 February 1994 x x x x Observedly, the said order was never elevated by petitioner to the appellate
courts. Instead, he agreed with it by filing a "Manifestation and Motion on 01 March 1994 praying that the P1
Million Cashier's Check still in the possession of Moslares be considered compliance with paragraph 3 of that order
xxxx
On 14 January 1998 petitioner's motion for reconsideration was denied; hence, this petition.
Petitioner contends that the Court of Appeals erred (a) in concluding that petitioner did not pursue the effective and
fruitful implementation of the writ of execution dated 10 May 1990 in its favor, (b) in not setting aside Judge
Laguio's Orders dated 11 February 1994, 15 April 1994 and 12 October 1994 as patent nullities, and, (c) in
disregarding jurisprudence declaring that cashier's or manager's checks are deemed cash or as good as the money
they represent.
We grant the petition. Final and executory decisions, more so with those already executed, may no longer be
amended except only to correct errors which are clerical in nature. They become the law of the case and are
immutable and unalterable regardless of any claim of error or incorrectness.[14] Amendments or alterations which
substantially affect such judgments as well as the entire proceedings held for that purpose are null and void for lack
of jurisdiction.[15] The reason lies in the fact that public policy dictates that litigations must be terminated at some
definite time and that the prevailing party should not be denied the fruits of his victory by some subterfuge devised
by the losing party.[16]
It is not disputed, and in fact borne by the records, that petitioner bought the disputed lots of the Drepin Estate
subject matter of the Compromise Agreement ahead of Moslares and that the checks issued in payment thereof were
even personally delivered by the Deputy Sheriff of the RTC-Br. 18, Manila, upon Order of respondent Judge dated
14 June 1990 after tender was refused by Moslares and the Drepin Estate. Respondent Moslares never raised the
invalidity of the payment through checks either through a motion for reconsideration or a timely appeal. Hence,
with the complete execution and satisfaction of the Decision dated 24 July 1986 which approved the Compromise
Agreement, Civil Case No. 84-27008 became closed and terminated leaving nothing else to be done by the trial
court with respect thereto.[17] As petitioner correctly contended, the Court of Appeals erred when it concluded that
petitioner did not pursue the fruitful and effective implementation of the writ of execution in its favor. As already
stated petitioner paid for the lots through the court-sanctioned procedure outlined above. There was no more need
for the Drepin Estate, owner of the lots, to execute a deed of conveyance in petitioner's favor because it had already
done so on 10 October 1980. In fact the disputed lots were already registered in petitioner's name under TCT Nos.
50539, 50540 and 50541 as a consequence thereof. That was also why in the penultimate paragraph of the
Compromise Agreement it was provided that in the event respondent Moslares bought the lots ahead of petitioner
Barretto Realty the latter, not the Drepin Estate, was to execute the corresponding deed of conveyance and deliver
35
Choco Notes
all the titles and pertinent papers to respondent Moslares. There was therefore nothing more to be done by way of
fruitful and effective implementation.
Clearly then respondent Judge Laguio no longer had any jurisdiction whatsoever to act on, much less grant, the
motion for execution and supplement thereto filed by Moslares on 17 September 1993 or more than three (3) years
later, claiming that he had already bought the lots. The fact that the check paid to him by Barretto Realty was never
encashed should not be invoked against the latter. As already stated, Moslares never questioned the tender done
three (3) years earlier. Besides, while delivery of a check produces the effect of payment only when it is encashed,
the rule is otherwise if the debtor was prejudiced by the creditor's unreasonable delay in presentment. Acceptance of
a check implies an undertaking of due diligence in presenting it for payment. If no such presentment was made, the
drawer cannot be held liable irrespective of loss or injury sustained by the payee. Payment will be deemed effected
and the obligation for which the check was given as conditional payment will be discharged.[18]
Considering the foregoing, respondent Judge Laguio's Order dated 8 November 1993 which granted private
respondent's motion for execution thus nullifying the 1990 sale in favor of petitioner after he had in effect approved
such sale in his Order of 14 June 1990 and after such order had already become final and executory, amounted to an
oppressive exercise of judicial authority, a grave abuse of discretion amounting to lack of jurisdiction, for which
reason, all further orders stemming therefrom are also null and void and without effect.[19]
The principle of laches does not attach when the judgment is null and void for want of jurisdiction.[20] The fact that
petitioner invoked par. 3 of the Order of 11 February 1994 praying that its P1,000,000.00 check still in Moslares'
possession be considered sufficient payment of the disputed lots, could not be cited against it. For one thing,
petitioner from the very start had always consistently questioned and assailed the jurisdiction of the trial court to
entertain respondent's motion for execution filed three (3) years after the case had in fact been executed. Secondly,
estoppel being an equitable doctrine cannot be invoked to perpetuate an injustice.[21]
WHEREFORE, the questioned Decision and Resolution of the Court of Appeals dated 30 June 1997 and 14 January
1998, respectively, are REVERSED and SET ASIDE. The Order of respondent Judge Perfecto A. S. Laguio Jr.
dated 11 February 1994 in Civil Case No. 84-27008, setting aside his earlier ruling of 7 December 1993 which had
declared petitioner Pio Barretto Realty Development Corporation as the absolute owner of the real properties in
question, and all subsequent proceedings culminating in the Order of 12 October 1994 authorizing the Clerk of
Court, RTC-Manila, to execute a deed of conveyance over subject properties in favor of respondent Honor P.
Moslares, are declared NULL and VOID for want of jurisdiction.
Consequently, petitioner Pio Barretto Realty Development Corporation is declared the absolute owner of the
disputed properties subject matter of the Compromise Agreement dated 2 May 1986 as fully implemented by the
Deputy Sheriff, RTC-Br. 18, Manila, pursuant to the final and executory Order dated 14 June 1990 of its Presiding
Judge Perfecto A. S. Laguio, Jr.
SO ORDERED.
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B. Medium of Commercial Transactions
PEOPLE vs. TONGKO GR No. 123567 June 5, 1998
[G.R. No. 123567. June 5, 1998]
PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. ROBERTO TONGKO, accused-appellant.

DECISION
PUNO, J.:
This is an appeal by accused Roberto Tongko from the Decision of the RTC of Pasig City, Branch 156 finding him
guilty of estafa under Article 315(2)(d) of the Revised Penal Code. He was sentenced to suffer twenty seven (27)
years of reclusion perpetua and to indemnify Carmelita V. Santos by way of actual damages in the sum of
P100,000.00 and to pay the cost of suit.
Accused was charged under the following Information:
"That on or about the 20th day of August, 1993, in the Municipality of Pasig, Metro Manila, Philippines and within
the jurisdiction of this Honorable Court, the above-named accused, by means of deceit and false pretenses
committed prior to or simultaneously with the commission of the fraudulent acts, did then and there willfully,
unlawfully and feloniously make or draw and issue to one, Carmelita Santos to apply on account or for value, the
check described below:
BANK
CHECK NO.
DATE
AMOUNT
Phil. Amanah Bank
203729
12-20-93
P10,000.00
Phil. Amanah Bank
203730
12-20-93
10,000.00
Phil. Amanah Bank
203731
12-20-93
10,000.00
Phil. Amanah Bank
203732
12-20-93
10,000.00
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Phil. Amanah Bank
203733
12-20-93
10,000.00
Phil. Amanah Bank
203737
12-20-93
10,000.00
Phil. Amanah Bank
203738
12-20-93
10,000.00
Phil. Amanah Bank
203739
12-20-93
10,000.00
Phil. Amanah Bank
203740
12-20-93
10,000.00
Phil. Amanah Bank
203741
12-20-93
10,000.00
said accused well knowing at the time of issue he did not have sufficient funds in or credit with the drawee bank for
the payment in full of the face amount of such check upon presentment which check when presented for payment
within ninety (90) days from the date thereof was subsequently dishonored by the drawee bank for the reason
"Account Closed" and despite the lapse of three (3) banking days from receipt of notice that said check has been
dishonored, the accused failed to pay said payee the face amount of such check or to make arrangement for full
payment thereof, to the damage and prejudice of said Carmelita Santos in the total amount of P100,000.00.
CONTRARY TO LAW."
Accused pled not guilty and underwent trial.
The evidence for the prosecution shows that on September 21, 1990, accused opened savings and current accounts
with Amanah Bank.[1] In the morning of August 20, 1993, Marites Bo-ot brought the accused to the office of
Carmelita V. Santos at Room 504 Pacific Place, Pearl Drive, Ortigas Center, Pasig City to borrow money.[2] The
accused asked for P50,000.00 to be paid not later than December 1993.[3] He assured Santos that his receivables
would come in by November 1993. He persuaded Santos to give the loan by issuing five (5) checks, each in the sum
of P10,000.00, postdated December 20, 1993 and by signing a promissory note.[4] The promissory note was cosigned by Bo-ot. In the afternoon of the same date, the accused returned to Santos and borrowed an additional
P50,000.00. Again, he issued five (5) checks, each worth P10,000.00 postdated December 20, 1993. He also signed
a promissory note together with Bo-ot.[5]
On September 14, 1993, Amanah Bank closed accused's current account for lack of funds. On October 19, 1993,
accused himself requested for the closing of his savings account.[6]
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Santos did not present accused's checks to the drawee bank on their due date upon the request of accused himself.[7]
Instead, the checks were presented on March 1, 1994 but were dishonored as accused's accounts had been closed.[8]
Accused was informed that his checks had bounced. He promised to make good the checks. He failed to redeem his
promise, hence, the case at bar.[9]
The accused testified for himself. Nobody corroborated his testimony. He admitted the evidence of the prosecution
but alleged that the postdated checks were issued a day or two after he signed the promissory notes.[10] Obviously,
he was relying on the defense that the checks were in payment of a pre-existing obligation.
As aforestated, the trial court convicted the accused. He appealed to this Court and changed his counsel.[11] He
now contends:
"I
THE TRIAL COURT ERRED IN HOLDING THAT THE ISSUANCE OF THE TEN (10) POSTDATED CHECKS
(EXHS. "C" TO "L") BY THE ACCUSED-APPELLANT CONSTITUTED FRAUD WHICH INDUCED THE
PRIVATE COMPLAINANT TO EXTEND THE LOANS. IT IS RESPECTFULLY SUBMITTED THAT THE
INDUCEMENT WAS THE EXECUTION OF THE TWO (2) PROMISSORY NOTES AS WELL AS THE COSIGNING THEREOF BY MA. THERESA DEL ROSARIO BO-OT (WHO INTRODUCED ACCUSEDAPPELLANT TO PRIVATE COMPLAINANT), IN A JOINT AND SEVERAL CAPACITY.
II
THE TRIAL COURT ERRED IN NOT HOLDING THAT THE POST-DATED CHECKS WERE IN PAYMENT OF
PRE-EXISTING OBLIGATIONS.
III
THE TRIAL COURT ERRED IN FINDING THE ACCUSED-APPELLANT GUILTY OF ESTAFA AS

CHARGED, AND IN IMPOSING A STIFF PRISON TERM OF 27 YEARS OF RECLUSION PERPETUA, A
PENALTY "TOO HARSH AND OUT OF PROPORTION" AS TO BE VIOLATIVE OF THE CONSTITUTION."
The appeal is without merit.
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Estafa, under Article 315, paragraph 2(d) of the Revised Penal Code, as amended by Republic Act No. 4885, has the
following elements: (1) postdating or issuance of a check in payment of an obligation contracted at the time the
check was issued; (2) lack of sufficiency of funds to cover the check; and (3) damage to the payee thereof.
To avoid the first element, appellant contends that he was able to borrow P100,000.00 from Santos due to the
promissory notes he co-signed with Bo-ot and not due to the postdated checks he issued. We reject this contention.
Firstly, this contention was contrived only after appellant's conviction in the trial court. The records show that
appellant did not raise this defense in the trial court. He cannot fault the trial court for failing to consider a defense
which he never raised. Secondly, Santos is the best person who can testify on what induced her to lend P100,000.00
to the appellant. Santos categorically declared that it was the issuance of postdated checks which persuaded her to
part with her money. We quote her testimony, viz.:[12]
"Q What happened to those checks you mentioned in the promissory note?
When presented to the bank they were all returned by the bank for reason, account closed.
Q Before this was deposited to the bank when the accused came to your office and loaned money from you, what
was his representation if any to you?
A That his collection will come in by Nov. 1993 and also the checks issued to me will be definitely funded on
the date that it will become due.
Q Were you persuaded as a result of the statement of the accused that these checks will be good that you parted
away the amount?
Yes, sir."
There is likewise no merit to the submission of appellant that his postdated checks were in payment of a pre-existing
obligation. Again, we note appellant's change of theory in foisting this argument. In the trial court, appellant
testified that he issued the postdated checks, thru Bo-ot, a day or two after he obtained the P100,000.00 loan from
Santos.[13] The falsity of the uncorroborated claim, however, is too obvious and the trial court correctly rejected it.
The claim cannot succeed in light of Santos' testimony that the issuance of said checks persuaded her to grant the
loans. A look at the two promissory notes will show that they bear the date August 20, 1993 and they referred to the
postdated checks issued by the appellant. There could be no reference to the postdated checks if they were issued a
day or two after the loans. In this appeal, however, appellant offers the new thesis that since the checks were
postdated December 1993, ergo, they were issued in payment of the P100,000.00 he got from Santos on August 20,
1993. The postdating of the checks to December 1993 simply means that on said date the checks would be properly
funded. It does not mean that the checks should be deemed as issued only on December 1993.
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Lastly, appellant contends that the penalty of twenty seven (27) years of reclusion perpetua is too harsh and out of
proportion to the crime he committed. He submits that his sentence violates section 19(1), Article III of the
Constitution which prohibits the infliction of cruel, degrading or inhuman punishment. We are not persuaded. In
People v. de la Cruz,[14] we held that "x x x the prohibition of cruel and unusual punishments is generally aimed
at the form or character of the punishment rather than its severity in respect of duration or amount, and apply to
punishments which never existed in America or which public sentiment has regarded as cruel or obsolete x x x for
instance those inflicted at the whipping post, or in the pillory, burning at the stake, breaking on the wheel,
disemboweling, and the like..." In People v. Estoista,[15] we further held:
"It takes more than merely being harsh, excessive, out of proportion, or severe for a penalty to be obnoxious to the
Constitution. The fact that the punishment authorized by the statute is severe does not make it cruel and unusual.
Expressed in other terms, it has been held that to come under the ban, the punishment must be "flagrantly and
plainly oppressive," "wholly disproportionate to the nature of the offense as to shock the moral sense of the
community."
The legislature was not thoughtless in imposing severe penalties for violation of par. 2(d) of Article 315 of the
Revised Penal Code. The history of the law will show that the severe penalties were intended to stop the upsurge of
swindling by issuance of bouncing checks. It was felt that unless aborted, this kind of estafa "... would erode the
people's confidence in the use of negotiable instruments as a medium of commercial transaction and consequently
result in the retardation of trade and commerce and the undermining of the banking system of the country."[16] The
Court cannot impugn the wisdom of Congress in setting this policy.
IN VIEW WHEREOF, the Decision dated January 16, 1996 of the RTC of Pasig City, Br. 156 in Criminal Case
No. 106614 convicting appellant is affirmed. Costs against appellant.
SO ORDERED.
C. Medium of credit transaction
(Evidence of indebtedness)
PACHECO vs. CA GR No. 126670 Dec. 2, 1999
[G.R. No. 126670. December 2, 1999]
ERNESTO T. PACHECO and VIRGINIA O. PACHECO, petitioners, vs. HON. COURT OF APPEALS and
PEOPLE OF THE PHILIPPINES, respondents.
DECISION
YNARES_SANTIAGO, J.:
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Petitioner spouses are engaged in the construction business. Complainant Romualdo Vicencio was a former Judge
and his wife, Luz Vicencio, owns a pawnshop in Samar. On May 17, 1989, due to financial difficulties arising from
the repeated delays in the payment of their receivables for the construction projects from the DPWH,[1] petitioners
were constrained to obtain a loan of P10,000.00 from Mrs. Vicencio. The latter acceded. Instead of merely
requiring a note of indebtedness, however, her husband Mr. Vicencio required petitioners to issue an undated check
as evidence of the loan which allegedly will not be presented to the bank. Despite being informed by petitioners that
their bank account no longer had any funds, Mrs. Vicencio insisted that they issue the check, which according to her
was only a formality. Thus, petitioner Virginia Pacheco issued on May 17, 1989 an undated RCBC[2] check with
number CT 101756 for P10,000.00. However, she only received the amount of P9,000.00 as the 10% interest on the
loan was already deducted. Mrs. Vicencio also required Virginias husband, herein petitioner Ernesto Pacheco, to
sign the check on the same understanding that the check is not to be encashed but merely intended as an evidence of
indebtedness which cannot be negotiated.
On June 14, 1989, Virginia obtained another loan of P50,000.00 from Mrs. Vicencio. She received only P35,000.00
as the previous loan of P10,000.00 as well as the 10% interest amounting to P5,000.00 on the new loan were
deducted by the latter. With the payment of the previous debt, Virginia asked for the return of the first check (RCBC
check no. 101756) but Mrs. Vicencio told her that her filing clerk was absent. Despite several demands for the return
of the first check, Mrs. Vicencio told Virginia that they can no longer locate the folder containing that check. For the
new loan, she also required Virginia to issue three (3) more checks in various amounts two checks for P20,000.00
each and the third check for P10,000.00. Petitioners were not amenable to these requirements, but Mrs. Vicencio
insisted that they issue the same assuring them that the checks will not be presented to the banks but will merely
serve as guarantee for the loan since there was no promissory note required of them. Due to her dire financial needs,
Virginia issued three undated RCBC checks numbered 101783 and 101784 in the sum of P20,000.00 each and
101785 for P10,000.00, and again informed Mrs. Vicencio that the checks cannot be encashed as the same were not
funded. Petitioner Ernesto also signed the three checks as required by Mrs. Vicencio on the same conditions as the
first check.
On June 20 and July 21, 1989, petitioner Virginia obtained two more loans, one for P10,000.00 and another for
P15,000.00. Again she issued two more RCBC checks (No. 101768 for P10,000.00 and No. 101774 for P15,000.00)
as required by Mrs. Vicencio with the same assurance that the checks shall not be presented for payment but shall
stand only as evidence of indebtedness in lieu of the usual promissory note.
All the checks were undated at the time petitioners handed them to Mrs. Vicencio. The six checks represent a total
obligation of P85,000.00. However, since the loan of P10,000.00 under the first check was already paid when the
amount thereof was deducted from the proceeds of the second loan, the remaining account was only P75,000.00. Of
this amount, petitioners were able to settle and pay in cash P60,000.00 in July 1989. Petitioners never had any
transaction nor ever dealt with Mrs. Vicencios husband, the complainant herein.
When the remaining balance of P15,000.00 on the loans became due and demandable, petitioners were not able to
pay despite demands to do so. On August 3, 1992, Mrs. Vicencio together with her husband and their daughter
Lucille, went to petitioners residence to persuade Virginia to place the date August 15, 1992 on checks nos.
101756 and 101774, although said checks were respectively given undated to Mrs. Vicencio on May 17, 1989 and
July 21, 1989. Check no. 101756 was required by Mrs. Vicencio to be dated as additional guarantee for the
P15,000.00 unpaid balance allegedly under check no. 101774. Despite being informed by petitioner Virginia that
their account with RCBC had been closed as early as August 17, 1989, Mrs. Vicencio and her daughter insisted that
she place a date on the checks allegedly so that it will become evidence of their indebtedness. The former reluctantly
wrote the date on the checks for fear that she might not be able to obtain future loans from Mrs. Vicencio.
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Later, petitioners were surprised to receive on August 29, 1992 a demand letter from Mrs. Vicencios spouse
informing them that the checks when presented for payment on August 25, 1992 were dishonored due to Account
Closed. Consequently, upon the complaint of Mrs. Vicencios husband with whom petitioners never had any
transaction, two informations for estafa, defined in Article 315(2)(d) of the Revised Penal Code, were filed against
them. The informations which were amended on April 1, 1993 alleged that petitioners through fraud and false
pretenses and in payment of a diamond ring (gold necklace) issued checks which when presented for payment were
dishonored due to account closed.[3] After entering a plea of not guilty during arraignment, petitioners were tried
and sentenced to suffer imprisonment and ordered to indemnify the complainant in the total amount of P25,000.00.
[4] On appeal, the Court of Appeals (CA) affirmed the decision of the court a quo.[5] Hence this petition.
Estafa may be committed in several ways. One of these is by postdating a check or issuing a check in payment of an
obligation, as provided in Article 315, paragraph 2(d) of the RPC, viz:
ART. 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned hereinbelow
shall be punished by:
xxx
xxx
xxx
2. By means of any of the following false pretenses or fraudulent acts executed prior to or simultaneously with the
commission of the fraud:
xxx
xxx
xxx
(d) By postdating a check, or issuing a check in payment of an obligation when the offender had no funds in the
bank, or his funds deposited therein were not sufficient to cover the amount of the check. The failure of the drawer
of the check to deposit the amount necessary to cover his check within three (3) days from receipt of notice from the
bank and/or the payee or holder that said check has been dishonored for lack or insufficiency of funds shall be prima
facie evidence of deceit constituting false pretense or fraudulent act.
The essential elements in order to sustain a conviction under the above paragraph are:
1. that the offender postdated or issued a check in payment of an obligation contracted at the time the check was
issued;
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2. that such postdating or issuing a check was done when the offender had no funds in the bank, or his funds
deposited therein were not sufficient to cover the amount of the check;
3. deceit or damage to the payee thereof.[6]
The first and third elements are not present in this case. A check has the character of negotiability and at the same
time it constitutes an evidence of indebtedness. By mutual agreement of the parties, the negotiable character of a
check may be waived and the instrument may be treated simply as proof of an obligation. There cannot be deceit on
the part of the obligor, petitioners herein, because they agreed with the obligee at the time of the issuance and
postdating of the checks that the same shall not be encashed or presented to the banks. As per assurance of the
lender, the checks are nothing but evidence of the loan or security thereof in lieu of and for the same purpose as a
promissory note. By their own covenant, therefore, the checks became mere evidence of indebtedness. It has been
ruled that a drawer who issues a check as security or evidence of investment is not liable for estafa.[7] Mrs. Vicencio
could not have been deceived nor defrauded by petitioners in order to obtain the loans because she was informed
that they no longer have funds in their RCBC accounts. In 1992, when the Vicencio family asked Virginia to place a
date on the check, the latter again informed Mrs. Vicencio that their account with RCBC was already closed as early
as August 1989. With the assurance, however, that the check will only stand as a firm evidence of indebtedness,
Virginia placed a date on the check. Under these circumstances, Mrs. Vicencio cannot claim that she was deceived
or defrauded by petitioners in obtaining the loan. In the absence of the essential element of deceit,[8] no estafa was
committed by petitioners.
Both courts below relied so much on the fact that Mrs. Vicencios husband is a former Judge who knows the law. He
should have known, then, that he need not even ask the petitioners to place a date on the check, because as holder of
the check, he could have inserted the date pursuant to Section 13 of the Negotiable Instruments Law (NIL).[9]
Moreover, as stated in Section 14 thereof, complainant, as the person in possession of the check, has prima facie
authority to complete it by filling up the blanks therein. Besides, pursuant to Section 12 of the same law, a
negotiable instrument is not rendered invalid by reason only that it is antedated or postdated.[10] Thus, the
allegation of Mrs. Vicencio that the date to be placed by Virginia was necessary so as to make the check evidence of
indebtedness is nothing but a ploy. Petitioners openly disclosed and never hid the fact that they no longer have funds
in the bank as their bank account was already closed. Knowledge by the complainant that the drawer does not have
sufficient funds in the bank at the time it was issued to him does not give rise to a case for estafa through bouncing
checks.[11]
Moreover, a check must be presented within a reasonable time from issue.[12] By current banking practice, a check
becomes stale after more than six (6) months. In fact a check long overdue for more than two and one-half years is
considered stale.[13] In this case, the checks were issued more than three years prior to their presentment. In his
complaint, complainant alleged that petitioners bought jewelry from him and that he would not have parted with his
jewelry had not petitioners issued the checks. The evidence on record, however, does not support the theory of the
crime.
There were six checks given by petitioners to Mrs. Vicencio but only two were presented for encashment. If all were
issued in payment of the alleged jewelry, why were not all the checks presented? There was a deliberate choice of
these two checks as the total amount reflected therein is equivalent to the amount due under the unpaid obligation.
The other checks, on the other hand, could not be used as the amounts therein do not jibe with the amount of the
unpaid balance. Following complainants theory that he would not have sold the jewelries had not petitioners issued
44
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postdated checks, still no estafa can be imputed to petitioners. It is clear that the checks were not intended for
encashment with the bank, but were delivered as mere security for the payment of the loan and under an agreement
that the checks would be redeemed with cash as they fell due. Hence, the checks were not intended by the parties to
be modes of payment but only as promissory notes. Since complainant and his wife were well aware of that fact,
they cannot now complain there was deception on the part of petitioners. Awareness by the complainant of the
fictitious nature of the pretense cannot give rise to estafa by means of deceit.[14] When the payee was informed by
the drawer that the checks are not covered by adequate funds it does not give rise to bad faith or estafa.[15]
Moreover, complainants allegations that the two subject checks were issued in 1992 as payment for the jewelry he
allegedly sold to petitioners is belied by the evidence on record. First, complainant is not engaged in the sale of
jewelry.[16] Neither are petitioners. If the pieces of jewelry were important to complainant considering that they
were with him for more than twenty-five years already,[17] he would not have easily parted with them in
consideration for unfunded personal checks in favor of persons whose means of living or source of income were
unknown to him.[18] Applicable here is the legal precept that persons are presumed to have taken care of their
business.[19]
Second, petitioners bank account with RCBC was opened on March 26, 1987 and was closed on April 17, 1989,
during the span of which they were issued 10 check booklets with the last booklet issued on April 6, 1989. This last
booklet contains 50 checks consecutively numbered from 101751 to 101800. The two subject checks came from this
booklet. All the checks in this booklet were issued in the year 1989 including the two subject checks, so that the
complainants theory that the jewelry were sold in 1992 cannot be believed.
The rule that factual findings of the trial court bind this court is not absolute but admits of exceptions such as when
the conclusion is a finding grounded on speculation, surmise, and conjecture and when the findings of the lower
court is premised on the absence of evidence and is contradicted by the evidence on record.[20] Based on the
foregoing discussions, this Court is constrained to depart from the general rule. Equally applicable is what ViceChancellor Van Fleet once said:[21]
Evidence to be believed must not only proceed from the mouth of a credible witness but must be credible in itself
such as the common experience and observation of mankind can approve as probable under the circumstances. We
have no test of the truth of human testimony, except its conformity to our knowledge, observation and experience.
Whatever is repugnant to these belongs to the miraculous, and is outside of judicial cognizance.
Petitioners, however, are not without liability. An accused acquitted of a criminal charge may nevertheless be held
civilly liable in the same case where the facts established by the evidence so warrant.[22] Based on the records, they
still have an outstanding obligation of P15,000.00 in favor of Mrs. Vicencio. There was mention that the loan shall
earn interests. However, an agreement as to payment of interest must be in writing, otherwise it cannot be valid,[23]
although there was actual payment of interests by virtue of the advance deductions from the loan. Once the judgment
becomes final and executory, the amount due is deemed equivalent to a forbearance of credit during the interim
period from the finality of judgment until full payment, in which case it shall earn legal interest at the rate of twelve
per cent (12%) per annum pursuant to Central Bank (CB) Circular No. 416.[24]
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WHEREFORE, the assailed Decision is REVERSED and SET ASIDE. Petitioners are ACQUITTED of the charge
of estafa but they are ORDERED to pay Mrs. Vicencio the amount of P15,000.00 without interest. However, from
the time this judgment becomes final and executory, the amount due shall earn legal interest of twelve percent (12%)
per annum until full payment.
SO ORDERED.
GO vs. BACARON GR No. 159048 October 11, 2005
THIRD DIVISION
BENNY GO,
G.R. No. 159048
Petitioner,
Present:
Panganiban, J.,
Chairman,
- versus -
Sandoval-Gutierrez
Corona,
Carpio Morales, and
Garcia, JJ
Promulgated:
ELIODORO BACARON,
Respondent.
October 11, 2005
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - -- x
DECISION
PANGANIBAN, J.:
46
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T
he present Contract, which purports to be an absolute deed of sale, should be deemed an equitable mortgage for the
following reasons: (1) the consideration has been proven to be unusually inadequate; (2) the supposed vendor has
remained in possession of the property even after the execution of the instrument; and (3) the alleged seller has
continued to pay the real estate taxes on the property.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to set aside the October 17, 2002
Decision[2] and the May 20, 2003 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 67218. The
assailed Decision disposed as follows:
WHEREFORE, premises considered, the Decision dated February 24, 2000 of the Regional Trial Court of Davao
City, Branch 12, in Civil Case No. 25,101-97 is hereby REVERSED and SET ASIDE and a new one is hereby
rendered ordering the reformation of the subject instrument, such that the same must be considered a mortgage
contract and not a transfer of right. Costs against [petitioner].[4]
The assailed Resolution denied Reconsideration.
The Facts
The antecedents are narrated by the CA as follows:
As evidenced by the Transfer of Rights dated October 1, 1993, Eliodoro Bacaron conveyed a 15.3955-hectare
parcel of land located in Langub, Talomo, Davao City, in favor of Benny Go for P20,000.00.
About a year thereafter, Bacaron, seeking to recover his property, went to Go to pay his alleged P20,000.00 loan
but the latter refused to receive the same and to return his property saying that the transaction between the two of
them was a sale and not a mortgage as claimed by Bacaron.
47
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Consequently, on March 5, 1997, Eliodoro Bacaron, as plaintiff [herein respondent], filed a Complaint for
Reformation of Instrument with Damages and prayer for the issuance of a writ of preliminary injunction, with the
Regional Trial Court of Davao City, Branch 12, against the [petitioner] Benny Go, which case was docketed as Civil
Case No. 25,101-97.
In his Complaint, [respondent] alleged that in the middle part of 1993, he suffered business reversals which
prompted him, being in urgent need of funds, to borrow P20,000.00 from the [petitioner]. He however averred that
prior to extending said loan to him, the [petitioner] required him to execute a document purporting to be a Transfer
of Rights but was told that the same would only be a formality as he could redeem the unregistered land the moment
he pays the loan. Admitting that he signed the instrument despite knowing that the same did not express the true
intention of the parties agreement, i.e., that the transaction was a mere equitable mortgage, the [respondent]
explained that he did so only because he was in a very tight financial situation and because he was assured by the
[petitioner] that he could redeem his property. To support this claim, [respondent] stressed the fact that the
consideration in the instrument was merely P20,000.00, which is grossly inadequate as the selling price of a 15hectare land considering that, at that time, the market value of land in Davao City amounts to P100,000.00 per
hectare. [Respondent] narrated that a year thereafter, or in a middle part of 1994, he was able to raise the
P20,000.00 and went to the [petitioner] to pay his loan but the latter refused to accept his payment, insisting that the
transaction entered into by the parties was not an equitable mortgage, as the [respondent] insists, but a real transfer
of right over the property. Because of said refusal, [respondent] continued, he was compelled to refer the matter to
his lawyer in order to request the [petitioner] to accept his payment otherwise he would file the necessary action in
court. Despite said formal demand by the [respondent], however, [petitioner] allegedly continued to refuse to
recognize the equitable mortgage, prompting [respondent] to consign the P20,000.00 with the Clerk of Court of the
RTC of Davao City, Branch 12. He thus insisted that it is [petitioner] who is dead wrong in not recognizing the
equitable mortgage since, aside from the fact that the consideration was unusually inadequate, [respondent]
allegedly remained in possession of the property.
[Respondent] thus prayed for an award for moral damages, in view of the [petitioners] evident bad faith in refusing
to recognize the equitable mortgage, and for attorneys fees as [petitioners] alleged stubbornness compelled him to
engage the services of counsel. He likewise sought an award for exemplary damages to deter others from
committing similar acts and at the same time asked the court to issue a writ of preliminary injunction and/or
temporary restraining order to prevent [petitioner] from dispossessing [respondent] of the subject property or from
disposing of the same in favor of third parties as these acts would certainly work injustice for and cause irreparable
damage to the [respondent]. The prayer for the issuance of a restraining order was however denied by the court in
an Order.
[Petitioner] filed his Answer on May 5, 1997, denying [respondents] claim that the transaction was only an
equitable mortgage and not an actual transfer of right. He asserted that the truth of the matter was that when
[respondent] suffered business reverses, his accounts with the [petitioner], as evidenced by postdated checks, cash
vouchers and promissory notes, remained unpaid and his total indebtedness, exclusive of interests, amounted to
P985,423.70. [Petitioner] further averred that, in order to avoid the filing of cases against him, [respondent] offered
to pay his indebtedness through dacion en pago, giving the land in question as full payment thereof. In addition, he
stressed that considering that the property is still untitled and the [respondent] bought the same from one Meliton
Bacarro for only P50,000.00, it is most unreasonable for him to agree to accept said land in exchange for over a
million pesos of indebtedness. He claimed though that he was only forced to do so when [respondent] told him that
if he did not accept the offer, other creditors would grab the same.
By way of affirmative defenses, the [petitioner] pointed out that [respondent] has no cause of action against him as
the [respondent] failed to comply with the essential requisites for an action for reformation of instrument. He
moreover alleged that the [respondent] is in estoppel because, by his own admission, he signed the document
48
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knowing that the same did not express the true intention of the parties. Further, [petitioner] claimed that there was a
valid transfer of the property herein since the consideration is not only the actual amount written in the instrument
but it also includes the outstanding obligation of [respondent] to the [petitioner] amounting to almost P1 million.
As counterclaim, [petitioner] averred that, because of this baseless complaint, he suffered mental anguish, wounded
feelings and besmirched reputation, entitling him to moral damages amounting to P20,000.00, and that in order to
deter others from doing similar acts, exemplary damages amounting to P20,000.00 should likewise be awarded in
his favor. [Petitioner] also prayed for attorneys fees and litigation expenses claiming that, because he was
constrained to litigate, he was forced to hire the services of counsel.
xxx
xxx
xxx
Trial ensued and thereafter the trial court rendered its Decision dated February 24, 2000 dismissing the complaint
while finding the [petitioners] counterclaim meritorious. In making said ruling, the lower court, citing Article 1350
(should be 1359) of the New Civil Code, found that [respondent] failed to establish the existence of all the requisites
for an action for reformation by clear, convincing and competent evidence. Considering [respondents] own
testimony that he read the document and fully understood the same, signing it without making any complaints to his
lawyer, the trial court held that the evidence on record shows that the subject instrument had been freely and
voluntarily entered into by the parties and that the same expresses the true intention of the parties. The court further
noted that the [respondents] wife even signed the document and that the same had been duly acknowledged by the
parties before a notary public as their true act and voluntary deed.
The trial court likewise observed that, contrary to [respondents] claim that the transaction was a mere mortgage of
the property, the terms of the instrument are clear and unequivocable that the property subject of the document was
sold, transferred, ceded and conveyed to the [petitioner] by way of absolute sale, and hence, no extrinsic aids are
necessary to ascertain the intention of the parties as the same is determinable from the document itself. Moreover,
said court emphasized that considering the fact that [respondent] is an educated person, having studied in an
exclusive school like Ateneo de Davao, and an experienced businessman, he is presumed to have acted with due care
and to have signed the instrument with full knowledge of its contents and import. [Respondents] claim that he
merely borrowed money from the [petitioner] and mortgaged the property subject of litigation to guarantee said loan
was thus found to be specious by the court, which found that the [respondent] was actually indebted to the
[petitioner] for almost a million pesos and that the true consideration of the sale was in fact said outstanding
obligation.
With respect to [respondents] alleged possession of the property and payment of real estate taxes, both of which
were relied upon by the [respondent] to boost his assertion that the transaction was merely an equitable mortgage,
the trial court said that his claim of possession is belied by the fact that the actual occupants of the property
recognize that the [petitioner] owns the same and in fact said occupants prevented [respondents] wife from entering
the premises. The court, noting that the [petitioner] also paid the realty taxes, was also of the opinion that
[respondent] merely made such payments in order to lay the basis of his allegation that the contract was a mere
equitable mortgage.
49
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Accordingly, the court held that [respondent] is also not entitled to his other claims and that his unfounded action
caused [petitioner] to an award for moral damages, in addition to the expenses he incurred in defending his cause,
i.e. services of a lawyer and transportation and other expenses, which justifies an award for the reimbursement of his
expenses and attorneys fees.[5]
Ruling of the Court of Appeals
Granting respondents appeal, the appellate court ruled that the Contract entered into by the parties should be
deemed an equitable mortgage, because the consideration for the sale was grossly inadequate. By continuing to
harvest the crops and supervise his workers, respondent remained in control of the property. True, upon the
institution of this case, petitioner paid the required real estate taxes that were still in arrears. Respondent, however
paid the taxes for 1995, 1996 and 1997 -- the years between the dates when the alleged absolute sale was entered
into on October 1, 1993, and when this case was instituted on March 5, 1997.[6]
Granting respondents prayer for reformation of the Contract, the CA ruled that the instrument failed to reflect
the true intention of the parties because of petitioners inequitable conduct.[7]
Hence, this Petition.[8]
The Issues
Petitioner raises the following issues for this Courts consideration:
I.
Whether o[r] not the Court of Appeals erred in ruling that there was inadequate consideration.
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II.
Whether o[r] not the Court of Appeals erred in ruling that the respondent remained in possession of the land in
question.
III.
Whether or not the Court of Appeals erred in ruling that the taxes were not paid by the petitioner.
IV.
Whether or not the Court of Appeals erred in ruling that reformation is proper.[9]
Simply put, these are the issues to be resolved: (1) whether the agreement entered into by the parties was one
for equitable mortgage or for absolute sale; and (2) whether the grant of the relief of contract reformation was
proper.
The Courts Ruling
The Petition has no merit.
First Issue:
Equitable Mortgage
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An equitable mortgage has been defined as one which although lacking in some formality, or form or words,
or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as
security for a debt, and contains nothing impossible or contrary to law.[10]
The instances in which a contract of sale is presumed to be an equitable mortgage are enumerated in Article 1602 of
the Civil Code as follows:
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:
(1)
When the price of a sale with right to repurchase is unusually inadequate;
(2)
When the vendor remains in possession as lessee or otherwise;
(3)
When upon or after the expiration of the right to repurchase another instrument extending the
period of redemption or granting a new period is executed;
(4)
When the purchaser retains for himself a part of the purchase price;
(5)
When the vendor binds himself to pay the taxes on the thing sold;
(6)
In any other case where it may be fairly inferred that the real intention of the parties is that
the transaction shall secure the payment of a debt or the performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise
shall be considered as interest which shall be subject to the usury laws.
Furthermore, Article 1604 of the Civil Code provides that [t]he provisions of Article 1602 shall also apply to
a contract purporting to be an absolute sale.
In the present case, three of the instances enumerated in Article 1602 -- grossly inadequate consideration,
possession of the property, and payment of realty taxes -- attended the assailed transaction and thus showed that it
was indeed an equitable mortgage.
52
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Inadequate Consideration
Petitioner Go avers that the amount of P20,000 was not unusually inadequate. He explains that the present
parties entered into a Dacion en Pago, whereby respondent conveyed the subject property as payment for his
outstanding debts to petitioner -- debts supposedly amounting to P985,243.70.[11] To substantiate his claim,
petitioner presented the checks that respondent had issued, as well as the latters testimony purportedly admitting the
genuineness and due execution of the checks and the existence of the outstanding debts.[12] Petitioner Go contends
that respondent failed to establish by sufficient evidence that those debts had already been paid.[13] Petitioner relies
on the trial courts finding that respondent knowingly and intentionally entered into a contract of sale, not an
equitable mortgage.[14]
On the other hand, Respondent Bacaron argues that the value of the property at the time of the alleged sale
was P120,000 per hectare, and that the indicated sale amount of P20,000 was thus grossly iniquitous.[15] Allegedly,
the previous cash advances secured from petitioners father had been settled, as evidenced by the fact that petitioner
did not negotiate further or encash the checks; the latter could have done so, if the obligation was still extant.[16]
Respondent points out that he paid for that obligation with the coprax he had previously delivered to the father.[17]
Petitioner allegedly admitted this fact, though inadvertently, when he testified that respondent had already paid some
of the latters previous cash advances.[18] Otherwise, petitioner would have then set off his own debt to respondent
(amounting to P214,000) against the amount of almost one million pesos that the latter supposedly owed him.[19]
Checks have the character of negotiability. At the same time, they may constitute evidence of indebtedness.
[20] Those presented by petitioner may indeed evince respondents indebtedness to him in the amounts stated on the
faces of those instruments. He, however, acknowledges (1) that respondent paid some of the obligations through the
coprax delivered to petitioners father; and (2) that petitioner owed and subsequently paid respondent P214,000.[21]
The parties respective arguments show that the sum of P20,000, by itself, is inadequate to justify the
purported absolute Transfer of Rights.[22] Petitioners claim that there was a dacion en pago is not reflected on the
instrument executed by the parties. That claim, however, confirms the inadequacy of the P20,000 paid in
consideration of the Transfer of Rights; hence, the Contract does not reflect the true intention of the parties. As to
what their true intention was -- whether dacion en pago or equitable mortgage -- will have to be determined by some
other means.
Possession
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According to Article 1602(2) of the New Civil Code, one of the instances showing that a purported contract of sale
is presumed to be an equitable mortgage is when the supposed vendor remains in possession of the property even
after the conclusion of the transaction.
In general terms, possession is the holding of a thing or the enjoyment of a right, whether by material occupation or
by the fact
that the right -- or, as in this case, the property -- is subjected to the will of the claimant.[23] In Director of Lands v.
Heirs of Abaldonado,[24] the gathering of the products of and the act of planting on the land were held to constitute
occupation, possession and cultivation.
In the present case, the witnesses of respondent swore that they had seen him gather fruits and coconuts on the
property. Based on the cited case, the witnesses testimonies sufficiently establish that even after the execution of
the assailed Contract, respondent has remained in possession of the property. The testimonies proffered by
petitioners witnesses merely indicated that they were tenants of the property. Petitioner only informed them that he
was the new owner of the property. This attempt at a factual presentation hardly signifies that he exercised
possession over the property. As held by the appellate court, petitioners other witness (Redoa) was unconvincing,
because he could not even say whether he resided within the premises.[25]
The factual findings of the trial court and the CA are conflicting and, hence, may be reviewed by this Court.[26]
Normally, the findings of the trial court on the credibility of witnesses should be respected. Here, however, their
demeanor while testifying is not at issue. What is disputed is the substance of their testimonies -- the facts to which
they testified. Assuming that the witnesses of petitioner were indeed credible, their testimonies were insufficient to
establish that he enjoyed possession over the property.
Payment of Realty Taxes
Finally, petitioner asserts that the trial courts finding that he paid the realty taxes should also be given
corresponding weight.[27]
Respondent counters with the CAs findings that it was he who paid realty taxes on the property. The appellate court
concluded that he had paid taxes for the years 1995, 1996 and 1997 within each of those years; hence, before the
filing of the present controversy. In contrast, petitioner paid only the remaining taxes due on October 17, 1997, or
after the case had been instituted. This fact allegedly proves that respondent has remained in possession of the
property and continued to be its owner.[28] He argues that if he had really transferred ownership, he would have
been foolish to continue paying for those taxes.[29]
On this point, we again rule for respondent.
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Petitioner indeed paid the realty taxes on the property for the years 1980 to 1997. The records show that the
payments were all simultaneously made only on October 31, 1997, evidently in the light of the Complaint
respondent had filed before the trial court on March 5, 1997.[30] On the other hand, respondent continued to pay for
the realty taxes due on the property for the years 1995, 1996 and 1997.[31]
That the parties intended to enter into an equitable mortgage is bolstered by respondents continued payment
of the real property
taxes subsequent to the alleged sale. Payment of those taxes is a usual burden attached to ownership. Coupled with
continuous possession of the property, it constitutes evidence of great weight that a person under whose name the
realty taxes were declared has a valid and rightful claim over the land.[32]
That the parties intended to enter into an equitable mortgage is also shown by the fact that the seller was driven to
obtain the loan at a time when he was in urgent need of money; and that he signed the Deed of Sale, despite
knowing that it did not express the real intention of the parties.[33] In the present proceedings, the collapse of his
business prompted respondent to obtain the loan.[34] Petitioner himself admitted that at the time they entered into
the alleged absolute sale, respondent had suffered from serious business reversals.[35]
Second Issue:
Reformation of Instrument
Petitioner claims that the CA erred in granting the remedy of reformation of contracts. He avers that the failure of
the instrument to express the parties true agreement was not due to his mistake; or to fraud, inequitable conduct, or
accident.[36]
We rule for respondent.
Ultimately, it is the intention of the parties that determines whether a contract is one of sale or of mortgage.
[37] In the present case, one of the parties to the contract raises as an issue the fact that their true intention or
agreement is not reflected in the instrument. Under this circumstance, parol evidence becomes admissible and
competent evidence to prove the true nature of the instrument.[38] Hence, unavailing is the assertion of petitioner
that the interpretation of the terms of the Contract is unnecessary, and that the parties clearly agreed to execute an
absolute deed of sale. His assertion does not hold, especially in the light of the provisions of Article 1604 of the
Civil Code, under which even contracts purporting to be absolute sales are subject to the provisions of Article 1602.
55
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Moreover, under Article 1605 of the New Civil Code, the supposed vendor may ask for the reformation of the
instrument, should the case be among those mentioned in Articles 1602 and 1604. Because respondent has more
than sufficiently established that the assailed Contract is in fact an equitable mortgage rather than an absolute sale,
he is allowed to avail himself of the remedy of reformation of contracts.
WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and Resolution AFFIRMED.
SO ORDERED.
SPS. TAN vs. VILLAPAZ GR No. 160892 Nov. 22, 2005
THIRD DIVISION
SPOUSES ANTONIO and LOLITA TAN,

Petitioners,
- versus -
CARMELITO VILLAPAZ,
Respondent.
G.R. No. 160892
Present:
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PANGANIBAN, J., Chairman,
SANDOVAL-GUTIERREZ,*
CORONA,
CARPIO MORALES, and
GARCIA, JJ.
Promulgated:
November 22, 2005

xx - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -xx
DECISION
CARPIO MORALES, J.:
From the January 25, 2001 decision[1] of the Court of Appeals reversing that of the Regional Trial Court
(RTC) of Digos, Davao del Sur[2] which dismissed the complaint filed by herein respondent Carmelito Villapaz
against herein petitioners-spouses Antonio Tony and Lolita Tan, the present Petition for Review on Certiorari[3]
was lodged.
On February 6, 1992, respondent issued a Philippine Bank of Communications (PBCom) crossed check[4] in
the amount of P250,000.00, payable to the order of petitioner Tony Tan. On even date, the check was deposited at
the drawee bank, PBCom Davao City branch at Monteverde Avenue, to the account of petitioner Antonio Tan also at
said bank.
57
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The Malita, Davao del Sur Police, by letter of June 22, 1994,[5] issued an invitation-request to petitioner
Antonio Tan at his address at Malatibas Plaza, Lolitas Rendezvous, Bonifacio St., Davao City inviting him to
appear before the Deputy Chief of Police Office on June 27, 1994 at 9:00 oclock in the morning in connection
with the request of [herein respondent] Carmelito Villapaz, for conference of vital importance.
The invitation-request was received by petitioner Antonio Tan on June 22, 1994[6] but on the advice of his
lawyer,[7] he did not show up at the Malita, Davao del Sur Police Office.
On November 7, 1994,[8] respondent filed before the Digos, Davao del Sur RTC a Complaint for sum of
money against petitioners-spouses, alleging that, inter alia, on February 6, 1992, petitioners-spouses repaired to his
place of business at Malita, Davao and obtained a loan of P250,000.00, hence, his issuance of the February 6, 1992
PBCom crossed check which loan was to be settled interest-free in six (6) months; on the maturity date of the loan
or on August 6, 1992, petitioner Antonio Tan failed to settle the same, and despite repeated demands, petitioners
never did, drawing him to file the complaint thru his counsel to whom he agreed to pay 30% of the loan as
attorneys fees on a contingent basis and P1,000.00 per appearance fee; and on account of the willful refusal of
petitioners to honor their obligation, he suffered moral damages in the amount of P50,000.00, among other things.
By their Answer,[9] petitioners, denying having gone to Malita and having obtained a loan from respondent,
alleged that the check was issued by respondent in Davao City on February 6, 1992 in exchange for equivalent
cash; they never received from respondent any demand for payment, be it verbal or written, respecting the alleged
loan; since the alleged loan was one with a period payable in six months, it should have been expressly stipulated
upon in writing by the parties but it was not, hence, the essential requisite for the validity and enforceability of a
loan is wanting; and the check is inadmissible to prove the existence of a loan for P250,000.00.
By way of Compulsory Counterclaim, petitioners prayed for the award of damages and litigation expenses and
attorneys fees.[10]
Crediting defendants-petitioners version, Branch 19 of the RTC, Digos, Davao del Sur, by Decision[11] of
July 24, 1996, dismissed the Complaint and granted the Counterclaim, disposing as follows:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1.
Ordering the dismissal of the complaint;
2.
On the counterclaim ordering the plaintiff
Lolita Tan:
Carmelito Villapaz to pay to defendants spouses Antonio and
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a.
P100,000.00 as moral damages;
b.
P50,000.00 as exemplary damages;
c.
P30,000.00 as attorneys fees; and
3.
Plaintiff Carmelito Villapaz to pay the costs.
SO ORDERED. (Underscoring in the original)[12]
Respondent appealed to the Court of Appeals which, by Decision[13] of January 25, 2001, credited his
version and accordingly reversed the trial courts decision in this wise:
Briefly stated, the lower Court gave four reasons for ruling out a loan, namely: (a) the defense of
defendants-appellees that they did not go to plaintiff-appellants place on February 6, 1992, date the check was given
to them;
(b) defendants-appellees could not have borrowed money on that date because from January to March,
1992, they had an average daily deposit of P700,000 and on February 6, 1992, they had P1,211,400.64 in the bank,
hence, they had surely no reason nor logic to borrow money from plaintiff-appellant; (c) the alleged loan was not
reduced in writing and (d) the check could not be a competent evidence of loan.
The four-fold reasoning cannot be sustained. They are faulty and do not accord either with law or
ordinary conduct of men. For one thing, the first two given reasons partake more of alibi and speculation, hence,
deserve scant consideration. For another, the last two miss the applicable provisions of law.
The existence of a contract of loan cannot be denied merely because it is not reduced in writing.
Surely, there can be a verbal loan. Contracts are binding between the parties, whether oral or written. The law is
explicit that contracts shall be obligatory in whatever form they may have been entered into, provided all the
essential requisites for their validity are present. A loan (simple loan or mutuum) exists when a person receives a
loan of money or any other fungible thing and acquires the ownership thereof. He is bound to pay to the creditor the
equal amount of the same kind and quality.
Contracts are perfected by mere consent, and from that moment the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature,
maybe in keeping with good faith, usage and law.
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The lower Court misplaced its reliance on Article 1358 of the Civil Code providing that to be
enforceable, contracts where the amount involved exceed five hundred pesos, must appear in writing. Such
requirement, it has been held, is only for convenience, not for validity. It bears emphasis that at the time plaintiffappellant delivered the crossed-check to defendants-appellees, plaintiff-appellant had no account whatsoever with
them. Defendants-appellees contention that they did not obtain any loan but merely exchanged the latters check
for cash is not borne by any evidence.
Notably, plaintiff-appellant and defendant-appellee Antonio Tan are compadres, one of them being a
godfather to the others son. There is no established enmity between them such that plaintiff-appellant would be
motivated to institute an unfounded action in court. Plaintiff-appellants sole purpose was to be paid back the loan
he extended to defendants-appellees. Thus, a pertinent portion of his testimony on cross-examination discloses:
ATTY. TAN (On Cross Examination):
Q:
Now, aside from this check that you issued, did you let the defendant sign a cash voucher?
A: I did not require him any cash voucher or any written document because as I said we are close
friends and I trusted him so I issued a check in his name Tony Tan.
Q: You said that the spouses Tan were in need of money on February 6, 1992. Why did you have
to issue a cross-check?
A:
I issued a cross-check in order to be sure that he received the money from me so that he could
not deny that he did not receive. (TSN of Villapaz dtd 7/25/95, p. 21)
Apart from their self-serving testimonies, there is no evidence or proof that defendants-appellees
actually delivered to plaintiff-appellant the cash amount of P250,000.00 in exchange for the check. Defendantappellee Tan testified that he records his transactions if it involves a huge cash amount. But surprisingly in this case,
he did not follow his usual practice.
ATTY. CARPENTERO (On Cross-Examination):
Q: x x x you have noticed Carmelito Villapaz to have trusted and have full confidence in you
during your business relationship, correct?
A:
All people have trust and confidence but whenever there is a transaction, it should be covered a
(sic) proof.
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Q:
You mean you are a fellow who adheres that every transaction should be recorded?
A:
Yes, if the transaction involves a big amount,
Q: But in this case of Carmelito Villapaz you noticed personally that he has trust and confidence in
your person, correct?
A:
The truth is, if ever we have a transaction which involves P1,000.00 or P2,000.00, we need no
document at all as proof, but because it is a big amount, it needs documents. (TSN of Tan dtd 5/9/96, pp. 12-13.
Plaintiff-appellant has a checking account with PBCom Bank. This is located within walking distance (300
meters) from defendants-appellees store. If plaintiff-appellant was in dire need of money, he could have personally
withdrawn said money from his own account, since it was sufficiently funded. Defendant-appellee Antonio Tan
himself testified that plaintiff-appellants check was sufficiently funded.
It is well-nigh unlikely that the wife who was supposed to have delivered the money on such a short
notice, produced, prepared and counted the money at home from Obrero, Davao City, then delivered it to plaintiffappellant who was in the Golden Harvest Store at Sta Ana Avenue, Davao City. In contrast, PBCom Bank where
plaintiff-appellant has his account is in the same vicinity of the store of Golden Harvest.
Certainly, by way of exception to the general rule, the erroneous inferences in the factual finding of
the trial Court cannot bind the appellate courts.
The trial Court placed much emphasis on the daily and time deposit accounts of defendants-appellees.
It is immaterial whether or not one is financially capable. A pauper may borrow money for survival; a prince may
incur a loan for expansion.[14] (Emphasis supplied; underscoring in the original)
Thus, the Court of Appeals disposed:
WHEREFORE, the appealed judgment is hereby REVERSED and SET ASIDE. Defendants-appellees
are ordered to pay plaintiff-appellant the sum of P250,000.00 with 12% interest per annum from judicial demand or
filing of the complaint in Court until fully paid.[15]
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Hence, the present appeal by petitioners anchored on the following grounds:
I.
The Honorable Court of Appeals erred in concluding that the transaction in dispute was a contract of loan
and not a mere matter of check encashment as found by the trial court.
II.
The Honorable Court likewise erred in reasoning that the trial court placed much emphasis on the daily and
time deposits of herein petitioners to determine their financial capability.
III.
The Honorable Court failed to consider the wanton, reckless manner of respondent in attempting to enforce
an obligation that does not even exist, thus justifying the award for moral and exemplary damages, as well as
attorneys fees and costs of suit.[16] (Underscoring supplied)
Petitioners maintain that they did not secure a loan from respondent, insisting that they encashed in Davao
City respondents February 6, 1992 crossed check; in the ordinary course of business, prudence dictates that a
contract of loan must be in writing as in fact the New Civil Code provides that to be enforceable contracts where
62
Choco Notes
the amount involved exceed[s] P500.00 must appear in writing even a private one, hence, respondents selfserving claim does not suffice to prove the existence of a loan; respondents allegation that no memorandum in
writing of the transaction was executed because he and they are kumpadres does not inspire belief for respondent,
being a businessman himself, was with more reason expected to be more prudent; and the mere encashment of the
check is not a contractual transaction such as a sale or a loan which ordinarily requires a receipt and that explains
why they did not issue a receipt when they encashed the check of respondent.
Petitioners add that they could not have gone to Malita on February 6, 1992, as claimed by respondent, to
obtain the alleged loan represented by the check because February 6, 1992 was the opening for business in Davao
City of Golden Harvest of which petitioner Antonio Tan is treasurer and in-charge of the bodega, during which
opening guests and well-wishers including respondent were entertained.
Petitioners furthermore maintain that they were financially stable on February 6, 1992 as shown by the entries
of their bank passbook,[17] hence, there was no reason for them to go to a distant place like Malita to borrow
money.
The petition fails.
By petitioner Antonio Tans account, respondent arrived at the Golden Harvest place of business at Davao
City on February 6, 1992 at about 10:30 in the morning[18] and left before noon of the same day; respondent,
however, returned to Golden Harvest shortly before 3:00 oclock in the afternoon of the same day upon which he
informed him (petitioner Antonio Tan) that he needed to bring cash to Malita in the amount of P250,000.00 but
time was running out and . . . he was so busy that was why he requested [him] to accommodate (sic) the said
amount at 3:00 p.m.[19]
Still by petitioner Antonio Tans account, he thereupon inquire by telephone from his wife who was at their
house whether she had P250,000.00 cash and as his wife replied she had, he asked her to bring the cash, as she did,
to the Golden Harvest where she gave the amount of P250,000.00 to him (petitioner Antonio Tan); in the meantime,
as respondent had left for a while but not before leaving the check, he (petitioner Antonio Tan) kept the P250,000.00
cash and gave the check to his wife who had it deposited on the same afternoon to his account at PBCom
Monteverde branch after he received clearance from the bank manager, who knows him (petitioner Antonio Tan)
very well, that respondents account at same branch of the bank was funded and the check could be deposited and
credited to his (petitioner Antonio Tans) account that same afternoon; and when later that same afternoon
respondent returned to the Golden Harvest, he turned over to him the P250,000.00 cash.
Petitioner Antonio Tans foregoing tale hardly inspires credence. For it is contrary to common experience. If
indeed respondent, who came all the way from Malita to Davao City, arriving at petitioner Antonio Tans workplace
at Golden Harvest at 10:30 in the morning, needed cash of P250,000.00, and the drawee bank PBCom Davao City,
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Monteverde branch where respondent maintained a current account could even be reached by foot from the Golden
Harvest in just a few minutes (albeit by petitioner Antonio Tans own information respondent brought his truck with
him),[20] it being about 300 meters away,[21] respondent could just have gone there and drew cash from his current
account via over the counter transaction. After all, his account had sufficient funds. In other words, he did not have
to encash his check from petitioners.
Even assuming that, as claimed by petitioner Antonio Tan, at the time respondent needed to have his check
encashed, it was already close to 3:00 oclock in the afternoon, why could not have PBCom Monteverde branch also
accommodated him and allow him to encash his check that same time when he, like petitioners, was also a clientdepositor and the bank was still open for business?
Petitioners version was thus correctly denied credit by the appellate court.
That apart from the check no written proof of the grant of the loan was executed was credibly explained by
respondent when he declared that petitioners son being his godson, he, out of trust and respect, believed that the
crossed check sufficed to prove their transaction.
As for petitioners reliance on Art. 1358[22] of the Civil Code, the same is misplaced for the requirement that
contracts where the amount involved exceeds P500.00 must appear in writing is only for convenience.[23]
At all events, a check, the entries of which are no doubt in writing, could prove a loan transaction.[24]
That petitioner Antonio Tan had, on February 6, 1992, an outstanding balance of more than P950,000.00 in his
account at PBCom Monteverde branch where he was later to deposit respondents check did not rule out petitioners
securing a loan. It is pure naivete to believe that if a businessman has such an outstanding balance in his bank
account, he would have no need to borrow a lesser amount.
In fine, as petitioners side of the case is incredible as it is inconsistent with the principles by which men
similarly situated are governed, whereas respondents claim that the proceeds of the check, which were admittedly
received by petitioners, represented a loan[25] extended to petitioner Antonio Tan is credible, the preponderance of
evidence inclines on respondent.
WHEREFORE, the present petition is DENIED.
Costs against petitioners.
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SO ORDERED.
CHUA GAW vs. CHUA GR No. 160855 April 16, 2008
THIRD DIVISION
CONCEPCION CHUA GAW,

Petitioner,
- versus -
SUY BEN CHUA and

FELISA CHUA,
Respondents.
G.R. No. 160855
Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
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Promulgated:
April 16, 2008
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
NACHURA, J.:
This is a Petition for Review on Certiorari from the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No.
66790 and Resolution[2] denying the motion for reconsideration. The assailed decision affirmed the ruling of the
Regional Trial Court (RTC) in a Complaint for Sum of Money in favor of the plaintiff.
The antecedents are as follows:
Spouses Chua Chin and Chan Chi were the founders of three business enterprises[3] namely: Hagonoy Lumber,
Capitol Sawmill Corporation, and Columbia Wood Industries. The couple had seven children, namely, Santos Chua;
Concepcion Chua; Suy Ben Chua; Chua Suy Phen; Chua Sioc Huan; Chua Suy Lu; and Julita Chua. On June 19,
1986, Chua Chin died, leaving his wife Chan Chi and his seven children as his only surviving heirs. At the time of
Chua Chins death, the net worth of Hagonoy Lumber was P415,487.20.[4]
On December 8, 1986, his surviving heirs executed a Deed of Extra-Judicial Partition and Renunciation of
Hereditary Rights in Favor of a Co-Heir[5] (Deed of Partition, for brevity), wherein the heirs settled their interest in
Hagonoy Lumber as follows: one-half (1/2) thereof will pertain to the surviving spouse, Chan Chi, as her share in
the conjugal partnership; and the other half, equivalent to P207,743.60, will be divided among Chan Chi and the
seven children in equal pro indiviso shares equivalent to P25,967.00 each.[6] In said document, Chan Chi and the
six children likewise agreed to voluntarily renounce and waive their shares over Hagonoy Lumber in favor of their
co-heir, Chua Sioc Huan.
In May 1988, petitioner Concepcion Chua Gaw and her husband, Antonio Gaw, asked respondent, Suy Ben Chua, to
lend them P200,000.00 which they will use for the construction of their house in Marilao, Bulacan. The parties
agreed that the loan will be payable within six (6) months without interest.[7] On June 7, 1988, respondent issued in
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their favor China Banking Corporation Check No. 240810[8] for P200,000.00 which he delivered to the couples
house in Marilao, Bulacan. Antonio later encashed the check.
On August 1, 1990, their sister, Chua Sioc Huan, executed a Deed of Sale over all her rights and interests in
Hagonoy Lumber for a consideration of P255,000.00 in favor of respondent.[9]
Meantime, the spouses Gaw failed to pay the amount they borrowed from respondent within the designated period.
Respondent sent the couple a demand letter,[10] dated March 25, 1991, requesting them to settle their obligation
with the warning that he will be constrained to take the appropriate legal action if they fail to do so.
Failing to heed his demand, respondent filed a Complaint for Sum of Money against the spouses Gaw with the RTC.
The complaint alleged that on June 7, 1988, he extended a loan to the spouses Gaw for P200,000.00, payable within
six months without interest, but despite several demands, the couple failed to pay their obligation.[11]
In their Answer (with Compulsory Counterclaim), the spouses Gaw contended that the P200,000.00 was not a loan
but petitioners share in the profits of Hagonoy Lumber, one of her familys businesses. According to the spouses,
when they transferred residence to Marilao, Bulacan, petitioner asked respondent for an accounting, and payment of
her share in the profits, of Capital Sawmills Corporation, Columbia Wood Industries Corporation, and Hagonoy
Lumber. They claimed that respondent persuaded petitioner to temporarily forego her demand as it would offend
their mother who still wanted to remain in control of the family businesses. To insure that she will defer her demand,
respondent allegedly gave her P200,000.00 as her share in the profits of Hagonoy Lumber.[12]
In his Reply, respondent averred that the spouses Gaw did not demand from him an accounting of Capitol Sawmills
Corporation, Columbia Wood Industries, and Hagonoy Lumber. He asserted that the spouses Gaw, in fact, have no
right whatsoever in these businesses that would entitle them to an accounting thereof. Respondent insisted that the
P200,000.00 was given to and accepted by them as a loan and not as their share in Hagonoy Lumber.[13]
With leave of court, the spouses Gaw filed an Answer (with Amended Compulsory Counterclaim) wherein they
insisted that petitioner, as one of the compulsory heirs, is entitled to one-sixth (1/6) of Hagonoy Lumber, which the
respondent has arrogated to himself. They claimed that, despite repeated demands, respondent has failed and refused
to account for the operations of Hagonoy Lumber and to deliver her share therein. They then prayed that respondent
make an accounting of the operations of Hagonoy Lumber and to deliver to petitioner her one-sixth (1/6) share
thereof, which was estimated to be worth not less than P500,000.00.[14]
In his Answer to Amended Counterclaim, respondent explained that his sister, Chua Sioc Huan, became the sole
owner of Hagonoy Lumber when the heirs executed the Deed of Partition on December 8, 1986. In turn, he became
the sole owner of Hagonoy Lumber when he bought it from Chua Sioc Huan, as evidenced by the Deed of Sale
dated August 1, 1990.[15]
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Defendants, in their reply,[16] countered that the documents on which plaintiff anchors his claim of ownership over
Hagonoy Lumber were not true and valid agreements and do not express the real intention of the parties. They
claimed that these documents are mere paper arrangements which were prepared only upon the advice of a counsel
until all the heirs could reach and sign a final and binding agreement, which, up to such time, has not been executed
by the heirs.[17]
During trial, the spouses Gaw called the respondent to testify as adverse witness under Section 10, Rule 132. On
direct examination, respondent testified that Hagonoy Lumber was the conjugal property of his parents Chua Chin
and Chan Chi, who were both Chinese citizens. He narrated that, initially, his father leased the lots where Hagonoy
Lumber is presently located from his godfather, Lu Pieng, and that his father constructed the two-storey concrete
building standing thereon. According to respondent, when he was in high school, it was his father who managed the
business but he and his other siblings were helping him. Later, his sister, Chua Sioc Huan, managed Hogonoy
Lumber together with their other brothers and sisters. He stated that he also managed Hagonoy Lumber when he was
in high school, but he stopped when he got married and found another job. He said that he now owns the lots where
Hagonoy Lumber is operating.[18]
On cross-examination, respondent explained that he ceased to be a stockholder of Capitol Sawmill when he sold his
shares of stock to the other stockholders on January 1, 1991. He further testified that Chua Sioc Huan acquired
Hagonoy Lumber by virtue of a Deed of Partition, executed by the heirs of Chua Chin. He, in turn, became the
owner of Hagonoy Lumber when he bought the same from Chua Sioc Huan through a Deed of Sale dated August 1,
1990. [19]
On re-direct examination, respondent stated that he sold his shares of stock in Capitol Sawmill for P254,000.00,
which payment he received in cash. He also paid the purchase price of P255,000.00 for Hagonoy Lumber in cash,
which payment was not covered by a separate receipt as he merely delivered the same to Chua Sioc Huan at her
house in Paso de Blas, Valenzuela. Although he maintains several accounts at Planters Bank, Paluwagan ng Bayan,
and China Bank, the amount he paid to Chua Sioc Huan was not taken from any of them. He kept the amount in the
house because he was engaged in rediscounting checks of people from the public market. [20]
On December 10, 1998, Antonio Gaw died due to cardio vascular and respiratory failure.[21]
On February 11, 2000, the RTC rendered a Decision in favor of the respondent, thus:
WHEREFORE, in the light of all the foregoing, the Court hereby renders judgement ordering defendant Concepcion
Chua Gaw to pay the [respondent] the following:
1. P200,000.00 representing the principal obligation with legal interest from judicial demand or the institution of the
complaint on November 19, 1991;
2.
P50,000.00 as attorneys fees; and
3.
Costs of suit.
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The defendants counterclaim is hereby dismissed for being devoid of merit.
SO ORDERED.[22]
The RTC held that respondent is entitled to the payment of the amount of P200,000.00 with interest. It noted
that respondent personally issued Check No. 240810 to petitioner and her husband upon their request to lend them
the aforesaid amount. The trial court concluded that the P200,000.00 was a loan advanced by the respondent from
his own funds and not remunerations for services rendered to Hagonoy Lumber nor petitioners advance share in the
profits of their parents businesses.
The trial court further held that the validity and due execution of the Deed of Partition and the Deed of Sale,
evidencing transfer of ownership of Hagonoy Lumber from Chua Sioc Huan to respondent, was never impugned.
Although respondent failed to produce the originals of the documents, petitioner judicially admitted the due
execution of the Deed of Partition, and even acknowledged her signature thereon, thus constitutes an exception to
the best evidence rule. As for the Deed of Sale, since the contents thereof have not been put in issue, the nonpresentation of the original document is not fatal so as to affect its authenticity as well as the truth of its contents.
Also, the parties to the documents themselves do not contest their validity. Ultimately, petitioner failed to establish
her right to demand an accounting of the operations of Hagonoy Lumber nor the delivery of her 1/6 share therein.
As for petitioners claim that an accounting be done on Capitol Sawmill Corporation and Columbia Wood Industries,
the trial court held that respondent is under no obligation to make such an accounting since he is not charged with
operating these enterprises.[23]
Aggrieved, petitioner appealed to the CA, alleging that the trial court erred (1) when it considered the amount
of P200,000.00 as a loan obligation and not Concepcions share in the profits of Hagonoy Lumber; (2) when it
considered as evidence for the defendant, plaintiffs testimony when he was called to testify as an adverse party
under Section 10 (e), Rule 132 of the Rules of Court; and (3) when it considered admissible mere copies of the Deed
of Partition and Deed of Sale to prove that respondent is now the owner of Hagonoy Lumber.[24]
On May 23, 2003, the CA affirmed the Decision of the RTC. [25] The appellate court found baseless the petitioners
argument that the RTC should not have included respondents testimony as part of petitioners evidence. The CA
noted that the petitioner went on a fishing expedition, the taking of respondents testimony having taken up a total of
eleven hearings, and upon failing to obtain favorable information from the respondent, she now disclaims the same.
Moreover, the CA held that the petitioner failed to show that the inclusion of respondents testimony in the statement
of facts in the assailed decision unduly prejudiced her defense and counterclaims. In fact, the CA noted that the facts
testified to by respondent were deducible from the totality of the evidence presented.
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The CA likewise found untenable petitioners claim that Exhibits H (Deed of Sale) and Exhibit I (Deed of
Partition) were merely temporary paper arrangements. The CA agreed with the RTC that the testimony of petitioner
regarding the matter was uncorroborated she should have presented the other heirs to attest to the truth of her
allegation. Instead, petitioner admitted the due execution of the said documents. Since petitioner did not dispute the
due execution and existence of Exhibits H and I, there was no need to produce the originals of the documents in
accordance with the best evidence rule.[26]
On December 2, 2003, the CA denied the petitioners motion for reconsideration for lack of merit.[27]
Petitioner is before this Court in this petition for review on certiorari, raising the following errors:
I.
THAT ON THE PRELIMINARY IMPORTANT RELATED ISSUE, CLEAR AND PALPABLE
LEGAL ERROR HAS BEEN COMMITTED IN THE APPLICATION AND LEGAL SIGNIFICANCE OF THE
RULE ON EXAMINATION OF ADVERSE PARTY OR HOSTILE WITNESS UNDER SECTION 10 (d) AND (e)
OF RULE 132, CAUSING SERIOUS DOUBT ON THE LOWER COURTS APPEALED DECISIONS
OBJECTIVITY, ANNEX C.
II.
THAT ON THE IMPORTANT LEGAL ISSUE RELATIVE TO THE AFORESAID TWO OPPOSING
CLAIMS OF RESPONDENT AND PETITIONER, CLEAR AND PALPABLE LEGAL ERROR HAS BEEN
COMMITTED UNDER THE LOWER COURTS DECISION ANNEX C AND THE QUESTIONED DECISION
OF MAY 23, 2003 (ANNEX A) AND THE RESOLUTION OF DECEMBER 2, 2003, (ANNEX B) IN
DEVIATING FROM AND DISREGARDING ESTABLISHED SUPREME COURT DECISIONS ENJOINING
COURTS NOT TO OVERLOOK OR MISINTERPRET IMPORTANT FACTS AND CIRCUMSTANCES,
SUPPORTED BY CLEAR AND CONVINCING EVIDENCE ON RECORD, AND WHICH ARE OF GREAT
WEIGHT AND VALUE, WHICH WOULD CHANGE THE RESULT OF THE CASE AND ARRIVE AT A JUST,
FAIR AND OBJECTIVE DECISION. (Citations omitted)
III.
THAT FINALLY, AS TO THE OTHER LEGAL IMPORTANT ISSUE RELATIVE TO CLAIM OR
OWNERSHIP OF THE HAGONOY LUMBER FAMILY BUSINESS, CLEAR AND PALPABLE LEGAL
ERROR HAS BEEN COMMITTED ON THE REQUIREMENTS AND CORRECT APPLICATION OF THE
BEST EVIDENCE RULE UNDER SECTION 3, RULE 130 OF THE REVISED RULES OF COURT.[28]
The petition is without merit.
Petitioner contends that her case was unduly prejudiced by the RTCs treatment of the respondents testimony as
adverse witness during cross-examination by his own counsel as part of her evidence. Petitioner argues that the
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adverse witness testimony elicited during cross-examination should not be considered as evidence of the calling
party. She contends that the examination of respondent as adverse witness did not make him her witness and she is
not bound by his testimony, particularly during cross-examination by his own counsel.[29] In particular, the
petitioner avers that the following testimony of the respondent as adverse witness should not be considered as her
evidence:
(11.a) That RESPONDENT-Appellee became owner of the HAGONOY LUMBER business when he bought the
same from Chua Sioc Huan through a Deed of Sale dated August 1, 1990 (EXH.H);
(11.b) That the HAGONOY LUMBER, on the other hand, was acquired by the sister Chua Sioc Huan, by virtue of
Extrajudicial Partition and Renunciation of Hereditary Rights in favor of a Co-Heir (EXH. I);
(11.c) That the 3 lots on which the HAGONOY LUMBER business is located were acquired by Lu Pieng from
the Santos family under the Deed of Absolute Sale (EXH. J); that Lu Pieng sold the Lots to Chua Suy Lu in 1976
(EXHS. K, L, & M.); that Chua Siok Huan eventually became owner of the 3 Lots; and in 1989 Chua Sioc Huan
sold them to RESPONDENT-Appellee (EXHS. Q and P); that after he acquired the 3 Lots, he has not sold them to
anyone and he is the owner of the lots.[30]
We do not agree that petitioners case was prejudiced by the RTCs treatment of the respondents testimony during
cross-examination as her evidence.
If there was an error committed by the RTC in ascribing to the petitioner the respondents testimony as adverse
witness during cross-examination by his own counsel, it constitute a harmless error which would not, in any way,
change the result of the case.
In the first place, the delineation of a piece of evidence as part of the evidence of one party or the other is only
significant in determining whether the party on whose shoulders lies the burden of proof was able to meet the
quantum of evidence needed to discharge the burden. In civil cases, that burden devolves upon the plaintiff who
must establish her case by preponderance of evidence. The rule is that the plaintiff must rely on the strength of his
own evidence and not upon the weakness of the defendants evidence. Thus, it barely matters who with a piece of
evidence is credited. In the end, the court will have to consider the entirety of the evidence presented by both parties.
Preponderance of evidence is then determined by considering all the facts and circumstances of the case, culled from
the evidence, regardless of who actually presented it.[31]
That the witness is the adverse party does not necessarily mean that the calling party will not be bound by the
formers testimony. The fact remains that it was at his instance that his adversary was put on the witness stand.
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Unlike an ordinary witness, the calling party may impeach an adverse witness in all respects as if he had been called
by the adverse party,[32] except by evidence of his bad character.[33] Under a rule permitting the impeachment of
an adverse witness, although the calling party does not vouch for the witness veracity, he is nonetheless bound by
his testimony if it is not contradicted or remains unrebutted.[34]
A party who calls his adversary as a witness is, therefore, not bound by the latters testimony only in the sense that
he may contradict him by introducing other evidence to prove a state of facts contrary to what the witness testifies
on.[35] A rule that provides that the party calling an adverse witness shall not be bound by his testimony does not
mean that such testimony may not be given its proper weight, but merely that the calling party shall not be precluded
from rebutting his testimony or from impeaching him.[36] This, the petitioner failed to do.
In the present case, the petitioner, by her own testimony, failed to discredit the respondents testimony on how
Hagonoy Lumber became his sole property. The petitioner admitted having signed the Deed of Partition but she
insisted that the transfer of the property to Chua Siok Huan was only temporary. On cross-examination, she
confessed that no other document was executed to indicate that the transfer of the business to Chua Siok Huan was a
temporary arrangement. She declared that, after their mother died in 1993, she did not initiate any action concerning
Hagonoy Lumber, and it was only in her counterclaim in the instant that, for the first time, she raised a claim over
the business.
Due process requires that in reaching a decision, a tribunal must consider the entire evidence presented.[37] All the
parties to the case, therefore, are considered bound by the favorable or unfavorable effects resulting from the
evidence.[38] As already mentioned, in arriving at a decision, the entirety of the evidence presented will be
considered, regardless of the party who offered them in evidence. In this light, the more vital consideration is not
whether a piece of evidence was properly attributed to one party, but whether it was accorded the apposite probative
weight by the court. The testimony of an adverse witness is evidence in the case and should be given its proper
weight, and such evidence becomes weightier if the other party fails to impeach the witness or contradict his
testimony.
Significantly, the RTCs finding that the P200,000.00 was given to the petitioner and her husband as a loan is
supported by the evidence on record. Hence, we do not agree with the petitioners contention that the RTC has
overlooked certain facts of great weight and value in arriving at its decision. The RTC merely took into
consideration evidence which it found to be more credible than the self-serving and uncorroborated testimony of the
petitioner.
At this juncture, we reiterate the well-entrenched doctrine that the findings of fact of the CA affirming those of the
trial court are accorded great respect, even finality, by this Court. Only errors of law, not of fact, may be reviewed
by this Court in petitions for review on certiorari under Rule 45.[39] A departure from the general rule may be
warranted where the findings of fact of the CA are contrary to the findings and conclusions of the trial court, or
when the same is unsupported by the evidence on record.[40] There is no reason to apply the exception in the instant
case because the findings and conclusions of the CA are in full accord with those of the trial court. These findings
are buttressed by the evidence on record. Moreover, the issues and errors alleged in this petition are substantially
the very same questions of fact raised by petitioner in the appellate court.
On the issue of whether the P200,000.00 was really a loan, it is well to remember that a check may be evidence of
indebtedness.[41] A check, the entries of which are in writing, could prove a loan transaction.[42] It is pure naivet
72
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to insist that an entrepreneur who has several sources of income and has access to considerable bank credit, no
longer has any reason to borrow any amount.
The petitioners allegation that the P200,000.00 was advance on her share in the profits of Hagonoy Lumber is
implausible. It is true that Hagonoy Lumber was originally owned by the parents of petitioner and respondent.
However, on December 8, 1986, the heirs freely renounced and waived in favor of their sister Chua Sioc Huan all
their hereditary shares and interest therein, as shown by the Deed of Partition which the petitioner herself signed. By
virtue of this deed, Chua Sioc Huan became the sole owner and proprietor of Hagonoy Lumber. Thus, when the
respondent delivered the check for P200,000.00 to the petitioner on June 7, 1988, Chua Sioc Huan was already the
sole owner of Hagonoy Lumber. At that time, both petitioner and respondent no longer had any interest in the
business enterprise; neither had a right to demand a share in the profits of the business. Respondent became the sole
owner of Hagonoy Lumber only after Chua Sioc Huan sold it to him on August 1, 1990. So, when the respondent
delivered to the petitioner the P200,000.00 check on June 7, 1988, it could not have been given as an advance on
petitioners share in the business, because at that moment in time both of them had no participation, interest or share
in Hagonoy Lumber. Even assuming, arguendo, that the check was an advance on the petitioners share in the profits
of the business, it was highly unlikely that the respondent would deliver a check drawn against his personal, and not
against the business enterprises account.
It is also worthy to note that both the Deed of Partition and the Deed of Sale were acknowledged before a Notary
Public. The notarization of a private document converts it into a public document, and makes it admissible in court
without further proof of its authenticity.[43] It is entitled to full faith and credit upon its face.[44] A notarized
document carries evidentiary weight as to its due execution, and documents acknowledged before a notary public
have in their favor the presumption of regularity. Such a document must be given full force and effect absent a
strong, complete and conclusive proof of its falsity or nullity on account of some flaws or defects recognized by law.
[45] A public document executed and attested through the intervention of a notary public is, generally, evidence of
the facts therein express in clear unequivocal manner.[46]
Petitioner, however, maintains that the RTC erred in admitting in evidence a mere copy of the Deed of Partition and
the Deed of Sale in violation of the best evidence rule. In addition, petitioner insists that the Deed of Sale was not
the result of bona fide negotiations between a true seller and buyer.
The best evidence rule as encapsulated in Rule 130, Section 3,[47] of the Revised Rules of Civil Procedure 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. Any other substitutionary evidence is likewise
admissible without need to account for the original.[48] Moreover, production of the original may be dispensed
with, in the trial courts discretion, whenever the opponent does not bona fide dispute the contents of the document
and no other useful purpose will be served by requiring production.[49]
Accordingly, we find that the best evidence rule is not applicable to the instant case. Here, there was no dispute as to
the terms of either deed; hence, the RTC correctly admitted in evidence mere copies of the two deeds. The petitioner
never even denied their due execution and admitted that she signed the Deed of Partition.[50] As for the Deed of
Sale, petitioner had, in effect, admitted its genuineness and due execution when she failed to specifically deny it in
the manner required by the rules.[51] The petitioner merely claimed that said documents do not express the true
agreement and intention of the parties since they were only provisional paper arrangements made upon the advice of
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Choco Notes
counsel.[52] Apparently, the petitioner does not contest the contents of these deeds but alleges that there was a
contemporaneous agreement that the transfer of Hagonoy Lumber to Chua Sioc Huan was only temporary.
An agreement or the contract between the parties is the formal expression of the parties rights, duties and
obligations. It is the best evidence of the intention of the parties.[53] The parties intention is to be deciphered from
the language used in the contract, not from the unilateral post facto assertions of one of the parties, or of third parties
who are strangers to the contract.[54] Thus, when the terms of an agreement have been reduced to writing, it is
deemed to contain all the terms agreed upon and there can be, between the parties and their successors in interest, no
evidence of such terms other than the contents of the written agreement.[55]
WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R.
CV No. 66790 dated May 23, 2003 and Resolution dated December 2, 2003 are AFFIRMED.
SO ORDERED.
Section 1
Section 1. Form of negotiable instruments An instrument to be negotiable must conform to the following
requirements:
(a) It must be in writing and signed by the make or drawer;
(b) Must contain an unconditional promise or order to pay a sum
(c) Must be payable on demand, or at a fixed or determinable
certain in money;
future time;
(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be
reasonable certainty.
named or otherwise indicated therein with
TRADERS vs. CA GR No. 93397 March 3, 1997

SECOND DIVISION
G.R. No. 93397 March 3, 1997
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TRADERS ROYAL BANK, petitioner,
vs.
COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE CORPORATION and CENTRAL BANK of the
PHILIPPINES, respondents.
TORRES, JR., J.:
Assailed in this Petition for Review on Certiorari is the Decision of the respondent Court of Appeals dated January
29, 1990, 1 affirming the nullity of the transfer of Central Bank Certificate of Indebtedness (CBCI) No. D891, 2
with a face value of P500,000.00, from the Philippine Underwriters Finance Corporation (Philfinance) to the
petitioner Trader's Royal Bank (TRB), under a Repurchase Agreement 3 dated February 4, 1981, and a Detached
Assignment 4 dated April 27, 1981.
Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the action was originally
filed as a Petition for Mandamus 5 under Rule 65 of the Rules of Court, to compel the Central Bank of the
Philippines to register the transfer of the subject CBCI to petitioner Traders Royal Bank (TRB).
In the said petition, TRB stated that:
3.
On November 27, 1979, Filriters Guaranty Assurance Corporation (Filriters) executed a "Detached
Assignment" . . ., whereby Filriters, as registered owner, sold, transferred, assigned and delivered unto Philippine
Underwriters Finance Corporation (Philfinance) all its rights and title to Central Bank Certificates of Indebtedness of
PESOS: FIVE HUNDRED THOUSAND (P500,000) and having an aggregate value of PESOS: THREE MILLION
FIVE HUNDRED THOUSAND (P3,500,000.00);
4.
The aforesaid Detached Assignment (Annex "A") contains an express authorization executed by the
transferor intended to complete the assignment through the registration of the transfer in the name of PhilFinance,
which authorization is specifically phrased as follows: '(Filriters) hereby irrevocably authorized the said issuer
(Central Bank) to transfer the said bond/certificates on the books of its fiscal agent;
5.
On February 4, 1981, petitioner entered into a Repurchase Agreement with PhilFinance . . ., whereby, for
and in consideration of the sum of PESOS: FIVE HUNDRED THOUSAND (P500,000.00), PhilFinance sold,
transferred and delivered to petitioner CBCI 4-year, 8th series, Serial No. D891 with a face value of
P500,000.00 . . ., which CBCI was among those previously acquired by PhilFinance from Filriters as averred in
paragraph 3 of the Petition;
75
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6.
Pursuant to the aforesaid Repurchase Agreement (Annex "B"), Philfinance agreed to repurchase CBCI
Serial No. D891 (Annex "C"), at the stipulated price of PESOS: FIVE HUNDRED NINETEEN THOUSAND
THREE HUNDRED SIXTY-ONE & 11/100 (P519,361.11) on April 27, 1981;
7.
PhilFinance failed to repurchase the CBCI on the agreed date of maturity, April 27, 1981, when the checks
it issued in favor of petitioner were dishonored for insufficient funds;
8.
Owing to the default of PhilFinance, it executed a Detached Assignment in favor of the Petitioner to enable
the latter to have its title completed and registered in the books of the respondent. And by means of said
Detachment, Philfinance transferred and assigned all, its rights and title in the said CBCI (Annex "C") to petitioner
and, furthermore, it did thereby "irrevocably authorize the said issuer (respondent herein) to transfer the said
bond/certificate on the books of its fiscal agent." . . .
9.
Petitioner presented the CBCI (Annex "C"), together with the two (2) aforementioned Detached
Assignments (Annexes "B" and "D"), to the Securities Servicing Department of the respondent, and requested the
latter to effect the transfer of the CBCI on its books and to issue a new certificate in the name of petitioner as
absolute owner thereof;
10.
Respondent failed and refused to register the transfer as requested, and continues to do so notwithstanding
petitioner's valid and just title over the same and despite repeated demands in writing, the latest of which is hereto
attached as Annex "E" and made an integral part hereof;
11.
The express provisions governing the transfer of the CBCI were substantially complied with the petitioner's
request for registration, to wit:
"No transfer thereof shall be valid unless made at said office (where the Certificate has been registered) by the
registered owner hereof, in person or by his attorney duly authorized in writing, and similarly noted hereon, and
upon payment of a nominal transfer fee which may be required, a new Certificate shall be issued to the transferee of
the registered holder thereof."
and, without a doubt, the Detached Assignments presented to respondent were sufficient authorizations in writing
executed by the registered owner, Filriters, and its transferee, PhilFinance, as required by the above-quoted
provision;
12.
Upon such compliance with the aforesaid requirements, the ministerial duties of registering a transfer of
ownership over the CBCI and issuing a new certificate to the transferee devolves upon the respondent;
76
Choco Notes
Upon these assertions, TRB prayed for the registration by the Central Bank of the subject CBCI in its name.
On December 4, 1984, the Regional Trial Court the case took cognizance of the defendant Central Bank of the
Philippines' Motion for Admission of Amended Answer with Counter Claim for Interpleader 6 thereby calling to
fore the respondent Filriters Guaranty Assurance Corporation (Filriters), the registered owner of the subject CBCI as
respondent.
For its part, Filriters interjected as Special Defenses the following:
11.
Respondent is the registered owner of CBCI No. 891;
12.
The CBCI constitutes part of the reserve investment against liabilities required of respondent as an
insurance company under the Insurance Code;
13.
Without any consideration or benefit whatsoever to Filriters, in violation of law and the trust fund doctrine
and to the prejudice of policyholders and to all who have present or future claim against policies issued by Filriters,
Alfredo Banaria, then Senior Vice-President-Treasury of Filriters, without any board resolution, knowledge or
consent of the board of directors of Filriters, and without any clearance or authorization from the Insurance
Commissioner, executed a detached assignment purportedly assigning CBCI No. 891 to Philfinance;
xxx
xxx
xxx
14.
Subsequently, Alberto Fabella, Senior Vice-President-Comptroller are Pilar Jacobe, Vice-PresidentTreasury of Filriters (both of whom were holding the same positions in Philfinance), without any consideration or
benefit redounding to Filriters and to the grave prejudice of Filriters, its policy holders and all who have present or
future claims against its policies, executed similar detached assignment forms transferring the CBCI to plaintiff;
xxx
xxx
xxx
15.
The detached assignment is patently void and inoperative because the assignment is without the knowledge
and consent of directors of Filriters, and not duly authorized in writing by the Board, as requiring by Article V,
Section 3 of CB Circular No. 769;
77
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16.
The assignment of the CBCI to Philfinance is a personal act of Alfredo Banaria and not the corporate act of
Filriters and such null and void;
a)
The assignment was executed without consideration and for that reason, the assignment is void from the
beginning (Article 1409, Civil Code);
b)
The assignment was executed without any knowledge and consent of the board of directors of Filriters;
c)
The CBCI constitutes reserve investment of Filriters against liabilities, which is a requirement under the
Insurance Code for its existence as an insurance company and the pursuit of its business operations. The assignment
of the CBCI is illegal act in the sense of malum in se or malum prohibitum, for anyone to make, either as corporate
or personal act;
d)
The transfer of dimunition of reserve investments of Filriters is expressly prohibited by law, is immoral and
against public policy;
e)
The assignment of the CBCI has resulted in the capital impairment and in the solvency deficiency of
Filriters (and has in fact helped in placing Filriters under conservatorship), an inevitable result known to the officer
who executed assignment.
17.
Plaintiff had acted in bad faith and with knowledge of the illegality and invalidity of the assignment.
a)
The CBCI No. 891 is not a negotiable instrument and as a certificate of indebtedness is not payable to
bearer but is a registered in the name of Filriters;
b)
The provision on transfer of the CBCIs provides that the Central Bank shall treat the registered owner as
the absolute owner and that the value of the registered certificates shall be payable only to the registered owner; a
sufficient notice to plaintiff that the assignments do not give them the registered owner's right as absolute owner of
the CBCI's;
c)
CB Circular 769, Series of 1980 (Rules and Regulations Governing CBCIs) provides that the registered
certificates are payable only to the registered owner (Article II, Section 1).
18.
Plaintiff knew full well that the assignment by Philfinance of CBCI No. 891 by Filriters is not a regular
transaction made in the usual of ordinary course of business;
78
Choco Notes
a)
The CBCI constitutes part of the reserve investments of Filriters against liabilities requires by the Insurance
Code and its assignment or transfer is expressly prohibited by law. There was no attempt to get any clearance or
authorization from the Insurance Commissioner;
b)
The assignment by Filriters of the CBCI is clearly not a transaction in the usual or regular course of its
business;
c)
The CBCI involved substantial amount and its assignment clearly constitutes disposition of "all or
substantially all" of the assets of Filriters, which requires the affirmative action of the stockholders (Section 40,
Corporation [sic] Code. 7
In its Decision 8 dated April 29, 1988, the Regional Trial Court of Manila, Branch XXXIII found the assignment of
CBCI No. D891 in favor of Philfinance, and the subsequent assignment of the same CBCI by Philfinance in favor of
Traders Royal Bank null and void and of no force and effect. The dispositive portion of the decision reads:
ACCORDINGLY, judgment is hereby rendered in favor of the respondent Filriters Guaranty Assurance Corporation
and against the plaintiff Traders Royal Bank:
(a)
Declaring the assignment of CBCI No. 891 in favor of PhilFinance, and the subsequent assignment of
CBCI by PhilFinance in favor of the plaintiff Traders Royal Bank as null and void and of no force and effect;
(b)
Ordering the respondent Central Bank of the Philippines to disregard the said assignment and to pay the
value of the proceeds of the CBCI No. D891 to the Filriters Guaranty Assurance Corporation;
(c)
Ordering the plaintiff Traders Royal Bank to pay respondent Filriters Guaranty Assurance Corp. The sum of
P10,000 as attorney's fees; and
(d)
to pay the costs.
SO ORDERED. 9
The petitioner assailed the decision of the trial court in the Court of Appeals 10, but their appeals likewise failed.
The findings of the fact of the said court are hereby reproduced:
79
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The records reveal that defendant Filriters is the registered owner of CBCI No. D891. Under a deed of assignment
dated November 27, 1971, Filriters transferred CBCI No. D891 to Philippine Underwriters Finance Corporation
(Philfinance). Subsequently, Philfinance transferred CBCI No. D891, which was still registered in the name of
Filriters, to appellant Traders Royal Bank (TRB). The transfer was made under a repurchase agreement dated
February 4, 1981, granting Philfinance the right to repurchase the instrument on or before April 27, 1981. When
Philfinance failed to buy back the note on maturity date, it executed a deed of assignment, dated April 27, 1981,
conveying to appellant TRB all its right and the title to CBCI No. D891.
Armed with the deed of assignment, TRB then sought the transfer and registration of CBCI No. D891 in its name
before the Security and Servicing Department of the Central Bank (CB). Central Bank, however, refused to effect
the transfer and registration in view of an adverse claim filed by defendant Filriters.
Left with no other recourse, TRB filed a special civil action for mandamus against the Central Bank in the Regional
Trial Court of Manila. The suit, however, was subsequently treated by the lower court as a case of interpleader when
CB prayed in its amended answer that Filriters be impleaded as a respondent and the court adjudge which of them is
entitled to the ownership of CBCI No. D891. Failing to get a favorable judgment. TRB now comes to this Court on
appeal. 11
In the appellate court, petitioner argued that the subject CBCI was a negotiable instrument, and having acquired the
said certificate from Philfinance as a holder in due course, its possession of the same is thus free fro any defect of
title of prior parties and from any defense available to prior parties among themselves, and it may thus, enforce
payment of the instrument for the full amount thereof against all parties liable thereon. 12
In ignoring said argument, the appellate court that the CBCI is not a negotiable instrument, since the instrument
clearly stated that it was payable to Filriters, the registered owner, whose name was inscribed thereon, and that the
certificate lacked the words of negotiability which serve as an expression of consent that the instrument may be
transferred by negotiation.
Obviously, the assignment of the certificate from Filriters to Philfinance was fictitious, having made without
consideration, and did not conform to Central Bank Circular No. 769, series of 1980, better known as the "Rules and
Regulations Governing Central Bank Certificates of Indebtedness", which provided that any "assignment of
registered certificates shall not be valid unless made . . . by the registered owner thereof in person or by his
representative duly authorized in writing."
Petitioner's claimed interest has no basis, since it was derived from Philfinance whose interest was inexistent, having
acquired the certificate through simulation. What happened was Philfinance merely borrowed CBCI No. D891 from
Filriters, a sister corporation, to guarantee its financing operations.
Said the Court:
80
Choco Notes
In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and on behalf of Filriters,
did not have the necessary written authorization from the Board of Directors of Filriters to act for the latter . For lack
of such authority, the assignment did not therefore bind Filriters and violated as the same time Central Bank Circular
No. 769 which has the force and effect of a law, resulting in the nullity of the transfer (People v. Que Po Lay, 94
Phil. 640; 3M Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or transfer to Traders
Royal Bank and which the latter can register with the Central Bank.
WHEREFORE, the judgment appealed from is AFFIRMED, with costs against plaintiff-appellant.
SO ORDERED. 13
Petitioner's present position rests solely on the argument that Philfinance owns 90% of Filriters equity and the two
corporations have identical corporate officers, thus demanding the application of the doctrine or piercing the veil of
corporate fiction, as to give validity to the transfer of the CBCI from registered owner to petitioner TRB. 14 This
renders the payment by TRB to Philfinance of CBCI, as actual payment to Filriters. Thus, there is no merit to the
lower court's ruling that the transfer of the CBCI from Filriters to Philfinance was null and void for lack of
consideration.
Admittedly, the subject CBCI is not a negotiable instrument in the absence of words of negotiability within the
meaning of the negotiable instruments law (Act 2031).
The pertinent portions of the subject CBCI read:
xxx
xxx
xxx
The Central Bank of the Philippines (the Bank) for value received, hereby promises to pay bearer, of if this
Certificate of indebtedness be registered, to FILRITERS GUARANTY ASSURANCE CORPORATION, the
registered owner hereof, the principal sum of FIVE HUNDRED THOUSAND PESOS.
xxx
xxx
xxx
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Properly understood, a certificate of indebtedness pertains to certificates for the creation and maintenance of a
permanent improvement revolving fund, is similar to a "bond," (82 Minn. 202). Being equivalent to a bond, it is
properly understood as acknowledgment of an obligation to pay a fixed sum of money. It is usually used for the
purpose of long term loans.
The appellate court ruled that the subject CBCI is not a negotiable instrument, stating that:
As worded, the instrument provides a promise "to pay Filriters Guaranty Assurance Corporation, the registered
owner hereof." Very clearly, the instrument is payable only to Filriters, the registered owner, whose name is
inscribed thereon. It lacks the words of negotiability which should have served as an expression of consent that the
instrument may be transferred by negotiation. 15
A reading of the subject CBCI indicates that the same is payable to FILRITERS GUARANTY ASSURANCE
CORPORATION, and to no one else, thus, discounting the petitioner's submission that the same is a negotiable
instrument, and that it is a holder in due course of the certificate.
The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom to circulate
as a substitute for money. Hence, freedom of negotiability is the touchtone relating to the protection of holders in
due course, and the freedom of negotiability is the foundation for the protection which the law throws around a
holder in due course (11 Am. Jur. 2d, 32). This freedom in negotiability is totally absent in a certificate indebtedness
as it merely to pay a sum of money to a specified person or entity for a period of time.
As held in Caltex (Philippines), Inc. v. Court of Appeals, 16:
The accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing, that
is, from the face of the instrument itself. In the construction of a bill or note, the intention of the parties is to control,
if it can be legally ascertained. While the writing may be read in the light of surrounding circumstance in order to
more perfectly understand the intent and meaning of the parties, yet as they have constituted the writing to be the
only outward and visible expression of their meaning, no other words are to be added to it or substituted in its stead.
The duty of the court in such case is to ascertain, not what the parties may have secretly intended as
contradistinguished from what their words express, but what is the meaning of the words they have used. What the
parties meant must be determined by what they said.
Thus, the transfer of the instrument from Philfinance to TRB was merely an assignment, and is not governed by the
negotiable instruments law. The pertinent question then is, was the transfer of the CBCI from Filriters to Philfinance
and subsequently from Philfinance to TRB, in accord with existing law, so as to entitle TRB to have the CBCI
registered in its name with the Central Bank?
The following are the appellate court's pronouncements on the matter:
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Clearly shown in the record is the fact that Philfinance's title over CBCI No. D891 is defective since it acquired the
instrument from Filriters fictitiously. Although the deed of assignment stated that the transfer was for "value
received", there was really no consideration involved. What happened was Philfinance merely borrowed CBCI No.
D891 from Filriters, a sister corporation. Thus, for lack of any consideration, the assignment made is a complete
nullity.
What is more, We find that the transfer made by Filriters to Philfinance did not conform to Central Bank Circular
No. 769, series of 1980, otherwise known as the "Rules and Regulations Governing Central Bank Certificates of
Indebtedness", under which the note was issued. Published in the Official Gazette on November 19, 1980, Section 3
thereof provides that any assignment of registered certificates shall not be valid unless made . . . by the registered
owner thereof in person or by his representative duly authorized in writing.
In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and on behalf of Filriters,
did not have the necessary written authorization from the Board of Directors of Filriters to act for the latter. For lack
of such authority, the assignment did not therefore bind Filriters and violated at the same time Central Bank Circular
No. 769 which has the force and effect of a law, resulting in the nullity of the transfer (People vs. Que Po Lay, 94
Phil. 640; 3M Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or transfer to Traders
Royal Bank and which the latter can register with the Central Bank
Petitioner now argues that the transfer of the subject CBCI to TRB must upheld, as the respondent Filriters and
Philfinance, though separate corporate entities on paper, have used their corporate fiction to defraud TRB into
purchasing the subject CBCI, which purchase now is refused registration by the Central Bank.
Says the petitioner;
Since Philfinance own about 90% of Filriters and the two companies have the same corporate officers, if the
principle of piercing the veil of corporate entity were to be applied in this case, then TRB's payment to Philfinance
for the CBCI purchased by it could just as well be considered a payment to Filriters, the registered owner of the
CBCI as to bar the latter from claiming, as it has, that it never received any payment for that CBCI sold and that said
CBCI was sold without its authority.
xxx
xxx
xxx
We respectfully submit that, considering that the Court of Appeals has held that the CBCI was merely borrowed by
Philfinance from Filriters, a sister corporation, to guarantee its (Philfinance's) financing operations, if it were to be
83
Choco Notes
consistent therewith, on the issued raised by TRB that there was a piercing a veil of corporate entity, the Court of
Appeals should have ruled that such veil of corporate entity was, in fact, pierced, and the payment by TRB to
Philfinance should be construed as payment to Filriters. 17
We disagree with Petitioner.
Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this merely an equitable remedy, and
may be awarded only in cases when the corporate fiction is used to defeat public convenience, justify wrong, protect
fraud or defend crime or where a corporation is a mere alter ego or business conduit of a person. 18
Peiercing the veil of corporate entity requires the court to see through the protective shroud which exempts its
stockholders from liabilities that ordinarily, they could be subject to, or distinguished one corporation from a
seemingly separate one, were it not for the existing corporate fiction. But to do this, the court must be sure that the
corporate fiction was misused, to such an extent that injustice, fraud, or crime was committed upon another,
disregarding, thus, his, her, or its rights. It is the protection of the interests of innocent third persons dealing with the
corporate entity which the law aims to protect by this doctrine.
The corporate separateness between Filriters and Philfinance remains, despite the petitioners insistence on the
contrary. For one, other than the allegation that Filriters is 90% owned by Philfinance, and the identity of one shall
be maintained as to the other, there is nothing else which could lead the court under circumstance to disregard their
corporate personalities.
Though it is true that when valid reasons exist, the legal fiction that a corporation is an entity with a juridical
personality separate from its stockholders and from other corporations may be disregarded, 19 in the absence of such
grounds, the general rule must upheld. The fact that Filfinance owns majority shares in Filriters is not by itself a
ground to disregard the independent corporate status of Filriters. In Liddel & Co., Inc. vs. Collector of Internal
Revenue, 20 the mere ownership by a single stockholder or by another corporation of all or nearly all of the capital
stock of a corporation is not of itself a sufficient reason for disregarding the fiction of separate corporate
personalities.
In the case at bar, there is sufficient showing that the petitioner was not defrauded at all when it acquired the subject
certificate of indebtedness from Philfinance.
On its face the subject certificates states that it is registered in the name of Filriters. This should have put the
petitioner on notice, and prompted it to inquire from Filriters as to Philfinance's title over the same or its authority to
assign the certificate. As it is, there is no showing to the effect that petitioner had any dealings whatsoever with
Filriters, nor did it make inquiries as to the ownership of the certificate.
The terms of the CBCI No. D891 contain a provision on its TRANSFER. Thus:
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TRANSFER. This Certificate shall pass by delivery unless it is registered in the owner's name at any office of the
Bank or any agency duly authorized by the Bank, and such registration is noted hereon. After such registration no
transfer thereof shall be valid unless made at said office (where the Certificates has been registered) by the
registered owner hereof, in person, or by his attorney, duly authorized in writing and similarly noted hereon and
upon payment of a nominal transfer fee which may be required, a new Certificate shall be issued to the transferee of
the registered owner thereof. The bank or any agency duly authorized by the Bank may deem and treat the bearer of
this Certificate, or if this Certificate is registered as herein authorized, the person in whose name the same is
registered as the absolute owner of this Certificate, for the purpose of receiving payment hereof, or on account
hereof, and for all other purpose whether or not this Certificate shall be overdue.
This is notice to petitioner to secure from Filriters a written authorization for the transfer or to require Philfinance to
submit such an authorization from Filriters.
Petitioner knew that Philfinance is not registered owner of the CBCI No. D891. The fact that a non-owner was
disposing of the registered CBCI owned by another entity was a good reason for petitioner to verify of inquire as to
the title Philfinance to dispose to the CBCI.
Moreover, CBCI No. D891 is governed by CB Circular No. 769, series of 1990 21, known as the Rules and
Regulations Governing Central Bank Certificates of Indebtedness, Section 3, Article V of which provides that:
Sec. 3. Assignment of Registered Certificates. Assignment of registered certificates shall not be valid unless
made at the office where the same have been issued and registered or at the Securities Servicing Department, Central
Bank of the Philippines, and by the registered owner thereof, in person or by his representative, duly authorized in
writing. For this purpose, the transferee may be designated as the representative of the registered owner.
Petitioner, being a commercial bank, cannot feign ignorance of Central Bank Circular 769, and its requirements. An
entity which deals with corporate agents within circumstances showing that the agents are acting in excess of
corporate authority, may not hold the corporation liable. 22 This is only fair, as everyone 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. 23
The transfer made by Filriters to Philfinance did not conform to the said. Central Bank Circular, which for all
intents, is considered part of the law. As found by the courts a quo, Alfredo O. Banaria, who had signed the deed of
assignment from Filriters to Philfinance, purportedly for and in favor of Filriters, did not have the necessary written
authorization from the Board of Directors of Filriters to act for the latter. As it is, the sale from Filriters to
Philfinance was fictitious, and therefore void and inexistent, as there was no consideration for the same. This is fatal
to the petitioner's cause, for then, Philfinance had no title over the subject certificate to convey the Traders Royal
Bank. Nemo potest nisi quod de jure potest no man can do anything except what he can do lawfully.
85
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Concededly, the subject CBCI was acquired by Filriters to form part of its legal and capital reserves, which are
required by law 24 to be maintained at a mandated level. This was pointed out by Elias Garcia, Manager-in-Charge
of respondent Filriters, in his testimony given before the court on May 30, 1986.
Q
Do you know this Central Bank Certificate of Indebtedness, in short, CBCI No. D891 in the face value of
P5000,000.00 subject of this case?
Yes, sir.
Why do you know this?
A
Well, this was CBCI of the company sought to be examined by the Insurance Commission sometime in
early 1981 and this CBCI No. 891 was among the CBCI's that were found to be missing.
Let me take you back further before 1981. Did you have the knowledge of this CBCI No. 891 before 1981?
A
Yes, sir. This CBCI is an investment of Filriters required by the Insurance Commission as legal reserve of
the company.
Legal reserve for the purpose of what?
A
Well, you see, the Insurance companies are required to put up legal reserves under Section 213 of the
Insurance Code equivalent to 40 percent of the premiums receipt and further, the Insurance Commission requires
this reserve to be invested preferably in government securities or government binds. This is how this CBCI came to
be purchased by the company.
It cannot, therefore, be taken out of the said funds, without violating the requirements of the law. Thus, the
anauthorized use or distribution of the same by a corporate officer of Filriters cannot bind the said corporation, not
without the approval of its Board of Directors, and the maintenance of the required reserve fund.
Consequently, the title of Filriters over the subject certificate of indebtedness must be upheld over the claimed
interest of Traders Royal Bank.
86
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ACCORDINGLY, the petition is DISMISSED and the decision appealed from dated January 29, 1990 is hereby
AFFIRMED.
SO ORDERED.
FIRESTONE vs. CA GR No. 113236 March 5, 2001
[G.R. No. 113236. March 5, 2001]
FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner, vs., COURT OF APPEALS and
LUZON DEVELOPMENT BANK, respondents.
DECISION
QUISUMBING, J.:
This petition assails the decision[1] dated December 29, 1993 of the Court of Appeals in CA-G.R. CV No. 29546,
which affirmed the judgment[2] of the Regional Trial Court of Pasay City, Branch 113 in Civil Case No. PQ-7854-P,
dismissing Firestones complaint for damages.
The facts of this case, adopted by the CA and based on findings by the trial court, are as follows:
[D]efendant is a banking corporation. It operates under a certificate of authority issued by the Central Bank of the
Philippines, and among its activities, accepts savings and time deposits. Said defendant had as one of its clientdepositors the Fojas-Arca Enterprises Company (Fojas-Arca for brevity). Fojas-Arca maintaining a special
savings account with the defendant, the latter authorized and allowed withdrawals of funds therefrom through the
medium of special withdrawal slips. These are supplied by the defendant to Fojas-Arca.
In January 1978, plaintiff and Fojas-Arca entered into a Franchised Dealership Agreement (Exh. B) whereby
Fojas-Arca has the privilege to purchase on credit and sell plaintiffs products.
On January 14, 1978 up to May 15, 1978. Pursuant to the aforesaid Agreement, Fojas-Arca purchased on credit
Firestone products from plaintiff with a total amount of P4,896,000.00. In payment of these purchases, Fojas-Arca
delivered to plaintiff six (6) special withdrawal slips drawn upon the defendant. In turn, these were deposited by the
plaintiff with its current account with the Citibank. All of them were honored and paid by the defendant. This
singular circumstance made plaintiff believe [sic] and relied [sic] on the fact that the succeeding special withdrawal
slips drawn upon the defendant would be equally sufficiently funded. Relying on such confidence and belief and as
a direct consequence thereof, plaintiff extended to Fojas-Arca other purchases on credit of its products.
87
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On the following dates Fojas-Arca purchased Firestone products on credit (Exh. M, I, J, K) and delivered to plaintiff
the corresponding special withdrawal slips in payment thereof drawn upon the defendant, to wit:
DATE
WITHDRAWAL
AMOUNT
SLIP NO.
June 15, 1978
42127
P1,198,092.80
July 15, 1978
42128
940,190.00
Aug. 15, 1978
42129
880,000.00
Sep. 15, 1978
42130
981,500.00
These were likewise deposited by plaintiff in its current account with Citibank and in turn the Citibank forwarded it
[sic] to the defendant for payment and collection, as it had done in respect of the previous special withdrawal slips.
Out of these four (4) withdrawal slips only withdrawal slip No. 42130 in the amount of P981,500.00 was honored
and paid by the defendant in October 1978. Because of the absence for a long period coupled with the fact that
defendant honored and paid withdrawal slips No. 42128 dated July 15, 1978, in the amount of P981,500.00
plaintiffs belief was all the more strengthened that the other withdrawal slips were likewise sufficiently funded, and
that it had received full value and payment of Fojas-Arcas credit purchased then outstanding at the time. On this
basis, plaintiff was induced to continue extending to Fojas-Arca further purchase on credit of its products as per
agreement (Exh. B).
However, on December 14, 1978, plaintiff was informed by Citibank that special withdrawal slips No. 42127 dated
June 15, 1978 for P1,198,092.80 and No. 42129 dated August 15, 1978 for P880,000.00 were dishonored and not
paid for the reason NO ARRANGEMENT. As a consequence, the Citibank debited plaintiffs account for the total
sum of P2,078,092.80 representing the aggregate amount of the above-two special withdrawal slips. Under such
situation, plaintiff averred that the pecuniary losses it suffered is caused by and directly attributable to defendants
gross negligence.
On September 25, 1979, counsel of plaintiff served a written demand upon the defendant for the satisfaction of the
damages suffered by it. And due to defendants refusal to pay plaintiffs claim, plaintiff has been constrained to file
this complaint, thereby compelling plaintiff to incur litigation expenses and attorneys fees which amount are
recoverable from the defendant.
Controverting the foregoing asseverations of plaintiff, defendant asserted, inter alia that the transactions mentioned
by plaintiff are that of plaintiff and Fojas-Arca only, [in] which defendant is not involved; Vehemently, it was denied
by defendant that the special withdrawal slips were honored and treated as if it were checks, the truth being that
when the special withdrawal slips were received by defendant, it only verified whether or not the signatures therein
were authentic, and whether or not the deposit level in the passbook concurred with the savings ledger, and whether
or not the deposit is sufficient to cover the withdrawal; if plaintiff treated the special withdrawal slips paid by FojasArca as checks then plaintiff has to blame itself for being grossly negligent in treating the withdrawal slips as check
when it is clearly stated therein that the withdrawal slips are non-negotiable; that defendant is not a privy to any of
the transactions between Fojas-Arca and plaintiff for which reason defendant is not duty bound to notify nor give
notice of anything to plaintiff. If at first defendant had given notice to plaintiff it is merely an extension of usual
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bank courtesy to a prospective client; that defendant is only dealing with its depositor Fojas-Arca and not the
plaintiff. In summation, defendant categorically stated that plaintiff has no cause of action against it (pp. 1-3, Dec.;
pp. 368-370, id).[3]
Petitioners complaint[4] for a sum of money and damages with the Regional Trial Court of Pasay City, Branch 113,
docketed as Civil Case No. 29546, was dismissed together with the counterclaim of defendant.
Petitioner appealed the decision to the Court of Appeals. It averred that respondent Luzon Development Bank was
liable for damages under Article 2176[5] in relation to Articles 19[6] and 20[7] of the Civil Code. As noted by the
CA, petitioner alleged the following tortious acts on the part of private respondent: 1) the acceptance and payment
of the special withdrawal slips without the presentation of the depositors passbook thereby giving the impression
that the withdrawal slips are instruments payable upon presentment; 2) giving the special withdrawal slips the
general appearance of checks; and 3) the failure of respondent bank to seasonably warn petitioner that it would not
honor two of the four special withdrawal slips.
On December 29, 1993, the Court of Appeals promulgated its assailed decision. It denied the appeal and affirmed
the judgment of the trial court. According to the appellate court, respondent bank notified the depositor to present
the passbook whenever it received a collection note from another bank, belying petitioners claim that respondent
bank was negligent in not requiring a passbook under the subject transaction. The appellate court also found that the
special withdrawal slips in question were not purposely given the appearance of checks, contrary to petitioners
assertions, and thus should not have been mistaken for checks. Lastly, the appellate court ruled that the respondent
bank was under no obligation to inform petitioner of the dishonor of the special withdrawal slips, for to do so would
have been a violation of the law on the secrecy of bank deposits.
Hence, the instant petition, alleging the following assignment of error:
25.
The CA grievously erred in holding that the [Luzon Development] Bank was free from any fault or
negligence regarding the dishonor, or in failing to give fair and timely advice of the dishonor, of the two
intermediate LDB Slips and in failing to award damages to Firestone pursuant to Article 2176 of the New Civil
Code.[8]
The issue for our consideration is whether or not respondent bank should be held liable for damages suffered by
petitioner, due to its allegedly belated notice of non-payment of the subject withdrawal slips.
The initial transaction in this case was between petitioner and Fojas-Arca, whereby the latter purchased tires from
the former with special withdrawal slips drawn upon Fojas-Arcas special savings account with respondent bank.
Petitioner in turn deposited these withdrawal slips with Citibank. The latter credited the same to petitioners current
account, then presented the slips for payment to respondent bank. It was at this point that the bone of contention
arose.
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On December 14, 1978, Citibank informed petitioner that special withdrawal slips Nos. 42127 and 42129 dated June
15, 1978 and August 15, 1978, respectively, were refused payment by respondent bank due to insufficiency of FojasArcas funds on deposit. That information came about six months from the time Fojas-Arca purchased tires from
petitioner using the subject withdrawal slips. Citibank then debited the amount of these withdrawal slips from
petitioners account, causing the alleged pecuniary damage subject of petitioners cause of action.
At the outset, we note that petitioner admits that the withdrawal slips in question were non-negotiable.[9] Hence, the
rules governing the giving of immediate notice of dishonor of negotiable instruments do not apply in this case.[10]
Petitioner itself concedes this point.[11] Thus, respondent bank was under no obligation to give immediate notice
that it would not make payment on the subject withdrawal slips. Citibank should have known that withdrawal slips
were not negotiable instruments. It could not expect these slips to be treated as checks by other entities. Payment or
notice of dishonor from respondent bank could not be expected immediately, in contrast to the situation involving
checks.
In the case at bar, it appears that Citibank, with the knowledge that respondent Luzon Development Bank, had
honored and paid the previous withdrawal slips, automatically credited petitioners current account with the amount
of the subject withdrawal slips, then merely waited for the same to be honored and paid by respondent bank. It
presumed that the withdrawal slips were good.
It bears stressing that Citibank could not have missed the non-negotiable nature of the withdrawal slips. The essence
of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to circulate freely as
a substitute for money.[12] The withdrawal slips in question lacked this character.
A bank is under obligation to treat the accounts of its depositors with meticulous care, whether such account consists
only of a few hundred pesos or of millions of pesos.[13] The fact that the other withdrawal slips were honored and
paid by respondent bank was no license for Citibank to presume that subsequent slips would be honored and paid
immediately. By doing so, it failed in its fiduciary duty to treat the accounts of its clients with the highest degree of
care.[14]
In the ordinary and usual course of banking operations, current account deposits are accepted by the bank on the
basis of deposit slips prepared and signed by the depositor, or the latters agent or representative, who indicates
therein the current account number to which the deposit is to be credited, the name of the depositor or current
account holder, the date of the deposit, and the amount of the deposit either in cash or in check.[15]
The withdrawal slips deposited with petitioners current account with Citibank were not checks, as petitioner admits.
Citibank was not bound to accept the withdrawal slips as a valid mode of deposit. But having erroneously accepted
them as such, Citibank and petitioner as account-holder must bear the risks attendant to the acceptance of these
instruments. Petitioner and Citibank could not now shift the risk and hold private respondent liable for their
admitted mistake.
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WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 29546 is
AFFIRMED. Costs against petitioner.
SO ORDERED.
ASTRO vs. PHIL EXPORT GR No. 136729 Sept. 23, 2003
[G.R. No. 136729. September 23 ,2003]
ASTRO ELECTRONICS CORP. and PETER ROXAS, petitioner, vs. PHILIPPINE EXPORT AND FOREIGN
LOAN GUARANTEE CORPORATION, respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Assailed in this petition for review on certiorari under Rule 45 of the Rules of Court is the decision of the Court of
Appeals in CA-G.R. CV No. 41274,[1] affirming the decision of the Regional Trial Court (Branch 147) of Makati,
then Metro Manila, whereby petitioners Peter Roxas and Astro Electronics Corp. (Astro for brevity) were ordered to
pay respondent Philippine Export and Foreign Loan Guarantee Corporation (Philguarantee), jointly and severally,
the amount of P3,621,187.52 with interests and costs.
The antecedent facts are undisputed.
Astro was granted several loans by the Philippine Trust Company (Philtrust) amounting to P3,000,000.00 with
interest and secured by three promissory notes: PN NO. PFX-254 dated December 14, 1981 for P600,000.00, PN
No. PFX-258 also dated December 14, 1981 for P400,000.00 and PN No. 15477 dated August 27, 1981 for
P2,000,000.00. In each of these promissory notes, it appears that petitioner Roxas signed twice, as President of
Astro and in his personal capacity.[2] Roxas also signed a Continuing Surety ship Agreement in favor of Philtrust
Bank, as President of Astro and as surety.[3]
Thereafter, Philguarantee, with the consent of Astro, guaranteed in favor of Philtrust the payment of 70% of Astros
loan,[4] subject to the condition that upon payment by Philguanrantee of said amount, it shall be proportionally
subrogated to the rights of Philtrust against Astro.[5]
As a result of Astros failure to pay its loan obligations, despite demands, Philguarantee paid 70% of the guaranteed
loan to Philtrust. Subsequently, Philguarantee filed against Astro and Roxas a complaint for sum of money with the
RTC of Makati.
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In his Answer, Roxas disclaims any liability on the instruments, alleging, inter alia, that he merely signed the same
in blank and the phrases in his personal capacity and in his official capacity were fraudulently inserted without
his knowledge.[6]
After trial, the RTC rendered its decision in favor of Philguarantee with the following dispositive portion:
WHEREFORE, in view of all the foregoing, the Court hereby renders judgment in favor or (sic) the plaintiff and
against the defendants Astro Electronics Corporation and Peter T. Roxas, ordering the then (sic) to pay, jointly and
severally, the plaintiff the sum of P3,621.187.52 representing the total obligation of defendants in favor of plaintiff
Philguarantee as of December 31, 1984 with interest at the stipulated rate of 16% per annum and stipulated penalty
charges of 16% per annum computed from January 1, 1985 until the amount is fully paid. With costs.
SO ORDERED.[7]
The trial court observed that if Roxas really intended to sign the instruments merely in his capacity as President of
Astro, then he should have signed only once in the promissory note.[8]
On appeal, the Court of Appeals affirmed the RTC decision agreeing with the trial court that Roxas failed to explain
satisfactorily why he had to sign twice in the contract and therefore the presumption that private transactions have
been fair and regular must be sustained.[9]
In the present petition, the principal issue to be resolved is whether or not Roxas should be jointly and severally
liable (solidary) with Astro for the sum awarded by the RTC.
The answer is in the affirmative.
Astros loan with Philtrust Bank is secured by three promissory notes. These promissory notes are valid and binding
against Astro and Roxas. As it appears on the notes, Roxas signed twice: first, as president of Astro and second, in
his personal capacity. In signing his name aside from being the President of Asro, Roxas became a co-maker of the
promissory notes and cannot escape any liability arising from it. Under the Negotiable Instruments Law, persons
who write their names on the face of promissory notes are makers,[10] promising that they will pay to the order of
the payee or any holder according to its tenor.[11] Thus, even without the phrase personal capacity, Roxas will still
be primarily liable as a joint and several debtor under the notes considering that his intention to be liable as such is
manifested by the fact that he affixed his signature on each of the promissory notes twice which necessarily would
imply that he is undertaking the obligation in two different capacities, official and personal.
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Unnoticed by both the trial court and the Court of Appeals, a closer examination of the signatures affixed by Roxas
on the promissory notes, Exhibits A-4 and 3-A and B-4 and 4-A readily reveals that portions of his
signatures covered portions of the typewritten words personal capacity indicating with certainty that the
typewritten words were already existing at the time Roxas affixed his signatures thus demolishing his claim that the
typewritten words were just inserted after he signed the promissory notes. If what he claims is true, then portions of
the typewritten words would have covered portions of his signatures, and not vice versa.
As to the third promissory note, Exhibit C-4 and 5-A, the copy submitted is not clear so that this Court could
not discern the same observations on the notes, Exhibits A-4 and 3-A and B-4 and 4-A.
Nevertheless, the following discussions equally apply to all three promissory notes.
The three promissory notes uniformly provide: FOR VALUE RECEIVED, I/We jointly, severally and solidarily,
promise to pay to PHILTRUST BANK or order...[12] An instrument which begins with I, We, or Either of us
promise to pay, when signed by two or more persons, makes them solidarily liable.[13] Also, the phrase joint and
several binds the makers jointly and individually to the payee so that all may be sued together for its enforcement,
or the creditor may select one or more as the object of the suit.[14] Having signed under such terms, Roxas assumed
the solidary liability of a debtor and Philtrust Bank may choose to enforce the notes against him alone or jointly with
Astro.
Roxas claim that the phrases in his personal capacity and in his official capacity were inserted on the notes
without his knowledge was correctly disregarded by the RTC and the Court of Appeals. It is not disputed that Roxas
does not deny that he signed the notes twice. As aptly found by both the trial and appellate court, Roxas did not
offer any explanation why he did so. It devolves upon him to overcome the presumptions that private transactions
are presumed to be fair and regular[15] and that a person takes ordinary care of his concerns.[16] Aside from his
self-serving allegations, Roxas failed to prove the truth of such allegations. Thus, said presumptions prevail over his
claims. Bare allegations, when unsubstantiated by evidence, documentary or otherwise, are not equivalent to proof
under our Rules of Court.[17]
Roxas is the President of Astro and reasonably, a businessman who is presumed to take ordinary care of his
concerns. Absent any countervailing evidence, it cannot be gainsaid that he will not sign document without first
informing himself of its contents and consequences. Clearly, he knew the nature of the transactions and documents
involved as he not only executed these notes on two different dates but he also executed, and again, signed twice, a
continuing Surety ship Agreement notarized on July 31, 1981, wherein he guaranteed, jointly and severally with
Astro the repayment of P3,000,000.00 due to Philtrust. Such continuing suretyship agreement even re-enforced his
solidary liability Philtrust because as a surety, he bound himself jointly and severally with Astros obligation.[18]
Roxas cannot now avoid liability by hiding under the convenient excuse that he merely signed the notes in blank and
the phrases in personal capacity and in his official capacity were fraudulently inserted without his knowledge.
Lastly, Philguarantee has all the right to proceed against petitioner, it is subrogated to the rights of Philtrust to
demand for and collect payment from both Roxas and Astro since it already paid the value of 70% of roxas and
Astro Electronics Corp.s loan obligation. In compliance with its contract of Guarantee in favor of Philtrust.
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Subrogation is the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights.[19]
It may either be legal or conventional. Legal subrogation is that which takes place without agreement but by
operation of law because of certain acts.[20] Instances of legal subrogation are those provided in Article 1302 of the
Civil Code. Conventional subrogation, on the other hand, is that which takes place by agreement of the parties.[21]
Roxas acquiescence is not necessary for subrogation to take place because the instant case is one of the legal
subrogation that occurs by operation of law, and without need of the debtors knowledge.[22] Further, Philguarantee,
as guarantor, became the transferee of all the rights of Philtrust as against Roxas and Astro because the guarantor
who pays is subrogated by virtue thereof to all the rights which the creditor had against the debtor.[23]
WHEREFORE, finding no error with the decision of the Court of Appeals dated December 10, 1998, the same is
hereby AFFIRMED in toto.
SO ORDERED.
GARCIA vs. LLAMAS GR No. 154127 Dec. 8, 2003
[G.R. No. 154127. December 8, 2003]
ROMEO C. GARCIA, petitioner, vs. DIONISIO V. LLAMAS, respondent.

DECISION
PANGANIBAN, J.:
Novation cannot be presumed. It must be clearly shown either by the express assent of the parties or by the
complete incompatibility between the old and the new agreements. Petitioner herein fails to show either requirement
convincingly; hence, the summary judgment holding him liable as a joint and solidary debtor stands.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to nullify the November 26, 2001
Decision[2] and the June 26, 2002 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 60521. The
appellate court disposed as follows:
UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment appealed from, insofar as it pertains to
[Petitioner] Romeo Garcia, must be, as it hereby is, AFFIRMED, subject to the modification that the award for
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attorneys fees and cost of suit is DELETED. The portion of the judgment that pertains to x x x Eduardo de Jesus is
SET ASIDE and VACATED. Accordingly, the case against x x x Eduardo de Jesus is REMANDED to the court of
origin for purposes of receiving ex parte [Respondent] Dionisio Llamas evidence against x x x Eduardo de
Jesus.[4]
The challenged Resolution, on the other hand, denied petitioners Motion for Reconsideration.
The Antecedents
The antecedents of the case are narrated by the CA as follows:
This case started out as a complaint for sum of money and damages by x x x [Respondent] Dionisio Llamas
against x x x [Petitioner] Romeo Garcia and Eduardo de Jesus. Docketed as Civil Case No. Q97-32-873, the
complaint alleged that on 23 December 1996[,] [petitioner and de Jesus] borrowed P400,000.00 from [respondent];
that, on the same day, [they] executed a promissory note wherein they bound themselves jointly and severally to pay
the loan on or before 23 January 1997 with a 5% interest per month; that the loan has long been overdue and, despite
repeated demands, [petitioner and de Jesus] have failed and refused to pay it; and that, by reason of the[ir]
unjustified refusal, [respondent] was compelled to engage the services of counsel to whom he agreed to pay 25% of
the sum to be recovered from [petitioner and de Jesus], plus P2,000.00 for every appearance in court. Annexed to
the complaint were the promissory note above-mentioned and a demand letter, dated 02 May 1997, by [respondent]
addressed to [petitioner and de Jesus].
Resisting the complaint, [Petitioner Garcia,] in his [Answer,] averred that he assumed no liability under the
promissory note because he signed it merely as an accommodation party for x x x de Jesus; and, alternatively, that
he is relieved from any liability arising from the note inasmuch as the loan had been paid by x x x de Jesus by means
of a check dated 17 April 1997; and that, in any event, the issuance of the check and [respondents] acceptance
thereof novated or superseded the note.
[Respondent] tendered a reply to [Petitioner] Garcias answer, thereunder asserting that the loan remained unpaid
for the reason that the check issued by x x x de Jesus bounced, and that [Petitioner] Garcias answer was not even
accompanied by a certificate of non-forum shopping. Annexed to the reply were the face of the check and the
reverse side thereof.
For his part, x x x de Jesus asserted in his [A]nswer with [C]ounterclaim that out of the supposed P400,000.00 loan,
he received only P360,000.00, the P40,000.00 having been advance interest thereon for two months, that is, for
January and February 1997; that[,] in fact[,] he paid the sum of P120,000.00 by way of interests; that this was made
when [respondents] daughter, one Nits Llamas-Quijencio, received from the Central Police District Command at
Bicutan, Taguig, Metro Manila (where x x x de Jesus worked), the sum of P40,000.00, representing the peso
equivalent of his accumulated leave credits, another P40,000.00 as advance interest, and still another P40,000.00 as
interest for the months of March and April 1997; that he had difficulty in paying the loan and had asked [respondent]
for an extension of time; that [respondent] acted in bad faith in instituting the case, [respondent] having agreed to
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accept the benefits he (de Jesus) would receive for his retirement, but [respondent] nonetheless filed the instant case
while his retirement was being processed; and that, in defense of his rights, he agreed to pay his counsel P20,000.00
[as] attorneys fees, plus P1,000.00 for every court appearance.
During the pre-trial conference, x x x de Jesus and his lawyer did not appear, nor did they file any pre-trial brief.
Neither did [Petitioner] Garcia file a pre-trial brief, and his counsel even manifested that he would no [longer]
present evidence. Given this development, the trial court gave [respondent] permission to present his evidence ex
parte against x x x de Jesus; and, as regards [Petitioner] Garcia, the trial court directed [respondent] to file a motion
for judgment on the pleadings, and for [Petitioner] Garcia to file his comment or opposition thereto.
Instead, [respondent] filed a [M]otion to declare [Petitioner] Garcia in default and to allow him to present his
evidence ex parte. Meanwhile, [Petitioner] Garcia filed a [M]anifestation submitting his defense to a judgment on
the pleadings. Subsequently, [respondent] filed a [M]anifestation/[M]otion to submit the case for judgement on the
pleadings, withdrawing in the process his previous motion. Thereunder, he asserted that [petitioners and de Jesus]
solidary liability under the promissory note cannot be any clearer, and that the check issued by de Jesus did not
discharge the loan since the check bounced.[5]
On July 7, 1998, the Regional Trial Court (RTC) of Quezon City (Branch 222) disposed of the case as follows:
WHEREFORE, premises considered, judgment on the pleadings is hereby rendered in favor of [respondent] and
against [petitioner and De Jesus], who are hereby ordered to pay, jointly and severally, the [respondent] the
following sums, to wit:
1)
P400,000.00 representing the principal amount plus 5% interest thereon per month from January 23, 1997
until the same shall have been fully paid, less the amount of P120,000.00 representing interests already paid by x x x
de Jesus;
2)
P100,000.00 as attorneys fees plus appearance fee of P2,000.00 for each day of [c]ourt appearance, and;
3)
Cost of this suit.[6]
Ruling of the Court of Appeals
The CA ruled that the trial court had erred when it rendered a judgment on the pleadings against De Jesus.
According to the appellate court, his Answer raised genuinely contentious issues. Moreover, he was still required to
present his evidence ex parte. Thus, respondent was not ipso facto entitled to the RTC judgment, even though De
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Jesus had been declared in default. The case against the latter was therefore remanded by the CA to the trial court
for the ex parte reception of the formers evidence.
As to petitioner, the CA treated his case as a summary judgment, because his Answer had failed to raise even a
single genuine issue regarding any material fact.
The appellate court ruled that no novation -- express or implied -- had taken place when respondent accepted the
check from De Jesus. According to the CA, the check was issued precisely to pay for the loan that was covered by
the promissory note jointly and severally undertaken by petitioner and De Jesus. Respondents acceptance of the
check did not serve to make De Jesus the sole debtor because, first, the obligation incurred by him and petitioner
was joint and several; and, second, the check -- which had been intended to extinguish the obligation -- bounced
upon its presentment.
Hence, this Petition.[7]
Issues
Petitioner submits the following issues for our consideration:
Whether or not the Honorable Court of Appeals gravely erred in not holding that novation applies in the instant case
as x x x Eduardo de Jesus had expressly assumed sole and exclusive liability for the loan obligation he obtained
from x x x Respondent Dionisio Llamas, as clearly evidenced by:
a)
Issuance by x x x de Jesus of a check in payment of the full amount of the loan of P400,000.00 in favor of
Respondent Llamas, although the check subsequently bounced[;]
b)
Acceptance of the check by the x x x respondent x x x which resulted in [the] substitution by x x x de Jesus
or [the superseding of] the promissory note;
c)
x x x de Jesus having paid interests on the loan in the total amount of P120,000.00;
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d)
The fact that Respondent Llamas agreed to the proposal of x x x de Jesus that due to financial difficulties,
he be given an extension of time to pay his loan obligation and that his retirement benefits from the Philippine
National Police will answer for said obligation.
II
Whether or not the Honorable Court of Appeals seriously erred in not holding that the defense of petitioner that he
was merely an accommodation party, despite the fact that the promissory note provided for a joint and solidary
liability, should have been given weight and credence considering that subsequent events showed that the principal
obligor was in truth and in fact x x x de Jesus, as evidenced by the foregoing circumstances showing his assumption
of sole liability over the loan obligation.
III
Whether or not judgment on the pleadings or summary judgment was properly availed of by Respondent Llamas,
despite the fact that there are genuine issues of fact, which the Honorable Court of Appeals itself admitted in its
Decision, which call for the presentation of evidence in a full-blown trial.[8]
Simply put, the issues are the following: 1) whether there was novation of the obligation; 2) whether the defense that
petitioner was only an accommodation party had any basis; and 3) whether the judgment against him -- be it a
judgment on the pleadings or a summary judgment -- was proper.
The Courts Ruling
The Petition has no merit.
First Issue:
Novation
Petitioner seeks to extricate himself from his obligation as joint and solidary debtor by insisting that novation took
place, either through the substitution of De Jesus as sole debtor or the replacement of the promissory note by the
check. Alternatively, the former argues that the original obligation was extinguished when the latter, who was his coobligor, paid the loan with the check.
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The fallacy of the second (alternative) argument is all too apparent. The check could not have extinguished the
obligation, because it bounced upon presentment. By law,[9] the delivery of a check produces the effect of payment
only when it is encashed.
We now come to the main issue of whether novation took place.
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.[10] Article 1293 of
the Civil Code defines novation as follows:
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.
In general, there are two modes of substituting the person of the debtor: (1) expromision and (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 persons 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.
[11] Both modes of substitution by the debtor require the consent of the creditor.[12]
Novation may also be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation
of a new one that takes the place of the former. It is merely modificatory when the old obligation subsists to the
extent that it remains compatible with the amendatory agreement.[13] Whether extinctive or modificatory, novation
is made either by changing the object or the principal conditions, referred to as objective or real novation; or by
substituting the person of the debtor or subrogating a third person to the rights of the creditor, an act known as
subjective or personal novation.[14] For novation to take place, the following requisites must concur:
1)
There must be a previous valid obligation.
2)
The parties concerned must agree to a new contract.
3)
The old contract must be extinguished.
4)
There must be a valid new contract.[15]
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Novation may also be express or implied. It is express when the new obligation declares in unequivocal terms that
the old obligation is extinguished. It is implied when the new obligation is incompatible with the old one on every
point.[16] The test of incompatibility is whether the two obligations can stand together, each one with its own
independent existence.[17]
Applying the foregoing to the instant case, we hold that no novation took place.
The parties did not unequivocally declare that the old obligation had been extinguished by the issuance and the
acceptance of the check, or that the check would take the place of the note. There is no incompatibility between the
promissory note and the check. As the CA correctly observed, the check had been issued precisely to answer for the
obligation. On the one hand, the note evidences the loan obligation; and on the other, the check answers for it.
Verily, the two can stand together.
Neither could the payment of interests -- which, in petitioners view, also constitutes novation[18] -- change the
terms and conditions of the obligation. Such payment was already provided for in the promissory note and, like the
check, was totally in accord with the terms thereof.
Also unmeritorious is petitioners argument that the obligation was novated by the substitution of debtors. In order
to change the person of the debtor, the old one must be expressly released from the obligation, and the third person
or new debtor must assume the formers place in the relation.[19] Well-settled is the rule that novation is never
presumed.[20] Consequently, that which arises from a purported change in the person of the debtor must be clear
and express.[21] It is thus incumbent on petitioner to show clearly and unequivocally that novation has indeed taken
place.
In the present case, petitioner has not shown that he was expressly released from the obligation, that a third person
was substituted in his place, or that the joint and solidary obligation was cancelled and substituted by the solitary
undertaking of De Jesus. The CA aptly held:
x x x. Plaintiffs acceptance of the bum check did not result in substitution by de Jesus either, the nature of the
obligation being solidary due to the fact that the promissory note expressly declared that the liability of appellants
thereunder is joint and [solidary.] Reason: under the law, a creditor may demand payment or performance from one
of the solidary debtors or some or all of them simultaneously, and payment made by one of them extinguishes the
obligation. It therefore follows that in case the creditor fails to collect from one of the solidary debtors, he may still
proceed against the other or others. x x x [22]
Moreover, it must be noted that for novation to be valid and legal, the law requires that the creditor expressly
consent to the substitution of a new debtor.[23] Since novation implies a waiver of the right the creditor had before
the novation, such waiver must be express.[24] It cannot be supposed, without clear proof, that the present
respondent has done away with his right to exact fulfillment from either of the solidary debtors.[25]
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More important, De Jesus was not a third person to the obligation. From the beginning, he was a joint and solidary
obligor of the P400,000 loan; thus, he can be released from it only upon its extinguishment. Respondents
acceptance of his check did not change the person of the debtor, because a joint and solidary obligor is required to
pay the entirety of the obligation.
It must be noted that in a solidary obligation, the creditor is entitled to demand the satisfaction of the whole
obligation from any or all of the debtors.[26] It is up to the former to determine against whom to enforce collection.
[27] Having made himself jointly and severally liable with De Jesus, petitioner is therefore liable[28] for the entire
obligation.[29]
Second Issue:
Accommodation Party
Petitioner avers that he signed the promissory note merely as an accommodation party; and that, as such, he was
released as obligor when respondent agreed to extend the term of the obligation.
This reasoning is misplaced, because the note herein is not a negotiable instrument. The note reads:
PROMISSORY NOTE
P400,000.00
RECEIVED FROM ATTY. DIONISIO V. LLAMAS, the sum of FOUR HUNDRED THOUSAND PESOS,
Philippine Currency payable on or before January 23, 1997 at No. 144 K-10 St. Kamias, Quezon City, with interest
at the rate of 5% per month or fraction thereof.
It is understood that our liability under this loan is jointly and severally [sic].
Done at Quezon City, Metro Manila this 23rd day of December, 1996.[30]
By its terms, the note was made payable to a specific person rather than to bearer or to order[31] -- a requisite for
negotiability under Act 2031, the Negotiable Instruments Law (NIL). Hence, petitioner cannot avail himself of the
NILs provisions on the liabilities and defenses of an accommodation party. Besides, a non-negotiable note is
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merely a simple contract in writing and is evidence of such intangible rights as may have been created by the assent
of the parties.[32] The promissory note is thus covered by the general provisions of the Civil Code, not by the NIL.
Even granting arguendo that the NIL was applicable, still, petitioner would be liable for the promissory note. Under
Article 29 of Act 2031, an accommodation party is liable for the instrument to a holder for value even if, at the time
of its taking, the latter knew the former to be only an accommodation party. The relation between an
accommodation party and the party accommodated is, in effect, one of principal and surety -- the accommodation
party being the surety.[33] It is a settled rule that a surety is bound equally and absolutely with the principal and is
deemed an original promissor and debtor from the beginning. The liability is immediate and direct.[34]
Third Issue:
Propriety of Summary Judgment
or Judgment on the Pleadings
The next issue illustrates the usual confusion between a judgment on the pleadings and a summary judgment. Under
Section 3 of Rule 35 of the Rules of Court, a summary judgment may be rendered after a summary hearing if the
pleadings, supporting affidavits, depositions and admissions on file show that (1) except as to the amount of
damages, there is no genuine issue regarding any material fact; and (2) the moving party is entitled to a judgment as
a matter of law.
A summary judgment is a procedural device designed for the prompt disposition of actions in which the pleadings
raise only a legal, not a genuine, issue regarding any material fact.[35] Consequently, facts are asserted in the
complaint regarding which there is yet no admission, disavowal or qualification; or specific denials or affirmative
defenses are set forth in the answer, but the issues are fictitious as shown by the pleadings, depositions or
admissions.[36] A summary judgment may be applied for by either a claimant or a defending party.[37]
On the other hand, under Section 1 of Rule 34 of the Rules of Court, a judgment on the pleadings is proper when an
answer fails to render an issue or otherwise admits the material allegations of the adverse partys pleading. The
essential question is whether there are issues generated by the pleadings.[38] A judgment on the pleadings may be
sought only by a claimant, who is the party seeking to recover upon a claim, counterclaim or cross-claim; or to
obtain a declaratory relief. [39]
Apropos thereto, it must be stressed that the trial courts judgment against petitioner was correctly treated by the
appellate court as a summary judgment, rather than as a judgment on the pleadings. His Answer[40] apparently
raised several issues -- that he signed the promissory note allegedly as a mere accommodation party, and that the
obligation was extinguished by either payment or novation. However, these are not factual issues requiring trial. We
quote with approval the CAs observations:
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Although Garcias [A]nswer tendered some issues, by way of affirmative defenses, the documents submitted by
[respondent] nevertheless clearly showed that the issues so tendered were not valid issues. Firstly, Garcias claim
that he was merely an accommodation party is belied by the promissory note that he signed. Nothing in the note
indicates that he was only an accommodation party as he claimed to be. Quite the contrary, the promissory note
bears the statement: It is understood that our liability under this loan is jointly and severally [sic]. Secondly, his
claim that his co-defendant de Jesus already paid the loan by means of a check collapses in view of the dishonor
thereof as shown at the dorsal side of said check.[41]
From the records, it also appears that petitioner himself moved to submit the case for judgment on the basis of the
pleadings and documents. In a written Manifestation,[42] he stated that judgment on the pleadings may now be
rendered without further evidence, considering the allegations and admissions of the parties.[43]
In view of the foregoing, the CA correctly considered as a summary judgment that which the trial court had issued
against petitioner.
WHEREFORE, this Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
SO ORDERED.
TRANSFIELD vs. LUZON HYDRO GR No. 146717 Nov. 22, 2004
[G.R. No. 146717. November 22, 2004]
TRANSFIELD PHILIPPINES, INC., petitioner, vs. LUZON HYDRO CORPORATION, AUSTRALIA and NEW
ZEALAND BANKING GROUP LIMITED and SECURITY BANK CORPORATION, respondents.
DECISION
TINGA, J.:
Subject of this case is the letter of credit which has evolved as the ubiquitous and most important device in
international trade. A creation of commerce and businessmen, the letter of credit is also unique in the number of
parties involved and its supranational character.
Petitioner has appealed from the Decision[1] of the Court of Appeals in CA-G.R. SP No. 61901 entitled Transfield
Philippines, Inc. v. Hon. Oscar Pimentel, et al., promulgated on 31 January 2001.[2]
On 26 March 1997, petitioner and respondent Luzon Hydro Corporation (hereinafter, LHC) entered into a Turnkey
Contract[3] whereby petitioner, as Turnkey Contractor, undertook to construct, on a turnkey basis, a seventy (70)-
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Megawatt hydro-electric power station at the Bakun River in the provinces of Benguet and Ilocos Sur (hereinafter,
the Project). Petitioner was given the sole responsibility for the design, construction, commissioning, testing and
completion of the Project.[4]
The Turnkey Contract provides that: (1) the target completion date of the Project shall be on 1 June 2000, or such
later date as may be agreed upon between petitioner and respondent LHC or otherwise determined in accordance
with the Turnkey Contract; and (2) petitioner is entitled to claim extensions of time (EOT) for reasons enumerated in
the Turnkey Contract, among which are variations, force majeure, and delays caused by LHC itself.[5] Further, in
case of dispute, the parties are bound to settle their differences through mediation, conciliation and such other means
enumerated under Clause 20.3 of the Turnkey Contract.[6]
To secure performance of petitioners obligation on or before the target completion date, or such time for completion
as may be determined by the parties agreement, petitioner opened in favor of LHC two (2) standby letters of credit
both dated 20 March 2000 (hereinafter referred to as the Securities), to wit: Standby Letter of Credit No.
E001126/8400 with the local branch of respondent Australia and New Zealand Banking Group Limited (ANZ Bank)
[7] and Standby Letter of Credit No. IBDIDSB-00/4 with respondent Security Bank Corporation (SBC)[8] each in
the amount of US$8,988,907.00.[9]
In the course of the construction of the project, petitioner sought various EOT to complete the Project. The
extensions were requested allegedly due to several factors which prevented the completion of the Project on target
date, such as force majeure occasioned by typhoon Zeb, barricades and demonstrations. LHC denied the requests,
however. This gave rise to a series of legal actions between the parties which culminated in the instant petition.
The first of the actions was a Request for Arbitration which LHC filed before the Construction Industry Arbitration
Commission (CIAC) on 1 June 1999.[10] This was followed by another Request for Arbitration, this time filed by
petitioner before the International Chamber of Commerce (ICC)[11] on 3 November 2000. In both arbitration
proceedings, the common issues presented were: [1) whether typhoon Zeb and any of its associated events
constituted force majeure to justify the extension of time sought by petitioner; and [2) whether LHC had the right to
terminate the Turnkey Contract for failure of petitioner to complete the Project on target date.
Meanwhile, foreseeing that LHC would call on the Securities pursuant to the pertinent provisions of the Turnkey
Contract,[12] petitionerin two separate letters[13] both dated 10 August 2000advised respondent banks of the
arbitration proceedings already pending before the CIAC and ICC in connection with its alleged default in the
performance of its obligations. Asserting that LHC had no right to call on the Securities until the resolution of
disputes before the arbitral tribunals, petitioner warned respondent banks that any transfer, release, or disposition of
the Securities in favor of LHC or any person claiming under LHC would constrain it to hold respondent banks liable
for liquidated damages.
As petitioner had anticipated, on 27 June 2000, LHC sent notice to petitioner that pursuant to Clause 8.2[14] of the
Turnkey Contract, it failed to comply with its obligation to complete the Project. Despite the letters of petitioner,
however, both banks informed petitioner that they would pay on the Securities if and when LHC calls on them.[15]
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LHC asserted that additional extension of time would not be warranted; accordingly it declared petitioner in
default/delay in the performance of its obligations under the Turnkey Contract and demanded from petitioner the
payment of US$75,000.00 for each day of delay beginning 28 June 2000 until actual completion of the Project
pursuant to Clause 8.7.1 of the Turnkey Contract. At the same time, LHC served notice that it would call on the
securities for the payment of liquidated damages for the delay.[16]
On 5 November 2000, petitioner as plaintiff filed a Complaint for Injunction, with prayer for temporary restraining
order and writ of preliminary injunction, against herein respondents as defendants before the Regional Trial Court
(RTC) of Makati.[17] Petitioner sought to restrain respondent LHC from calling on the Securities and respondent
banks from transferring, paying on, or in any manner disposing of the Securities or any renewals or substitutes
thereof. The RTC issued a seventy-two (72)-hour temporary restraining order on the same day. The case was
docketed as Civil Case No. 00-1312 and raffled to Branch 148 of the RTC of Makati.
After appropriate proceedings, the trial court issued an Order on 9 November 2000, extending the temporary
restraining order for a period of seventeen (17) days or until 26 November 2000.[18]
The RTC, in its Order[19] dated 24 November 2000, denied petitioners application for a writ of preliminary
injunction. It ruled that petitioner had no legal right and suffered no irreparable injury to justify the issuance of the
writ. Employing the principle of independent contract in letters of credit, the trial court ruled that LHC should be
allowed to draw on the Securities for liquidated damages. It debunked petitioners contention that the principle of
independent contract could be invoked only by respondent banks since according to it respondent LHC is the
ultimate beneficiary of the Securities. The trial court further ruled that the banks were mere custodians of the funds
and as such they were obligated to transfer the same to the beneficiary for as long as the latter could submit the
required certification of its claims.
Dissatisfied with the trial courts denial of its application for a writ of preliminary injunction, petitioner elevated the
case to the Court of Appeals via a Petition for Certiorari under Rule 65, with prayer for the issuance of a temporary
restraining order and writ of preliminary injunction.[20] Petitioner submitted to the appellate court that LHCs call
on the Securities was premature considering that the issue of its default had not yet been resolved with finality by
the CIAC and/or the ICC. It asserted that until the fact of delay could be established, LHC had no right to draw on
the Securities for liquidated damages.
Refuting petitioners contentions, LHC claimed that petitioner had no right to restrain its call on and use of the
Securities as payment for liquidated damages. It averred that the Securities are independent of the main contract
between them as shown on the face of the two Standby Letters of Credit which both provide that the banks have no
responsibility to investigate the authenticity or accuracy of the certificates or the declarants capacity or entitlement
to so certify.
In its Resolution dated 28 November 2000, the Court of Appeals issued a temporary restraining order, enjoining
LHC from calling on the Securities or any renewals or substitutes thereof and ordering respondent banks to cease
and desist from transferring, paying or in any manner disposing of the Securities.
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However, the appellate court failed to act on the application for preliminary injunction until the temporary
restraining order expired on 27 January 2001. Immediately thereafter, representatives of LHC trooped to ANZ Bank
and withdrew the total amount of US$4,950,000.00, thereby reducing the balance in ANZ Bank to
US$1,852,814.00.
On 2 February 2001, the appellate court dismissed the petition for certiorari. The appellate court expressed
conformity with the trial courts decision that LHC could call on the Securities pursuant to the first principle in
credit law that the credit itself is independent of the underlying transaction and that as long as the beneficiary
complied with the credit, it was of no moment that he had not complied with the underlying contract. Further, the
appellate court held that even assuming that the trial courts denial of petitioners application for a writ of
preliminary injunction was erroneous, it constituted only an error of judgment which is not correctible by certiorari,
unlike error of jurisdiction.
Undaunted, petitioner filed the instant Petition for Review raising the following issues for resolution:
WHETHER THE INDEPENDENCE PRINCIPLE ON LETTERS OF CREDIT MAY BE INVOKED BY A

BENEFICIARY THEREOF WHERE THE BENEFICIARYS CALL THEREON IS WRONGFUL OR
FRAUDULENT.
WHETHER LHC HAS THE RIGHT TO CALL AND DRAW ON THE SECURITIES BEFORE THE
RESOLUTION OF PETITIONERS AND LHCS DISPUTES BY THE APPROPRIATE TRIBUNAL.
WHETHER ANZ BANK AND SECURITY BANK ARE JUSTIFIED IN RELEASING THE AMOUNTS DUE
UNDER THE SECURITIES DESPITE BEING NOTIFIED THAT LHCS CALL THEREON IS WRONGFUL.
WHETHER OR NOT PETITIONER WILL SUFFER GRAVE AND IRREPARABLE DAMAGE IN THE EVENT
THAT:
A.
LHC IS ALLOWED TO CALL AND DRAW ON, AND ANZ BANK AND SECURITY BANK ARE
ALLOWED TO RELEASE, THE REMAINING BALANCE OF THE SECURITIES PRIOR TO THE
RESOLUTION OF THE DISPUTES BETWEEN PETITIONER AND LHC.
B. LHC DOES NOT RETURN THE AMOUNTS IT HAD WRONGFULLY DRAWN FROM THE SECURITIES.
[21]
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Petitioner contends that the courts below improperly relied on the independence principle on letters of credit when
this case falls squarely within the fraud exception rule. Respondent LHC deliberately misrepresented the supposed
existence of delay despite its knowledge that the issue was still pending arbitration, petitioner continues.
Petitioner asserts that LHC should be ordered to return the proceeds of the Securities pursuant to the principle
against unjust enrichment and that, under the premises, injunction was the appropriate remedy obtainable from the
competent local courts.
On 25 August 2003, petitioner filed a Supplement to the Petition[22] and Supplemental Memorandum,[23] alleging
that in the course of the proceedings in the ICC Arbitration, a number of documentary and testimonial evidence
came out through the use of different modes of discovery available in the ICC Arbitration. It contends that after the
filing of the petition facts and admissions were discovered which demonstrate that LHC knowingly misrepresented
that petitioner had incurred delays notwithstanding its knowledge and admission that delays were excused under
the Turnkey Contractto be able to draw against the Securities. Reiterating that fraud constitutes an exception to
the independence principle, petitioner urges that this warrants a ruling from this Court that the call on the Securities
was wrongful, as well as contrary to law and basic principles of equity. It avers that it would suffer grave irreparable
damage if LHC would be allowed to use the proceeds of the Securities and not ordered to return the amounts it had
wrongfully drawn thereon.
In its Manifestation dated 8 September 2003,[24] LHC contends that the supplemental pleadings filed by petitioner
present erroneous and misleading information which would change petitioners theory on appeal.
In yet another Manifestation dated 12 April 2004,[25] petitioner alleges that on 18 February 2004, the ICC handed
down its Third Partial Award, declaring that LHC wrongfully drew upon the Securities and that petitioner was
entitled to the return of the sums wrongfully taken by LHC for liquidated damages.
LHC filed a Counter-Manifestation dated 29 June 2004,[26] stating that petitioners Manifestation dated 12 April
2004 enlarges the scope of its Petition for Review of the 31 January 2001 Decision of the Court of Appeals. LHC
notes that the Petition for Review essentially dealt only with the issue of whether injunction could issue to restrain
the beneficiary of an irrevocable letter of credit from drawing thereon. It adds that petitioner has filed two other
proceedings, to wit: (1) ICC Case No. 11264/TE/MW, entitled Transfield Philippines Inc. v. Luzon Hydro
Corporation, in which the parties made claims and counterclaims arising from petitioners
performance/misperformance of its obligations as contractor for LHC; and (2) Civil Case No. 04-332, entitled
Transfield Philippines, Inc. v. Luzon Hydro Corporation before Branch 56 of the RTC of Makati, which is an
action to enforce and obtain execution of the ICCs partial award mentioned in petitioners Manifestation of 12 April
2004.
In its Comment to petitioners Motion for Leave to File Addendum to Petitioners Memorandum, LHC stresses that
the question of whether the funds it drew on the subject letters of credit should be returned is outside the issue in this
appeal. At any rate, LHC adds that the action to enforce the ICCs partial award is now fully within the Makati
RTCs jurisdiction in Civil Case No. 04-332. LHC asserts that petitioner is engaged in forum-shopping by keeping
this appeal and at the same time seeking the suit for enforcement of the arbitral award before the Makati court.
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Respondent SBC in its Memorandum, dated 10 March 2003[27] contends that the Court of Appeals correctly
dismissed the petition for certiorari. Invoking the independence principle, SBC argues that it was under no
obligation to look into the validity or accuracy of the certification submitted by respondent LHC or into the latters
capacity or entitlement to so certify. It adds that the act sought to be enjoined by petitioner was already fait accompli
and the present petition would no longer serve any remedial purpose.
In a similar fashion, respondent ANZ Bank in its Memorandum dated 13 March 2003[28] posits that its actions
could not be regarded as unjustified in view of the prevailing independence principle under which it had no
obligation to ascertain the truth of LHCs allegations that petitioner defaulted in its obligations. Moreover, it points
out that since the Standby Letter of Credit No. E001126/8400 had been fully drawn, petitioners prayer for
preliminary injunction had been rendered moot and academic.
At the core of the present controversy is the applicability of the independence principle and fraud exception rule
in letters of credit. Thus, a discussion of the nature and use of letters of credit, also referred to simply as credits,
would provide a better perspective of the case.
The letter of credit evolved as a mercantile specialty, and the only way to understand all its facets is to recognize that
it is an entity unto itself. The relationship between the beneficiary and the issuer of a letter of credit is not strictly
contractual, because both privity and a meeting of the minds are lacking, yet strict compliance with its terms is an
enforceable right. Nor is it a third-party beneficiary contract, because the issuer must honor drafts drawn against a
letter regardless of problems subsequently arising in the underlying contract. Since the banks customer cannot draw
on the letter, it does not function as an assignment by the customer to the beneficiary. Nor, if properly used, is it a
contract of suretyship or guarantee, because it entails a primary liability following a default. Finally, it is not in
itself a negotiable instrument, because it is not payable to order or bearer and is generally conditional, yet the draft
presented under it is often negotiable.[29]
In commercial transactions, a letter of credit is a financial device developed by merchants as a convenient and
relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who
refuses to part with his goods before he is paid, and a buyer, who wants to have control of the goods before paying.
[30] The use of credits in commercial transactions serves to reduce the risk of nonpayment of the purchase price
under the contract for the sale of goods. However, credits are also used in non-sale settings where they serve to
reduce the risk of nonperformance. Generally, credits in the non-sale settings have come to be known as standby
credits.[31]
There are three significant differences between commercial and standby credits. First, commercial credits involve
the payment of money under a contract of sale. Such credits become payable upon the presentation by the sellerbeneficiary of documents that show he has taken affirmative steps to comply with the sales agreement. In the
standby type, the credit is payable upon certification of a party's nonperformance of the agreement. The documents
that accompany the beneficiary's draft tend to show that the applicant has not performed. The beneficiary of a
commercial credit must demonstrate by documents that he has performed his contract. The beneficiary of the
standby credit must certify that his obligor has not performed the contract.[32]
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By definition, a letter of credit is a written instrument whereby the writer requests or authorizes the addressee to pay
money or deliver goods to a third person and assumes responsibility for payment of debt therefor to the addressee.
[33] A letter of credit, however, changes its nature as different transactions occur and if carried through to
completion ends up as a binding contract between the issuing and honoring banks without any regard or relation to
the underlying contract or disputes between the parties thereto.[34]
Since letters of credit have gained general acceptability in international trade transactions, the ICC has published
from time to time updates on the Uniform Customs and Practice (UCP) for Documentary Credits to standardize
practices in the letter of credit area. The vast majority of letters of credit incorporate the UCP.[35] First published in
1933, the UCP for Documentary Credits has undergone several revisions, the latest of which was in 1993.[36]
In Bank of the Philippine Islands v. De Reny Fabric Industries, Inc.,[37] this Court ruled that the observance of the
UCP is justified by Article 2 of the Code of Commerce which provides that in the absence of any particular
provision in the Code of Commerce, commercial transactions shall be governed by usages and customs generally
observed. More recently, in Bank of America, NT & SA v. Court of Appeals,[38] this Court ruled that there being no
specific provisions which govern the legal complexities arising from transactions involving letters of credit, not only
between or among banks themselves but also between banks and the seller or the buyer, as the case may be, the
applicability of the UCP is undeniable.
Article 3 of the UCP provides that credits, by their nature, are separate transactions from the sales or other
contract(s) on which they may be based and banks are in no way concerned with or bound by such contract(s), even
if any reference whatsoever to such contract(s) is included in the credit. Consequently, the undertaking of a bank to
pay, accept and pay draft(s) or negotiate and/or fulfill any other obligation under the credit is not subject to claims or
defenses by the applicant resulting from his relationships with the issuing bank or the beneficiary. A beneficiary can
in no case avail himself of the contractual relationships existing between the banks or between the applicant and the
issuing bank.
Thus, the engagement of the issuing bank is to pay the seller or beneficiary of the credit once the draft and the
required documents are presented to it. The so-called independence principle assures the seller or the beneficiary
of prompt payment independent of any breach of the main contract and precludes the issuing bank from determining
whether the main contract is actually accomplished or not. Under this principle, banks assume no liability or
responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any documents, or for
the general and/or particular conditions stipulated in the documents or superimposed thereon, nor do they assume
any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or
existence of the goods represented by any documents, or for the good faith or acts and/or omissions, solvency,
performance or standing of the consignor, the carriers, or the insurers of the goods, or any other person whomsoever.
[39]
The independent nature of the letter of credit may be: (a) independence in toto where the credit is independent from
the justification aspect and is a separate obligation from the underlying agreement like for instance a typical standby;
or (b) independence may be only as to the justification aspect like in a commercial letter of credit or repayment
standby, which is identical with the same obligations under the underlying agreement. In both cases the payment
may be enjoined if in the light of the purpose of the credit the payment of the credit would constitute fraudulent
abuse of the credit.[40]
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Can the beneficiary invoke the independence principle?
Petitioner insists that the independence principle does not apply to the instant case and assuming it is so, it is a
defense available only to respondent banks. LHC, on the other hand, contends that it would be contrary to common
sense to deny the benefit of an independent contract to the very party for whom the benefit is intended. As
beneficiary of the letter of credit, LHC asserts it is entitled to invoke the principle.
As discussed above, in a letter of credit transaction, such as in this case, where the credit is stipulated as irrevocable,
there is a definite undertaking by the issuing bank to pay the beneficiary provided that the stipulated documents are
presented and the conditions of the credit are complied with.[41] Precisely, the independence principle liberates the
issuing bank from the duty of ascertaining compliance by the parties in the main contract. As the principles
nomenclature clearly suggests, the obligation under the letter of credit is independent of the related and originating
contract. In brief, the letter of credit is separate and distinct from the underlying transaction.
Given the nature of letters of credit, petitioners argumentthat it is only the issuing bank that may invoke the
independence principle on letters of creditdoes not impress this Court. To say that the independence principle may
only be invoked by the issuing banks would render nugatory the purpose for which the letters of credit are used in
commercial transactions. As it is, the independence doctrine works to the benefit of both the issuing bank and the
beneficiary.
Letters of credit are employed by the parties desiring to enter into commercial transactions, not for the benefit of the
issuing bank but mainly for the benefit of the parties to the original transactions. With the letter of credit from the
issuing bank, the party who applied for and obtained it may confidently present the letter of credit to the beneficiary
as a security to convince the beneficiary to enter into the business transaction. On the other hand, the other party to
the business transaction, i.e., the beneficiary of the letter of credit, can be rest assured of being empowered to call on
the letter of credit as a security in case the commercial transaction does not push through, or the applicant fails to
perform his part of the transaction. It is for this reason that the party who is entitled to the proceeds of the letter of
credit is appropriately called beneficiary.
Petitioners argument that any dispute must first be resolved by the parties, whether through negotiations or
arbitration, before the beneficiary is entitled to call on the letter of credit in essence would convert the letter of credit
into a mere guarantee. Jurisprudence has laid down a clear distinction between a letter of credit and a guarantee in
that the settlement of a dispute between the parties is not a pre-requisite for the release of funds under a letter of
credit. In other words, the argument is incompatible with the very nature of the letter of credit. If a letter of credit is
drawable only after settlement of the dispute on the contract entered into by the applicant and the beneficiary, there
would be no practical and beneficial use for letters of credit in commercial transactions.
Professor John F. Dolan, the noted authority on letters of credit, sheds more light on the issue:
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The standby credit is an attractive commercial device for many of the same reasons that commercial credits are
attractive. Essentially, these credits are inexpensive and efficient. Often they replace surety contracts, which tend to
generate higher costs than credits do and are usually triggered by a factual determination rather than by the
examination of documents.
Because parties and courts should not confuse the different functions of the surety contract on the one hand and the
standby credit on the other, the distinction between surety contracts and credits merits some reflection. The two
commercial devices share a common purpose. Both ensure against the obligors nonperformance. They function,
however, in distinctly different ways.
Traditionally, upon the obligors default, the surety undertakes to complete the obligors performance, usually by
hiring someone to complete that performance. Surety contracts, then, often involve costs of determining whether the
obligor defaulted (a matter over which the surety and the beneficiary often litigate) plus the cost of performance.
The benefit of the surety contract to the beneficiary is obvious. He knows that the surety, often an insurance
company, is a strong financial institution that will perform if the obligor does not. The beneficiary also should
understand that such performance must await the sometimes lengthy and costly determination that the obligor has
defaulted. In addition, the suretys performance takes time.
The standby credit has different expectations. He reasonably expects that he will receive cash in the event of
nonperformance, that he will receive it promptly, and that he will receive it before any litigation with the obligor (the
applicant) over the nature of the applicants performance takes place. The standby credit has this opposite effect of
the surety contract: it reverses the financial burden of parties during litigation.
In the surety contract setting, there is no duty to indemnify the beneficiary until the beneficiary establishes the fact
of the obligors performance. The beneficiary may have to establish that fact in litigation. During the litigation, the
surety holds the money and the beneficiary bears most of the cost of delay in performance.
In the standby credit case, however, the beneficiary avoids that litigation burden and receives his money promptly
upon presentation of the required documents. It may be that the applicant has, in fact, performed and that the
beneficiarys presentation of those documents is not rightful. In that case, the applicant may sue the beneficiary in
tort, in contract, or in breach of warranty; but, during the litigation to determine whether the applicant has in fact
breached the obligation to perform, the beneficiary, not the applicant, holds the money. Parties that use a standby
credit and courts construing such a credit should understand this allocation of burdens. There is a tendency in some
quarters to overlook this distinction between surety contracts and standby credits and to reallocate burdens by
permitting the obligor or the issuer to litigate the performance question before payment to the beneficiary.[42]
While it is the bank which is bound to honor the credit, it is the beneficiary who has the right to ask the bank to
honor the credit by allowing him to draw thereon. The situation itself emasculates petitioners posture that LHC
cannot invoke the independence principle and highlights its puerility, more so in this case where the banks
concerned were impleaded as parties by petitioner itself.
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Respondent banks had squarely raised the independence principle to justify their releases of the amounts due under
the Securities. Owing to the nature and purpose of the standby letters of credit, this Court rules that the respondent
banks were left with little or no alternative but to honor the credit and both of them in fact submitted that it was
ministerial for them to honor the call for payment.[43]
Furthermore, LHC has a right rooted in the Contract to call on the Securities. The relevant provisions of the
Contract read, thus:
4.2.1. In order to secure the performance of its obligations under this Contract, the Contractor at its cost shall on the
Commencement Date provide security to the Employer in the form of two irrevocable and confirmed standby letters
of credit (the Securities), each in the amount of US$8,988,907, issued and confirmed by banks or financial
institutions acceptable to the Employer. Each of the Securities must be in form and substance acceptable to the
Employer and may be provided on an annually renewable basis.[44]
8.7.1 If the Contractor fails to comply with Clause 8.2, the Contractor shall pay to the Employer by way of
liquidated damages (Liquidated Damages for Delay) the amount of US$75,000 for each and every day or part of a
day that shall elapse between the Target Completion Date and the Completion Date, provided that Liquidated
Damages for Delay payable by the Contractor shall in the aggregate not exceed 20% of the Contract Price. The
Contractor shall pay Liquidated Damages for Delay for each day of the delay on the following day without need of
demand from the Employer.
8.7.2 The Employer may, without prejudice to any other method of recovery, deduct the amount of such damages
from any monies due, or to become due to the Contractor and/or by drawing on the Security.[45]
A contract once perfected, binds the parties not only to the fulfillment of what has been expressly stipulated but also
to all the consequences which according to their nature, may be in keeping with good faith, usage, and law.[46] A
careful perusal of the Turnkey Contract reveals the intention of the parties to make the Securities answerable for the
liquidated damages occasioned by any delay on the part of petitioner. The call upon the Securities, while not an
exclusive remedy on the part of LHC, is certainly an alternative recourse available to it upon the happening of the
contingency for which the Securities have been proffered. Thus, even without the use of the independence
principle, the Turnkey Contract itself bestows upon LHC the right to call on the Securities in the event of default.
Next, petitioner invokes the fraud exception principle. It avers that LHCs call on the Securities is wrongful
because it fraudulently misrepresented to ANZ Bank and SBC that there is already a breach in the Turnkey Contract
knowing fully well that this is yet to be determined by the arbitral tribunals. It asserts that the fraud exception
exists when the beneficiary, for the purpose of drawing on the credit, fraudulently presents to the confirming bank,
documents that contain, expressly or by implication, material representations of fact that to his knowledge are
untrue. In such a situation, petitioner insists, injunction is recognized as a remedy available to it.
Citing Dolans treatise on letters of credit, petitioner argues that the independence principle is not without limits and
it is important to fashion those limits in light of the principles purpose, which is to serve the commercial function of
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the credit. If it does not serve those functions, application of the principle is not warranted, and the commonlaw
principles of contract should apply.
It is worthy of note that the propriety of LHCs call on the Securities is largely intertwined with the fact of default
which is the self-same issue pending resolution before the arbitral tribunals. To be able to declare the call on the
Securities wrongful or fraudulent, it is imperative to resolve, among others, whether petitioner was in fact guilty of
delay in the performance of its obligation. Unfortunately for petitioner, this Court is not called upon to rule upon the
issue of defaultsuch issue having been submitted by the parties to the jurisdiction of the arbitral tribunals pursuant
to the terms embodied in their agreement.[47]
Would injunction then be the proper remedy to restrain the alleged wrongful draws on the Securities?
Most writers agree that fraud is an exception to the independence principle. Professor Dolan opines that the
untruthfulness of a certificate accompanying a demand for payment under a standby credit may qualify as fraud
sufficient to support an injunction against payment.[48] The remedy for fraudulent abuse is an injunction. However,
injunction should not be granted unless: (a) there is clear proof of fraud; (b) the fraud constitutes fraudulent abuse
of the independent purpose of the letter of credit and not only fraud under the main agreement; and (c) irreparable
injury might follow if injunction is not granted or the recovery of damages would be seriously damaged.[49]
In its complaint for injunction before the trial court, petitioner alleged that it is entitled to a total extension of two
hundred fifty-three (253) days which would move the target completion date. It argued that if its claims for
extension would be found meritorious by the ICC, then LHC would not be entitled to any liquidated damages.[50]
Generally, injunction is a preservative remedy for the protection of ones substantive right or interest; it is not a
cause of action in itself but merely a provisional remedy, an adjunct to a main suit. The issuance of the writ of
preliminary injunction as an ancillary or preventive remedy to secure the rights of a party in a pending case is
entirely within the discretion of the court taking cognizance of the case, the only limitation being that this discretion
should be exercised based upon the grounds and in the manner provided by law.[51]
Before a writ of preliminary injunction may be issued, there must be a clear showing by the complaint that there
exists a right to be protected and that the acts against which the writ is to be directed are violative of the said right.
[52] It must be shown that the invasion of the right sought to be protected is material and substantial, that the right of
complainant is clear and unmistakable and that there is an urgent and paramount necessity for the writ to prevent
serious damage.[53] Moreover, an injunctive remedy may only be resorted to when there is a pressing necessity to
avoid injurious consequences which cannot be remedied under any standard compensation.[54]
In the instant case, petitioner failed to show that it has a clear and unmistakable right to restrain LHCs call on the
Securities which would justify the issuance of preliminary injunction. By petitioners own admission, the right of
LHC to call on the Securities was contractually rooted and subject to the express stipulations in the Turnkey
Contract.[55] Indeed, the Turnkey Contract is plain and unequivocal in that it conferred upon LHC the right to draw
upon the Securities in case of default, as provided in Clause 4.2.5, in relation to Clause 8.7.2, thus:
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4.2.5 The Employer shall give the Contractor seven days notice of calling upon any of the Securities, stating the
nature of the default for which the claim on any of the Securities is to be made, provided that no notice will be
required if the Employer calls upon any of the Securities for the payment of Liquidated Damages for Delay or for
failure by the Contractor to renew or extend the Securities within 14 days of their expiration in accordance with
Clause 4.2.2.[56]
8.7.2 The Employer may, without prejudice to any other method of recovery, deduct the amount of such damages
from any monies due, or to become due, to the Contractor and/or by drawing on the Security.[57]
The pendency of the arbitration proceedings would not per se make LHCs draws on the Securities wrongful or
fraudulent for there was nothing in the Contract which would indicate that the parties intended that all disputes
regarding delay should first be settled through arbitration before LHC would be allowed to call upon the Securities.
It is therefore premature and absurd to conclude that the draws on the Securities were outright fraudulent given the
fact that the ICC and CIAC have not ruled with finality on the existence of default.
Nowhere in its complaint before the trial court or in its pleadings filed before the appellate court, did petitioner
invoke the fraud exception rule as a ground to justify the issuance of an injunction.[58] What petitioner did assert
before the courts below was the fact that LHCs draws on the Securities would be premature and without basis in
view of the pending disputes between them. Petitioner should not be allowed in this instance to bring into play the
fraud exception rule to sustain its claim for the issuance of an injunctive relief. Matters, theories or arguments not
brought out in the proceedings below will ordinarily not be considered by a reviewing court as they cannot be raised
for the first time on appeal.[59] The lower courts could thus not be faulted for not applying the fraud exception rule
not only because the existence of fraud was fundamentally interwoven with the issue of default still pending before
the arbitral tribunals, but more so, because petitioner never raised it as an issue in its pleadings filed in the courts
below. At any rate, petitioner utterly failed to show that it had a clear and unmistakable right to prevent LHCs call
upon the Securities.
Of course, prudence should have impelled LHC to await resolution of the pending issues before the arbitral tribunals
prior to taking action to enforce the Securities. But, as earlier stated, the Turnkey Contract did not require LHC to do
so and, therefore, it was merely enforcing its rights in accordance with the tenor thereof. Obligations arising from
contracts have the force of law between the contracting parties and should be complied with in good faith.[60] More
importantly, pursuant to the principle of autonomy of contracts embodied in Article 1306 of the Civil Code,[61]
petitioner could have incorporated in its Contract with LHC, a proviso that only the final determination by the
arbitral tribunals that default had occurred would justify the enforcement of the Securities. However, the fact is
petitioner did not do so; hence, it would have to live with its inaction.
With respect to the issue of whether the respondent banks were justified in releasing the amounts due under the
Securities, this Court reiterates that pursuant to the independence principle the banks were under no obligation to
determine the veracity of LHCs certification that default has occurred. Neither were they bound by petitioners
declaration that LHCs call thereon was wrongful. To repeat, respondent banks undertaking was simply to pay once
the required documents are presented by the beneficiary.
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At any rate, should petitioner finally prove in the pending arbitration proceedings that LHCs draws upon the
Securities were wrongful due to the non-existence of the fact of default, its right to seek indemnification for
damages it suffered would not normally be foreclosed pursuant to general principles of law.
Moreover, in a Manifestation,[62] dated 30 March 2001, LHC informed this Court that the subject letters of credit
had been fully drawn. This fact alone would have been sufficient reason to dismiss the instant petition.
Settled is the rule that injunction would not lie where the acts sought to be enjoined have already become fait
accompli or an accomplished or consummated act.[63] In Ticzon v. Video Post Manila, Inc.[64] this Court ruled that
where the period within which the former employees were prohibited from engaging in or working for an enterprise
that competed with their former employerthe very purpose of the preliminary injunction has expired, any
declaration upholding the propriety of the writ would be entirely useless as there would be no actual case or
controversy between the parties insofar as the preliminary injunction is concerned.
In the instant case, the consummation of the act sought to be restrained had rendered the instant petition mootfor
any declaration by this Court as to propriety or impropriety of the non-issuance of injunctive relief could have no
practical effect on the existing controversy.[65] The other issues raised by petitioner particularly with respect to its
right to recover the amounts wrongfully drawn on the Securities, according to it, could properly be threshed out in a
separate proceeding.
One final point. LHC has charged petitioner of forum-shopping. It raised the charge on two occasions. First, in its
Counter-Manifestation dated 29 June 2004[66] LHC alleges that petitioner presented before this Court the same
claim for money which it has filed in two other proceedings, to wit: ICC Case No. 11264/TE/MW and Civil Case
No. 04-332 before the RTC of Makati. LHC argues that petitioners acts constitutes forum-shopping which should
be punished by the dismissal of the claim in both forums. Second, in its Comment to Petitioners Motion for Leave
to File Addendum to Petitioners Memorandum dated 8 October 2004, LHC alleges that by maintaining the present
appeal and at the same time pursuing Civil Case No. 04-332wherein petitioner pressed for judgment on the issue
of whether the funds LHC drew on the Securities should be returnedpetitioner resorted to forum-shopping. In both
instances, however, petitioner has apparently opted not to respond to the charge.
Forum-shopping is a very serious charge. It exists when a party repetitively avails of several judicial remedies in
different courts, simultaneously or successively, all substantially founded on the same transactions and the same
essential facts and circumstances, and all raising substantially the same issues either pending in, or already resolved
adversely, by some other court.[67] It may also consist in the act of a party against whom an adverse judgment has
been rendered in one forum, of seeking another and possibly favorable opinion in another forum other than by
appeal or special civil action of certiorari, or the institution of two or more actions or proceedings grounded on the
same cause on the supposition that one or the other court might look with favor upon the other party.[68] To
determine whether a party violated the rule against forum-shopping, the test applied is whether the elements of litis
pendentia are present or whether a final judgment in one case will amount to res judicata in another.[69] Forumshopping constitutes improper conduct and may be punished with summary dismissal of the multiple petitions and
direct contempt of court.[70]
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Considering the seriousness of the charge of forum-shopping and the severity of the sanctions for its violation, the
Court will refrain from making any definitive ruling on this issue until after petitioner has been given ample
opportunity to respond to the charge.
WHEREFORE, the instant petition is DENIED, with costs against petitioner.
Petitioner is hereby required to answer the charge of forum-shopping within fifteen (15) days from notice.
SO ORDERED.
PEOPLE vs. REYES GR No. 154159 March 31, 2005
[G.R. No. 154159. March 31, 2005]
PEOPLE OF THE PHILIPPINES, appellee, vs. ALOMA REYES AND TRICHIA MAE REYES (AT LARGE),
accused. ALOMA REYES, appellant.
DECISION
PUNO, J.:
This is a direct appeal[1] from the Sentence[2] of the Regional Trial Court of Davao City, Branch 11, finding
appellant Alamo Reyes guilty beyond reasonable doubt of estafa by postdating a bouncing check under Article 315,
paragraph 2(d) of the Revised Penal Code, as amended by Presidential Decree No. 818, and sentencing her to an
indeterminate penalty of six (6) years and one (1) day to twelve (12) years of prision mayor as minimum to thirty
(30) years of reclusion perpetua as maximum.[3]
Appellant claims that she issued the subject check in payment of a pre-existing obligation. Thus, her liability must
be civil, not criminal. Private complainant Jules-Berne Alabastro counters that appellant, together with her daughter
and co-accused Trichia Mae Reyes, issued him the check for rediscounting. He was allegedly lured to part with his
money due to their seeming honest representations that the check was good and would never bounce.
The following information dated May 26, 1999 was filed against the appellant and Trichia Mae Reyes:
That sometime in February 1998, in the City of Davao, Philippines, and within the jurisdiction of this Honorable
Court, the above-mentioned accused, conspiring and confederating together, by means of false pretense and with
intent to defraud, willfully, unlawfully and feloniously issued to JULES-BERNE I. ALABASTRO, Allied Bank,
Toril Branch[,] Davao City Check No. 066815 A dated March 31, 1998 in the amount of P280,000.00 in payment
of an obligation, which the accused was able to obtain by reason of and simultaneously with the issuance of the said
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check, that when said check was presented to the drawee bank for encashment, the same was dishonored for the
reason ACCOUNT CLOSED and after having been notified by such dishonor said accused failed and refused to
redeem said check despite repeated demands, to the damage and prejudice of the complainant in the aforesaid
amount.
CONTRARY TO LAW.[4]
A Warrant[5] for their arrest was subsequently issued. However, only appellant was arrested. She posted a cash bond
for her provisional liberty.[6] Her co-accused had flown to Australia before her arrest warrant could be served. She
remains at large.
Appellant pleaded not guilty upon arraignment.[7] Trial ensued.
Danilo Go, acting Branch Head of Allied Bank, Toril Branch, Davao City, testified for the prosecution. He presented
an account ledger card[8] dated December 31, 1997. The account ledger card contained the transaction records of
Allied Bank NOW (Negotiable Order of Withdrawal) Account No. 1333-00033-8 under the name Aloma Reyes and
Trichia Mae Reyes[9] which was opened on January 27, 1997 and closed on March 26, 1997.[10] He explained that
a NOW Account is a savings account where the drawer may issue checks payable only to a specific payee. A NOW
check cannot be issued payable to BEARER. Hence, it cannot be further negotiated.
Go identified the subject check as a NOW check issued under appellants NOW Account. It was presented for
payment with Allied Bank, the drawee bank of appellant, on April 2, 1998 but was returned to Metrobank, the
depository bank of private complainant, on April 3, 1998 for the reason ACCOUNT CLOSED.[11]
On cross-examination, Go explained the other entries in the account ledger card. He reiterated that appellant only
had a two-month transaction with Allied Bank under the NOW Account. On re-direct examination, he identified
another document[12] containing referral items. The document showed a list of NOW checks (the referral
items) presented to Allied Bank for clearing after the NOW Account had been closed.[13] These referral items
were not listed in the account ledger card which he previously presented because once an account is closed, no
further entries are entered in the account ledger card.
Private complainant Jules-Berne I. Alabastro was also presented by the prosecution. He testified that he was first
introduced by Estrella Paulino to appellant and her daughter sometime in 1996 at his office in Davao City. The latter
allegedly begged to have their personal checks discounted. Upon the assurance that their checks were good and
considering that appellant and her sister used to be province mates of private complainants parents, he allegedly
discounted more or less five or six checks. When asked to present the checks, he explained that he had returned the
checks each time they bounce. Upon return, appellant replaced them with cash. He only had in his possession the
subject check -- the only check that appellant has not replaced with cash.[14]
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He further testified that like the other checks which he previously discounted, he gave them cash for the subject
check. When he deposited it to his account on its due date, it was dishonored by the drawee bank upon presentment
for the reason ACCOUNT CLOSED.[15] He immediately notified appellant but the latter allegedly refused to
replace it with cash.[16] He sent a demand letter by registered mail but appellant did not heed his demand. He thus
filed the instant case.
On cross-examination, private complainant recounted that when he met appellant in 1996, she applied for a loan. He
had also previously discounted five or six checks of appellant at varying amounts on different occasions. He,
however, said that he was not a moneylender; he helped his wife in the flower shop business. He also refused to
disclose the source of the money he used in allegedly discounting the subject P280,000.00-check. He said the source
was quite personal.[17]
To strengthen his rediscounting theory, private complainant averred that the subject check was complete when it was
issued to him: his name, the signatures of appellant and her daughter, the date, and the amount of the subject check
were already written on the instrument. He denied that he was the one who filled in the date and the amount of the
subject check.[18]
The defense presented the sole testimony of appellant. She admitted that she started borrowing money from private
complainant in 1996 when she was still engaged in the wholesale of softdrinks. Whenever she borrowed money, she
replaced it with checks. However, she suffered business reverses and closed shop.
To pay her outstanding obligations with private complainant, the latter allegedly made her issue, in one and the same
occasion, sixteen (16) NOW checks as installment payments. The first installment payment was to start at
P6,000.00; the succeeding fifteen payments were to be at P13,000.00 each. The last installment was to fall on March
31, 1998.
Appellant explained that the subject check was one of the sixteen (16) checks. Four (4) of these checks were offered
in evidence and marked as exhibits.[19] None of the checks was supposed to exceed the amount of P13,000.00.
Hence, during her arrest, she was surprised to learn for the first time about the P280,000.00-check. She got confused
that there were two (2) NOW checks dated March 31, 1998: the subject check (Check No. 066815) with the amount
of P280,000.00, and the other check (Check No. 066816),[20] with the amount of P13,000.00.[21]
On cross-examination, she said that she could not produce the other eleven (11) of the sixteen (16) checks. She
admitted signing the checks with her daughter but maintained that the maximum amount she agreed to pay for her
obligation was P13,000.00 per check. When asked about a P2,000.00[22] check she issued as recorded in her
account ledger card, she said that she probably issued it when her business was still good.[23] She also claimed that
she was not able to receive the demand letter sent to her home address. Most of the times, she was in the farm.[24]
On re-direct examination, appellant claimed that it was private complainant who wrote the date and the amount in
the subject check. She alleged that he was also the one who filled in the dates and the amounts on the other checks
on exhibit. She allegedly authorized private complainant to fill in the blank entries for the dates and the amounts
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because she was grateful that the latter assented to the payment arrangement of P13,000.00 per installment.
Furthermore, it was private complainant who would schedule the payment dates.[25]
Appellants outstanding obligation was allegedly P232,000.00 when she delivered the instruments. She placed all
sixteen (16) checks on the office table of private complainant. They were already signed by her and her daughter.
Private complainant thereafter wrote the dates and the amounts. She did not examine the checks after private
complainant filled in the dates and the amounts. She was also not aware if private complainant wrote P280,000.00
on the subject check. She allegedly only saw him write P13,000.00 on the checks.[26]
On rebuttal, private complainant maintained that the subject check was complete when it was handed to him for
rediscounting. He did not know who filled in the date and the amount. He countered that it was appellants and her
daughters signatures that were missing. They signed the checks in his presence. He speculated that appellant
probably needed a big amount for their softdrinks business at that time. When asked to explain why there were two
checks similarly dated March 31, 1998, he merely stated that there was one check that bounced, Check No. 066815,
in the amount of P280,000.00[,] dated March 31, 1998.[27]
The court a quo convicted appellant upon finding that the prosecution had sufficiently proven the essential elements
of estafa. Hence, this appeal.
Appellant raises the following Assignment of Errors:
THE TRIAL COURT SERIOUSLY ERRED IN TREATING THE NOW INSTRUMENT AS A CHECK WITHIN
THE MEANING OF ARTICLE 315 PARAGRAPH 2(D) OF THE REVISED PENAL CODE, CONSIDERING
THAT IT IS A NON-NEGOTIABLE INSTRUMENT, THE SAME BEING PAYABLE ONLY TO THE PERSON
SPECIFIED THEREIN AND CANNOT BE MADE PAYABLE TO BEARER OR CASH OR BE INDORSED TO A
THIRD PERSON.
II
ASSUMING ARGUENDO THAT THE NOW INSTRUMENT IS A CHECK WITHIN THE AMBIT OF ARTICLE
315 PARAGRAPH 2(D) OF THE REVISED PENAL CODE, THE TRIAL COURT SERIOUSLY ERRED IN
FINDING THAT FRAUD AND/OR DECEIT ATTENDED THE ISSUANCE OF THE NOW INSTRUMENT.
FROM THE PROSECUTIONS AS WELL AS THE DEFENSES EVIDENCE GLARE (sic) THE FACT THAT:
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A.
THE NOW INSTRUMENT, TOGETHER WITH THE OTHER NOW INSTRUMENTS, WAS ISSUED IN
PAYMENT OF A PRE-EXISTING DEBT.
B.
THE NOW INSTRUMENT WAS A MERE EVIDENCE OF A LOAN OR SECURITY THEREOF
SERVING THE SAME PURPOSE AS A PROMISSORY NOTE.
III
THE TRIAL COURT SERIOUSLY ERRED IN CONCLUDING THAT THE PROSECUTION SUFFICIENTLY
PROVED THE ESSENTIAL ELEMENTS OF THE CRIME CHARGED. TO BE SURE, THE PROSECUTIONS
EVIDENCE FELL SHORT OF THE DEGREE OF PROOF, THAT IS PROOF BEYOND REASONABLE DOUBT,
REQUIRED BY LAW TO BE ESTABLISHED IN ORDER TO OVERCOME THE CONSTITUTIONALLY
ENSHRINED PRESUMPTION OF INNOCENCE IN FAVOR OF ACCUSED-APPELLANT. VERILY:
A.
THE PROSECUTIONS EVIDENCE ARE SEVERELY FLAWED, AND, BY THEMSELVES,
INSUFFICIENT AND UNRELIABLE.
B.
THE INCONSISTENCIES IN THE TESTIMONY OF THE DEFENSES LONE WITNESS ARE
HARMLESS AND SHOULD NOT HAVE PREJUDICED THE DEFENSE IN LIGHT OF THE PRINCIPLE OF
LAW THAT THE PROSECUTION MUST ESTABLISH THE GUILT OF THE ACCUSED BY THE STRENGTH
OF ITS OWN EVIDENCE AND NOT ON THE WEAKNESS OF THE DEFENSES EVIDENCE OR LACK OF
IT.
C.
THE PROSECUTIONS EVIDENCE DOES NOT FULFILL THE TEST OF MORAL CERTAINTY AND
THEREFORE IS INSUFFICIENT TO SUPPORT A JUDGMENT OF CONVICTION.[28]
We shall resolve the appeal by determining the pivotal issue: whether all the elements of estafa under Article 315,
paragraph 2(d) of the Revised Penal Code were sufficiently established in the case at bar.
Under Article 315, paragraph 2(d) of the Revised Penal Code, estafa is committed by any person who shall defraud
another by false pretenses or fraudulent acts executed prior to or simultaneously with the commission of the fraud. It
is committed with the following essential elements which must be proved to sustain a conviction:
1. postdating or issuance of a check in payment of an obligation contracted at the time the check was issued;
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2. lack of sufficiency of funds to cover the check; and
3. damage to the payee thereof.[29]
Appellant avers that the subject check does not fall within the meaning of Section 185 of the Negotiable Instruments
Law which defines a check as a bill of exchange drawn on a bank payable on demand. First, the NOW check is
drawn against the savings, not the current account, of appellant. Second, it is payable only to a specific person or the
payee and is not valid when made payable to BEARER or to CASH. [30] Appellant quotes the restriction
written on the face of a NOW check:
NOW shall be payable only to a specific person, natural or juridical. It is not valid when made payable to
BEARER or to CASH or when [i]ndorsed by the payee to another person. Only the payee can encash this
NOW with the drawee bank or deposit it in his account with the drawee bank or with any other bank.
Appellant posits that this condition strips the subject check the character of negotiability. Hence, it is not a
negotiable instrument under the Negotiable Instruments Law, and not the check contemplated in Criminal Law.
[31]
We disagree.
Section X223 of the Manual of Regulations for Banks defines Negotiable Order of Withdrawal (NOW) Accounts as
interest-bearing deposit accounts that combine the payable on demand feature of checks and the investment feature
of savings accounts.
The fact that a NOW check shall be payable only to a specific person, and not valid when made payable to
BEARER or to CASH or when indorsed by the payee to another person, is inconsequential. The same restriction
is produced when a check is crossed: only the payee named in the check may deposit it in his bank account. If a third
person accepts a cross check and pays cash for its value despite the warning of the crossing, he cannot be considered
in good faith and thus not a holder in due course. The purpose of the crossing is to ensure that the check will be
encashed by the rightful payee only.[32] Yet, despite the restriction on the negotiability of cross checks, we held that
they are negotiable instruments.[33]
To be sure, negotiability is not the gravamen of the crime of estafa through bouncing checks. It is the fraud or deceit
employed by the accused in issuing a worthless check that is penalized.
Deceit, to constitute estafa, should be the efficient cause of defraudation. It must have been committed either prior or
simultaneous with the defraudation complained of.[34] There must be concomitance: the issuance of a check should
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be the means to obtain money or property from the payee. Hence, a check issued in payment of a pre-existing
obligation does not constitute estafa even if there is no fund in the bank to cover the amount of the check.[35]
Appellant maintains that the subject check was one of the sixteen (16) checks she issued at once to private
complainant in payment of a pre-existing obligation.[36] The court a quo however upheld private complainants
theory that appellant issued him the subject check for rediscounting in February 1998, long after her account was
closed on March 26, 1997.
We reverse.
While findings of fact of trial courts are accorded not only respect, but at times, finality, this rule admits of
exceptions, as when there is a misappreciation of facts.
The evidence on record debunks the rediscounting theory of private complainant. He did not part with his money out
of the fraudulent assurances of appellant that the subject check was good and would never bounce.
A careful examination of the records establishes that appellant issued him the subject check in payment of a preexisting obligation. Both private complainant and appellant concur in their testimonies that they met sometime in
1996. Both parties also admit that at this point, appellant started borrowing money from private complainant.
It cannot be denied that the subject check, like the four other NOW checks on exhibit, was issued and signed by the
same persons and charged to the same NOW Account at Allied Bank. Private complainants theory that these checks
were previously issued to him for rediscounting at different times is incredulous:
Atty. Zamora-
The question is, how many checks were discounted for the accused. More or less 5 or 6 checks[?]
Witness-
There were previous checks discounted but on different occasions.[37]
Atty. Zamora-
xxx You said there were 5 or six checks discounted. You have list of those?
Atty. Alabastro- Already answered. No list.[38]
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It puzzles the Court that after the NOW check dated August 31, 1997 bounced on September 3, 1997 for the reason
ACCOUNT CLOSED, private complainant would still discount appellants checks in succession. It baffles us
more that private complainant would discount a P280,000.00-check in February 1998 despite knowledge of the
closure of appellants NOW Account.
We held in Pacheco v. Court of Appeals[39] that there is no estafa through bouncing checks when it is shown that
private complainant knew that the drawer did not have sufficient funds in the bank at the time the check was issued
to him. Such knowledge negates the element of deceit and constitutes a defense in estafa through bouncing checks.
In the case at bar, private complainant knew that appellant did not only have insufficient funds; he knew her NOW
Account was closed at the time he allegedly discounted the subject check. This is proven by the following
undisputed facts:
First. Appellant presented four (4) NOW checks, each bearing the amount of P13,000.00, and respectively dated
August 31, 1997, January 31, 1998, March 1, 1998 and March 31, 1998.
The evidence on record shows that private complainant deposited the NOW check dated August 31, 1997 to his
Metrobank account on September 1, 1997. On September 2, 1997, Metrobank returned the instrument to Allied
Bank with the notation ACCOUNT CLOSED. Hence, as early as September 2, 1997, private complainant already
knew that appellants NOW Account had been closed.[40]
Second. Fatal to private complainants case are his own admissions as to when he received the subject check. In his
Affidavit-Complaint[41] dated February 25, 1999, private complainant stated, viz.:
x x x That sometime in Feb. 1998, a certain ALOMA REYES AND TRICHIA MAE REYES x x x came to me and
begged to have their personal check discounted with earnest representations that their check was good check and
would never bounce and because of their seeming honest representations I was lured to discount their check which is
---
ALLIED BANK CHECK NO. 066815-A DATED MAR. 31, 1998 AMOUNTING TO P280,000.00.
They handed the check to me and I simultaneously gave them the money;[42] (emphasis supplied)
In the Information filed, it was stated, viz.:
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That sometime in February 1998, in the City of Davao, Philippines, and within the jurisdiction of this Honorable
Court, the above-mentioned accused, conspiring and confederating together, by means of false pretense and with
intent to defraud, willfully, unlawfully and feloniously issued to JULES-BERNE I. ALABASTRO, Allied Bank,
Toril Branch[,] Davao City Check No. 066815 A dated March 31, 1998 in the amount of P280,000.00 x x x[43]
(emphasis supplied)
If the subject check was issued to him in February 1998, as he alleges, at that time he already knew that the NOW
Account where the subject NOW check is charged was closed. The NOW checks on record are irrefragable pieces of
evidence that private complainant knew the NOW Account was closed.
In light of the established facts, private complainants rediscounting theory must fail. Appellant issued the subject
check in payment of a pre-existing obligation. When the NOW Account was closed on March 26, 1997, private
complainant already had in his possession the NOW check in question. It was one of the sixteen (16) NOW checks
previously issued by private complainant before the closure of the NOW Account. No deceit or damage attended the
transaction. There being none in the case at bar, there can be no estafa through bouncing checks.
Despite the inconsistencies[44] in the testimony of appellant, these were minor and did not destroy her credibility
nor shatter the theory of the defense. To be sure, the prosecution failed to prove the guilt of appellant beyond
reasonable doubt. As a matter of right, the constitutional presumption of innocence of appellant must be favored
regardless of the inconsistencies in her testimony or the weakness of her own defense.
Appellant, however, is not without liability. An accused acquitted of estafa may be held civilly liable in the same
case where the facts established by the evidence so warrant. In the case at bar, the records lack sufficient evidence to
determine the amount of her remaining obligation.
This Court is not a trier of facts and where the evidence on record is not sufficient to warrant a conclusion, the case
should be remanded to the court a quo for reception of further evidence.
IN VIEW WHEREOF, appellant Aloma Reyes is ACQUITTED of estafa under Article 315, paragraph 2(d) of the
Revised Penal Code, as amended. The assailed Sentence of the Regional Trial Court of Davao City, Branch 11, dated
March 13, 2002 is REVERSED and SET ASIDE. The case is REMANDED to the court a quo for the determination
of appellants civil liability. The Director of the Bureau of Corrections is DIRECTED to release her
IMMEDIATELY unless she is being lawfully held for another offense.
SO ORDERED.
ANDAYA vs. PEOPLE GR No. 168486 June 27, 2006
FIRST DIVISION
124
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G.R. No. 168486
June 27, 2006
NOE S. ANDAYA, Petitioner,

vs.
PEOPLE OF THE PHILIPPINES, Respondent.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari from the September 29, 2004 Decision1 of the Court of Appeals in CAG.R. CR No. 26556, affirming the January 29, 2002 Decision2 of the Regional Trial Court, Branch 104 of Quezon
City in Criminal Case No. 92-36145, convicting petitioner Noe S. Andaya of falsification of private document, and
the April 26, 2005 Resolution3 denying the motion for reconsideration.
Complainant Armed Forces and Police Savings and Loan Association, Inc. (AFPSLAI) is a non-stock and non-profit
association authorized to engage in savings and loan transactions. In 1986, petitioner Noe S. Andaya was elected as
president and general manager of AFPSLAI. During his term, he sought to increase the capitalization of AFPSLAI to
boost its lending capacity to its members. Consequently, on June 1, 1988, the Board of Trustees of AFPSLAI passed
and approved Resolution No. RS-88-006-048 setting up a Finders Fee Program whereby any officer, member or
employee, except investment counselors, of AFPSLAI who could solicit an investment of not less than P100,000.00
would be entitled to a finders fee equivalent to one percent of the amount solicited.
In a letter4 dated September 1991, the Central Bank wrote Gen. Lisandro C. Abadia, then Chairman of the Board of
Trustees, regarding the precarious financial position of AFPSLAI due to its alleged flawed management. As a result,
Gen. Abadia requested the National Bureau of Investigation (NBI) to conduct an investigation on alleged
irregularities in the operations of AFPSLAI which led to the filing of several criminal cases against petitioner, one of
which is the instant case based on the alleged fraudulent implementation of the Finders Fee Program.
On October 5, 1992, an information for estafa through falsification of commercial document was filed against
petitioner, to wit:
The undersigned accuses NOE S. ANDAYA of the crime of Estafa thru Falsification of Commercial Document,
committed as follows:
125
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That on or about the 8th day of April, 1991 in Quezon City, Philippines, the above-named accused, with intent to
gain, by means of deceit, false pretenses and falsification of commercial document, did then and there, wilfully,
unlawfully and feloniously defraud the ARMED FORCES AND POLICE SAVINGS AND LOAN ASSOCIATION,
INC., represented by its Chairman of the Board of Director[s], Gen. Lisandro C. Abadia, AFP, in the following
manner, to wit: on the date and in the place aforementioned the said accused being then the President and General
Manager of the Armed Forces and Police Savings and Loan Association, Inc., caused and approved the disbursement
of the sum of P21,000.00, Philippine Currency, from the funds of the association, by then and there making it appear
in Disbursement Voucher No. 58380 that said amount represented the 1% finders fee of one DIOSDADO J.
GUILLAS [Guilas]; when in truth and in fact accused knew fully well that there was no such payment to be made
by the association as finders fee; that by virtue of said falsification, said accused was able to encashed (sic) and
received (sic) MBTC Check No. 583768 in the sum of P21,000.00, which amount once in his possession,
misapplied, misappropriated and converted to his own personal use and benefit, to the damage and prejudice of the
said offended party in the aforesaid sum of P21,000.00, Philippine Currency.
CONTRARY TO LAW.5 (Emphasis supplied)
The case was raffled to Branch 104 of the Regional Trial Court of Quezon City and docketed as Criminal Case No.
92-36145. On May 30, 1994, petitioner was arraigned6 and pleaded not guilty to the charge, after which trial on the
merits ensued.
The prosecution presented two witnesses, namely, Diosdado Guilas and Judy Balangue.
Guilas, a general clerk of AFPSLAIs Time Deposit Section, testified that on April 8, 1991, he was informed by Tini
Gabriel and Julie Alabansa of the Treasury Department that there was a finders fee in the amount of P21,000.00 in
his name. Subsequently, Judy Balangue, an investment clerk of the Time Deposit Section, told him that the finders
fee was for petitioner. When Guilas went to petitioners office to inform him about the finders fee in his (Guilas)
name, petitioner instructed him to collect the P21,000.00 and turn over the same to the latter. Guilas returned to the
Treasury Department and signed Disbursement Voucher No. 583807 afterwhich he was issued Metrobank Check
No. 6837688 for P21,000.00. After encashing the check, he turned over the proceeds to petitioner. On crossexamination, Guilas admitted that there was no prohibition in placing the finders fee under the name of a person
who did not actually solicit the investment.
Balangue also testified that on April 3, 1991, petitioner instructed him to prepare Certificate of Capital Contribution
Monthly No. 521789 in the name of Rosario Mercader for an investment in AFPSLAI in the amount of
P2,100,000.00 and to inform Guilas that the finders fee for the aforesaid investment will be placed in the latters
name. On cross-examination, Balangue confirmed that a P2,100,000.00 worth of investment from Rosario Mercader
was deposited in AFPSLAI. He further acknowledged that the Finders Fee Program did not prohibit the placing of
another persons name as payee of the finders fee.
The defense presented three witnesses, namely, Emerita Arevalo, Ernesto Hernandez and petitioner.
126
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Arevalo, secretary of petitioner in AFPSLAI, explained that the finders fee was for the P2,100,000.00 investment
solicited by Ernesto Hernandez from Rosario Mercader. The finders fee was placed in the name of Guilas upon
request of Hernandez so that the same would not be reflected in his (Hernandezs) income tax return. She alleged
that Guilas consented to the arrangement of placing the finders fee in his (Guilas) name. She also claimed that
there was no prohibition in the Finders Fee Program regarding the substitution of the name of the solicitor as long
as there was no double claim for the finders fee over the same investment.
Hernandez, an associate member of AFPSLAI and vice president of Philippine Educational Trust Plan, Inc. (PETP
Plans), testified that sometime in 1991, he was able to solicit from Rosario Mercader an investment of
P2,100,000.00 in AFPSLAI. He also asked petitioner to place the finders fee in the name of one of his employees so
that he (Hernandez) would not have to report a higher tax base in his income tax return. On April 8, 1991, petitioner
handed to him the finders fee in the amount of P21,000.00.
Petitioner denied all the charges against him. He claimed that the P21,000.00 finders fee was in fact payable by
AFPSLAI because of the P2,100,000.00 investment of Rosario Mercader solicited by Ernesto Hernandez. He denied
misappropriating the P21,000.00 finders fee for his personal benefit as the same was turned over to Ernesto
Hernandez who was the true solicitor of the aforementioned investment. Since the finders fee was in fact owed by
AFPSLAI, then no damage was done to the association. The finders fee was placed in the name of Guilas as
requested by Hernandez in order to reduce the tax obligation of the latter. According to petitioner, Guilas consented
to the whole setup.
Petitioner also claimed that Hernandez was an associate member of AFPSLAI because his application for
membership was approved by the membership committee and the Board of Trustees and was in fact issued an I.D.
There was no prohibition under the rules and regulation of the Finders Fee Program regarding the substitution of
the name of the solicitor with the name of another person. On cross-examination, petitioner claimed that he merely
approved the substitution of the name of Hernandez with that of Guilas in the disbursement voucher upon the
request of Hernandez. He brushed aside the imputation of condoning tax evasion by claiming that the issue in the
instant proceedings was whether he defrauded AFPSLAI and not his alleged complicity in tax evasion.
After the defense rested its case, the prosecution presented two rebuttal witnesses, namely, Ma. Victoria Maigue and
Ma. Fe Moreno.
Maigue, membership affairs office supervisor of AFPSLAI, testified that Hernandez was ineligible to become a
member of AFPSLAI under sections 1 and 2 of Article II of the associations by-laws. However, she admitted that
the application of Hernandez as member was approved by the membership committee.
Moreno, legal officer of AFPSLAI at the time of her testimony on January 25, 2000, stated that there are eight
criminal cases pending against the petitioner in various branches of the Regional Trial Court of Quezon City. In one
case decided by Judge Bacalla of Branch 216, petitioner was convicted of estafa through falsification involving
similar facts as the instant case. She further stated that Hernandez was not a member of AFPSLAI under sections 1
127
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and 2 of Article II of the by-laws. On cross-examination, she admitted that the case decided by Judge Bacalla
convicting petitioner was on appeal with the Court of Appeals.
The defense dispensed with the presentation of Mercader in view of the stipulation of the prosecution on the fact that
Mercader was a depositor of AFPSLAI and that she was convinced to invest in the association by Ernesto
Hernandez.10
On June 20, 2001, the trial court rendered a Decision11 convicting petitioner of falsification of private document.
On July 5, 2001, petitioner filed a motion for new trial.12 In an Order13 dated December 20, 2001, the trial court
ruled that the evidence submitted by petitioner in support of his motion was inadequate to conduct a new trial,
however, in the interest of substantial justice, the case should still be reopened pursuant to Section 24,14 Rule 119 of
the Rules of Court in order to avoid a miscarriage of justice.
Petitioner proceeded to submit documentary evidence consisting of the financial statements of AFPSLAI from 1996
to 1999 to show that AFPSLAI did not suffer any damage from the payment of the P21,000.00 finders fee. He
likewise offered the testimony of Paterno Madet, senior vice president of AFPSLAI, who testified that he was
personally aware that Rosario Mercader invested P2,100,000.00 in AFPSLAI; that Hernandez was a member of
AFPSLAI and was the one who convinced Mercader to invest; that the finders fee was placed in the name of
Guilas; that petitioner called him to grant the request of Hernandez for the finders fee to be placed in the name of
one of the employees of AFPSLAI; that there was no policy which prohibits the placing of the name of the solicitor
of the investment in the name of another person; that the substitution of the name of Hernandez with that of Guilas
was approved by petitioner but he (Madet) was the one who approved the release of the disbursement voucher.
On January 29, 2002, the trial court rendered the assailed Decision convicting petitioner of falsification of private
document based on the following findings of fact: Hernandez solicited from Rosario Mercader an investment of
P2,100,000.00 for AFPSLAI; Hernandez requested petitioner to place the finders fee in the name of another person;
petitioner caused it to appear in the disbursement voucher that Guilas solicited the aforesaid investment; the voucher
served as the basis for the issuance of the check for P21,000.00 representing the finders fee for the investment of
Mercader; and Guilas encashed the check and turned over the money to petitioner who in turn gave it to Hernandez.
The trial court ruled that all the elements of falsification of private document were present. First, petitioner caused it
to appear in the disbursement voucher, a private document, that Guilas, instead of Hernandez, was entitled to a
P21,000.00 finders fee. Second, the falsification of the voucher was done with criminal intent to cause damage to
the government because it was meant to lower the tax base of Hernandez and, thus, evade payment of taxes on the
finders fee.
Petitioner moved for reconsideration but was denied by the trial court in an Order15 dated May 13, 2002. On appeal,
the Court of Appeals affirmed in toto the decision of the trial court and denied petitioners motion for
reconsideration; hence, the instant petition challenging the validity of his conviction for the crime of falsification of
private document.
128
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Preliminarily, petitioner contends that the Court of Appeals contradicted the ruling of the trial court. He claims that
the Court of Appeals stated in certain portions of its decision that petitioner was guilty of estafa through falsification
of commercial document whereas in the trial courts decision petitioner was convicted of falsification of private
document.
A close reading of the Court of Appeals decision shows that the alleged points of contradiction were the result of
inadvertence in the drafting of the same. Read in its entirety, the decision of the Court of Appeals affirmed in toto
the decision of the trial court and, necessarily, it affirmed the conviction of petitioner for the crime of falsification of
private document and not of estafa through falsification of commercial document.
In the main, petitioner implores this Court to review the pleadings he filed before the lower courts as well as the
evidence on record on the belief that a review of the same will prove his innocence. However, he failed to specify
what aspects of the factual and legal bases of his conviction should be reversed.
Time honored is the principle that an appeal in a criminal case opens the whole action for review on any question
including those not raised by the parties.16 After a careful and thorough review of the records, we are convinced that
petitioner should be acquitted based on reasonable doubt.
The elements of falsification of private document under Article 172, paragraph 217 in relation to Article 17118 of
the Revised Penal Code are: (1) the offender committed any of the acts of falsification under Article 171 which, in
the case at bar, falls under paragraph 2 of Article 171, i.e., causing it to appear that persons have participated in any
act or proceeding when they did not in fact so participate; (2) the falsification was committed on a private document;
and (3) the falsification caused damage or was committed with intent to cause damage to a third party.
Although the public prosecutor designated the offense charged in the information as estafa through falsification of
commercial document, petitioner could be convicted of falsification of private document, had it been proper, under
the well-settled rule that it is the allegations in the information that determines the nature of the offense and not the
technical name given by the public prosecutor in the preamble of the information. We explained this principle in the
case of U.S. v. Lim San19 in this wise:
From a legal point of view, and in a very real sense, it is of no concern to the accused what is the technical name of
the crime of which he stands charged. It in no way aids him in a defense on the merits. x x x That to which his
attention should be directed, and in which he, above all things else, should be most interested, are the facts alleged.
The real question is not did he commit a crime given in the law some technical and specific name, but did he
perform the acts alleged in the body of the information in the manner therein set forth. x x x The real and important
question to him is, "Did you perform the acts alleged in the manner alleged?" not, "Did you commit a crime named
murder?" If he performed the acts alleged, in the manner stated, the law determines what the name of the crime is
and fixes the penalty therefor. x x x If the accused performed the acts alleged in the manner alleged, then he ought to
be punished and punished adequately, whatever may be the name of the crime which those acts constitute.20
129
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The facts alleged in the information are sufficient to constitute the crime of falsification of private document.
Specifically, the allegations in the information can be broken down into the three aforestated essential elements of
this offense as follows: (1) petitioner caused it to appear in Disbursement Voucher No. 58380 that Diosdado Guillas
was entitled to a finders fee from AFPSLAI in the amount of P21,000.00 when in truth and in fact no finders fee
was due to him; (2) the falsification was committed on Disbursement Voucher No. 58380; and (3) the falsification
caused damage to AFPSLAI in the amount of P21,000.00.
The first element of the offense charged in the information was proven by the prosecution. The testimonies of the
prosecution witnesses, namely, Diosdado Guilas and Judy Balangue, as well as the presentation of Disbursement
Voucher No. 58380 established that petitioner caused the preparation of the voucher in the name of Guilas despite
knowledge that Guilas was not entitled to the finders fee. Significantly, petitioner admitted his participation in
falsifying the voucher when he testified that he authorized the release of the voucher in the name of Guilas upon the
request of Ernesto Hernandez. While petitioner did not personally prepare the voucher, he could be considered a
principal by induction, had his conviction been proper, since he was the president and general manager of AFPSLAI
at the time so that his employees merely followed his instructions in preparing the falsified voucher.
The second element of the offense charged in the information, i.e., the falsification was committed in Disbursement
Voucher No. 58380, a private document, is likewise present. It appears that the public prosecutor erroneously
characterized the disbursement voucher as a commercial document so that he designated the offense as estafa
through falsification of commercial document in the preamble of the information. However, as correctly ruled by the
trial court,21 the subject voucher is a private document only; it is not a commercial document because it is not a
document used by merchants or businessmen to promote or facilitate trade or credit transactions22 nor is it defined
and regulated by the Code of Commerce or other commercial law.23 Rather, it is a private document, which has
been defined as a deed or instrument executed by a private person without the intervention of a public notary or of
other person legally authorized, by which some disposition or agreement is proved, evidenced or set forth,24
because it acted as the authorization for the release of the P21,000.00 finders fee to Guilas and as the receipt
evidencing the payment of this finders fee.
While the first and second elements of the offense charged in the information were satisfactorily established by the
prosecution, it is the third element which is decisive in the instant case. In the information, it was alleged that
petitioner caused damage in the amount of P21,000.00 to AFPSLAI because he caused it to appear in the
disbursement voucher that Diosdado Guilas was entitled to a P21,000.00 finders fee when in truth and in fact
AFPSLAI owed no such sum to him. However, contrary to these allegations in the information, petitioner was able
to prove that AFPSLAI owed a finders fee in the amount of P21,000.00 although not to Guilas but to Ernesto
Hernandez.
It was positively shown that Hernandez was able to solicit a P2,100,000.00 worth of investment for AFPSLAI from
Rosario Mercader which entitled him to a finders fee equivalent to one percent of the amount solicited (i.e.,
P21,000.00) under the Finders Fee Program. The documentary evidence consisting of the Certificate of Capital
Contribution Monthly No. 5217825 which was presented by the prosecution categorically stated that Rosario
Mercader deposited P2,100,000.00 worth of investment in AFPSLAI. In fact, Rosario Mercader was no longer
presented as a defense witness in view of the stipulation by the prosecution on the fact that Mercader was a
depositor of AFPSLAI and that Hernandez was the one who convinced her to make such deposit.26 Moreover, the
defense showed that the disbursement voucher was merely placed in the name of Guilas upon the request of
Hernandez so that he would have a lower tax base. Thus, after Guilas received the P21,000.00 from AFPSLAI, he
gave the money to petitioner who in turn surrendered the amount to Hernandez.
130
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It was further established that Hernandez was an associate member of AFPSLAI and, thus, covered by the Finders
Fee Program. The prosecution tried to cast doubt on the validity of Hernandezs membership in the association but it
merely relied on the unsubstantiated claims of its two rebuttal witnesses, namely, Ma. Victoria Maigue, membership
affairs office supervisor of AFPSLAI and Ma. Fe Moreno, legal officer of AFPSLAI, who claimed that Hernandez
was disqualified from being an associate member under AFPSLAIs by-laws. However, except for a recital of certain
provisions of the by-laws, they failed to support their claims with documentary evidence clearly showing that
Hernandez was disqualified from being an associate member. Significantly, Maigue admitted on cross-examination
that Hernandezs membership was approved by AFPSLAIs membership committee and was issued an AFPSLAI
I.D. card.27 Documentary evidence consisting of Hernandezs I.D. card as well as the oral testimonies of petitioner,
Arevalo and Hernandez, and the admission of Maigue on cross-examination, support the claim of the defense that
Hernandez was an associate member of AFPSLAI.
Considering that Hernandez was able to solicit a P2,100,000.00 investment from Mercader, it follows that he was
entitled to receive the finders fee in the amount of P21,000.00. AFPSLAI suffered no damage because it really
owed the P21,000.00 finders fee to Hernandez albeit the sum was initially paid to Guilas and only later turned over
to Hernandez. Clearly then, the third essential element of the offense as alleged in the information, i.e., the
falsification caused damage to AFPSLAI in the amount of P21,000.00, was not proven by the prosecution.
In all criminal prosecutions, the burden of proof is on the prosecution to establish the guilt of the accused beyond
reasonable doubt.28 It has the duty to prove each and every element of the crime charged in the information to
warrant a finding of guilt for the said crime or for any other crime necessarily included therein. However, in the case
at bar, the prosecution failed to prove the third essential element of the crime charged in the information. Thus,
petitioner should be acquitted due to insufficiency of evidence.
The trial court convicted petitioner of falsification of private document, while conceding that AFPSLAI suffered no
damage, however, the court reasoned that the third essential element of falsification of private document was present
because the falsification of the voucher was done with criminal intent to cause damage to the government
considering that its purpose was to lower the tax base of Hernandez and, thus, allow him to evade payment of taxes
on the finders fee.
We find ourselves unable to agree with this ratiocination of the trial court because it violates the constitutional
right29 of petitioner to be informed of the nature and cause of the accusation against him. As early as the 1904 case
of U.S. v. Karelsen,30 the rationale of this fundamental right of the accused was already explained in this wise:
The object of this written accusation was First. To furnish the accused with such a description of the charge against
him as will enable him to make his defense; and second, to avail himself of his conviction or acquittal for protection
against a further prosecution for the same cause; and third, to inform the court of the facts alleged, so that it may
decide whether they are sufficient in law to support a conviction, if one should be had. (United States vs.
Cruikshank, 92 U.S. 542.) In order that this requirement may be satisfied, facts must be stated, not conclusions of
law. Every crime is made up of certain acts and intent; these must be set forth in the complaint with reasonable
particularity of time, place, names (plaintiff and defendant), and circumstances. In short, the complaint must contain
a specific allegation of every fact and circumstances necessary to constitute the crime charged.31 (Emphasis
supplied)
131
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It is fundamental that every element constituting the offense must be alleged in the information. The main purpose
of requiring the various elements of a crime to be set out in the information is to enable the accused to suitably
prepare his defense because he is presumed to have no independent knowledge of the facts that constitute the
offense.32 The allegations of facts constituting the offense charged are substantial matters and an accuseds right to
question his conviction based on facts not alleged in the information cannot be waived.33 No matter how conclusive
and convincing the evidence of guilt may be, an accused cannot be convicted of any offense unless it is charged in
the information on which he is tried or is necessarily included therein.34 To convict him of a ground not alleged
while he is concentrating his defense against the ground alleged would plainly be unfair and underhanded.35 The
rule is that a variance between the allegation in the information and proof adduced during trial shall be fatal to the
criminal case if it is material and prejudicial to the accused so much so that it affects his substantial rights.36
Thus, in Alonto v. People,37 Dico v. Court of Appeals38 and Ongson v. People,39 we acquitted the accused for
violation of Batas Pambansa Bilang 22 ("The Bouncing Checks Law") because there was a variance between the
identity and date of issuance of the check alleged in the information and the check proved by the prosecution during
trial:
This Court notes, however, that under the third count, the information alleged that petitioner issued a check dated
May 14, 1992 whereas the documentary evidence presented and duly marked as Exhibit "I" was BPI Check No.
831258 in the amount of P25,000 dated April 5, 1992. Prosecution witness Fernando Sardes confirmed petitioner's
issuance of the three BPI checks (Exhibits "G," "H," and "I"), but categorically stated that the third check (BPI
Check No. 831258) was dated May 14, 1992, which was contrary to that testified to by private complainant Violeta
Tizon, i.e., BPI check No. 831258 dated April 5, 1992. In view of this variance, the conviction of petitioner on the
third count (Criminal Case No. Q-93-41751) cannot be sustained. It is on this ground that petitioner's fourth
assignment of error is tenable, in that the prosecution's exhibit, i.e., Exhibit "I" (BPI Check No. 831258 dated April
5, 1992 in the amount of P25,000) is excluded by the law and the rules on evidence. Since the identity of the check
enters into the first essential element of the offense under Section 1 of B.P. 22, that is, that a person makes, draws or
issues a check on account or for value, and the date thereof involves its second element, namely, that at the time of
issue the maker, drawer or issuer knew that he or she did not have sufficient funds to cover the same, there is a
violation of petitioner's constitutional right to be informed of the nature of the offense charged in view of the
aforesaid variance, thereby rendering the conviction for the third count fatally defective.40 (Underscoring supplied)
Similarly, in the case of Burgos v. Sandiganbayan,41 we upheld the constitutional right of the accused to be
informed of the accusation against him in a case involving a variance between the means of committing the violation
of Section 3(e) of R.A. 3019 alleged in the information and the means found by the Sandiganbayan:
Common and foremost among the issues raised by petitioners is the argument that the Sandiganbayan erred in
convicting them on a finding of fact that was not alleged in the information. They contend that the information
charged them with having allowed payment of P83,850 to Ricardo Castaeda despite being aware and knowing fully
well that the surveying instruments were not actually repaired and rendered functional/operational. However, their
conviction by the Sandiganbayan was based on the finding that the surveying instruments were not repaired in
accordance with the specifications contained in the job orders.
xxxx
132
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In criminal cases, where the life and liberty of the accused is at stake, due process requires that the accused be
informed of the nature and cause of the accusation against him. An accused cannot be convicted of an offense unless
it is clearly charged in the complaint or information. To convict him of an offense other than that charged in the
complaint or information would be a violation of this constitutional right.
The important end to be accomplished is to describe the act with sufficient certainty in order that the accused may be
appraised of the nature of the charge against him and to avoid any possible surprise that may lead to injustice.
Otherwise, the accused would be left in the unenviable state of speculating why he is made the object of a
prosecution.
xxxx
There is no question that the manner of commission alleged in the information and the act the Sandiganbayan found
to have been committed are both violations of Section 3(e) of R.A. 3019. Nonetheless, they are and remain two
different means of execution and, even if reference to Section 3(e) of R.A. 3019 has been made in the information,
appellants conviction should only be based on that which was charged, or included, in the information. Otherwise,
there would be a violation of their constitutional right to be informed of the nature of the accusation against them.
In Evangelista v. People, a judgment of conviction by the Sandiganbayan, for violation of Section 3(e) of the AntiGraft and Corrupt Practices Act, was reversed by the Court on the ground that accused was made liable for acts
different from those described in the information. The accused therein was convicted on the finding that she failed to
identify with certainty in her certification the kinds of taxes paid by Tanduay Distillery, Inc., although the
information charged her with falsifying said certificate. The Court said that, constitutionally, the accused has a right
to be informed of the nature and cause of the accusation against her. To convict her of an offense other than that
charged in the complaint or information would be a violation of this constitutional right.
Contrary to the stand of the prosecution, the allegations contained in the information and the findings stated in the
Sandiganbayan decision are not synonymous. This is clearly apparent from the mere fact that the defenses applicable
for each one are different. To counter the allegations contained in the information, petitioners only had to prove that
the instruments were repaired and rendered functional/operational. Under the findings stated in the Sandiganbayan
decision, petitioners defense would have been to show not only that the instruments were repaired, but were
repaired in accordance with the job order.
xxxx
This is not to say that petitioners cannot be convicted under the information charged. The information in itself is
valid. It is only that the Sandiganbayan erred in convicting them for an act that was not alleged therein. x x x.42
(Underscoring supplied)
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As in the Burgos case, the information in the case at bar is valid, however, there is a variance between the allegation
in the information and proof adduced during trial with respect to the third essential element of falsification of private
document, i.e., the falsification caused damage or was committed with intent to cause damage to a third party. To
reiterate, petitioner was charged in the information with causing damage to AFPSLAI in the amount of P21,000.00
because he caused it to appear in the disbursement voucher that Guilas was entitled to a P21,000.00 finders fee
when in truth and in fact AFPSLAI owed no such amount to Guilas. However, he was convicted by the trial court of
falsifying the voucher with criminal intent to cause damage to the government because the trial court found that
petitioners acts were designed to lower the tax base of Hernandez and aid the latter in evading payment of taxes on
the finders fee.
We find this variance material and prejudicial to petitioner which, perforce, is fatal to his conviction in the instant
case. By the clear and unequivocal terms of the information, the prosecution endeavored to prove that the
falsification of the voucher by petitioner caused damage to AFPSLAI in the amount of P21,000.00 and not that the
falsification of the voucher was done with intent to cause damage to the government. It is apparent that this variance
not merely goes to the identity of the third party but, more importantly, to the nature and extent of the damage done
to the third party. Needless to state, the defense applicable for each is different.
More to the point, petitioner prepared his defense based precisely on the allegations in the information. A review of
the records shows that petitioner concentrated on disproving that AFPSLAI suffered damage for this was the charge
in the information which he had to refute to prove his innocence. As previously discussed, petitioner proved that
AFPSLAI suffered no damage inasmuch as it really owed the finders fee in the amount of P21,000.00 to Hernandez
but the same was placed in the name of Guilas upon Hernandezs request. If we were to convict petitioner now based
on his intent to cause damage to the government, we would be riding roughshod over his constitutional right to be
informed of the accusation because he was not forewarned that he was being prosecuted for intent to cause damage
to the government. It would be simply unfair and underhanded to convict petitioner on this ground not alleged while
he was concentrating his defense against the ground alleged.
The surprise and injustice visited upon petitioner becomes more evident if we take into consideration that the
prosecution never sought to establish that petitioners acts were done with intent to cause damage to the government
in that it purportedly aided Hernandez in evading the payment of taxes on the finders fee. The Bureau of Internal
Revenue was never made a party to this case. The income tax return of Hernandez was, likewise, never presented to
show the extent, if any, of the actual damage to the government of the supposed under declaration of income by
Hernandez. Actually, the prosecution never tried to establish actual damage, much less intent to cause damage, to the
government in the form of lost income taxes. There was here no opportunity for petitioner to object to the evidence
presented by the prosecution on the ground that the evidence did not conform to the allegations in the information
for the simple reason that no such evidence was presented by the prosecution to begin with.
Instead, what the trial court did was to deduce intent to cause damage to the government from the testimony of
petitioner and his three other witnesses, namely, Arevalo, Hernandez and Madet, that the substitution of the names in
the voucher was intended to lower the tax base of Hernandez to avoid payment of taxes on the finders fee. In other
words, the trial court used part of the defense of petitioner in establishing the third essential element of the offense
which was entirely different from that alleged in the information. Under these circumstances, petitioner obviously
had no opportunity to defend himself with respect to the charge that he committed the acts with intent to cause
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damage to the government because this was part of his defense when he explained the reason for the substitution of
the names in the voucher with the end goal of establishing that no actual damage was done to AFPSLAI. If we were
to approve of the method employed by the trial court in convicting petitioner, then we would be sanctioning the
surprise and injustice that the accuseds constitutional right to be informed of the nature and cause of the accusation
against him precisely seeks to prevent. It would be plain denial of due process.
In view of the foregoing, we rule that it was error to convict petitioner for acts which purportedly constituted the
third essential element of the crime but which were entirely different from the acts alleged in the information
because it violates in no uncertain terms petitioners constitutional right to be informed of the nature and cause of
the accusation against him.
No doubt tax evasion is a deplorable act because it deprives the government of much needed funds in delivering
basic services to the people. However, the culpability of petitioner should have been established under the proper
information and with an opportunity for him to adequately prepare his defense. It is worth mentioning that the public
prosecutor has been apprised of petitioners defense in the counter-affidavit43 that he filed before the NBI. He
claimed there that AFPSLAI really owed the P21,000.00 finders fee not to Guilas but to Hernandez and that the
finders fee was placed in the name of Guilas under a purported financial arrangement between petitioner and
Guilas. Yet in his Resolution44 dated September 14, 1992, the public prosecutor disregarded petitioners defense and
proceeded to file the information based on the alleged damage that petitioner caused to AFPSLAI in the amount of
P21,000.00 representing unwarranted payment of finders fee.45 During the trial proper, the prosecution was again
alerted to the fact that AFPSLAI suffered no actual damage and that the substitution of the names in the voucher was
designed to aid Hernandez in evading the payment of taxes on the finders fee. This was shown by no less than the
prosecutions own documentary evidence the Certificate of Capital Contribution Monthly No. 52178 in the amount
of P2,100,000.00 issued to Rosario Mercader which was prepared and identified by the prosecution witness, Judy
Balangue. Later on, the testimonies of the defense witnesses, Arevalo, Hernandez, Madet and petitioner, clearly set
forth the reasons for the substitution of the names in the disbursement voucher. However, the prosecution did not
take steps to seek the dismissal of the instant case and charge petitioner and his cohorts with the proper information
before judgment by the trial court as expressly allowed under Section 19,46 Rule 119 of the Rules of Court.47
Instead, the prosecution proceeded to try petitioner under the original information even though he had an adequate
defense against the offense charged in the information. Regrettably, these mistakes of the prosecution can only
benefit petitioner.
In closing, it is an opportune time to remind public prosecutors of their important duty to carefully study the
evidence on record before filing the corresponding information in our courts of law and to be vigilant in identifying
and rectifying errors made. Mistakes in filing the proper information and in the ensuing prosecution of the case serve
only to frustrate the States interest in enforcing its criminal laws and adversely affect the administration of justice.
WHEREFORE, the petition is GRANTED. The September 29, 2004 Decision and April 26, 2005 Resolution of the
Court Appeals in CA-G.R. CR No. 26556 are REVERSED and SET ASIDE. Petitioner is ACQUITTED based on
reasonable doubt. The Bail Bond is CANCELLED.
SO ORDERED.
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BATULANON vs. PEOPLE GR No. 139857 Sept. 15, 2006
FIRST DIVISION
G.R. No. 139857
September 15, 2006
LEONILA BATULANON, petitioner,

vs.
PEOPLE OF THE PHILIPPINES, respondent.
DECISION
YNARES-SANTIAGO, J.:
This petition assails the October 30, 1998 Decision1 of the Court of Appeals in CA-G.R. CR No. 15221, affirming
with modification the April 15, 1993 Decision2 of the Regional Trial Court of General Santos City, Branch 22 in
Criminal Case Nos. 3453, 3625, 3626 and 3627, convicting Leonila Batulanon of estafa through falsification of
commercial documents, and the July 29, 1999 Resolution3 denying the motion for reconsideration.
Complainant Polomolok Credit Cooperative Incorporated (PCCI) employed Batulanon as its Cashier/Manager from
May 1980 up to December 22, 1982. She was in charge of receiving deposits from and releasing loans to the
member of the cooperative.
During an audit conducted in December 1982, certain irregularities concerning the release of loans were
discovered.4
Thereafter, four informations for estafa thru falsification of commercial documents were filed against Batulanon, to
wit:
Criminal Case No. 3625
That on or about the 2nd day of June, 1982 at Poblacion Municipality of Polomolok, Province of South Cotabato,
Philippines, and within the jurisdiction of the Honorable Court said accused being then the manager-cashier of
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Polomolok Credit Cooperative, Inc., (PCCI), entrusted with the duty of managing the aff[a]irs of the cooperative,
receiving payments to, and collections of, the same, and paying out loans to members, taking advantage of her
position and with intent to prejudice and defraud the cooperative, did then and there willfully, unlawfully and
feloniously falsify a commercial document, namely: Cash/Check Voucher No. 30-A of PCCI in the name of Erlinda
Omadlao by then and there making an entry therein that the said Erlinda Omadlao was granted a loan of P4,160,
Philippine Currency, and by signing on the appropriate line thereon the signature of Erlinda Omadlao showing that
she received the loan, thus making it appear that the said Erlinda Omadlao was granted a loan and received the
amount of P4,160 when in truth and in fact the said person was never granted a loan, never received the same, and
never signed the cash/check voucher issued in her name, and in furtherance of her criminal intent and fraudulent
design to defraud PCCI said accused did then and there release to herself the same and received the loan of P4,160
and thereafter misappropriate and convert to her own use and benefit the said amount, and despite demands, refused
and still refuses to restitute the same, to the damage and prejudice of PCCI, in the aforementioned amount of P4,160,
Philippine Currency.5
That on or about the 24th day of September, 1982 at Poblacion, Municipality of Polomolok, Province of South
Cotabato, Philippines, and within the jurisdiction of the Honorable Court, said accused being then the managercashier of Polomolok Credit Cooperative, Inc. (PCCI), entrusted with the duty of managing the affairs of the
cooperative, receiving payments to, and collections of, the same, and paying out loans to members taking advantage
of her position and with intent to prejudice and defraud the cooperative, did then and there willfully, unlawfully and
feloniously falsify a commercial document, namely: Cash/Check Voucher No. 237 A of PCCI in the name of
Gonafreda Oracion by then and there making an entry therein that the said Gonafreda Oracion was granted a loan of
P4,000.00 and by signals on the appropriate line thereon the signature of Gonafreda Oracion showing that she
received the loan, thus making it appear that the said Gonafreda Oracion was granted a loan, received the loan of
P4,000.00 when in truth and in fact said person was never granted a loan, never received the same, and never signed
the Cash/Check voucher issued in her name, and in furtherance of her criminal intent and fraudulent design to
defraud PCCI said accused did then and there release to herself the same and received the amount of P4,000.00 and
thereafter misappropriate and convert to her own use and benefit the said amount, and despite demands, refused and
still refuses to restitute the same, to the damage and prejudice of PCCI, in the aforementioned amount of P4,000,
Philippine Currency.
CONTRARY TO LAW.6
That on or about the 10th day of October 1982 at Poblacion, Municipality of Polomolok, Province of South
Cotabato, Philippines, and within the jurisdiction of the Honorable Court, the said accused being then the managercashier of Polomolok Credit Cooperative, Inc., (PCCI), entrusted with the duty of managing the affairs of the
cooperative, receiving payments to, and collection of the same and paying out loans to members, taking advantage
feloniously falsify a commercial document, namely: an Individual Deposits and Loan Ledger of one Ferlyn Arroyo
with the PCCI by then and there entering on the appropriate column of the ledger the entry that the said Ferlyn
Arroyo had a fixed deposit of P1,000.00 with the PCCI and was granted a loan in the amount of P3,500.00, thus
making it appear that the said person made a fixed deposit on the aforesaid date with, and was granted a loan by the
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PCCI when in truth and in fact Ferlyn Arroyo never made such a deposit and was never granted loan and after the
document was so falsified in the manner set forth, said accused did then and there again falsify the Cash/Check
Voucher of the PCCI in the name of Ferlyn Arroyo by signing therein the signature of Ferlyn Arroyo, thus making it
appear that the said Ferlyn Arroyo received the loan of P3,500, Philippine Currency, when in truth and in fact said
Ferlyn Arroyo never received the loan, and in furtherance of her criminal intent and fraudulent design to defraud
PCCI said accused did then and there release to herself the same, and received the amount of P3,500, and thereafter,
did then and there, wilfully, unlawfully and feloniously misappropriate and convert to her own personal use and
benefit the said amount, and despite demands, refused and still refuses to restitute the same, to the damage and
prejudice of the PCCI in the aforementioned amount of P3,500, Philippine Currency.
CONTRARY TO LAW.7
That on or about the 7th day of December, 1982 at Poblacion, Municipality of Polomolok, Province of South
Cotabato, Philippines, and within the jurisdiction of the Honorable Court, the said accused being then the managercashier of Polomolok Credit Cooperative, Inc., (PCCI) entrusted with the duty of managing the affairs of the
cooperative, receiving payments to, and collection of, the same and paying out loans to members, taking advantage
feloniously falsify a commercial document, namely: an Individual Deposits and Loan Ledger of one Dennis
Batulanon with the PCCI by then and there entering on the appropriate column of the ledger the entry that the said
Dennis Batulanon had a fixed deposit of P2,000.00 with the PCCI and was granted a loan in the amount of
P5,000.00 thus making it appear that the said person made fixed deposit on the aforesaid date with, and was granted
a loan by the PCCI when in truth and in fact Dennis Batulanon never made such a deposit and was never granted
loan and offer the document was so falsified in the manner set forth, said accused did then and there again falsify the
Cash/Check Voucher No. 374 A of PCCI in the name of Dennis Batulanon by signing therein the signature of Dennis
Batulanon, thus making it appear that the said Dennis Batulanon received the loan of P5,000.00 when in truth and in
fact said Dennis Batulanon never received the loan and in furtherance of her criminal intent and fraudulent design to
defraud PCCI said accused did then and there release to herself the same and receive the loan of P5,000, and
thereafter, did then and there willfully, unlawfully and feloniously misappropriate and convert to her own personal
use and benefit the said amount, and [despite] demands, refused and still refuses to restitute the same to the damage
and prejudice of the PCCI in the aforementioned amount of P5,000, Philippine Currency.
CONTRARY TO LAW.8
The cases were raffled to Branch 22 of the Regional Trial Court of General Santos City and docketed as Criminal
Case Nos. 3453, 3625, 3626 and 3627.
Batulanon pleaded not guilty to the charges, afterwhich a joint trial on the merits ensued.
The prosecution presented Maria Theresa Medallo, Benedicto Gopio, Jr., and Bonifacio Jayoma as witnesses.
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Medallo, the posting clerk whose job was to assist Batulanon in the preparation of cash vouchers9 testified that on
certain dates in 1982, Batulanon released four Cash Vouchers representing varying amounts to four different
individuals as follows: On June 2, 1982, Cash Voucher No. 30A10 for P4,160.00 was released to Erlinda Omadlao;
on September 24, 1982, Cash Voucher No. 237A11 for P4,000.00 was released to Gonafreda12 Oracion; P3, 500.00
thru Cash Voucher No. 276A13 was released to Ferlyn Arroyo on October 16, 1982 and on December 7, 1982,
P5,000.00 was released to Dennis Batulanon thru Cash Voucher No. 374A.14
Medallo testified that Omadlao, Oracion, and Dennis Batulanon were not eligible to apply for loan because they
were not bona fide members of the cooperative.15 Ferlyn Arroyo on the other hand, was a member of the
cooperative but there was no proof that she applied for a loan with PCCI in 1982. She subsequently withdrew her
membership in 1983.16 Medallo stated that pursuant to the cooperative's by-laws, only bona fide members who
must have a fixed deposit are eligible for loans.17
Medallo categorically stated that she saw Batulanon sign the names of Oracion and Arroyo in their respective cash
vouchers and made it appear in the records that they were payees and recipients of the amount stated therein.18 As
to the signature of Omadlao in Cash Voucher No. 30A, she declared that the same was actually the handwriting of
appellant.19
Gopio, Jr. was a member of PCCI since 1975 and a member of its board of directors since 1979. He corroborated
Medallo's testimony that Omadlao, Arroyo, Oracion and Dennis Batulanon are not members of PCCI. He stated that
Oracion is Batulanon's sister-in-law while Dennis Batulanon is her son who was only 3 years old in 1982. He
averred that membership in the cooperative is not open to minors.20
Jayoma was the Vice-Chairman of the PCCI Board of Directors in 1980 before becoming its Chairman in 1982 until
1983. He testified that the loans made to Oracion, Omadlao, Arroyo and Dennis Batulanon did not pass through the
cooperative's Credit Committee and PCCI's Board of Directors for screening purposes. He claimed that Oracion's
signature on Cash Voucher No. 237A is Batulanon's handwriting.21 Jayoma also testified that among the four loans
taken, only that in Arroyo's name was settled.22
The defense presented two witnesses, namely, Maria Theresa Medallo who was presented as a hostile witness and
Batulanon.
Medallo was subpoenaed by the trial court on behalf of the defense and was asked to bring with her the PCCI
General Journal for the year 1982. After certifying that the said document reflected all the financial transactions of
the cooperative for that year, she was asked to identify the entries in the Journal with respect to the vouchers in
question. Medallo was able to identify only Cash Voucher No. 237A in the name of Gonafreda Oracion. She failed to
identify the other vouchers because the Journal had missing pages and she was not the one who prepared the
entries.23
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Batulanon denied all the charges against her. She claimed that she did not sign the vouchers in the names of
Omadlao, Oracion and Arroyo; that the same were signed by the loan applicants in her presence at the PCCI office
after she personally released the money to them;24 that the three were members of the cooperative as shown by their
individual deposits and the ledger; that the board of directors passed a resolution in August 1982 authorizing her to
certify to the correctness of the entries in the vouchers; that it has become an accepted practice in the cooperative for
her to release loans and dispense with the approval of Gopio Jr., in case of his absence;25 that she signed the loan
application and voucher of her son Dennis Batulanon because he was a minor but she clarified that she asked Gopio,
Jr., to add his signature on the documents to avoid suspicion of irregularity;26 that contrary to the testimony of
Gopio, Jr., minors are eligible for membership in the cooperative provided they are children of regular members.
Batulanon admitted that she took out a loan in her son's name because she is no longer qualified for another loan as
she still has to pay off an existing loan; that she had started paying off her son's loan but the cooperative refused to
accept her payments after the cases were filed in court.27 She also declared that one automatically becomes a
member when he deposits money with the cooperative.28 When she was Cashier/Manager of PCCI from 1980 to
1982, the cooperative did not have by-laws yet.29
On rebuttal, Jayoma belied that PCCI had no by-laws from 1980-1982, because the cooperative had been registered
since 1967.30
On April 15, 1993, the trial court rendered a Decision convicting Batulanon as follows:
WHEREFORE, premises considered, finding the accused Leonila Batulanon guilty beyond reasonable doubt in all
the above-entitled case, she is sentenced in each of the four cases to 4 months of ARRESTO MAYOR to 1 year and
2 months of PRISION CORRECTIONAL, to indemnify the PCCI in the total sum of P16,660.00 with legal interest
from the institution of the complaints until fully paid, plus costs.
SO ORDERED.31
The Court of Appeals affirmed with modification the decision of the trial court, thus:
WHEREFORE, the decision appealed from is MODIFIED. Appellant LEONILA BATULANON is found guilty
beyond reasonable doubt of Falsification of Private Documents under Par. 2, Article 172 of the Revised Penal Code;
and is hereby sentenced to suffer the indeterminate penalty of six (6) months of arresto mayor maximum, AS
MINIMUM, to four (4) years and two (2) months of prision correccional medium, AS MAXIMUM; to pay a fine of
five thousand (P5,000.00) pesos; and to indemnify the Polomolok Cooperative Credit , Inc. the sum of thirteen
thousand one hundred sixty (P13,160.00), plus legal interests from the filing of the complaints until fully paid, plus
costs.
SO ORDERED.32
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The motion for reconsideration was denied, hence this petition.
Batulanon argues that in any falsification case, the best witness is the person whose signature was allegedly forged,
thus the prosecution should have presented Erlinda Omadlao, Gonafreda Oracion and Ferlyn Arroyo instead of
relying on the testimony of an unreliable and biased witness such as Medallo.33 She avers that the crime of
falsification of private document requires as an element prejudice to a third person. She insists that PCCI has not
been prejudiced by these loan transactions because these loans are accounts receivable by the cooperative.34
The petition lacks merit.
Although the offense charged in the information is estafa through falsification of commercial document, appellant
could be convicted of falsification of private document under the well-settled rule that it is the allegations in the
information that determines the nature of the offense and not the technical name given in the preamble of the
information. In Andaya v. People,35 we held:
From a legal point of view, and in a very real sense, it is of no concern to the accused what is the technical name of
the crime of which he stands charged. It in no way aids him in a defense on the merits. x x x That to which his
attention should be directed, and in which he, above all things else, should be most interested, are the facts alleged.
The real question is not did he commit a crime given in the law some technical and specific name, but did he
perform the acts alleged in the body of the information in the manner therein set forth. x x x The real and important
question to him is, "Did you perform the acts alleged in the manner alleged?" not, "Did you commit a crime named
murder?" If he performed the acts alleged, in the manner stated, the law determines what the name of the crime is
and fixes the penalty therefor. x x x If the accused performed the acts alleged in the manner alleged, then he ought to
be punished and punished adequately, whatever may be the name of the crime which those acts constitute.
The elements of falsification of private document under Article 172, paragraph 236 of the Revised Penal Code are:
(1) that the offender committed any of the acts of falsification, except those in paragraph 7, Article 171; (2) that the
falsification was committed in any private document; and (3) that the falsification caused damage to a third party or
at least the falsification was committed with intent to cause such damage.37
In Criminal Case Nos. 3625, 3626, and 3453, Batulanon's act38 of falsification falls under paragraph 2 of Article
171, i.e., causing it to appear that persons have participated in any act or proceeding when they did not in fact so
participate. This is because by signing the name of Omadlao, Oracion, and Arroyo in Cash Voucher Nos. 30A, 237A,
and 267A, respectively, as payee of the amounts appearing in the corresponding cash vouchers, Batulanon made it
appear that they obtained a loan and received its proceeds when they did not in fact secure said loan nor receive the
amounts reflected in the cash vouchers.
The prosecution established that Batulanon caused the preparation of the Cash Vouchers in the name of Omadlao
and Oracion knowing that they are not PCCI members and not qualified for a loan from the cooperative. In the case
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of Arroyo, Batulanon was aware that while the former is a member, she did not apply for a loan with the
cooperative.
Medallo categorically declared that she saw Batulanon forge the signatures of Oracion and Arroyo in the vouchers
and made it appear that the amounts stated therein were actually received by these persons. As to the signature of
Arroyo, Medallo's credible testimony and her familiarity with the handwriting of Batulanon proved that it was
indeed the latter who signed the name of Arroyo. Contrary to Batulanon's contention, the prosecution is not dutybound to present the persons whose signatures were forged as Medallo's eyewitness account of the incident was
sufficient. Moreover, under Section 22, Rule 132 of the Rules of Court, the handwriting of a person may be proved
by any witness who believes it to be the handwriting of such person because he has seen the person write, or has
seen writing purporting to be his upon which the witness has acted or been charged, and has thus acquired
knowledge of the handwriting of such person.
Her insistence that Medallo is a biased witness is without basis. There is no evidence showing that Medallo was
prompted by any ill motive.
The claim that Batulanon's letter to the cooperative asking for a compromise was not an admission of guilt is
untenable. Section 27, Rule 130 of the Rules of Court provides that in criminal cases, except those involving quasioffenses or criminal negligence or those allowed by law to be compromised, an offer of compromise by the accused
may be received in evidence as an implied admission of guilt.
There is no merit in Batulanon's assertion that PCCI has not been prejudiced because the loan transactions are
reflected in its books as accounts receivable. It has been established that PCCI only grants loans to its bona fide
members with no subsisting loan. These alleged borrowers are not members of PCCI and neither are they eligible for
a loan. Of the four accounts, only that in Ferlyn Arroyo's name was settled because her mother, Erlinda, agreed to
settle the loan to avoid legal prosecution with the understanding however, that she will be reimbursed once the
money is collected from Batulanon.39
The Court of Appeals40 correctly ruled that the subject vouchers are private documents and not commercial
documents because they are not documents used by merchants or businessmen to promote or facilitate trade or credit
transactions41 nor are they defined and regulated by the Code of Commerce or other commercial law.42 Rather,
they are private documents, which have been defined as deeds or instruments executed by a private person without
the intervention of a public notary or of other person legally authorized, by which some disposition or agreement is
proved, evidenced or set forth. 43
In all criminal prosecutions, the burden of proof is on the prosecution to establish the guilt of the accused beyond
reasonable doubt. It has the duty to prove each and every element of the crime charged in the information to warrant
a finding of guilt for the said crime or for any other crime necessarily included therein.44 The prosecution in this
case was able to discharge its burden completely.
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As there is no complex crime of estafa through falsification of private document,45 it is important to ascertain
whether the offender is to be charged with falsification of a private document or with estafa. If the falsification of a
private document is committed as a means to commit estafa, the proper crime to be charged is falsification. If the
estafa can be committed without the necessity of falsifying a document, the proper crime to be charged is estafa.
Thus, in People v. Reyes,46 the accused made it appear in the time book of the Calamba Sugar Estate that a laborer,
Ciriaco Sario, worked 21 days during the month of July, 1929, when in reality he had worked only 11 days, and then
charged the offended party, the Calamba Sugar Estate, the wages of the laborer for 21 days. The accused
misappropriated the wages during which the laborer did not work for which he was convicted of falsification of
private document.
In U.S. v. Infante,47 the accused changed the description of the pawned article on the face of the pawn ticket and
made it appear that the article is of greatly superior value, and thereafter pawned the falsified ticket in another
pawnshop for an amount largely in excess of the true value of the article pawned. He was found guilty of
falsification of a private document. In U.S. v. Chan Tiao,48 the accused presented a document of guaranty
purportedly signed by Ortigas Hermanos for the payment of P2,055.00 as the value of 150 sacks of sugar, and by
means of said falsified documents, succeeded in obtaining the sacks of sugar, was held guilty of falsification of a
private document.
In view of the foregoing, we find that the Court of Appeals correctly held Batulanon guilty beyond reasonable doubt
of Falsification of Private Documents in Criminal Case Nos. 3625, 3626 and 3453.
Article 172 punishes the crime of Falsification of a Private Document with the penalty of prision correccional in its
medium and maximum periods with a duration of two (2) years, four (4) months and one (1) day to six (6) years.
There being no aggravating or mitigating circumstances, the penalty should be imposed in its medium period, which
is three (3) years, six (6) months and twenty-one (21) days to four (4) years, nine (9) months and ten (10) days.
Taking into consideration the Indeterminate Sentence Law, Batulanon is entitled to an indeterminate penalty the
minimum of which must be within the range of arresto mayor in its maximum period to prision correccional in its
minimum period, or four (4) months and one (1) day to two (2) years and four (4) months.49 Thus, in Criminal Case
Nos. 3625, 3626 and 3453, the Court of Appeals correctly imposed the penalty of six (6) months of arresto mayor, as
minimum, to four (4) years and two (2) months of prision correccional, as maximum, which is within the range of
the allowed imposable penalty.
Since Batulanon's conviction was for 3 counts of falsification of private documents, she shall suffer the
aforementioned penalties for each count of the offense charged. She is also ordered to indemnify PCCI the amount
of P11,660.00 representing the aggregate amount of the 3 loans without deducting the amount of P3,500.00 paid by
Ferlyn Arroyo's mother as the same was settled with the understanding that PCCI will reimburse the former once the
money is recovered. The amount shall earn interest at the rate of 6% per annum from the filing of the complaints on
November 28, 1994 until the finality of this judgment. From the time the decision becomes final and executory, the
interest rate shall be 12% per annum until its satisfaction.
However, in Criminal Case No. 3627, the crime committed by Batulanon is estafa and not falsification. Under
Article 171 of the Revised Penal Code, the acts that may constitute falsification are the following:
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1. Counterfeiting or imitating any handwriting, signature, or rubric;
2. Causing it to appear that persons have participated in any act or proceeding when they did not in fact so
participate;
3. Attributing to persons who have participated in an act or proceeding statements other than those in fact made by
them;
4. Making untruthful statements in a narration of facts;
5. Altering true dates;
6. Making any alteration or intercalation in a genuine document which changes its meaning;
7. Issuing in an authenticated form a document purporting to be a copy of an original document when no such
original exists, or including in such copy a statement contrary to, or different from, that of the genuine original; or;
8. Intercalating any instrument or note relative to the issuance thereof in a protocol, registry, or official book.
In Criminal Case No. 3627, the trial court convicted petitioner Batulanon for falsifying Dennis Batulanon's signature
in the cash voucher based on the Information charging her of signing the name of her 3 year old son, Dennis. The
records, however, reveal that in Cash Voucher No. 374A, petitioner Batulanon did not falsify the signature of
Dennis. What she did was to sign: "by: lbatulanon" to indicate that she received the proceeds of the loan in behalf of
Dennis. Said act does not fall under any of the modes of falsification under Article 171 because there in nothing
untruthful about the fact that she used the name of Dennis and that as representative of the latter, obtained the
proceeds of the loan from PCCI. The essence of falsification is the act of making untruthful or false statements,
which is not attendant in this case. As to whether, such representation involves fraud which caused damage to PCCI
is a different matter which will make her liable for estafa, but not for falsification. Hence, it was an error for the
courts below to hold that petitioner Batulanon is also guilty of falsification of private document with respect to
Criminal Case No. 3627 involving the cash voucher of Dennis.50
The elements of estafa through conversion or misappropriation under Art. 315 (1) (b) of the Revised Penal Code are:
(1) that money, goods or other personal property is received by the offender in trust, or on commission, or for
administration, or under any other obligation involving the duty to make delivery of, or to return, the same;
144
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(2) that there be misappropriation or conversion of such money or property by the offender or denial on his part of
such receipt;
(3) that such misappropriation or conversion or denial is to the prejudice of another;
(4) that there is a demand made by the offended party on the offender. (Note: The 4th element is not necessary when
there is evidence of misappropriation of the goods by the defendant)51
Thus in the case of U.S. v. Sevilla,52 the Court convicted the appellant of estafa by misappropriation. The latter, a
treasurer of the Manila Rail Road Company, took the sum of P8,330.00 out of the funds of the company and used it
for personal purposes. He replaced said cash with his personal check of the same amount drawn on the Philippine
National Bank (PNB), with instruction to his cashier not to deposit the same in the current account of the Manila
Rail Road Company until the end of the month. When an audit was conducted, the check of appellant was
discovered to have been carried in the accounts as part of the cash on hand. An inquiry with the PNB disclosed that
he had only P125.66 in his account, although in the afternoon of the same day, he deposited in his account with the
PNB sufficient sum to cover the check. In handing down a judgment of conviction, the Court explained that:
Fraudulent intent in committing the conversion or diversion is very evidently not a necessary element of the form of
estafa here discussed; the breach of confidence involved in the conversion or diversion of trust funds takes the place
of fraudulent intent and is in itself sufficient. The reason for this is obvious: Grave as the offense is, comparatively
few men misappropriate trust funds with the intention of defrauding the owner; in most cases the offender hopes to
be able to restore the funds before the defalcation is discovered. x x x
Applying the legal principles here stated to the facts of the case, we find all of the necessary elements of estafa x x x.
That the money for which the appellant's checks were substituted was received by him for safe-keeping or
administration, or both, can hardly be disputed. He was the responsible financial officer of the corporation and as
such had immediate control of the current funds for the purposes of safe-keeping and was charged with the custody
of the same. That he, in the exercise of such control and custody, was aided by subordinates cannot alter the case nor
can the fact that one of the subordinates, the cashier, was a bonded employee who, if he had acted on his own
responsibility, might also have misappropriated the same funds and thus have become guilty of estafa.
Neither can there be any doubt that, in taking money for his personal use, from the funds entrusted to him for
safekeeping and substituting his personal checks therefor with instructions that the checks were to be retained by the
cashier for a certain period, the appellant misappropriated and diverted the funds for that period. The checks did not
constitute cash and as long as they were retained by the appellant or remained under his personal control they were
of no value to the corporation; he might as well have kept them in his pocket as to deliver them to his subordinate
with instructions to retain them.
xxxx
145
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But it is argued in the present case that it was not the intention of the accused to permanently misappropriate the
funds to himself. As we have already stated, such intention rarely exists in cases of this nature and, as we have seen,
it is not a necessary element of the crime. Though authorities have been cited who, at first sight, appear to hold that
misappropriation of trust funds for short periods does not always amount to estafa, we are not disposed to extend
this interpretation of the law to cases where officers of corporations convert corporate funds to their own use,
especially where, as in this case, the corporation is of a quasi-public character. The statute is clear and makes no
distinction between permanent misappropriations and temporary ones. We can see no reason in the present case why
it should not be applied in its literal sense.
The third element of the crime with which the appellant is charged is injury to another. The appellant's counsel
argues that the only injury in this case is the loss of interest suffered by the Railroad Company during the period the
funds were withheld by the appellant. It is, however, well settled by former adjudications of this court that the
disturbance in property rights caused by the misappropriation, though only temporary, is in itself sufficient to
constitute injury within the meaning of paragraph 5, supra. (U.S. vs. Goyenechea, 8 Phil., 117 U.S. vs. Malong, 36
Phil., 821.)53
In the instant case, there is no doubt that as Cashier/Manager, Batulanon holds the money for administration and in
trust for PCCI. Knowing that she is no longer qualified to obtain a loan, she fraudulently used the name of her son
who is likewise disqualified to secure a loan from PCCI. Her misappropriation of the amount she obtained from the
loan is also not disputed as she even admitted receiving the same for personal use. Although the amount received by
Batulanon is reflected in the records as part of the receivables of PCCI, damage was still caused to the latter because
the sum misappropriated by her could have been loaned by PCCI to qualified members, or used in other productive
undertakings. At any rate, the disturbance in property rights caused by Batulaono's misappropriation is in itself
sufficient to constitute injury within the meaning of Article 315.
Considering that the amount misappropriated by Batulanon was P5,000.00, the applicable provision is paragraph (3)
of Article 315 of the Revised Penal Code, which imposes the penalty of arresto mayor in its maximum period to
prision correccional in its minimum period, where the amount defrauded is over P200.00 but does not exceed
P6,000.00. There being no modifying circumstances, the penalty shall be imposed in its medium period. With the
application of the Indeterminate Sentence Law, Batulaon is entitled to an indeterminate penalty of three (3) months
of arresto mayor, as minimum, to one (1) year and eight (8) months of prision correccional, as maximum.
WHEREFORE, the Decision appealed from is AFFIRMED with the following MODIFICATIONS:
(1) In Criminal Case Nos. 3625, 3626 and 3453, Leonila Batulanon is found GUILTY of three counts of falsification
of private documents and is sentenced to suffer the penalty of six (6) months of arresto mayor, as minimum, to four
(4) years and two (2) months of prision correccional, as maximum, for each count, and to indemnify complainant
Polomolok Credit Cooperative Incorporated the amount of P11,660.00 with interest at the rate of 6% per annum
from November 28, 1994 until finality of this judgment. The interest rate of 12% per annum shall be imposed from
finality of this judgment until its satisfaction; and
146
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(2) In Criminal Case No. 3627, Leonila Batulanon is found GUILTY of estafa and is sentenced to suffer the penalty
of three (3) months of arresto mayor, as minimum, to one (1) year and eight (8) months of prision correccional, as
maximum. She is likewise ordered to indemnify Polomolok Credit Cooperative Incorporated the sum of P5,000.00
with interest at the rate of 6% per annum from November 28, 1994 until finality of this judgment. The interest rate
of 12% per annum shall be imposed from finality of this judgment until its satisfaction.
SO ORDERED.
Section 1 (NIL and Tax)
BAAS vs. CA GR No. 102967 Feb. 10, 2000
SECOND DIVISION
G.R. No. 102967
February 10, 2000
BIBIANO V. BAAS, JR., petitioner,

vs.
COURT OF APPEALS, AQUILINO T. LARIN, RODOLFO TUAZON AND PROCOPIO TALON, respondents.
QUISUMBING, J.:
For review is the Decision of the Court of Appeals in CA-C.R. CV No. 17251 promulgated on November 29, 1991.
It affirmed in toto the judgment of the Regional Trial Court (RTC), Branch 39, Manila, in Civil Case No. 82-12107.
Said judgment disposed as follows:
FOR ALL THE FOREGOING CONSIDERATIONS, this Court hereby renders judgment DISMISSING the
complaint against all the defendants and ordering plaintiff [herein petitioner] to pay defendant Larin the amount of
P200,000.00 (Two Hundred Thousand Pesos) as actual and compensatory damages; P200,000.00 as moral damages;
and P50,000.00 as exemplary damages and attorneys fees of P100,000.00.1
The facts, which we find supported by the records, have been summarized by the Court of Appeals as follows:
On February 20, 1976, petitioner, Bibiano V. Baas Jr. sold to Ayala Investment Corporation (AYALA), 128,265
square meters of land located at Bayanan, Muntinlupa, for two million, three hundred eight thousand, seven hundred
seventy (P2,308,770.00) pesos. The Deed of Sale provided that upon the signing of the contract AYALA shall pay
four hundred sixty-one thousand, seven hundred fifty-four (P461,754.00) pesos. The balance of one million, eight
hundred forty-seven thousand and sixteen (P1,847,016.00) pesos was to be paid in four equal consecutive annual
installments, with twelve (12%) percent interest per annum on the outstanding balance. AYALA issued one
promissory note covering four equal annual installments. Each periodic payment of P461,754.00 pesos shall be
payable starting on February 20, 1977, and every year thereafter, or until February 20, 1980.
The same day, petitioner discounted the promissory note with AYALA, for its face value of P1,847,016.00,
evidenced by a Deed of Assignment signed by the petitioner and AYALA. AYALA issued nine (9) checks to
petitioner, all dated February 20, 1976, drawn against Bank of the Philippine Islands with the uniform amount of
two hundred five thousand, two hundred twenty-four (P205,224.00) pesos.
147
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In his 1976 Income Tax Return, petitioner reported the P461,754 initial payment as income from disposition of
capital asset.2
Selling Price of Land
P2,308,770.00
Less Initial Payment
461,754.00
Unrealized Gain
P1,847,016.00
1976 Declaration of Income on Disposition of Capital Asset subject to Tax:
Initial Payment
P461,754.00
Less: Cost of land and other incidental Expenses
( 76,547.90)
Income
P385,206.10
Income subject to tax (P385,206. 10 x 50%)
P192,603.65
In the succeeding years, until 1979, petitioner reported a uniform income of two hundred thirty thousand, eight
hundred seventy-seven (P230,877.00) pesos4 as gain from sale of capital asset. In his 1980 income tax amnesty
return, petitioner also reported the same amount of P230,877.00 as the realized gain on disposition of capital asset
for the year.
On April 11, 1978, then Revenue Director Mauro Calaguio authorized tax examiners, Rodolfo Tuazon and Procopio
Talon to examine the books and records of petitioner for the year 1976. They discovered that petitioner had no
outstanding receivable from the 1976 land sale to AYALA and concluded that the sale was cash and the entire profit
should have been taxable in 1976 since the income was wholly derived in 1976.
Tuazon and Talon filed their audit report and declared a discrepancy of two million, ninety-five thousand, nine
hundred fifteen (P2,095,915.00) pesos in petitioner's 1976 net income. They recommended deficiency tax
assessment for two million, four hundred seventy-three thousand, six hundred seventy-three (P2,473,673.00) pesos.
Meantime, Aquilino Larin succeeded Calaguio as Regional Director of Manila Region IV-A. After reviewing the
examiners' report, Larin directed the revision of the audit report, with instruction to consider the land as capital
asset. The tax due was only fifty (50%) percent of the total gain from sale of the property held by the taxpayer
beyond twelve months pursuant to Section 345 of the 1977 National Internal Revenue Code (NIRC). The deficiency
tax assessment was reduced to nine hundred thirty six thousand, five hundred ninety-eight pesos and fifty centavos
(P936,598.50), inclusive of surcharges and penalties for the year 1976.
On June 27, 1980, respondent Larin sent a letter to petitioner informing of the income tax deficiency that must be
settled him immediately.
On September 26, 1980, petitioner acknowledged receipt of the letter but insisted that the sale of his land to AYALA
was on installment.
148
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On June 8, 1981, the matter was endorsed to the Acting Chief of the Legal Branch of the National Office of the BIR.
The Chief of the Tax Fraud Unit recommended the prosecution of a criminal case for conspiring to file false and
fraudulent returns, in violation of Section 51 of the Tax Code against petitioner and his accountants, Andres P.
Alejandre and Conrado Baas.
On June 17, 1981, Larin filed a criminal complaint for tax evasion against the petitioner.
On July 1, 1981, news items appeared in the now defunct Evening Express with the headline: "BIR Charges Realtor"
and another in the defunct Evening Post with a news item: "BIR raps Realtor, 2 accountants." Another news item
also appeared in the July 2, 1981, issue of the Bulletin Today entitled: "3-face P1-M tax evasion raps." All news
items mentioned petitioner's false income tax return concerning the sale of land to AYALA.
On July 2, 1981, petitioner filed an Amnesty Tax Return under P.D. 1740 and paid the amount of forty-one thousand,
seven hundred twenty-nine pesos and eighty-one centavos (P41,729.81). On November 2, 1981, petitioner again
filed an Amnesty Tax Return under P.D. 1840 and paid an additional amount of one thousand, five hundred twentyfive pesos and sixty-two centavos (P1,525.62). In both, petitioner did not recognize that his sale of land to AYALA
was on cash basis.
Reacting to the complaint for tax evasion and the news reports, petitioner filed with the RTC of Manila an action6
for damages against respondents Larin, Tuazon and Talon for extortion and malicious publication of the BIR's tax
audit report. He claimed that the filing of criminal complaints against him for violation of tax laws were improper
because he had already availed of two tax amnesty decrees, Presidential Decree Nos. 1740 and 1840.
The trial court decided in favor of the respondents and awarded Larin damages, as already stated. Petitioner
seasonably appealed to the Court of Appeals. In its decision of November 29, 1991, the respondent court affirmed
the trial court's decision, thus:
The finding of the court a quo that plaintiff-appellant's actions against defendant-appellee Larin were unwarranted
and baseless and as a result thereof, defendant-appellee Larin was subjected to unnecessary anxiety and humiliation
is therefore supported by the evidence on record.1wphi1.nt
Defendant-appellee Larin acted only in pursuance of the authority granted to him. In fact, the criminal charges filed
against him in the Tanodbayan and in the City Fiscal's Office were all dismissed.
WHEREFORE, the appealed judgment is hereby AFFIRMED in toto.7
Hence this petition, wherein petitioner raises before us the following queries:
I. WHETHER THE COURT OF APPEALS ERRED IN ITS INTERPRETATION OF PERTINENT TAX LAWS,
THUS IT FAILED TO APPRECIATE THE CORRECTNESS AND ACCURACY OF PETITIONER'S RETURN
OF THE INCOME DERIVED FROM THE SALE OF THE LAND TO AYALA.
149
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II. WHETHER THE RESPONDENT COURT ERRED IN NOT FINDING THAT THERE WAS AN ALLEGED
ATTEMPT TO EXTORT [MONEY FROM] PETITIONER BY PRIVATE RESPONDENTS.
III. WHETHER THE RESPONDENT COURT ERRED IN ITS INTERPRETATION OF PRESIDENTIAL
DECREE NOS. 1740 AND 1840, AMONG OTHERS, PETITIONER'S IMMUNITY FROM CRIMINAL
PROSECUTION.
IV. WHETHER THE RESPONDENT COURT ERRED IN ITS INTERPRETATION OF WELL-ESTABLISHED
DOCTRINES OF THIS HONORABLE COURT AS REGARDS THE AWARD OF ACTUAL, MORAL AND
EXEMPLARY DAMAGES IN FAVOR OF RESPONDENT LARIN.
In essence, petitioner asks the Court to resolve seriatim the following issues:
1. Whether respondent court erred in ruling that there was no extortion attempt by BIR officials;
2. Whether respondent court erred in holding that P.D. 1740 and 1840 granting tax amnesties did not grant immunity
from tax suits;
3. Whether respondent court erred in finding that petitioner's income from the sale of land in 1976 should be
declared as a cash transaction in his tax return for the same year (because the buyer discounted the promissory note
issued to the seller on future installment payments of the sale, on the same day of the sale);
4. Whether respondent court erred and committed grave abuse of discretion in awarding damages to respondent
Larin.
The first issue, on whether the Court of Appeals erred in finding that there was no extortion, involves a
determination of fact. The Court of Appeals observed,
The only evidence to establish the alleged extortion attempt by defendants-appellees is the plaintiff-appellant's self
serving declarations.
As found by the court a quo, "said attempt was known to plaintiff-appellant's son-in-law and counsel on record, yet,
said counsel did not take the witness stand to corroborate the testimony of plaintiff."8
As repeatedly held, 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.9 Similarly, neither
should we disturb a finding of the trial court and appellate court that an allegation is not supported by evidence on
record. Thus, we agree with the conclusion of respondent court that herein private respondents, on the basis of
evidence, could not be held liable for extortion.
On the second issue of whether P.D. Nos. 1740 and 1840 which granted tax amnesties also granted immunity from
criminal prosecution against tax offenses, the pertinent sections of these laws state:
150
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P.D. No. 1740. CONDONING PENALTIES FOR CERTAIN VIOLATIONS OF THE INCOME TAX LAW UPON
VOLUNTARY DISCLOSURE OF UNDECLARED INCOME FOR INCOME TAX PURPOSES AND
REQUIRING PERIODIC SUBMISSION OF NET WORTH STATEMENT.
xxx
xxx
xxx
Sec. 1. Voluntary Disclosure of Correct Taxable Income. Any individual who, for any or all of the taxable years
1974 to 1979, had failed to file a return is hereby, allowed to file a return for each of the aforesaid taxable years and
accurately declare therein the true and correct income, deductions and exemptions and pay the income tax due per
return. Likewise, any individual who filed a false or fraudulent return for any taxable year in the period mentioned
above may amend his return and pay the correct amount of tax due after deducting the taxes already paid, if any, in
the original declaration. (emphasis ours)
xxx
xxx
xxx
Sec. 5. Immunity from Penalties. Any individual who voluntarily files a return under this Decree and pays the
income tax due thereon shall be immune from the penalties, civil or criminal, under the National Internal Revenue
Code arising from failure to pay the correct income tax with respect to the taxable years from which an amended
return was filed or for which an original return was filed in cases where no return has been filed for any of the
taxable years 1974 to 1979: Provided, however, That these immunities shall not apply in cases where the amount of
net taxable income declared under this Decree is understated to the extent of 25% or more of the correct net taxable
income. (emphasis ours)
P.D. NO. 1840 GRANTING A TAX AMNESTY ON UNTAXED INCOME AND/OR WEALTH EARNED OR
ACQUIRED DURING THE TAXABLE YEARS 1974 TO 1980 AND REQUIRING THE FILING OF THE
STATEMENT OF ASSETS, LIABILITIES, AND NET WORTH.
Sec. 1. Coverage. In case of voluntary disclosure of previously untaxed income and/or wealth such as earnings,
receipts, gifts, bequests or any other acquisition from any source whatsoever, realized here or abroad, by any
individual taxpayer, which are taxable under the National Internal Revenue Code, as amended, the assessment and
collection of all internal revenue taxes, including the increments or penalties on account of non-payment, as well as
all civil, criminal or administrative liabilities arising from or incident thereto under the National Internal Revenue
Code, are hereby condoned provided that the individual taxpayer shall pay. (emphasis ours) . . .
Sec. 2. Conditions for Immunity. The immunity granted under Section one of this Decree shall apply only under
the following conditions:
a) Such previously untaxed income and/or wealth must have been earned or realized in any of the years 1974 to
1980;
b) The taxpayer must file an amnesty return on or before November 30, 1981, and fully pay the tax due thereon;
c) The amnesty tax paid by the taxpayer under this Decree shall not be less than P1,000.00 per taxable year; and
151
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d) The taxpayer must file a statement of assets, liabilities and net worth as of December 31, 1980, as required under
Section 6 hereof. (emphasis ours)
It will be recalled that petitioner entered into a deed of sale purportedly on installment. On the same day, he
discounted the promissory note covering the future installments. The discounting seems questionable because
ordinarily, when a bill is discounted, the lender (e.g. banks, financial institution) charges or deducts a certain
percentage from the principal value as its compensation. Here, the discounting was done by the buyer. On July 2,
1981, two weeks after the filing of the tax evasion complaint against him by respondent Larin on June 17, 1981,
petitioner availed of the tax amnesty under P.D. No. 1740. His amended tax return for the years 1974 - 1979 was
filed with the BIR office of Valenzuela, Bulacan, instead of Manila where the petitioner's principal office was
located. He again availed of the tax amnesty under P.D. No. 1840. His disclosure, however, did not include the
income from his sale of land to AYALA on cash basis. Instead he insisted that such sale was on installment. He did
not amend his income tax return. He did not pay the tax which was considerably increased by the income derived
from the discounting. He did not meet the twin requirements of P.D. 1740 and 1840, declaration of his untaxed
income and full payment of tax due thereon. Clearly, the petitioner is not entitled to the benefits of P.D. Nos. 1740
and 1840. The mere filing of tax amnesty return under P.D. 1740 and 1840 does not ipso facto shield him from
immunity against prosecution. Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate. It
also gives the government a chance to collect uncollected tax from tax evaders without having to go through the
tedious process of a tax case. To avail of a tax amnesty granted by the government, and to be immune from suit on
its delinquencies, the tax payer must have voluntarily disclosed his previously untaxed income and must have paid
the corresponding tax on such previously untaxed income.10
It also bears noting that a tax amnesty, much like a tax exemption, is never favored nor presumed in law and if
granted by statute, the terms of the amnesty like that of a tax exemption must be construed strictly against the
taxpayer and liberally in favor of the taxing authority.11 Hence, on this matter, it is our view that petitioner's claim
of immunity from prosecution under the shield of availing tax amnesty is untenable.
On the third issue, petitioner asserts that his sale of the land to AYALA was not on cash basis but on installment as
clearly specified in the Deed of Sale which states:
That for and in consideration of the sum of TWO MILLION THREE HUNDRED EIGHT THOUSAND SEVEN
HUNDRED SEVENTY (P2,308,770.00) PESOS Philippine Currency, to be paid as follows:
1. P461,754.00, upon the signing of the Deed of Sale; and,
2. The balance of P1,847,016.00, to be paid in four (4) equal, consecutive, annual installments with interest thereon
at the rate of twelve percent (12%) per annum, beginning on February 20, 1976, said installments to be evidenced by
four (4) negotiable promissory notes.12
Petitioner resorts to Section 43 of the NIRC and Sec. 175 of Revenue Regulation No. 2 to support his claim.
Sec. 43 of the 1977 NIRC states,
Installment basis. (a) Dealers in personal property. . . .
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(b) Sales of realty and casual sales of personalty In the case (1) of a casual sale or other casual disposition of
personal property (other than property of a kind which would properly be included in the inventory of the taxpayer if
on hand at the close of the taxable year), for a price exceeding one thousand pesos, or (2) of a sale or other
disposition of real property if in either case the initial payments do not exceed twenty-five percentum of the selling
price, the income may, under regulations prescribed by the Minister of Finance, be returned on the basis and in the
manner above prescribed in this section. As used in this section the term "initial payment" means the payments
received in cash or property other than evidences of indebtedness of the purchaser during the taxable period in
which the sale or other disposition is made. . . . (emphasis ours)
Revenue Regulation No. 2, Section 175 provides,
Sale of real property involving deferred payments. Under section 43 deferred-payment sales of real property
include (1) agreements of purchase and sale which contemplate that a conveyance is not to be made at the outset, but
only after all or a substantial portion of the selling price has been paid, and (b) sales in which there is an immediate
transfer of title, the vendor being protected by a mortgage or other lien as to deferred payments. Such sales either
under (a) or (b), fall into two classes when considered with respect to the terms of sale, as follows:
(1) Sales of property on the installment plan, that is, sales in which the payments received in cash or property other
than evidences of indebtedness of the purchaser during the taxable year in which the sale is made do not exceed 25
per cent of the selling price;
(2) Deferred-payment sales not on the installment plan, that is sales in which the payments received in cash or
property other than evidences of indebtedness of the purchaser during the taxable year in which the sale is made
exceed 25 per cent of the selling price;
In the sale of mortgaged property the amount of the mortgage, whether the property is merely taken subject to the
mortgage or whether the mortgage is assumed by the purchaser, shall be included as a part of the "selling price" but
the amount of the mortgage, to the extent it does not exceed the basis to the vendor of the property sold, shall not be
considered as a part of the "initial payments" or of the "total contract price," as those terms are used in section 43 of
the Code, in sections 174 and 176 of these regulations, and in this section. The term "initial payments" does not
include amounts received by the vendor in the year of sale from the disposition to a third person of notes given by
the vendee as part of the purchase price which are due and payable in subsequent years. Commissions and other
selling expenses paid or incurred by the vendor are not to be deducted or taken into account in determining the
amount of the "initial payments," the "total contract price," or the "selling price." The term "initial payments"
contemplates at least one other payment in addition to the initial payment. If the entire purchase price is to be paid in
a lump sum in a later year, there being no payment during the year, the income may not be returned on the
installment basis. Income may not be returned on the installment basis where no payment in cash or property, other
than evidences of indebtedness of the purchaser, is received during the first year, the purchaser having promised to
make two or more payments, in later years.
Petitioner asserts that Sec. 43 allows him to return as income in the taxable years involved, the respective
installments as provided by the deed of sale between him and AYALA. Consequently, he religiously reported his
yearly income from sale of capital asset, subject to tax, as follows:
Year 1977 (50% of P461,754)
1978
230,877.00
1979
230,877.00
P230,877.00
153
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1980
230,877.00
Petitioner says that his tax declarations are acceptable modes of payment under Section 175 of the Revenue
Regulations (RR) No. 2. The term "initial payment", he argues, does not include amounts received by the vendor
which are part of the complete purchase price, still due and payable in subsequent years. Thus, the proceeds of the
promissory notes, not yet due which he discounted to AYALA should not be included as income realized in 1976.
Petitioner states that the original agreement in the Deed of Sale should not be affected by the subsequent discounting
of the bill.
On the other hand, respondents assert that taxation is a matter of substance and not of form. Returns are scrutinized
to determine if transactions are what they are and not declared to evade taxes. Considering the progressive nature of
our income taxation, when income is spread over several installment payments through the years, the taxable income
goes down and the tax due correspondingly decreases. When payment is in lump sum the tax for the year
proportionately increases. Ultimately, a declaration that a sale is on installment diminishes government taxes for the
year of initial installment as against a declaration of cash sale where taxes to the government is larger.
As a general rule, the whole profit accruing from a sale of property is taxable as income in the year the sale is made.
But, if not all of the sale price is received during such year, and a statute provides that income shall be taxable in the
year in which it is "received," the profit from an installment sale is to be apportioned between or among the years in
which such installments are paid and received.13
Sec. 43 and Sec. 175 says that among the entities who may use the above-mentioned installment method is a seller
of real property who disposes his property on installment, provided that the initial payment does not exceed 25% of
the selling price. They also state what may be regarded as installment payment and what constitutes initial payment.
Initial payment means the payment received in cash or property excluding evidences of indebtedness due and
payable in subsequent years, like promissory notes or mortgages, given of the purchaser during the taxable year of
sale. Initial payment does not include amounts received by the vendor in the year of sale from the disposition to a
third person of notes given by the vendee as part of the purchase price which are due and payable in subsequent
years.14 Such disposition or discounting of receivable is material only as to the computation of the initial payment.
If the initial payment is within 25% of total contract price, exclusive of the proceeds of discounted notes, the sale
qualifies as an installment sale, otherwise it is a deferred sale.15
Although the proceed of a discounted promissory note is not considered part of the initial payment, it is still taxable
income for the year it was converted into cash. The subsequent payments or liquidation of certificates of
indebtedness is reported using the installment method in computing the proportionate income16 to be returned,
during the respective year it was realized. Non-dealer sales of real or personal property may be reported as income
under the installment method provided that the obligation is still outstanding at the close of that year. If the seller
disposes the entire installment obligation by discounting the bill or the promissory note, he necessarily must report
the balance of the income from the discounting not only income from the initial installment payment.
Where an installment obligation is discounted at a bank or finance company, a taxable disposition results, even if the
seller guarantees its payment, continues to collect on the installment obligation, or handles repossession of
merchandise in case of default.17 This rule prevails in the United States.18 Since our income tax laws are of
American origin,19 interpretations by American courts an our parallel tax laws have persuasive effect on the
interpretation of these laws.20 Thus, by analogy, all the more would a taxable disposition result when the
discounting of the promissory note is done by the seller himself. Clearly, the indebtedness of the buyer is discharged,
while the seller acquires money for the settlement of his receivables. Logically then, the income should be reported
at the time of the actual gain. For income tax purposes, income is an actual gain or an actual increase of wealth.21
Although the proceeds of a discounted promissory note is not considered initial payment, still it must be included as
taxable income on the year it was converted to cash. When petitioner had the promissory notes covering the
succeeding installment payments of the land issued by AYALA, discounted by AYALA itself, on the same day of the
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sale, he lost entitlement to report the sale as a sale on installment since, a taxable disposition resulted and petitioner
was required by law to report in his returns the income derived from the discounting. What petitioner did is
tantamount to an attempt to circumvent the rule on payment of income taxes gained from the sale of the land to
AYALA for the year 1976.
Lastly, petitioner questions the damages awarded to respondent Larin.
Any person who seeks to be awarded actual or compensatory damages due to acts of another has the burden of
proving said damages as well as the amount thereof.22 Larin says the extortion cases filed against him hampered his
immediate promotion, caused him strong anxiety and social humiliation. The trial court awarded him two hundred
thousand (P200,000,00) pesos as actual damages. However, the appellate court stated that, despite pendency of this
case, Larin was given a promotion at the BIR. Said respondent court:
We find nothing on record, aside from defendant-appellee Larin's statements (TSN, pp. 6-7, 11 December 1985), to
show that he suffered loss of seniority that allegedly barred his promotion. In fact, he was promoted to his present
position despite the pendency of the instant case (TSN, pp. 35-39, 04 November 1985).23
Moreover, the records of the case contain no statement whatsoever of the amount of the actual damages sustained by
the respondents. Actual damages cannot be allowed unless supported by evidence on the record.24 The court cannot
rely on speculation, conjectures or guesswork as to the fact and amount of damages.25 To justify a grant of actual or
compensatory damages, it is necessary to prove with a reasonable degree of certainty, the actual amount of loss.26
Since we have no basis with which to assess, with certainty, the actual or compensatory damages counter-claimed by
respondent Larin, the award of such damages should be deleted.
Moral damages may be recovered in cases involving acts referred to in Article 2127 of the Civil Code.28 As a rule, a
public official may not recover damages for charges of falsehood related to his official conduct unless he proves that
the statement was made with actual malice. In Babst, et. al. vs. National Intelligence Board, et. al., 132 SCRA 316,
330 (1984), we reiterated the test for actual malice as set forth in the landmark American case of New York Times
vs. Sullivan,29 which we have long adopted, in defamation and libel cases, viz.:
. . . with knowledge that it was false or with reckless disregard of whether it was false or not.
We appreciate petitioner's claim that he filed his 1976 return in good faith and that he had honestly believed that the
law allowed him to declare the sale of the land, in installment. We can further grant that the pertinent tax laws
needed construction, as we have earlier done. That petitioner was offended by the headlines alluding to him as tax
evader is also fully understandable. All these, however, do not justify what amounted to a baseless prosecution of
respondent Larin. Petitioner presented no evidence to prove Larin extorted money from him. He even admitted that
he never met nor talked to respondent Larin. When the tax investigation against the petitioner started, Larin was not
yet the Regional Director of BIR Region IV-A, Manila. On respondent Larin's instruction, petitioner's tax
assessment was considered one involving a sale of capital asset, the income from which was subjected to only fifty
percent (50%) assessment, thus reducing the original tax assessment by half. These circumstances may be taken to
show that Larin's involvement in extortion was not indubitable. Yet, petitioner went on to file the extortion cases
against Larin in different fora. This is where actual malice could attach on petitioner's part. Significantly, the trial
court did not err in dismissing petitioner's complaints, a ruling affirmed by the Court of Appeals.
Keeping all these in mind, we are constrained to agree that there is sufficient basis for the award of moral and
exemplary damages in favor of respondent Larin. The appellate court believed respondent Larin when he said he
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suffered anxiety and humiliation because of the unfounded charges against him. Petitioner's actions against Larin
were found "unwarranted and baseless," and the criminal charges filed against him in the Tanodbayan and City
Fiscal's Office were all dismissed.30 Hence, there is adequate support for respondent court's conclusion that moral
damages have been proved.
Now, however, what would be a fair amount to be paid as compensation for moral damages also requires
determination. Each case must be governed by its own peculiar circumstances.31 On this score, Del Rosario vs.
Court of Appeals,32 cites several cases where no actual damages were adjudicated, and where moral and exemplary
damages were reduced for being "too excessive," thus:
In the case of PNB v. C.A., [256 SCRA 309 (1996)], this Court quoted with approval the following observation from
RCPI v. Rodriguez, viz:
** **. Nevertheless, we find the award of P100,000.00 as moral damages in favor of respondent Rodriguez
excessive and unconscionable. In the case of Prudenciado v. Alliance Transport System, Inc. (148 SCRA 440
[1987]) we said: . . . [I]t is undisputed that the trial courts are given discretion to determine the amount of moral
damages (Alcantara v. Surro, 93 Phil. 472) and that the Court of Appeals can only modify or change the amount
awarded when they are palpably and scandalously excessive "so as to indicate that it was the result of passion,
prejudice or corruption on the part of the trial court" (Gellada v. Warner Barnes & Co., Inc., 57 O.G. [4] 7347, 7358;
Sadie v. Bacharach Motors Co., Inc., 57 O.G. [4] 636 and Adone v. Bacharach Motor Co., Inc., 57 O.G. 656). But in
more recent cases where the awards of moral and exemplary damages are far too excessive compared to the actual
loses sustained by the aggrieved party, this Court ruled that they should be reduced to more reasonable
amounts. . . . . (Emphasis ours.)
In other words, the moral damages awarded must be commensurate with the loss or injury suffered.
In the same case (PNB v. CA), this Court found the amount of exemplary damages required to be paid
(P1,000,000,00) "too excessive" and reduced it to an "equitable level" (P25,000.00).
It will be noted that in above cases, the parties who were awarded moral damages were not public officials.
Considering that here, the award is in favor of a government official in connection with his official function, it is
with caution that we affirm granting moral damages, for it might open the floodgates for government officials
counter-claiming damages in suits filed against them in connection with their functions. Moreover, we must be
careful lest the amounts awarded make citizens hesitate to expose corruption in the government, for fear of lawsuits
from vindictive government officials. Thus, conformably with our declaration that moral damages are not intended
to enrich anyone,33 we hereby reduce the moral damages award in this case from two hundred thousand
(P200,000.00) pesos to seventy five thousand (P75,000.00) pesos, while the exemplary damage is set at P25,000.00
only.
The law allows the award of attorney's fees when exemplary damages are awarded, and when the party to a suit was
compelled to incur expenses to protect his interest.34 Though government officers are usually represented by the
Solicitor General in cases connected with the performance of official functions, considering the nature of the
charges, herein respondent Larin was compelled to hire a private lawyer for the conduct of his defense as well as the
successful pursuit of his counterclaims. In our view, given the circumstances of this case, there is ample ground to
award in his favor P50,000,00 as reasonable attorney's fees.
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WHEREFORE, the assailed decision of the Court of Appeals dated November 29, 1991, is hereby AFFIRMED with
MODIFICATION so that the award of actual damages are deleted; and that petitioner is hereby ORDERED to pay to
respondent Larin moral damages in the amount of P75,000.00, exemplary damages in the amount of P25,000.00,
and attorney's fees in the amount of P50,000.00 only.1wphi1.nt
No pronouncement as to costs.
SO ORDERED.
BPI vs. CA GR No. 117319 July 19, 2006
[G.R. No. 117319. July 19, 2006]
BPI FAMILY BANK versus COURT OF APPEALS, COURT OF TAX APPEALS AND COMMISSIONER OF
INTERNAL REVENUE
Third Division
Sirs/Mesdames:
Quoted hereunder, for your information, is a resolution of this Court dated JULY 19, 2006.
G.R. No. 117319 (BPI Family Bank versus Court of Appeals, Court of Tax Appeals and Commissioner of Internal
Revenue)
x ------------------------------------------------------------------------------------------------------------------------- x
RESOLUTION
From April 28, 1986 to December 19, 1986, petitioner affixed and paid the documentary stamps on its confirmations
of sale of T-bills and Central Bank bills. On April 6, 1987, the Bureau of Internal Revenue (BIR) issued Revenue
Memorandum Circular No. 13-87[1]cralaw stating among others that no documentary stamp tax shall be imposed on
documents of conveyance of instruments enumerated in Section 229,[2]cralaw presently Section 180 of the National
Internal Revenue Code (NIRC). Pursuant thereto, petitioner filed with the BIR a claim for refund, amounting to
P1,116,612, alleging among others that T-bills and Central Bank bills fall within the purview of the instruments
enumerated in Section 229 (now Section 180) of the National Internal Revenue Code.
On April 15, 1988, petitioner filed a petition for review with the respondent Court of Tax Appeals. The Court of Tax
Appeals denied the claim for refund, and later on, the motion for reconsideration. On appeal, the Court of Appeals
ruled that, procedurally, the petitioner failed to attach in its petition the proof of service and the duplicate original of
the Court of Tax Appeals' decision; and on the substantial merits of the appeal, the sale and transfer of T-bills and
Central Bank bills are subject to documentary stamp tax under Section 225[3]cralaw (now Section 176) of the
NIRC. The dispositive portion of the Court of Appeals' decision reads as follows:
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WHEREFORE, the instant petition is hereby DISMISSED and the decision under review AFFIRMED.
Costs against petitioner.
SO ORDERED.[4]cralaw
Hence, this petition, raising the following issues:
From the foregoing it is clear that there is a procedural as well as substantive issue that presents itself in this case.
The procedural issue is whether the petition is dismissible for failure to comply with the requirements of Supreme
Court Circular No. 1-88. The substantive issue is whether the Court of Appeals committed reversible error in not
ruling that Treasury Bills and Central [Bank] Bills are promissory notes or are included in the definition of deposit
substitutes under sec. 180 of the NIRC.[5]cralaw (Stress supplied.)
Simply, the issue on the substantive aspect is, Are T-bills and Central Bank bills subject to documentary stamp tax
under Section 225 of the NIRC? On the procedural aspect, the issue is: Did the Court of Appeals err in dismissing
the petition for failure to attach the proof of service and the duplicate original of the Court of Tax Appeals' decision?
Before us, petitioner now submits that said government securities do not fall under Section 225. Also, petitioner
claims that those cited government securities are deemed as promissory notes and/or deposit substitutes enumerated
under Section 229 (now Section 180), hence, by virtue of Revenue Memorandum Circular No. 13-87, they are not
subject to documentary stamp tax. Petitioner also contends that:
(1) in BIR Ruling No. 036 dated February 10, 1988, the then Commissioner has issued an opinion addressed to the
Chief of the Banks, Financing & Insurance Division of the BIR that, since treasury bills are considered as deposit
substitutes, they are subject to documentary stamp tax under Section 229 of the NIRC;[6]cralaw
(2) Revenue Regulations No. 17-84, Section 2(h)(b) provided that, the following borrowings shall be considered as
deposit substitutes, ". . .(b) All borrowings of the national and local government and its instrumentalities including
the Central Bank of the Philippines, evidenced by debt instruments denoted as treasury bonds, bills, notes,
certificates of indebtedness and similar instruments;"[7]cralaw
(3) Revenue Memorandum Circular No. 13-87, stated that, since Section 225 of the NIRC applies only to documents
of conveyances covering instruments stated in Sections 223 and 224 (now Secs. 174 and 175) of the NIRC, it
follows that documents of conveyance covering instruments stated in Section 229 are not subject to DST.[8]cralaw
Therefore, according to petitioner, the subject government securities are exempt from documentary stamp taxes.
The tax court and the appellate court, however, held that T-bills and Central Bank bills, under its governing laws,
Republic Act No. 245, as amended by Presidential Decree No. 142,[9]cralaw and R.A. No. 265,[10]cralaw are
denominated as evidence of indebtedness, hence, are deemed the same as certificates of obligations or certificates of
indebtedness. They added that the issuance of said government securities falls within the purview of Sections 222
(now Section 173) and 223 (now Section 174), while its sale, transfer or conveyance is under Section 225 (now
Section 176) of the NIRC.
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We agree with the ruling of both the tax and appellate courts.
It bears stressing that the main issue raised before us is: Are confirmations of sale of the subject government
securities, between herein petitioner and private individuals/entities, subject to documentary stamp tax?
A perusal of Section 225[11]cralaw shows that on all sales, or agreements to sell, or memoranda of sales, or
deliveries, or transfer of certificates of obligation, in any association, company, or corporation; or transfer of such
securities by delivery, or by any paper, or agreement, or memorandum or other evidences of transfer or sale whether
entitling the holder in any manner to the benefit of such certificates of obligation, there shall be collected a
documentary stamp tax. In this case, we have to inquire whether the T-bills and Central Bank bills are covered by
the said provision.
Under Section 1[12]cralaw of Republic Act No. 245, as amended by P.D. No. 142, Treasury bills are evidence of
indebtedness, issued by the National Government on a discount basis and offered for sale either at auction on
competitive or non-competitive basis, payable at any date not later than one year from the date of issue. Central
Bank bills are also evidence of indebtedness issued by the Central Bank conformably with Section 98[13]cralaw of
R.A. No. 265, which authorizes the Central Bank to issue and negotiate Central Bank obligations, and to place, buy,
and sell freely its negotiable evidence of indebtedness.
Contrary to petitioner's argument, a certificate of indebtedness is different from ordinary debt instruments such as
promissory notes and deposit substitutes. A certificate of indebtedness includes only instruments having the general
character of investment securities as distinguished from instruments evidencing debts arising in ordinary
transactions between individuals.[14]cralaw As distinguished from a promissory note which is an unconditional
promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or at a fixed or
determinable future time, a sum certain in money, to order or bearer,[15]cralaw T-bills and Central Bank bills are
investment securities of a public character, issued by the Philippine Government, thru the Central Bank of the
Philippines.
On the other hand, the chief feature of a deposit substitute is borrowing.[16]cralaw In this case, petitioner sells
government securities to private individuals/entities, in which its confirmations of sale are being subjected to
documentary stamp tax. There is no borrowing or debt instrument involved in this case. Here, the petitioner, as the
seller, simply conveys through sale, specific government securities to the buyer, who thereby acquires title thereto,
including the plenary right of disposal. As there is no borrowing, there is no debt with respect to which the seller can
be primarily bound. Nor is the seller subsidiarily bound to respond in case the issuer of the said securities defaults,
hypothetically assuming that the Philippine Government, as issuer of the securities sold, could default. Precisely, the
sale of said government securities is always "without recourse."
Both the respondent courts correctly held that whether T-bills and Central Bank bills are denominated as certificates
of obligations, certificates of indebtedness or evidence of indebtedness, they bear the same meaning. Section 225 is
clear. On all sales, or agreements to sell, or memoranda of sales, or deliveries, or transfer of certificates of obligation
in any association, company, or corporation; or transfer of such securities by delivery, or by any paper, or agreement,
or memorandum or other evidences of transfer or sale whether entitling the holder in any manner to the benefit of
such certificates of obligation, there shall be collected a documentary stamp tax. The nomenclatures, i.e., evidence
of indebtedness, certificate of obligation and certificate of indebtedness, bear the same meaning and although their
various appellations are used interchangeably by law, they all refer to the subject securities, i.e., T-bills and Central
Bank bills.
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Rules and regulations issued by the administrative officials to implement a law cannot go beyond the terms and
provisions of the latter.[17]cralaw While the interpretation placed upon a law by the executive officers is entitled to
great respect by the courts, nevertheless, it is not conclusive and will be ignored if judicially found to be erroneous.
Administrative rulings have been aptly described as follows: "They are the best guess of the moment and
incidentally often contain such well considered and sound law; but the courts have held that they do not prevent an
entire change of front at any time and are merely advisory - sort of an information service to the taxpayer."
Moreover, administrative rulings of previous Commissioners are not conclusive and binding upon their
successors[18]cralaw if the latter become convinced that a law warrants a different construction. Therefore, courts
will not countenance administrative rulings that are not consistent and in harmony with the law they seek to apply
and implement. Therefore, the confirmations of sale of government securities made by the petitioner to private
individuals/entities are subject to documentary stamp tax pursuant to Section 225 of the NIRC.
We see no need to rule on the procedural issues, since the Court of Appeals, despite pronouncement of the alleged
procedural defects, nevertheless, ruled on the merits of the case.
WHEREFORE, the instant petition is DENIED. The Court of Appeals' decision dated September 19, 1994 in CAG.R. SP No. 29853 is AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
BPI vs. CIR GR No. 137002 July 27, 2006
FIRST DIVISION
G.R. No. 137002
July 27, 2006
BANK OF THE PHILIPPINE ISLANDS, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Court, as amended, seeking to set
aside a Decision1 of the Court of Appeals dated 14 August 2004 ordering the petitioner to pay respondent
Commissioner of Internal Revenue (CIR) deficiency documentary stamp tax of P690,030 for the year 1986,
inclusive of surcharge and compromise penalty, plus 20% annual interest until fully paid. The Court of Appeals in its
assailed Decision affirmed the Decision2 of the Court of Tax Appeals (CTA) dated 31 May 1994.
From 28 February 1986 to 8 October 1986, petitioner Bank of the Philippine Islands (BPI) sold to the Central Bank
of the Philippines (now Bangko Sentral ng Pilipinas) U.S. dollars for P1,608,541,900.00. BPI instructed, by cable,
its correspondent bank in New York to transfer U.S. dollars deposited in BPI's account therein to the Federal
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Reserve Bank in New York for credit to the Central Bank's account therein. Thereafter, the Federal Reserve Bank
sent to the Central Bank confirmation that such funds had been credited to its account and the Central Bank
promptly transferred to the petitioner's account in the Philippines the corresponding amount in Philippine pesos.3
During the period starting 11 June 1985 until 9 March 1987, the Central Bank enjoyed tax exemption privileges
pursuant to Resolution No. 35-85 dated 3 May 1985 of the Fiscal Incentive Review Board. However, in 1985,
Presidential Decree No. 1994 -- An Act Further Amending Certain Provisions of the National Internal Revenue Code
was enacted. This law amended Section 222 (now 173) of the National Internal Revenue Code (NIRC), by adding
the foregoing:
[W]henever one party to the taxable document enjoys exemption from the tax herein imposed, the other party
thereto who is not exempt shall be the one directly liable for the tax.
In 1988, respondent CIR ordered an investigation to be made on BPI's sale of foreign currency. As a result thereof,
the CIR issued a pre-assessment notice informing BPI that in accordance with Section 195 (now Section 182)4 of
the NIRC, BPI was liable for documentary stamp tax at the rate of P0.30 per P200.00 on all foreign exchange sold to
the Central Bank. Total tax liability was assessed at P3,016,316.06, which consists of a documentary stamp tax
liability of P2,412,812.85, a 25% surcharge of P603,203.21, and a compromise penalty of P300.00.5
BPI disputed the findings contained in the pre-assessment notice. Nevertheless, the CIR issued Assessment No.
FAS-5-86-88-003022, dated 30 September 1988, which BPI received on 11 October 1988. BPI formally protested
the assessment, but the protest was denied. On 10 July 1990, BPI received the final notice and demand for payment
of its 1986 assessment for deficiency documentary stamp tax in the amount of P3,016,316.06. Consequently, a
petition for review was filed with the CTA on 9 August 1990.6
On 31 May 1994, the CTA rendered the Decision holding BPI liable for documentary stamp tax in connection with
the sale of foreign exchange to the Central Bank from the period 29 July 1986 to 8 October 1986 only, thus
substantially reducing the CIR's original assessment. The dispositive portion of the said Decision reads:
WHEREFORE, premises considered, petitioner is hereby ordered to pay respondent Commissioner of Internal
Revenue, the amount of P690,030 inclusive of surcharge and compromise penalty, plus 20% annual interest until
fully paid pursuant to Section 249 (cc) (sic) (3) of the Tax Code.7
The CTA ruled that BPI's instructions to its correspondent bank in the U.S. to pay to the Federal Reserve Bank in
New York, for the account of the Central Bank, a sum of money falls squarely within the scope of Section 51 of The
Revised Documentary Stamp Tax Regulations (Regulations No. 26), dated 26 March 1924, the implementing rules
to the earlier provisions on documentary stamp tax, which provides that: 8
What may be regarded as telegraphic transfer. a local bank cables to a certain bank in a foreign country with
which bank said local bank has a credit, and directs that foreign bank to pay to another bank or person in the same
locality a certain sum of money, the document for and in respect such transaction will be regarded as a telegraphic
transfer, taxable under the provisions of Section 1449(i) of the Administrative Code.
Nevertheless, the CTA also noted that although Presidential Decree No. 1994, the law which passes the liability on
to the non-exempt party, was published in the Official Gazette issue of 2 December 1985, the same was released to
the public only on 18 June 1986, as certified by the National Printing Office. Therefore, Presidential Decree No.
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1994 took effect only in July 1986 or 15 days after the issue of Official Gazette where the law was actually
published, that is, circulated to the public. As a result of the delay, BPI's transactions prior to the effectivity of
Presidential Decree No. 1994 were not subject to documentary stamp tax. Hence, the CTA reduced the assessment
from P3,016,316.06 to P690,030.00, plus 20% annual interest until fully paid pursuant to Section 249(c) of the
NIRC.9
Both parties filed their respective Motions for Reconsideration, which the CTA denied in a Resolution dated 26
September 1994. BPI filed a Petition for Review with the Court of Appeals on 11 November 1994. On 14 August
1998, the Court of Appeals affirmed the Decision of the CTA. The Court of Appeals ruled that the documentary
stamp tax imposed under Section 195 (now Section 182) is not limited only to foreign bills of exchange and letters
of credit but also includes the orders made by telegraph or by any other means for the payment of money made by
any person drawn in but payable out of the Philippines. The Court of Appeals also maintained that telegraphic
transfers, such as the one BPI sent to its correspondent bank in the U.S., are proper subjects for the imposition of
documentary stamp tax under Section 195 (now Section 182) and Section 51 of Revenue Regulation No. 26. The
Court of Appeals likewise affirmed the CTA's Decision imposing a 20% delinquency on the reduced assessment, in
accordance with Section 24(c)(3) of the NIRC and the case of Philippine Refining Company v. Court of Appeals.10
Petitioner filed a Partial Motion for Reconsideration on 9 September 1998, which the Court of Appeals denied on 29
December 1998.11
Hence this petition, wherein the petitioner raised the following issues:
I
WHETHER OR NOT, THE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING THAT SALES OF
FOREIGN EXCHANGE (SPOT CASH), AS DISTINGUISHED FROM SALES OF FOREIGN BILLS OF
EXCHANGE, ARE SUBJECT TO DOCUMENTARY STAMP TAX UNDER SECTION 182 OF THE TAX CODE
II
WHETHER OR NOT, THE COURT OF APPEALS GRIEVOUSLY ERRED IN AFFIRMING THE IMPOSITION
OF A DELINQUENCY INTEREST OF 20% ON THE REVISED DEFICIENCY STAMP ASSESSMENT
DESPITE A REDUCTION THEREOF BY THE COUR T OF TAX APPEALS WHICH ERRED IN ITS ORIGINAL
ASSESSMENT.12
The first issue raised by the petitioner is whether BPI is liable for documentary stamp taxes in connection with its
sale of foreign exchange to the Central Bank in 1986 under Section 195 (now Section 182) of the NIRC, quoted
hereunder:
Sec. 182. Stamp tax on foreign bills of exchange and letters of credit. On all foreign bills of exchange and letters of
credit (including orders, by telegraph or otherwise, for the payment of money issued by express or steamship
companies or by any person or persons) drawn in but payable out of the Philippines in a set of three or more
according to the custom of merchants and bankers, there shall be collected a documentary stamp tax of thirty
centavos on each two hundred pesos, or fractional part thereof, of the face value of such bill of exchange or letter of
credit, or the Philippine equivalent of such face value, if expressed in foreign country.
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To determine what is being taxed under this section, a discussion on the nature of the acts covered by Section 195
(now Section 182) of the NIRC is indispensable. This section imposes a documentary stamp tax on (1) foreign bills
of exchange, (2) letters of credit, and (3) orders, by telegraph or otherwise, for the payment of money issued by
express or steamship companies or by any person or persons. This enumeration is further limited by the qualification
that they should be drawn in the Philippines and payable outside of the Philippines.
A definition of a "bill of exchange" is provided by Section 39 of Regulations No. 26, the rules governing
documentary taxes promulgated by the Bureau of Internal Revenue (BIR) in 1924:
Sec. 39. Definition of "bill of exchange". The term bill of exchange denotes checks, drafts, and all other kinds of
orders for the payment of money, payable at sight, or on demand or after a specific period after sight or from a stated
date.
Section 126 of The Negotiable Instruments Law (Act No. 2031) reiterates that it is an "order for the payment of
money" and specifies the particular requisites that make it negotiable.
Sec. 126. Bill of exchange defined. A bill of exchange is an unconditional order in writing addressed by one person
to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at fixed
or determinable future time a sum certain in money to order or to bearer.
Section 129 of the same law classifies bills of exchange as inland and foreign, the distinction is laid down by where
the bills are drawn and paid. Thus, a "foreign bill of exchange" may be drawn outside the Philippines, payable
outside the Philippines, or both drawn and payable outside of the Philippines.
Sec. 129. Inland and foreign bills of exchange. -- An inland bill of exchange is a bill which is, or on its face purports
to be, both drawn and payable within the Philippines. Any other bill is a foreign bill. x x x
The Code of Commerce loosely defines a "letter of credit" and provides for its essential conditions, thus:
Art. 567. Letters of credit are those issued by one merchant to another or for the purpose of attending to a
commercial transaction.
Art 568. The essential conditions of letters of credit shall be:
1. To be issued in favor of a definite person and not to order.
2. To be limited to a fixed and specified amount, or to one or more undetermined amounts, but within a maximum
the limits of which has to be stated exactly.
A more explicit definition of a letter of credit can be found in the commentaries:
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A letter of credit is one whereby one person requests some other person to advance money or give credit to a third
person, and promises that he will repay the same to the person making the advancement, or accept the bills drawn
upon himself for the like amount.13
A bill of exchange and a letter of credit may differ as to their negotiability, and as to who owns the funds used for
the payment at the time payment is made. However, in both bills of exchange and letters of credit, a person orders
another to pay money to a third person.
The phrase "orders, by telegraph or otherwise, for the payment of money" used in reference to documentary stamp
taxes may be found in an earlier documentary tax provision, Section 1449(i) of the Administrative Code of 1917,
which was substantially reproduced in Section 195 (now Section 182) of the NIRC. Regulations No. 26, which
provided the rules and guidelines for the documentary stamp tax imposed under the Administrative Code of 1917,
contains an explanation for the phrase "orders, by telegraph or otherwise, for the payment of money":
What may be regarded as telegraphic transfer. a local bank cables to a certain bank in a foreign country with
which bank said local bank has a credit, and directs that foreign bank to pay to another bank or person in the same
locality a certain sum of money, the document for and in respect such transaction will be regarded as a telegraphic
transfer, taxable under the provisions of Section 1449(i) of the Administrative Code.
In this case, BPI ordered its correspondent bank in the U.S. to pay the Federal Reserve Bank in New York a sum of
money, which is to be credited to the account of the Central Bank. These are the same acts described under Section
51 of Regulations No. 26, interpreting the documentary stamp tax provision in the Administrative Code of 1917,
which is substantially identical to Section 195 (now Section 182) of the NIRC. These acts performed by BPI
incidental to its sale of foreign exchange to the Central Bank are included among those taxed under Section 195
(now Section 182) of the NIRC.
BPI alleges that the assailed decision must be reversed since the sale between BPI and the Central Bank of foreign
exchange, as distinguished from foreign bills of exchange, is not subject to the documentary stamp taxes prescribed
in Section 195 (now Section 182) of the NIRC. This argument leaves much to be desired. In this case, it is not the
sale of foreign exchange per se that is being taxed under Section 195 of the NIRC. This section refers to a
documentary stamp tax, which is an excise upon the facilities used in the transaction of the business separate and
apart from the business itself.14 It is not a tax upon the business itself which is so transacted, but it is a duty upon
the facilities made use of and actually employed in the transaction of the business, and separate and apart from the
business itself.15
Section 195 (now Section 182) of the NIRC covers foreign bills of exchange, letters of credit, and orders of payment
for money, drawn in Philippines, but payable outside the Philippines. From this enumeration, two common elements
need to be present: (1) drawing the instrument or ordering a drawee, within the Philippines; and (2) ordering that
drawee to pay another person a specified amount of money outside the Philippines. What is being taxed is the
facility that allows a party to draw the draft or make the order to pay within the Philippines and have the payment
made in another country.
A perusal of the facts contained in the record in this case shows that BPI, while in the Philippines, ordered its
correspondent bank by cable to make a payment, and that payment is to be made to the Federal Reserve Bank in
New York. Thus, BPI made use of the aforementioned facility. As a result, BPI need not have sent a representative to
New York, nor did the Federal Reserve Bank have to go to the Philippines to collect the funds which were to be
credited to the Central Bank's account with them. The transaction was made at the shortest time possible and at the
greatest convenience to the parties. The tax was laid upon this privilege or facility used by the parties in their
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transactions, transactions which they may effect through our courts, and which are regulated and protected by our
government.
BPI further alleges that since the funds transferred to the Federal Reserve Bank were taken from BPI's account with
the correspondent bank, this is not the transaction contemplated under Section 51 of Regulations No. 26. BPI argues
that Section 51 of Regulations No. 26, in using the phrase "with which local bank has credit," involves transactions
wherein the drawee bank pays with its own funds and excludes from the coverage of the law situations wherein the
funds paid out by the correspondent bank are owned by the drawer. In the case of Republic of the Philippines v.
Philippine National Bank,16 the Court equated "credit" with the term "deposits," and identified the depositor as the
creditor and the bank as the debtor.
And as correctly stated by the trial court, the term "credit" in its usual meaning is a sum credited on the books of a
company to a person who appears to be entitled to it. It presupposes a creditor-debtor relationship, and may be said
to imply ability, by reason of property or estates, to make a promised payment. It is the correlative to debt or
indebtedness, and that which is due to any person, as distinguished from that which he owes. The same is true with
the term "deposits" in banks where the relationship created between the depositor and the bank is that of creditor and
debtor.
By this definition of "credit," BPI's deposit account with its correspondent bank is much the same as the "credit"
referred to in Section 51 of Regulations No. 26. Thus, the fact that the funds transferred to the Central Bank's
account with the Federal Reserve Bank are from BPI's deposit account with the correspondent bank can only
underline that the present case is the same situation described under Section 51 of Regulations No. 26.
Moreover, the fact that the funds belong to BPI and were not advanced by the correspondent bank will not remove
the transaction from the coverage of Section 195 (now Section 182) of the NIRC. There are transactions covered by
this section wherein funds belonging to the drawer are used for payment. A bill of exchange, when drawn in the
Philippines but payable in another country, would surely be covered by this section. And in the case of a bill of
exchange, the funds may belong to the drawer and need not be advanced by the drawee, as in the case of a check or
a draft. In the description of a draft provided hereunder, the drawee is in possession of funds belonging to the drawer
of the bill:
A draft is a form of a bill of exchange used mainly in transactions between persons physically remote from each
other. It is an order made by one person, say the buyer of goods, addressed to a person having in his possession
funds of such buyer ordering the addressee to pay the purchase price to the seller of the goods. Where the order is
made by one bank to another, it is referred to as a bank draft.17
BPI argues that the foreign exchange sold was deposited and transferred within the U.S. and is therefore outside
Philippine territory. This argument is unsubstantial. The documentary stamp tax is not imposed on the sale of foreign
exchange, rather it is an excise tax on the privilege or facility which the parties used in their transaction. In the case
of Allied Thread Co., Inc. v. City Mayor of Manila,18 the Court explained the scope encompassed by the power to
levy an excise tax:
The tax imposition here is upon the performance of an act, enjoyment of a privilege, or the engaging in an
occupation, and hence is in the nature of an excise tax.
The power to levy an excise upon the performance of an act or the engaging in an occupation does not depend upon
the domicile of the person subject to the excise, nor upon the physical location of the property and in connection
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with the act or occupation taxed, but depends upon the place in which the act is performed or occupation engaged in
(Emphasis supplied).
In this case, the act of BPI instructing the correspondent bank to transfer the funds to the Federal Reserve Bank was
performed in the Philippines. Therefore, the excise tax may be levied by the Philippine government. Section 195
(now Section 182) of the NIRC would be rendered invalid if the fact that the payment was made outside of the
country can be used as a basis for nonpayment of the tax.
The second issue is whether the delinquency interest of 20% per annum, as provided under Section 249(c)(3) of the
NIRC, is applicable in this case.
In the case of Philippine Refining Company v. Court of Appeals,19 this Court categorically ruled that even if an
assessment was later reduced by the courts, a delinquency interest should still be imposed from the time demand was
made by the CIR.
As correctly pointed out by the Solicitor General, the deficiency tax assessment in this case, which was the subject
of the demand letter of respondent Commissioner dated April 11, 1989, should have been paid within thirty (30)
days from receipt thereof. By reason of petitioner's default thereon, the delinquency penalties of 25% surcharge and
interest of 20% accrued from April 11, 1989. The fact that petitioner appealed the assessment to the CTA and that the
same was modified does not relieve petitioner of the penalties incident to delinquency. The reduced amount of
P237,381.25 is but a part of the original assessment of P1,892,584.00.
This doctrine is consistent with the earlier decisions of this Court justifying the imposition of additional charges and
interests incident to delinquency by explaining that the nature of additional charges is compensatory and not a
penalty.
The above legal provision makes no distinctions nor does it establish exceptions. It directs the collection of the
surcharge and interest at the stated rate upon any sum or sums due and unpaid after the dates prescribed in
subsections (b), (c), and (d) of the Act for the payment of the amounts due. The provision therefore is mandatory in
case of delinquency. This is justified because the intention of the law is precisely to discourage delay in the payment
of taxes due to the State and, in this sense, the surcharge and interest charged are not penal but compensatory in
nature they are compensation to the State for the delay in payment, or for the concomitant use of the funds by the
taxpayer beyond the date he is supposed to have paid them to the State.20
The same principle was used in Ross v. U.S.21 when the U.S. Supreme Court ruled that it was only equitable for the
government to collect interest from a taxpayer who, by the government's error, received a refund which was not due
him.
Even though [the] taxpayer here did not request the refund made to him, and the situation is entirely due to an error
on the part of the government, taxpayer and not the government has had the use of the money during the period
involved and it is not unjustly penalizing taxpayer to require him to pay compensation for this use of money.
Based on established doctrine, these charges incident to delinquency are compensatory in nature and are imposed for
the taxpayers' use of the funds at the time when the State should have control of said funds. Collecting such charges
is mandatory. Therefore, the Decision of the Court of Appeals imposing a 20% delinquency interest over the
assessment reduced by the CTA was justified and in accordance with Section 249(c)(3) of the NIRC.
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WHEREFORE, premises considered, this Court DENIES this petition and AFFIRMS the Decision of the Court of
Appeals in CA-G.R. SP No. 57362 dated 14 August 1998, ordering that petitioner Bank of the Philippine Islands to
pay Respondent Commissioner of Internal Revenue the deficiency documentary stamp tax in the amount of
P690,030.00 inclusive of surcharge and compromise penalty, plus 20% annual interest from 7 June 1990 until fully
paid. Costs against the petitioner.
SO ORDERED.
SECURITY BANK vs. CIR GR No. 130838 August 22, 2006
SECOND DIVISION
SECURITY BANK CORPORATION (formerly SECURITY BANK AND TRUST COMPANY),

Petitioner,
- versus -
THE COMMISSIONER OF INTERNAL REVENUE,

Respondent.
G.R. No. 130838
Present:
PUNO, J., Chairperson,

SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.
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Promulgated:
August 22, 2006
x-------------------------------------------------------------------------------------x
DECISION
GARCIA, J.:
Before us is this petition for review on certiorari to reverse, annul and/or nullify the Decision[1] dated August 29,
1997 of the Court of Appeals (CA) which affirmed the January 12, 1996 Decision[2] and May 21, 1996
Resolution[3] of the Court of Tax Appeals (CTA) in CTA Case No. 4784 adjudging herein petitioner Security Bank
Corporation (SBC) liable for deficiency documentary stamp tax (DST) on its 1983 sales of securities under
repurchase agreements.
The facts are undisputed:
Sometime before March 19, 1987, SBC, a registered commercial bank and a member of the Bankers Association of
the Philippines (BAP), received a Pre-Assessment Notice dated March 6, 1987 from the Bureau of Internal Revenue
(BIR) for deficiency DST containing the following details:
1983 Deficiency Documentary Stamp Tax[4]
A.
On Promissory Notes Issued
Promissory notes issued during the year
P926,385,255.00
Documentary stamp tax due thereon:
P926,385,255.00
P 0.65
P 3,010,752.08
P200.00
B.
On Sale of Securities under Repurchase Agreement
Securities sold during the year
P3,022,803,857.63
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Documentary stamp tax due thereon:
P3,022,803,857.63
P 0.25
P 3,778,504.82
P200.00
______________
Total
P6,789,256.90
Add: Compromise penalty
600.00
______________
TOTAL AMOUNT DUE AND COLLECTIBLE
P6,789,856.90.
In its letter dated March 19, 1987, SBC protested the above-quoted pre-assessment notice on the following grounds:
(1)
promissory notes issued by SBC prior to October 15, 1984 or specifically in 1983, were non-negotiable
and, therefore, not subject to documentary stamp tax; and
(2)
sale of securities under Repurchase Agreement is not subject to DST.
Instead of answering the letter-protest, the BIR sent SBC an assessment letter[5] dated May 29, 1987. The letter
was a reiteration of the pre-assessment notice previously received, but SBC nevertheless sent a written reply to the
assessment notice, clarifying that its answer thereto was already contained in its previous letter-protest of March 19,
1987.
On April 8, 1988, the BIR, through former Commissioner Bienvenido A. Tan, Jr., entered into a general compromise
agreement[6] with the BAP concerning the DST assessment of the various member banks relating to non-negotiable
promissory notes, whereby the BAP members agreed to pay THREE AND ONE-FOURTH CENTAVOS (P0.0325)
per P200 of the total issuances of non-negotiable promissory notes issued prior to October 15, 1984.
Pursuant to said compromise agreement, SBC signed its own compromise agreement[7] with the BIR on August 15,
1988 by paying the amount of P641,743.23 as full settlement of its 1983 deficiency DST, computed as follows:
Promissory notes issued during the year 1983
Add: Securities sold under Repurchase Agreement
P 926,385,255.00
3,022,803,857.63
_________________
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P3,949,189,112.63
Compromise Base
P 0.0325
200
= P 3,949,189,112.63 P 0.0325
200
= P641,743.23
compromised amount paid under P.O.
=========
No. C3252171 and C.R. No. 814457384 both dated March 31, 1988.
Despite its availment of the compromise agreement, SBC still received a letter from the BIR demanding payment of
the amount of P3,287,399.20 as DST on securities sold under repurchase agreements in 1983, to wit:
1983
Deficiency Documentary Stamp Tax
On Sale of Securities Under Repurchase Agreement[8]
Securities Sold During the Year
P3,022,803,857.63
Documentary Stamp Tax Due Thereon
P3,022,803,857.63
P 0.25
P 3,778,604. 82
P200.00
Less:
Partial Payment
P3,022,803,857.63
P 0.0325
P200.00
P 491,205.62
_______________
TOTAL AMOUNT STILL DUE AND COLLECTIBLE
P3,287,399.20.
==============
Through a letter dated August 23, 1989, SBC informed the BIR that the assessment sought to be collected was
already the subject of a compromise agreement.
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On June 17, 1991, SBC filed a protest with the BIRs Appellate Division disputing the reassessment of the DST on
sale of securities with repurchase agreements. The BIR Commissioner denied said protest in a letter[9] dated
January 29, 1992, copy of which was received by SBC on March 11, 1992.
On March 17, 1992, SBC filed a request for reconsideration, which remained unresolved despite BIRs receipt
thereof. Eventually, SBC filed a petition for review[10] with the CTA questioning the reassessment.
On June 19, 1992, the BIR filed its answer alleging the following special and affirmative defenses:
1.
The 1988 BIR-BAP DST Compromise Agreement covers only tax assessments involving documentary
stamp tax on all types of promissory notes issued prior to October 15, 1984;
2.
SBCs sale of securities under a Repurchase Agreement is not included or placed within the scope of
the Compromise Agreement. The law is specific that the subject of a compromise comprises only those matters
which are definitely stated therein (Article 2036, New Civil Code);
3.
SBC, knowing fully well that documentary stamp taxes on sales of securities under Repurchase
Agreement were not within the scope of the BIR-BAP DST Compromise Agreement, induced the BIR to enter into a
compromise settlement thereof. A compromise in which there is a mistake, fraud, violence, intimidation, undue
influence or falsity of documents may be rescinded or invalidated (Article 2038 in relation to Article 1330 of the
New Civil Code); and
4.
The assessment is in accordance with law and regulation.
Issues having been joined, SBC presented documentary and testimonial evidence supportive of its cause. After SBC
rested its case, the BIR presented and offered only documentary evidence consisting of BIR records. No further
testimonial evidence was presented by it.
On January 12, 1996, the CTA rendered its decision, the decretal portion of which reads:
WHEREFORE, in view of all the foregoing, instant petition for review is found to be without merit and the same is
hereby DISMISSED. ACCORDINGLY, petitioner is hereby ORDERED to PAY to respondent the amount of
P3,287,399.82, without any surcharge and interest thereon, as deficiency documentary stamp tax due on petitioners
sale of securities under repurchase agreement for the year 1983.
SO ORDERED.
In time, SBC filed a motion for reconsideration, which the CTA denied in its Resolution of May 21, 1996.
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Therefrom, SBC went to the CA on a petition for review. In the herein assailed Decision[11] dated August 29, 1997,
the CA dismissed SBCs petition, thus:
WHEREFORE, the instant petition for review is hereby DISMISSED by this Court for lack of merit. The appealed
decision of the Court of Tax Appeals in C.T.A. Case No. 4784 is Affirmed. Costs against petitioner.
SO ORDERED.
Hence, SBCs present recourse on the following assigned errors:

I.
THE HONORABLE COURT OF APPEALS ERRED IN FINDING THAT THERE ARE FACTUAL AND LEGAL
BASES FOR THE HONORABLE COURT OF TAX APPEALS TO HAVE FOUND PETITIONER LIABLE TO
PAY RESPONDENT COMMISSIONER OF INTERNAL REVENUE THE AMOUNT OF P3,287,399.82,
WITHOUT ANY SURCHARGE AND INTEREST THEREON, AS DEFICIENCY DOCUMENTARY STAMP
TAX DUE ON PETITIONERS SALE OF SECURITIES UNDER REPURCHASE AGREEMENT FOR THE
YEAR 1983.
II.
THERE WAS ERROR IN FINDING THAT THE TERMS AND CONDITIONS OF THE COMPROMISE
AGREEMENT (BETWEEN PETITIONER AND FORMER COMMISSIONER BIENVENIDO TAN), DID NOT
INCLUDE/COVER THE WHOLE DST ASSESSMENT ON THE DOCUMENTS OF SALES OF SECURITIES IN
1983 OR THAT MISTAKE WAS COMMITTED BY THE BUREAU OF INTERNAL REVENUE WITH REGARD
TO THE OFFER AND ACCEPTANCE OF THE TAX BASE OF THE COMPROMISE SETTLEMENT.
The recourse has no merit.

Relative to the first issue, SBC claims that the BIRs DST assessment on its sales of securities with repurchase
agreements lacks factual and legal bases. While it never disputed the amount of P3,022,803,857.63 used by the BIR
as tax base for its assessment, which constitutes as the factual basis for the DST assessment on sales of securities
under repurchase agreements, SBC claimed that these conveyances are instruments covered under Section 229 (now
Section 180) of the National Internal Revenue Code (NIRC) that are not subject to DST imposed by Section 225
(now 176) of the NIRC.
We do not agree.
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The NIRC levies DST upon documents, instruments and papers as follows:
SEC. 173.[12] Stamp taxes upon documents, instruments, and papers Upon documents, instruments, and papers,
and upon acceptances, assignments, sales, and transfers of the obligation, right, or property incident thereto, there
shall be levied, collected and paid for, and in respect of the transaction so had or accomplished, the corresponding
documentary stamp taxes prescribed in the following sections of this Title, by the person making, signing, issuing,
accepting, or transferring the same, and at the same time such act is done or transaction had: Provided, That
whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party to
thereto who is not exempt shall be the one directly liable for the tax. (Emphasis supplied.)
Particularly covering sales of securities, which SBC has been assessed by the BIR in this case, and the
corresponding DST rates due thereon at the time the said tax accrued, the former Section 225 (now Section 176) of
the NIRC provides:
SEC. 225. Stamp tax on sales, agreements to sell, memorandum of sales, deliveries or transfer of bonds, due-bills,
certificates of obligations, or shares or certificates of stocks On all sales, or agreements to sell or memorandum of
sales, or deliveries, or transfer of bonds, due-bills, certificates of obligation, or shares or certificates of stock in any
association, company or corporation, or transfer of such securities by assignment in blank, or by delivery, or by any
paper or agreement, or memorandum or other evidences of transfer or sale whether entitling the holder in any
manner to the benefit of such bond, due-bills, certificates of obligation or stock, or to secure the future payment of
money, or for the future transfer of any bond,
due-bill, certificates of obligation or stock, there shall be
collected a documentary stamp tax of twenty-five centavos on each two hundred pesos, or fractional part thereof, of
the par value of such bond, due-bill, certificates of obligation or stock; Provided, That only one tax shall be collected
of each sale or transfer of stock or securities from one person to another, regardless of whether or not a certificate of
stock or obligation is issued, indorsed, or delivered in pursuance of such sale or transfer; and provided, further, That
in case of stock without par value the amount of the documentary stamp tax herein prescribed shall be equivalent to
twenty-five percentum of the documentary stamp tax paid upon the original issue of said stock.
It is clear from the plain language of the law that all sales of securities, without making any distinction as to the
nature or type of the sale, i.e., whether it be with a repurchase agreement or not, are taxable. On the other hand, all
securities consisting of bonds, due-bills, certificates of obligation, or shares or certificates of stock in any
association, company or corporation, of whatever type or nature are within the scope of this section.
SBC contends, however, that the sales of securities being levied upon are not covered by Section 225 (now Section
176), but instead fall under Section 229 (now Section 180) of the Tax Code. In this respect, SBC invokes Revenue
Memorandum Circulars No. 13-87[13] and No. 33-86[14] and BIR Ruling No. 119-91.[15]
We are not persuaded for the simple reason that the BIR circulars and ruling relied upon were all issued after 1983,
the tax period involved in this case. Those circulars and ruling cannot prevail over the clear and plain language of
the Tax Code.[16]
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Moreover, the Court has no basis to rule in the present petition for review on certiorari, which by its very nature is
limited to questions of law and not of facts, whether the securities subject of the tax assessment in this case in fact
fall within the ambit of said revenue memorandum circulars. This Court is bound by the factual findings by the
CTA, which did not rule that the subject securities, because of what type these were, fall under Section 229 (now
Section 180) instead of 225 (now Section 176) of the NIRC. In Commissioner of Internal Revenue v. Court of
Appeals,[17] the Court ruled:
x x x the Court of Tax Appeals is a highly specialized body specifically created for the purpose of reviewing tax
cases. Through its expertise, it is undeniably competent to determine the issue of whether. x x x Consequently, as a
matter of principle, this Court will not set aside the conclusion reached by the Court of Tax Appeals which is, by the
very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily
developed an expertise on the subject unless there has been an abuse or improvident exercise of authority. This point
becomes more evident in the case before us where the unanimous findings and conclusions of both the Court of Tax
Appeals and the Court of Appeals appear untainted by any abuse of authority, much less grave abuse of discretion.
On this point, the Court finds the decision of the CA affirming that of the CTA free from any palpable or reversible
error.
Relative to the second issue, SBC claims that based on the terms and conditions of the compromise agreement
between it and then BIR Commissioner Tan, the whole DST assessment for 1983, including that on sales of
securities, is deemed included thereunder. SBC further claims that the contemporaneous and subsequent acts of
revenue officials in accepting its offer of payment, using the entire 1983 DST deficiency assessment, clearly
including the sales of securities with repurchase agreement for the year 1983 in the amount of P3,022,803,857.63 as
the tax base, were indicative of the fact that the DST due on said sales of securities for the year 1983 has been duly
settled pursuant to the said compromise agreement of August 15, 1988.
Again, we disagree.
There is nothing clearer from the plain reading of the first paragraph of the subject compromise agreement than the
fact that the only subject matter thereof is the assessment relating to Non-negotiable Promissory Notes issued prior
to October 15, 1984.[18] To emphasize the limited scope thereof, the same compromise agreement expressly
reiterated, in its Section VI, the exclusions thereto as follows:
VI.
EXCLUSIONS:
Other issues raised in the tax assessments or which may be raised for open and assessed/pre-assessed years
respectively, not involving documentary stamp tax on all types of promissory notes issued prior to Oct. 15, 1984 are
not included in, nor affected by this compromise,[19] (Emphasis supplied).
The issue of DST assessment on sales of securities with repurchase agreement, which was the subject of the
reassessment being questioned in this case, is definitely not within the scope of the compromise agreement, being
limited as it is to DST on promissory notes issued prior to October 15, 1984. The DST assessed on the former arises
from the act of selling securities (presently taxed under Section 176), while the DST assessed in the latter is on the
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act of issuing promissory notes (taxed under Section 180). It is evident from the separate provisions governing the
two that the law treats these two instruments differently. This Court simply cannot agree with SBC that securities
and promissory notes for purposes of the subject Compromise Agreement are one and the same thing. Besides, even
assuming, in gratia argumenti, that promissory notes may be included under the generic term securities, securities
cannot be included under the specific term promissory notes so as to be deemed within the scope of the same
compromise agreement. To be sure, the term promissory note has a definite meaning under the negotiable
instruments law, which does not include securities, and this definite meaning is what is deemed incorporated in the
compromise agreement entered into by and between SBC and the BIR, unless a different definition is therein
expressly agreed upon, which is not the case.
Finally, as regards SBCs contention that the BIR, through its various officials, accepted its offer to settle its entire
DST deficiency assessment for 1983 which included the DST assessment for securities with repurchase agreement
in the tax base for purposes of the computation of the DST due and collectible, suffice it to say that such acceptance
and approval were not made by the BIR Commissioner himself, who, under Section 204 of the NIRC, has the sole
power and authority to compromise taxes. Neither was there any showing that the BIR Commissioner specifically
authorized those revenue officials, who purportedly accepted and approved SBCs offer of payment, to compromise
the DST on sale of securities, which, to stress, were not included in the Compromise Agreement of August 15, 1988
by delegating his power to compromise said DST assessment on securities. This ultra vires act of those revenue
officials cannot have any valid and binding legal effect upon the BIR, so as to proscribe the latter from issuing the
assailed reassessment of unpaid DST on the sales of securities under repurchase agreements for the year 1983.
WHEREFORE, the petition is DENIED and the assailed CA Decision dated August 29, 1997 is AFFIRMED in toto.
Costs against petitioner.
SO ORDERED.
INTERNATIONAL vs. CIR GR No. 171266 April 4, 2007
SECOND DIVISION
G.R. No. 171266
April 4, 2007
INTERNATIONAL EXCHANGE BANK, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
CARPIO MORALES, J.:
Is a Savings Account-Fixed Savings Deposit (FSD) evidenced by a passbook issued by International Exchange Bank
(petitioner) subject to documentary stamp tax (DST) for the years 1996 and 1997?
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Petitioner, a banking institution duly organized and existing under the laws of the Philippines, was on April 13, 1999
served Letter of Authority No. 0000205351 by the Commissioner of Internal Revenue (respondent) directing the
examination by a "Special Team created pursuant to RSO 797-98" (Special Team) of petitioners books of accounts
and other accounting records for the year 1997 and "unverified prior years." An examination of said documents was
in fact conducted.
Petitioner subsequently received on November 16, 1999 a "Notice to Taxpayer"2 from the Assistant Commissioner,
Enforcement Service of the Bureau of Internal Revenue, notifying it of the results of the examination conducted by
the Special Team regarding its tax liabilities, which amounted to P465,158,118.31 for 1996 and P17,033,311,974.23
for 1997, and requesting it to appear for an informal conference to present its side.
Between November3 and December4 1999, petitioners representatives met with the Special Team to discuss and/or
dispute portions of the Special Teams audit findings. Eventually, the parties resolved issues relating to transactions
involving payment of final withholding and gross receipts taxes.5
On January 6, 2000, petitioner was personally served with an undated Pre-Assessment Notice6 (PAN) assessing it of
deficiency on its purchases of securities from the Bangko Sentral ng Pilipinas or Government Securities PurchasedReverse Repurchase Agreement (RRPA) and its FSD for the taxable years 1996 and 1997, viz:
Details of Discrepancies
(Taxable Year 1996)
INDUSTRY ISSUES
1. DOCUMENTARY STAMP TAX (DST) On Government Securities Purchased-RRPA and Savings Deposits SD totaling P25,180,492.15.
Government Securities Purchased-RRP amounting to P3,584,098,013.35 is subject to DST under Section 180 of the
NIRC, as amended, since this falls under the classification of Deposits Substitutes as defined by RR 3-97.
Savings Deposit-FSD amounting to P9,845,497,800.27 should be treated as time deposits considering that its
features are very much the same as time deposits (interest rates; terms). In substance, these are certificate[s] of
deposits subject to Documentary Stamp Tax under Section 180 of the NIRC which provides among others that
certificate[s] of deposits bearing interest and others not payable on sight or demand are subject to DST.7
Details of Discrepancies
(Taxable Year 1997)
INDUSTRY ISSUES
1. DOCUMENTARY STAMP TAX (DST) On Government Securities Purchased-RRPA and Savings DepositsFSD totaling P75,383,751.55.
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Government Securities Purchased-RRP amounting to P12,180.427,820.44 is subject to DST under Sec. 180 of the
NIRC, as amended, since this falls under the classification of Deposit Substitutes as defined by RR 3-97.
Savings Deposits-FSD amounting to P28,024,239,673.35 should be treated as time deposits considering that its
features are very much the same as time deposits (interest rates; terms). In substance, these are certificates of deposit
subject to Documentary Stamp Tax under Section 180 of the NIRC which provides among others that certificate[s]
of deposit bearing interest and others not payable on sight or demand are subject to DST.8 (Underscoring in the
original)
The PAN advised petitioner that in case it was not agreeable to the above-quoted findings, it may "see the Assistant
Commissioner-Enforcement Service to clarify issues arising from the investigation and/or review," and its failure to
do so within 15 days from receipt of the PAN would mean that it was agreeable.9
On January 12, 2000, petitioner received a Formal Assessment Notice10 (FAN) for deficiency DST on its RRPA and
FSD, including surcharges, in the amounts of P25,180,492.15 for 1996 and P75,383,751.55 for 1997, and an
accompanying demand letter11 requesting payment thereof within 30 days.
Acting on the FAN, petitioner filed on February 11, 2000 a protest letter12 alleging that the assessments should be
reconsidered on the grounds that: (1) the assessments are null and void for having been issued without any authority
and due process, and were made beyond the prescribed period for making assessments; (2) there is no law imposing
DST on RRPA, and assuming that DST was payable, it is the Bangko Sentral ng Pilipinas which is liable therefor;
(3) there is no law imposing DST on its FSD; and (4) assuming the deficiency assessments for DST were proper, the
imposition of surcharges was patently without legal authority.
Respondent failed to act on the protest, prompting petitioner to file a petition for review before the Court of Tax
Appeals (CTA).
By Decision13 of October 26, 2004, the First Division of the CTA (CTA Division) disposed as follows:
WHEREFORE, petitioners deficiency assessments pertaining to the reverse purchase agreements in the amounts of
P6,720,183.77 and P22,838,302.16 inclusive of surcharges, for the years 1996 and 1997, respectively, are hereby
CANCELLED and WITHDRAWN. However, the deficiency assessments pertaining to savings deposits-FSD are
hereby UPHELD and petitioner is ORDERED to PAY the respondent the amount of P71,005,757.77 representing
deficiency documentary stamp tax for the years 1996 and 1997. In addition thereto, petitioner is ORDERED to PAY
respondent 20% delinquency interest from February 12, 2000 until fully paid pursuant to Section 249 of the 1997
NIRC.14 (Emphasis and underscoring supplied)
Petitioner moved for reconsideration of the CTA Division decision. Respondent moved too for a partial review of the
decision.
Petitioner argued that its FSD is not subject to DST since it was not one of the documents enumerated either under
the 1977 Tax Code (Tax Code) or the 1997 National Internal Revenue Code (NIRC). Respondent on the other hand
argued that petitioner should be liable not only for DST on its FSD but also on its RRPA.
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For lack of merit, the CTA Division, by Resolution15 of April 20, 2005, denied petitioners motion for
reconsideration and respondents motion for partial reconsideration.
Only petitioner appealed to the CTA En Banc before which it proffered that its FSD cannot be considered a
certificate of deposit subject to DST under Section 180 of the Tax Code for, unlike a certificate of deposit which is a
negotiable instrument, the passbook it issued for its FSD was not payable to the order of the depositor or to some
other person as the deposit could only be withdrawn by the depositor or by a duly authorized representative.16
Petitioner likewise proffered that the legislative deliberations on the bill that was to become Republic Act No. (R.A.)
924317 showed that the definition of certificates of deposit was amended to include "other evidences of deposits that
are either drawing interest significantly higher than the regular savings deposit taking into consideration the size of
the deposit and the risks involved or drawing interest and having a specific maturity date" in order to plug a revenue
loophole caused by the term "certificates of deposit" provided under the Tax Code and the NIRC.18
Furthermore, petitioner argued that a "deposits [sic] evidenced by a passbook [which] have features akin to a time
deposit," such as petitioners FSD, is not subject to DST under the Tax Code and the NIRC.19
Finally, petitioner argued that the FAN for 1996 and 1997 were issued in violation of its right to due process, they
having been issued even before it could respond to the PAN; and that the 1996 assessment is null and void for
having been issued beyond the 3-year prescriptive period.
By Decision20 of January 30, 2006, the CTA En Banc affirmed the decision of the CTA Division finding petitioner
liable for payment of deficiency DST for its FSD.
In affirming the CTA Division Decision, the CTA En Banc held that a time deposit is a type of a certificate of
deposit drawing interest, and petitioners FSD has the same nature and characteristics as those of a time deposit; that
the requirement of due process had been substantially complied with; and the 1996 assessment was not barred by
prescription because there was no requirement for the filing of a DST return under the Tax Code.
Hence, the present petition for review on certiorari, petitioner reiterating the same grounds advanced before the CTA
En Banc.
The issue, in the main, is whether petitioners FSD is subject to DST for the years assessed.
The applicable provision is Section 180 of the Tax Code, as amended by R.A. 7660,21 which reads:
Sec. 180. Stamp tax on all loan agreements, promissory notes, bills of exchange, drafts, instruments and securities
issued by the government or any of its instrumentalities, certificates of deposit bearing interest and others not
payable on sight or demand. - On all loan agreements signed abroad wherein the object of the contract is located or
used in the Philippines; bills of exchange (between points within the Philippines), drafts, instruments and securities
issued by the Government or any of its instrumentalities or certificates of deposits drawing interest, or orders for the
payment of any sum of money otherwise than at sight or on demand, or on all promissory notes, whether negotiable
or non-negotiable, except bank notes issued for circulation, and on each renewal of any such note, there shall be
collected a documentary stamp tax of Thirty centavos (P0.30) on each two hundred pesos, or fractional part thereof,
of the face value of any such agreement, bill of exchange, draft, certificate of deposit, or note: Provided, That only
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one documentary stamp tax shall be imposed on either loan agreement, or promissory notes issued to secure such
loan, whichever will yield a higher tax: Provided, however, That loan agreements or promissory notes the aggregate
of which does not exceed Two hundred fifty thousand pesos (P250,000) executed by an individual for his purchase
on installment for his personal use or that of his family and not for business, resale, barter or hire of a house, lot,
motor vehicle, appliance or furniture shall be exempt from the payment of the documentary stamp tax provided
under this section. (Emphasis and underscoring supplied)
Petitioner posits that based on this Courts definition of a certificate of deposit in Far East Bank and Trust Company
v. Querimit, 22 viz:
A certificate of deposit is defined as a written acknowledgment by a bank or banker of the receipt of a sum of money
on deposit which the bank or banker promises to pay to the depositor, to the order of the depositor, or to some other
person or his order, whereby the relation of debtor and creditor between the bank and the depositor is created. . . .23
its FSD is not a certificate of deposit since there is nothing in the terms and conditions printed on the passbook
evidencing it that can be construed to mean that the bank or banker acknowledges the receipt of a sum of money on
deposit.24
Petitioner moreover posits that the FSD, unlike a certificate of deposit, is not negotiable or payable to the order of
some other person or his order but is "only withdrawable by the depositor or his authorized representative."25
Petitioners position does not lie.
As correctly found by the CTA En Banc, a passbook representing an interest earning deposit account issued by a
bank qualifies as a certificate of deposit drawing interest.26
A document to be deemed a certificate of deposit requires no specific form as long as there is some written
memorandum that the bank accepted a deposit of a sum of money from a depositor.27 What is important and
controlling is the nature or meaning conveyed by the passbook and not the particular label or nomenclature attached
to it, inasmuch as substance, not form, is paramount.28
Contrary to petitioners claim, not all certificates of deposit are negotiable. A certificate of deposit may or may not
be negotiable as gathered from the use of the conjunction or, instead of and, in its definition. A certificate of deposit
may be payable to the depositor, to the order of the depositor, or to some other person or his order.
In any event, the negotiable character of any and all documents under Section 180 is immaterial for purposes of
imposing DST.
Orders for the payment of sum of money payable at sight or on demand are of course explicitly exempted from the
payment of DST. Thus, a regular savings account with a passbook which is withdrawable at any time is not subject
to DST, unlike a time deposit which is payable on a fixed maturity date.
As for petitioners argument that its FSD is similar to a regular savings deposit because it is evidenced by a
passbook,29 and that based on the legislative deliberations on the bill which was to become R.A. 9243 which
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amended Section 180 of the NIRC (which is to a large extent the same as Section 180 of the Tax Code, as amended
by R.A. 7660), Congress admitted that deposits evidenced by passbooks which have features akin to time deposits
are not subject to DST,30 the same does not lie.
The FSD, like a time deposit, provides for a higher interest rate when the deposit is not withdrawn within the
required fixed period; otherwise, it earns interest pertaining to a regular savings deposit. Having a fixed term and the
reduction of interest rates in case of pre-termination are essential features of a time deposit. Thus explains the CTA
En Banc:
It is well-settled that certificates of time deposit are subject to the DST and that a certificate of time deposit is but a
type of a certificate of deposit drawing interest. Thus, in resolving the issue before Us, it is necessary to determine
whether petitioners Savings Account-Fixed Savings Deposit (SA-FSD) has the same nature and characteristics as a
time deposit. In this regard, the findings of fact stated in the assailed Decision [of the CTA Division] are as follows:
"In this case, a depositor of a savings deposit-FSD is required to keep the money with the bank for at least thirty (30)
days in order to yield a higher interest rate. Otherwise, the deposit earns interest pertaining only to a regular savings
deposit.
The same feature is present in a time deposit. A depositor is allowed to withdraw his time deposit even before its
maturity subject to bank charges on its pre[-]termination and the depositor loses his entitlement to earn the interest
rate corresponding to the time deposit. Instead, he earns interest pertaining only to a regular savings deposit. Thus,
petitioners argument that the savings deposit-FSD is withdrawable anytime as opposed to a time deposit which has
a maturity date, is not tenable. In both cases, the deposit may be withdrawn anytime but the depositor gets to earn a
lower rate of interest. The only difference lies on the evidence of deposit, a savings deposit-FSD is evidenced by a
passbook, while a time deposit is evidenced by a certificate of time deposit."
In order for a depositor to earn the agreed higher interest rate in a SA-FSD, the amount of deposit must be
maintained for a fixed period. Such being the case, We agree with the finding that the SA-FSD is a deposit account
with a fixed term. Withdrawal before the expiration of said fixed term results in the reduction of the interest rate.
Having a fixed term and reduction of interest rate in case of pre-termination are essentially the features of a time
deposit. Hence, this Court concurs with the conclusion reached in the assailed Decision that petitioners SA-FSD
and time deposit are substantially the same. . . .31 (Italics in the original; underscoring supplied)
The findings and conclusions reached by the CTA which, by the very nature of its function, is dedicated exclusively
to the consideration of tax problems and has necessarily developed an expertise on the subject, and unless there has
been an abuse or improvident exercise of authority,32 and none has been shown in the present case, deserves
respect.
It bears emphasis that DST is levied on the exercise by persons of certain privileges conferred by law for the
creation, revision, or termination of specific legal relationships through the execution of specific instruments.33 It is
an excise upon the privilege, opportunity or facility offered at exchanges for the transaction of the business.34
While tax avoidance schemes and arrangements are not prohibited, tax laws cannot be circumvented in order to
evade payment of just taxes. 35 To claim that time deposits evidenced by passbooks should not be subject to DST is
a clear evasion of the rule on equality and uniformity in taxation that requires the imposition of DST on documents
evidencing transactions of the same kind, in this particular case, on all certificates of deposits drawing interest.36
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The further amendment of Section 180 of the NIRC and its renumbering as Section 179 by R.A. 9243, which was
approved on February 17, 2004, viz:
SEC. 5. Section 180 of the National Internal Revenue Code of 1997, as amended, is hereby renumbered as Section
179 and further amended to read as follows:
SEC. 179. Stamp Tax on All Debt Instruments. On every original issue of debt instruments, there shall be collected
a documentary stamp tax of One peso (P1.00) on each Two hundred pesos (P200), or fractional part thereof, of the
issue price of any such debt instruments: Provided, That for such debt instruments with terms of less than one (1)
year, the documentary stamp tax to be collected shall be of a proportional amount in accordance with the ratio of its
term in number of days to three hundred sixty-five (365) days: Provided, further, That only one documentary stamp
tax shall be imposed on either loan agreement, or promissory notes issued to secure such loan.
For purposes of this section, the term debt instrument shall mean instruments representing borrowing and lending
transactions including but not limited to debentures, certificates of indebtedness, due bills, bonds, loan agreements,
including those signed abroad wherein the object of contract is located or used in the Philippines, instruments and
securities issued by the government of any of its instrumentalities, deposit substitute debt instruments, certificates or
other evidences of deposits that are either drawing interest significantly higher than the regular savings deposit
taking into consideration the size of the deposit and the risks involved or drawing interest and having a specific
maturity date, orders for payment of any sum of money otherwise than at sight or on demand, promissory notes,
whether negotiable or non-negotiable, except bank notes issued for circulation." (Underscoring supplied),
does not mean that as proffered, prior to its further amendment on said date, Section 180 of the Tax Code and the
NIRC time deposits for which passbooks were issued were exempted from payment of DST.
If at all, the further amendment was intended to eliminate precisely the scheme used by banks of issuing passbooks
to "cloak" its time deposits as regular savings deposits. This is reflected from the following exchanges between Mr.
Miguel Andaya of the Bankers Association of the Philippines and Senator Ralph Recto, Senate Chairman of the
Committee on Ways and Means, during the deliberations on Senate Bill No. 2518 which eventually became R.A.
9243:
MR. MIGUEL ANDAYA (Bankers Association of the Philippines). Just to clarify. Savings deposit at the present
time is not subject to DST.
THE CHAIRMAN. Thats right.
MR. ANDAYA. Time deposit is subject. I agree with you in principle that if we are going to encourage deposits,
whether savings or time
THE CHAIRMAN. Uh-huh.
MR. ANDAYA. . .its questionable whether we should tax it with DST at all, even the question of imposing final
withholding tax has been raised as an issue.
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THE CHAIRMAN. If I had it my way, Ill cut it by half.
MR. ANDAYA. Yeah, but I guess concerning the constraint of government revenue, even the industry itself right
now is not pushing in that direction, but in the long term, when most of us in this room are gone, we hope that DST
will disappear from the face of this earth, no.
Now, I think the move of the DOF to expand the coverage of or to add that phrase, "Other evidence of
indebtedness," it just removed ambiguity. When we testified earlier in the House on this very same bull, we did not
interpose any objections if only for the sake of avoiding further ambiguity in the implementation of DST on
deposits. Because of what has happened so far is, we dont know whether the examiner is gonna come in and say,
"This savings deposit is not savings but its time deposit." So, I think what DOF has done is to eliminate any
confusion. They said that a deposit that has a maturity. . .
MR. ANDAYA. . . . which is time, in effect, regardless of what form it takes should be subject to DST.
THE CHAIRMAN. Would that include savings deposit now?
MR. ANDAYA. So that if we cloaked a deposit as savings deposit but it has got a fixed maturity . . .
MR. ANDAYA. . . that would fall under the purview.37 (Underscoring supplied)
Finally, as the records show, contrary to petitioners claim, it had been afforded the opportunity to protest the
assessment notices as in fact it even requested for a re-investigation which is, given the nature of the present case,
the essence of due process.38
WHEREFORE, the petition is DENIED.
SO ORDERED.
Section 2
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Negotiable Instrument Cases

The antecedent facts of this case are as follows:

WHEREUPON, judgment is hereby rendered as follows:

Hence, this petition wherein petitioner raises the following issues:

We find no merit in petitioners arguments.

CEBU INTERNATIONAL FINANCE CORPORATION, petitioner, vs. COURT OF APPEALS, VICENTE

the costs of suit.

These issues may be synthesized into three:

The facts, as found by the Sandiganbayan,[6] are as follows:

1. Official Receipt No. 0382089 dated 12/14/89 for

Manila, Philippines, January 25, 1996.[10]

Hence, this appeal.[13]

Petitioner submits that the Sandiganbayan erred:

The Courts Ruling

The crime of malversation of public funds is defined and penalized as follows:

x x x It was found that your cash was short of P107,229.02.

This shortage was arrived at as follows:

Balance per audit as of Sept. 20, 1989

Cash and valid cash items produced

The witness may refresh his memory.

subject to the following situations and conditions, to wit:

a. If plaintiff Honor P. Moslares x x x buys the property, he is under obligation, as follows:

PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. ROBERTO TONGKO, accused-appellant.

Accused was charged under the following Information:

Phil. Amanah Bank

Phil. Amanah Bank

Phil. Amanah Bank

Phil. Amanah Bank

Phil. Amanah Bank

Phil. Amanah Bank

Phil. Amanah Bank

Phil. Amanah Bank

Phil. Amanah Bank

Accused pled not guilty and underwent trial.

THE TRIAL COURT ERRED IN FINDING THE ACCUSED-APPELLANT GUILTY OF ESTAFA AS

The appeal is without merit.

3. deceit or damage to the payee thereof.[6]

G.R. No. 159048

October 11, 2005

The assailed Resolution denied Reconsideration.

The antecedents are narrated by the CA as follows:

Ruling of the Court of Appeals

Hence, this Petition.[8]

Petitioner raises the following issues for this Courts consideration:

The Courts Ruling

The Petition has no merit.

When the price of a sale with right to repurchase is unusually inadequate;

When the vendor remains in possession as lessee or otherwise;

Payment of Realty Taxes

On this point, we again rule for respondent.

We rule for respondent.

SPOUSES ANTONIO and LOLITA TAN,

G.R. No. 160892

November 22, 2005

CARPIO MORALES, J.:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

Ordering the dismissal of the complaint;

Carmelito Villapaz to pay to defendants spouses Antonio and

P100,000.00 as moral damages;

P50,000.00 as exemplary damages;

P30,000.00 as attorneys fees; and

Plaintiff Carmelito Villapaz to pay the costs.

SO ORDERED. (Underscoring in the original)[12]