[G.R. No. 133632.

February 15, 2002]

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

Hence, applying the effects of legal compensation, the balance of P35,648.23 should be applied to the initial monthly
amortization for the loan.
On August 31, 1988, the trial court rendered its judgment in Civil Case Nos. 11831 and 52093, thus:
WHEREFORE, judgment is hereby rendered in favor of ALS Management and Development Corporation and Antonio K. Litonjua
and against BPI Investment Corporation, holding that the amount of loan granted by BPI to ALS and Litonjua was only in the
principal sum of P464,351.77, with interest at 20% plus service charge of 1% per annum, payable on equal monthly and successive
amortizations at P9,283.83 for ten (10) years or one hundred twenty (120) months. The amortization schedule attached as Annex A to
the Deed of Mortgage is correspondingly reformed as aforestated.
The Court further finds that ALS and Litonjua suffered compensable damages when BPI caused their publication in a newspaper of
general circulation as defaulting debtors, and therefore orders BPI to pay ALS and Litonjua the following sums:
a) P300,000.00 for and as moral damages;
b) P50,000.00 as and for exemplary damages;
c) P50,000.00 as and for attorneys fees and expenses of litigation.
The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being premature.
Costs against BPI.
SO ORDERED.[2]
Both parties appealed to the Court of Appeals. However, private respondents appeal was dismissed for non-payment
of docket fees.
On February 28, 1997, the Court of Appeals promulgated its decision, the dispositive portion reads:
WHEREFORE, finding no error in the appealed decision the same is hereby AFFIRMED in toto.
SO ORDERED.[3]
In its decision, the Court of Appeals reasoned that a simple loan is perfected only upon the delivery of the object of
the contract. The contract of loan between BPIIC and ALS & Litonjua was perfected only on September 13, 1982, the date
when BPIIC released the purported balance of the P500,000 loan after deducting therefrom the value of Roas
indebtedness. Thus, payment of the monthly amortization should commence only a month after the said date, as can be
inferred from the stipulations in the contract. This, despite the express agreement of the parties that payment shall
commence on May 1, 1981. From October 1982 to June 1984, the total amortization due was only P194,960.43. Evidence
showed that private respondents had an overpayment, because as of June 1984, they already paid a total amount
of P201,791.96. Therefore, there was no basis for BPIIC to extrajudicially foreclose the mortgage and cause the
publication in newspapers concerning private respondents delinquency in the payment of their loan. This fact constituted
sufficient ground for moral damages in favor of private respondents.
The motion for reconsideration filed by petitioner BPIIC was likewise denied, hence this petition, where BPIIC
submits for resolution the following issues:
I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL CONTRACT IN THE LIGHT OF THE
RULE LAID DOWN IN BONNEVIE VS. COURT OF APPEALS, 125 SCRA 122.

II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL AND EXEMPLARY DAMAGES AND
ATTORNEYS FEES IN THE FACE OF IRREGULAR PAYMENTS MADE BY ALS AND OPPOSED TO THE
RULE LAID DOWN IN SOCIAL SECURITY SYSTEM VS. COURT OF APPEALS, 120 SCRA 707.
On the first issue, petitioner contends that the Court of Appeals erred in ruling that because a simple loan is perfected
upon the delivery of the object of the contract, the loan contract in this case was perfected only on September 13,
1982.Petitioner claims that a contract of loan is a consensual contract, and a loan contract is perfected at the time the
contract of mortgage is executed conformably with our ruling in Bonnevie v. Court of Appeals, 125 SCRA 122. In the
present case, the loan contract was perfected on March 31, 1981, the date when the mortgage deed was executed,
hence, the amortization and interests on the loan should be computed from said date.
Petitioner also argues that while the documents showed that the loan was released only on August 1982, the loan
was actually released on March 31, 1981, when BPIIC issued a cancellation of mortgage of Frank Roas loan. This finds
support in the registration on March 31, 1981 of the Deed of Absolute Sale executed by Roa in favor of ALS, transferring
the title of the property to ALS, and ALS executing the Mortgage Deed in favor of BPIIC. Moreover, petitioner claims, the
delay in the release of the loan should be attributed to private respondents. As BPIIC only agreed to extend a P500,000
loan, private respondents were required to reduce Frank Roas loan below said amount. According to petitioner, private
respondents were only able to do so in August 1982.
In their comment, private respondents assert that based on Article 1934 of the Civil Code, [4] a simple loan is perfected
upon the delivery of the object of the contract, hence a real contract. In this case, even though the loan contract was
signed onMarch 31, 1981, it was perfected only on September 13, 1982, when the full loan was released to private
respondents. They submit that petitioner misread Bonnevie. To give meaning to Article 1934, according to private
respondents, Bonnevie must be construed to mean that the contract to extend the loan was perfected on March 31,
1981 but the contract of loan itself was only perfected upon the delivery of the full loan to private respondents
on September 13, 1982.
Private respondents further maintain that even granting, arguendo, that the loan contract was perfected on March 31,
1981, and their payment did not start a month thereafter, still no default took place. According to private respondents, a
perfected loan agreement imposes reciprocal obligations, where the obligation or promise of each party is the
consideration of the other party. In this case, the consideration for BPIIC in entering into the loan contract is the promise of
private respondents to pay the monthly amortization. For the latter, it is the promise of BPIIC to deliver the money. In
reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. Therefore, private respondents conclude, they did not incur in delay when they
did not commence paying the monthly amortization on May 1, 1981, as it was only on September 13, 1982 when
petitioner fully complied with its obligation under the loan contract.
We agree with private respondents. A loan contract is not a consensual contract but a real contract. It is perfected
only upon the delivery of the object of the contract. [5] Petitioner misapplied Bonnevie. The contract in Bonnevie declared
by this Court as a perfected consensual contract falls under the first clause of Article 1934, Civil Code. It is an accepted
promise to deliver something by way of simple loan.
In Saura Import and Export Co. Inc. vs. Development Bank of the Philippines, 44 SCRA 445, petitioner applied for a
loan of P500,000 with respondent bank. The latter approved the application through a board resolution. Thereafter, the
corresponding mortgage was executed and registered. However, because of acts attributable to petitioner, the loan was
not released. Later, petitioner instituted an action for damages. We recognized in this case, a perfected consensual
contract which under normal circumstances could have made the bank liable for not releasing the loan. However, since
the fault was attributable to petitioner therein, the court did not award it damages.
A perfected consensual contract, as shown above, can give rise to an action for damages. However, said contract
does not constitute the real contract of loan which requires the delivery of the object of the contract for its perfection and
which gives rise to obligations only on the part of the borrower.[6]

In the present case, the loan contract between BPI, on the one hand, and ALS and Litonjua, on the other, was
perfected only on September 13, 1982, the date of the second release of the loan. Following the intentions of the parties
on the commencement of the monthly amortization, as found by the Court of Appeals, private respondents obligation to
pay commenced only on October 13, 1982, a month after the perfection of the contract. [7]
We also agree with private respondents that a contract of loan involves a reciprocal obligation, wherein the obligation
or promise of each party is the consideration for that of the other. [8] As averred by private respondents, the promise of
BPIIC to extend and deliver the loan is upon the consideration that ALS and Litonjua shall pay the monthly amortization
commencing on May 1, 1981, one month after the supposed release of the loan. It is a basic principle in reciprocal
obligations that neither party incurs in delay, if the other does not comply or is not ready to comply in a proper manner with
what is incumbent upon him.[9] Only when a party has performed his part of the contract can he demand that the other
party also fulfills his own obligation and if the latter fails, default sets in. Consequently, petitioner could only demand for
the payment of the monthly amortization after September 13, 1982 for it was only then when it complied with its obligation
under the loan contract.Therefore, in computing the amount due as of the date when BPIIC extrajudicially caused the
foreclosure of the mortgage, the starting date is October 13, 1982 and not May 1, 1981.
Other points raised by petitioner in connection with the first issue, such as the date of actual release of the loan and
whether private respondents were the cause of the delay in the release of the loan, are factual. Since petitioner has not
shown that the instant case is one of the exceptions to the basic rule that only questions of law can be raised in a petition
for review under Rule 45 of the Rules of Court, [10] factual matters need not tarry us now. On these points we are bound by
the findings of the appellate and trial courts.
On the second issue, petitioner claims that it should not be held liable for moral and exemplary damages for it did not
act maliciously when it initiated the foreclosure proceedings. It merely exercised its right under the mortgage contract
because private respondents were irregular in their monthly amortization. It invoked our ruling in Social Security System
vs. Court of Appeals, 120 SCRA 707, where we said:
Nor can the SSS be held liable for moral and temperate damages. As concluded by the Court of Appeals the negligence of the
appellant is not so gross as to warrant moral and temperate damages, except that, said Court reduced those damages by only P5,000.00
instead of eliminating them. Neither can we agree with the findings of both the Trial Court and respondent Court that the SSS had
acted maliciously or in bad faith. The SSS was of the belief that it was acting in the legitimate exercise of its right under the mortgage
contract in the face of irregular payments made by private respondents and placed reliance on the automatic acceleration clause in the
contract. The filing alone of the foreclosure application should not be a ground for an award of moral damages in the same way that a
clearly unfounded civil action is not among the grounds for moral damages.
Private respondents counter that BPIIC was guilty of bad faith and should be liable for said damages because it
insisted on the payment of amortization on the loan even before it was released. Further, it did not make the
corresponding deduction in the monthly amortization to conform to the actual amount of loan released, and it immediately
initiated foreclosure proceedings when private respondents failed to make timely payment.
But as admitted by private respondents themselves, they were irregular in their payment of monthly
amortization. Conformably with our ruling in SSS, we can not properly declare BPIIC in bad faith. Consequently, we
should rule out the award of moral and exemplary damages. [11]
However, in our view, BPIIC was negligent in relying merely on the entries found in the deed of mortgage, without
checking and correspondingly adjusting its records on the amount actually released to private respondents and the date
when it was released. Such negligence resulted in damage to private respondents, for which an award of nominal
damages should be given in recognition of their rights which were violated by BPIIC. [12] For this purpose, the amount
of P25,000 is sufficient.
Lastly, as in SSS where we awarded attorneys fees because private respondents were compelled to litigate, we
sustain the award of P50,000 in favor of private respondents as attorneys fees.

WHEREFORE, the decision dated February 28, 1997, of the Court of Appeals and its resolution dated April 21, 1998,
are AFFIRMED WITH MODIFICATION as to the award of damages. The award of moral and exemplary damages in favor
of private respondents is DELETED, but the award to them of attorneys fees in the amount of P50,000 is UPHELD.
Additionally, petitioner is ORDERED to pay private respondents P25,000 as nominal damages. Costs against petitioner.
SO ORDERED.

G.R. No. 174269

May 8, 2009

POLO S. PANTALEON, Petitioner,

vs.
AMERICAN EXPRESS INTERNATIONAL, INC., Respondent.
DECISION
TINGA, J.:
The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna Regina and son Adrian Roberto, joined an
escorted tour of Western Europe organized by Trafalgar Tours of Europe, Ltd., in October of 1991. The tour group arrived
in Amsterdam in the afternoon of 25 October 1991, the second to the last day of the tour. As the group had arrived late in
the city, they failed to engage in any sight-seeing. Instead, it was agreed upon that they would start early the next day to
see the entire city before ending the tour.
The following day, the last day of the tour, the group arrived at the Coster Diamond House in Amsterdam around 10
minutes before 9:00 a.m. The group had agreed that the visit to Coster should end by 9:30 a.m. to allow enough time to
take in a guided city tour of Amsterdam. The group was ushered into Coster shortly before 9:00 a.m., and listened to a
lecture on the art of diamond polishing that lasted for around ten minutes. 1 Afterwards, the group was led to the stores
showroom to allow them to select items for purchase. Mrs. Pantaleon had already planned to purchase even before the
tour began a 2.5 karat diamond brilliant cut, and she found a diamond close enough in approximation that she decided to
buy.2 Mrs. Pantaleon also selected for purchase a pendant and a chain, 3 all of which totaled U.S. $13,826.00.
To pay for these purchases, Pantaleon presented his American Express credit card together with his passport to the
Coster sales clerk. This occurred at around 9:15 a.m., or 15 minutes before the tour group was slated to depart from the
store. The sales clerk took the cards imprint, and asked Pantaleon to sign the charge slip. The charge purchase was then
referred electronically to respondents Amsterdam office at 9:20 a.m.
Ten minutes later, the store clerk informed Pantaleon that his AmexCard had not yet been approved. His son, who had
already boarded the tour bus, soon returned to Coster and informed the other members of the Pantaleon family that the
entire tour group was waiting for them. As it was already 9:40 a.m., and he was already worried about further
inconveniencing the tour group, Pantaleon asked the store clerk to cancel the sale. The store manager though asked
plaintiff to wait a few more minutes. After 15 minutes, the store manager informed Pantaleon that respondent had
demanded bank references. Pantaleon supplied the names of his depositary banks, then instructed his daughter to return
to the bus and apologize to the tour group for the delay.
At around 10:00 a.m, or around 45 minutes after Pantaleon had presented his AmexCard, and 30 minutes after the tour
group was supposed to have left the store, Coster decided to release the items even without respondents approval of the
purchase. The spouses Pantaleon returned to the bus. It is alleged that their offers of apology were met by their tourmates
with stony silence.4 The tour groups visible irritation was aggravated when the tour guide announced that the city tour of
Amsterdam was to be canceled due to lack of remaining time, as they had to catch a 3:00 p.m. ferry at Calais, Belgium to
London.5 Mrs. Pantaleon ended up weeping, while her husband had to take a tranquilizer to calm his nerves.

It later emerged that Pantaleons purchase was first transmitted for approval to respondents Amsterdam office at 9:20
a.m., Amsterdam time, then referred to respondents Manila office at 9:33 a.m, then finally approved at 10:19 a.m.,
Amsterdam time.6 The Approval Code was transmitted to respondents Amsterdam office at 10:38 a.m., several minutes
after petitioner had already left Coster, and 78 minutes from the time the purchases were electronically transmitted by the
jewelry store to respondents Amsterdam office.
After the star-crossed tour had ended, the Pantaleon family proceeded to the United States before returning to Manila on
12 November 1992. While in the United States, Pantaleon continued to use his AmEx card, several times without hassle
or delay, but with two other incidents similar to the Amsterdam brouhaha. On 30 October 1991, Pantaleon purchased golf
equipment amounting to US $1,475.00 using his AmEx card, but he cancelled his credit card purchase and borrowed
money instead from a friend, after more than 30 minutes had transpired without the purchase having been approved. On 3
November 1991, Pantaleon used the card to purchase childrens shoes worth $87.00 at a store in Boston, and it took 20
minutes before this transaction was approved by respondent.
On 4 March 1992, after coming back to Manila, Pantaleon sent a letter 7 through counsel to the respondent, demanding an
apology for the "inconvenience, humiliation and embarrassment he and his family thereby suffered" for respondents
refusal to provide credit authorization for the aforementioned purchases. 8 In response, respondent sent a letter dated 24
March 1992,9 stating among others that the delay in authorizing the purchase from Coster was attributable to the
circumstance that the charged purchase of US $13,826.00 "was out of the usual charge purchase pattern
established."10 Since respondent refused to accede to Pantaleons demand for an apology, the aggrieved cardholder
instituted an action for damages with the Regional Trial Court (RTC) of Makati City, Branch 145. 11 Pantaleon prayed that
he be awarded P2,000,000.00, as moral damages; P500,000.00, as exemplary damages; P100,000.00, as attorneys
fees; and P50,000.00 as litigation expenses.12
On 5 August 1996, the Makati City RTC rendered a decision 13 in favor of Pantaleon, awarding him P500,000.00 as moral
damages, P300,000.00 as exemplary damages, P100,000.00 as attorneys fees, and P85,233.01 as expenses of
litigation. Respondent filed a Notice of Appeal, while Pantaleon moved for partial reconsideration, praying that the trial
court award the increased amount of moral and exemplary damages he had prayed for.14The RTC denied Pantaleons
motion for partial reconsideration, and thereafter gave due course to respondents Notice of Appeal. 15
On 18 August 2006, the Court of Appeals rendered a decision 16 reversing the award of damages in favor of Pantaleon,
holding that respondent had not breached its obligations to petitioner. Hence, this petition.
The key question is whether respondent, in connection with the aforementioned transactions, had committed a breach of
its obligations to Pantaleon. In addition, Pantaleon submits that even assuming that respondent had not been in breach of
its obligations, it still remained liable for damages under Article 21 of the Civil Code.
The RTC had concluded, based on the testimonial representations of Pantaleon and respondents credit authorizer,
Edgardo Jaurigue, that the normal approval time for purchases was "a matter of seconds." Based on that standard,
respondent had been in clear delay with respect to the three subject transactions. As it appears, the Court of Appeals
conceded that there had been delay on the part of respondent in approving the purchases. However, it made two critical
conclusions in favor of respondent. First, the appellate court ruled that the delay was not attended by bad faith, malice, or
gross negligence. Second, it ruled that respondent "had exercised diligent efforts to effect the approval" of the purchases,
which were "not in accordance with the charge pattern" petitioner had established for himself, as exemplified by the fact
that at Coster, he was "making his very first single charge purchase of US$13,826," and "the record of [petitioner]s past
spending with [respondent] at the time does not favorably support his ability to pay for such purchase." 17
On the premise that there was an obligation on the part of respondent "to approve or disapprove with dispatch the charge
purchase," petitioner argues that the failure to timely approve or disapprove the purchase constituted mora solvendi on
the part of respondent in the performance of its obligation. For its part, respondent characterizes the depiction by
petitioner of its obligation to him as "to approve purchases instantaneously or in a matter of seconds."
Petitioner correctly cites that under mora solvendi, the three requisites for a finding of default are that the obligation is
demandable and liquidated; the debtor delays performance; and the creditor judicially or extrajudicially requires the

debtors performance.18 Petitioner asserts that the Court of Appeals had wrongly applied the principle of mora accipiendi,
which relates to delay on the part of the obligee in accepting the performance of the obligation by the obligor. The
requisites of mora accipiendi are: an offer of performance by the debtor who has the required capacity; the offer must be
to comply with the prestation as it should be performed; and the creditor refuses the performance without just cause. 19 The
error of the appellate court, argues petitioner, is in relying on the invocation by respondent of "just cause" for the delay,
since while just cause is determinative of mora accipiendi, it is not so with the case of mora solvendi.
We can see the possible source of confusion as to which type of mora to appreciate. Generally, the relationship between a
credit card provider and its card holders is that of creditor-debtor,20 with the card company as the creditor extending loans
and credit to the card holder, who as debtor is obliged to repay the creditor. This relationship already takes exception to
the general rule that as between a bank and its depositors, the bank is deemed as the debtor while the depositor is
considered as the creditor.21 Petitioner is asking us, not baselessly, to again shift perspectives and again see the credit
card company as the debtor/obligor, insofar as it has the obligation to the customer as creditor/obligee to act promptly on
its purchases on credit.
Ultimately, petitioners perspective appears more sensible than if we were to still regard respondent as the creditor in the
context of this cause of action. If there was delay on the part of respondent in its normal role as creditor to the cardholder,
such delay would not have been in the acceptance of the performance of the debtors obligation (i.e., the repayment of the
debt), but it would be delay in the extension of the credit in the first place. Such delay would not fall under mora
accipiendi, which contemplates that the obligation of the debtor, such as the actual purchases on credit, has already been
constituted. Herein, the establishment of the debt itself (purchases on credit of the jewelry) had not yet been perfected, as
it remained pending the approval or consent of the respondent credit card company.
Still, in order for us to appreciate that respondent was in mora solvendi, we will have to first recognize that there was
indeed an obligation on the part of respondent to act on petitioners purchases with "timely dispatch," or for the purposes
of this case, within a period significantly less than the one hour it apparently took before the purchase at Coster was finally
approved.
The findings of the trial court, to our mind, amply established that the tardiness on the part of respondent in acting on
petitioners purchase at Coster did constitute culpable delay on its part in complying with its obligation to act promptly on
its customers purchase request, whether such action be favorable or unfavorable. We quote the trial court, thus:
As to the first issue, both parties have testified that normal approval time for purchases was a matter of seconds.
Plaintiff testified that his personal experience with the use of the card was that except for the three charge purchases
subject of this case, approvals of his charge purchases were always obtained in a matter of seconds.
Defendants credit authorizer Edgardo Jaurique likewise testified:
Q. You also testified that on normal occasions, the normal approval time for charges would be 3 to 4 seconds?
A. Yes, Maam.
Both parties likewise presented evidence that the processing and approval of plaintiffs charge purchase at the Coster
Diamond House was way beyond the normal approval time of a "matter of seconds".
Plaintiff testified that he presented his AmexCard to the sales clerk at Coster, at 9:15 a.m. and by the time he had to leave
the store at 10:05 a.m., no approval had yet been received. In fact, the Credit Authorization System (CAS) record of
defendant at Phoenix Amex shows that defendants Amsterdam office received the request to approve plaintiffs charge
purchase at 9:20 a.m., Amsterdam time or 01:20, Phoenix time, and that the defendant relayed its approval to Coster at
10:38 a.m., Amsterdam time, or 2:38, Phoenix time, or a total time lapse of one hour and [18] minutes. And even then, the
approval was conditional as it directed in computerese [sic] "Positive Identification of Card holder necessary further
charges require bank information due to high exposure. By Jack Manila."

The delay in the processing is apparent to be undue as shown from the frantic successive queries of Amexco Amsterdam
which reads: "US$13,826. Cardmember buying jewels. ID seen. Advise how long will this take?" They were sent at 01:33,
01:37, 01:40, 01:45, 01:52 and 02:08, all times Phoenix. Manila Amexco could be unaware of the need for speed in
resolving the charge purchase referred to it, yet it sat on its hand, unconcerned.
xxx
To repeat, the Credit Authorization System (CAS) record on the Amsterdam transaction shows how Amexco Netherlands
viewed the delay as unusually frustrating. In sequence expressed in Phoenix time from 01:20 when the charge purchased
was referred for authorization, defendants own record shows:
01:22 the authorization is referred to Manila Amexco
01:32 Netherlands gives information that the identification of the cardmember has been presented and he is
buying jewelries worth US $13,826.
01:33 Netherlands asks "How long will this take?"
02:08 Netherlands is still asking "How long will this take?"
The Court is convinced that defendants delay constitute[s] breach of its contractual obligation to act on his use of the card
abroad "with special handling."22 (Citations omitted)
xxx
Notwithstanding the popular notion that credit card purchases are approved "within seconds," there really is no strict,
legally determinative point of demarcation on how long must it take for a credit card company to approve or disapprove a
customers purchase, much less one specifically contracted upon by the parties. Yet this is one of those instances when
"youd know it when youd see it," and one hour appears to be an awfully long, patently unreasonable length of time to
approve or disapprove a credit card purchase. It is long enough time for the customer to walk to a bank a kilometer away,
withdraw money over the counter, and return to the store.
Notably, petitioner frames the obligation of respondent as "to approve or disapprove" the purchase "in timely dispatch,"
and not "to approve the purchase instantaneously or within seconds." Certainly, had respondent disapproved petitioners
purchase "within seconds" or within a timely manner, this particular action would have never seen the light of day.
Petitioner and his family would have returned to the bus without delay internally humiliated perhaps over the rejection of
his card yet spared the shame of being held accountable by newly-made friends for making them miss the chance to
tour the city of Amsterdam.
We do not wish do dispute that respondent has the right, if not the obligation, to verify whether the credit it is extending
upon on a particular purchase was indeed contracted by the cardholder, and that the cardholder is within his means to
make such transaction. The culpable failure of respondent herein is not the failure to timely approve petitioners purchase,
but the more elemental failure to timely act on the same, whether favorably or unfavorably. Even assuming that
respondents credit authorizers did not have sufficient basis on hand to make a judgment, we see no reason why
respondent could not have promptly informed petitioner the reason for the delay, and duly advised him that resolving the
same could take some time. In that way, petitioner would have had informed basis on whether or not to pursue the
transaction at Coster, given the attending circumstances. Instead, petitioner was left uncomfortably dangling in the chilly
autumn winds in a foreign land and soon forced to confront the wrath of foreign folk.
Moral damages avail in cases of breach of contract where the defendant acted fraudulently or in bad faith, and the court
should find that under the circumstances, such damages are due. The findings of the trial court are ample in establishing
the bad faith and unjustified neglect of respondent, attributable in particular to the "dilly-dallying" of respondents Manila
credit authorizer, Edgardo Jaurique.23 Wrote the trial court:

While it is true that the Cardmembership Agreement, which defendant prepared, is silent as to the amount of time it should
take defendant to grant authorization for a charge purchase, defendant acknowledged that the normal time for approval
should only be three to four seconds. Specially so with cards used abroad which requires "special handling", meaning with
priority. Otherwise, the object of credit or charge cards would be lost; it would be so inconvenient to use that buyers and
consumers would be better off carrying bundles of currency or travellers checks, which can be delivered and accepted
quickly. Such right was not accorded to plaintiff in the instances complained off for reasons known only to defendant at
that time. This, to the Courts mind, amounts to a wanton and deliberate refusal to comply with its contractual obligations,
or at least abuse of its rights, under the contract. 24
xxx
The delay committed by defendant was clearly attended by unjustified neglect and bad faith, since it alleges to have
consumed more than one hour to simply go over plaintiffs past credit history with defendant, his payment record and his
credit and bank references, when all such data are already stored and readily available from its computer. This Court also
takes note of the fact that there is nothing in plaintiffs billing history that would warrant the imprudent suspension of action
by defendant in processing the purchase. Defendants witness Jaurique admits:
Q. But did you discover that he did not have any outstanding account?
A. Nothing in arrears at that time.
Q. You were well aware of this fact on this very date?
A. Yes, sir.
Mr. Jaurique further testified that there were no "delinquencies" in plaintiffs account. 25
It should be emphasized that the reason why petitioner is entitled to damages is not simply because respondent incurred
delay, but because the delay, for which culpability lies under Article 1170, led to the particular injuries under Article 2217 of
the Civil Code for which moral damages are remunerative. 26 Moral damages do not avail to soothe the plaints of the
simply impatient, so this decision should not be cause for relief for those who time the length of their credit card
transactions with a stopwatch. The somewhat unusual attending circumstances to the purchase at Coster that there was
a deadline for the completion of that purchase by petitioner before any delay would redound to the injury of his several
traveling companions gave rise to the moral shock, mental anguish, serious anxiety, wounded feelings and social
humiliation sustained by the petitioner, as concluded by the RTC. 27Those circumstances are fairly unusual, and should not
give rise to a general entitlement for damages under a more mundane set of facts.
We sustain the amount of moral damages awarded to petitioner by the RTC. There is no hard-and-fast rule in determining
what would be a fair and reasonable amount of moral damages, since each case must be governed by its own peculiar
facts, however, it must be commensurate to the loss or injury suffered. 28 Petitioners original prayer for P5,000,000.00 for
moral damages is excessive under the circumstances, and the amount awarded by the trial court of P500,000.00 in moral
damages more seemly.1avvphi1
Likewise, we deem exemplary damages available under the circumstances, and the amount of P300,000.00 appropriate.
There is similarly no cause though to disturb the determined award of P100,000.00 as attorneys fees, and P85,233.01 as
expenses of litigation.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is REVERSED and SET ASIDE.
The Decision of the Regional Trial Court of Makati, Branch 145 in Civil Case No. 92-1665 is hereby REINSTATED. Costs
against respondent.
SO ORDERED.

[G.R. No. 115324. February 19, 2003]

PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK), petitioner, vs. HON. COURT OF
APPEALS AND FRANKLIN VIVES, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision[1] of the Court of Appeals dated June 25, 1991 in CA-G.R. CV
No. 11791 and of its Resolution [2] dated May 5, 1994, denying the motion for reconsideration of said decision filed by
petitioner Producers Bank of the Philippines.
Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friend Angeles Sanchez to help
her friend and townmate, Col. Arturo Doronilla, in incorporating his business, the Sterela Marketing and Services (Sterela
for brevity). Specifically, Sanchez asked private respondent to deposit in a bank a certain amount of money in the bank
account of Sterela for purposes of its incorporation. She assured private respondent that he could withdraw his money
from said account within a months time. Private respondent asked Sanchez to bring Doronilla to their house so that they
could discuss Sanchezs request.[3]
On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi, Doronillas private secretary,
met and discussed the matter. Thereafter, relying on the assurances and representations of Sanchez and Doronilla,
private respondent issued a check in the amount of Two Hundred Thousand Pesos ( P200,000.00) in favor of
Sterela. Private respondent instructed his wife, Mrs. Inocencia Vives, to accompany Doronilla and Sanchez in opening a
savings account in the name of Sterela in the Buendia, Makati branch of Producers Bank of the Philippines. However, only
Sanchez, Mrs. Vives and Dumagpi went to the bank to deposit the check. They had with them an authorization letter from
Doronilla authorizing Sanchez and her companions, in coordination with Mr. Rufo Atienza, to open an account for Sterela
Marketing Services in the amount of P200,000.00. In opening the account, the authorized signatories were Inocencia
Vives and/or Angeles Sanchez. A passbook for Savings Account No. 10-1567 was thereafter issued to Mrs. Vives. [4]
Subsequently, private respondent learned that Sterela was no longer holding office in the address previously given to
him. Alarmed, he and his wife went to the Bank to verify if their money was still intact. The bank manager referred them to
Mr. Rufo Atienza, the assistant manager, who informed them that part of the money in Savings Account No. 10-1567 had
been withdrawn by Doronilla, and that only P90,000.00 remained therein. He likewise told them that Mrs. Vives could not
withdraw said remaining amount because it had to answer for some postdated checks issued by Doronilla. According to
Atienza, after Mrs. Vives and Sanchez opened Savings Account No. 10-1567, Doronilla opened Current Account No. 100320 for Sterela and authorized the Bank to debit Savings Account No. 10-1567 for the amounts necessary to cover
overdrawings in Current Account No. 10-0320. In opening said current account, Sterela, through Doronilla, obtained a
loan of P175,000.00 from the Bank. To cover payment thereof, Doronilla issued three postdated checks, all of which were

dishonored. Atienza also said that Doronilla could assign or withdraw the money in Savings Account No. 10-1567 because
he was the sole proprietor of Sterela.[5]
Private respondent tried to get in touch with Doronilla through Sanchez. On June 29, 1979, he received a letter from
Doronilla, assuring him that his money was intact and would be returned to him. On August 13, 1979, Doronilla issued a
postdated check for Two Hundred Twelve Thousand Pesos (P212,000.00) in favor of private respondent. However, upon
presentment thereof by private respondent to the drawee bank, the check was dishonored. Doronilla requested private
respondent to present the same check on September 15, 1979 but when the latter presented the check, it was again
dishonored.[6]
Private respondent referred the matter to a lawyer, who made a written demand upon Doronilla for the return of his
clients money. Doronilla issued another check for P212,000.00 in private respondents favor but the check was again
dishonored for insufficiency of funds.[7]
Private respondent instituted an action for recovery of sum of money in the Regional Trial Court (RTC) in Pasig,
Metro Manila against Doronilla, Sanchez, Dumagpi and petitioner. The case was docketed as Civil Case No. 44485. He
also filed criminal actions against Doronilla, Sanchez and Dumagpi in the RTC. However, Sanchez passed away on March
16, 1985 while the case was pending before the trial court. On October 3, 1995, the RTC of Pasig, Branch 157,
promulgated its Decision in Civil Case No. 44485, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing defendants Arturo J. Doronila, Estrella Dumagpi and
Producers Bank of the Philippines to pay plaintiff Franklin Vives jointly and severally
(a) the amount of P200,000.00, representing the money deposited, with interest at the legal rate from the filing of the complaint until
the same is fully paid;
(b) the sum of P50,000.00 for moral damages and a similar amount for exemplary damages;
(c) the amount of P40,000.00 for attorneys fees; and
(d) the costs of the suit.
SO ORDERED.[8]
Petitioner appealed the trial courts decision to the Court of Appeals. In its Decision dated June 25, 1991, the
appellate court affirmed in toto the decision of the RTC.[9] It likewise denied with finality petitioners motion for
reconsideration in its Resolution dated May 5, 1994. [10]
On June 30, 1994, petitioner filed the present petition, arguing that
I.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE TRANSACTION BETWEEN THE
DEFENDANT DORONILLA AND RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT ACCOMMODATION;
II.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT PETITIONERS BANK MANAGER, MR. RUFO
ATIENZA, CONNIVED WITH THE OTHER DEFENDANTS IN DEFRAUDING PETITIONER (Sic. Should be PRIVATE
RESPONDENT) AND AS A CONSEQUENCE, THE PETITIONER SHOULD BE HELD LIABLE UNDER THE PRINCIPLE OF
NATURAL JUSTICE;
III.

THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE RECORDS OF THE REGIONAL TRIAL
COURT AND AFFIRMING THE JUDGMENT APPEALED FROM, AS THE FINDINGS OF THE REGIONAL TRIAL COURT
WERE BASED ON A MISAPPREHENSION OF FACTS;
IV.
THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITED DECISION IN SALUDARES VS.
MARTINEZ, 29 SCRA 745, UPHOLDING THE LIABILITY OF AN EMPLOYER FOR ACTS COMMITTED BY AN EMPLOYEE
IS APPLICABLE;
V.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION OF THE LOWER COURT THAT HEREIN
PETITIONER BANK IS JOINTLY AND SEVERALLY LIABLE WITH THE OTHER DEFENDANTS FOR THE AMOUNT OF
P200,000.00 REPRESENTING THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR MORAL DAMAGES, P50,000.00 FOR
EXEMPLARY DAMAGES, P40,000.00 FOR ATTORNEYS FEES AND THE COSTS OF SUIT.[11]
Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply thereto on September 25,
1995. The Court then required private respondent to submit a rejoinder to the reply. However, said rejoinder was filed only
on April 21, 1997, due to petitioners delay in furnishing private respondent with copy of the reply [12] and several
substitutions of counsel on the part of private respondent. [13] On January 17, 2001, the Court resolved to give due course
to the petition and required the parties to submit their respective memoranda. [14] Petitioner filed its memorandum on April
16, 2001 while private respondent submitted his memorandum on March 22, 2001.
Petitioner contends that the transaction between private respondent and Doronilla is a simple loan (mutuum) since all
the elements of a mutuum are present: first, what was delivered by private respondent to Doronilla was money, a
consumable thing; and second, the transaction was onerous as Doronilla was obliged to pay interest, as evidenced by the
check issued by Doronilla in the amount of P212,000.00, or P12,000 more than what private respondent deposited in
Sterelas bank account.[15] Moreover, the fact that private respondent sued his good friend Sanchez for his failure to
recover his money from Doronilla shows that the transaction was not merely gratuitous but had a business angle to
it. Hence, petitioner argues that it cannot be held liable for the return of private respondents P200,000.00 because it is not
privy to the transaction between the latter and Doronilla. [16]
It argues further that petitioners Assistant Manager, Mr. Rufo Atienza, could not be faulted for allowing Doronilla to
withdraw from the savings account of Sterela since the latter was the sole proprietor of said company. Petitioner asserts
that Doronillas May 8, 1979 letter addressed to the bank, authorizing Mrs. Vives and Sanchez to open a savings account
for Sterela, did not contain any authorization for these two to withdraw from said account. Hence, the authority to withdraw
therefrom remained exclusively with Doronilla, who was the sole proprietor of Sterela, and who alone had legal title to the
savings account.[17] Petitioner points out that no evidence other than the testimonies of private respondent and Mrs. Vives
was presented during trial to prove that private respondent deposited his P200,000.00 in Sterelas account for purposes of
its incorporation.[18] Hence, petitioner should not be held liable for allowing Doronilla to withdraw from Sterelas savings
account.
Petitioner also asserts that the Court of Appeals erred in affirming the trial courts decision since the findings of fact
therein were not accord with the evidence presented by petitioner during trial to prove that the transaction between private
respondent and Doronilla was a mutuum, and that it committed no wrong in allowing Doronilla to withdraw from Sterelas
savings account.[19]
Finally, petitioner claims that since there is no wrongful act or omission on its part, it is not liable for the actual
damages suffered by private respondent, and neither may it be held liable for moral and exemplary damages as well as
attorneys fees.[20]
Private respondent, on the other hand, argues that the transaction between him and Doronilla is not a mutuum but an
accommodation,[21] since he did not actually part with the ownership of his P200,000.00 and in fact asked his wife to

deposit said amount in the account of Sterela so that a certification can be issued to the effect that Sterela had sufficient
funds for purposes of its incorporation but at the same time, he retained some degree of control over his money through
his wife who was made a signatory to the savings account and in whose possession the savings account passbook was
given.[22]
He likewise asserts that the trial court did not err in finding that petitioner, Atienzas employer, is liable for the return of
his money. He insists that Atienza, petitioners assistant manager, connived with Doronilla in defrauding private respondent
since it was Atienza who facilitated the opening of Sterelas current account three days after Mrs. Vives and Sanchez
opened a savings account with petitioner for said company, as well as the approval of the authority to debit Sterelas
savings account to cover any overdrawings in its current account. [23]
There is no merit in the petition.
At the outset, it must be emphasized that only questions of law may be raised in a petition for review filed with this
Court. The Court has repeatedly held that it is not its function to analyze and weigh all over again the evidence presented
by the parties during trial.[24] The Courts jurisdiction is in principle limited to reviewing errors of law that might have been
committed by the Court of Appeals. [25] Moreover, factual findings of courts, when adopted and confirmed by the Court of
Appeals, are final and conclusive on this Court unless these findings are not supported by the evidence on record.
[26]
There is no showing of any misapprehension of facts on the part of the Court of Appeals in the case at bar that would
require this Court to review and overturn the factual findings of that court, especially since the conclusions of fact of the
Court of Appeals and the trial court are not only consistent but are also amply supported by the evidence on record.
No error was committed by the Court of Appeals when it ruled that the transaction between private respondent and
Doronilla was a commodatum and not a mutuum. A circumspect examination of the records reveals that the transaction
between them was a commodatum. Article 1933 of the Civil Code distinguishes between the two kinds of loans in this
wise:
By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for
a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon the
condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or
mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the borrower.
The foregoing provision seems to imply that if the subject of the contract is a consumable thing, such as money, the
contract would be a mutuum. However, there are some instances where a commodatum may have for its object a
consumable thing. Article 1936 of the Civil Code provides:
Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the object, as when it
is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of the parties is to lend
consumable goods and to have the very same goods returned at the end of the period agreed upon, the loan is
a commodatumand not a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial consideration in determining the
actual character of a contract. [27] In case of doubt, the contemporaneous and subsequent acts of the parties shall be
considered in such determination.[28]

As correctly pointed out by both the Court of Appeals and the trial court, the evidence shows that private respondent
agreed to deposit his money in the savings account of Sterela specifically for the purpose of making it appear that said
firm had sufficient capitalization for incorporation, with the promise that the amount shall be returned within thirty (30)
days.[29] Private respondent merely accommodated Doronilla by lending his money without consideration, as a favor to his
good friend Sanchez. It was however clear to the parties to the transaction that the money would not be removed from
Sterelas savings account and would be returned to private respondent after thirty (30) days.
Doronillas attempts to return to private respondent the amount of P200,000.00 which the latter deposited in Sterelas
account together with an additional P12,000.00, allegedly representing interest on the mutuum, did not convert the
transaction from a commodatum into a mutuum because such was not the intent of the parties and because the
additional P12,000.00 corresponds to the fruits of the lending of the P200,000.00. Article 1935 of the Civil Code expressly
states that [t]he bailee incommodatum acquires the use of the thing loaned but not its fruits. Hence, it was only proper for
Doronilla to remit to private respondent the interest accruing to the latters money deposited with petitioner.
Neither does the Court agree with petitioners contention that it is not solidarily liable for the return of private
respondents money because it was not privy to the transaction between Doronilla and private respondent. The nature of
said transaction, that is, whether it is a mutuum or a commodatum, has no bearing on the question of petitioners liability
for the return of private respondents money because the factual circumstances of the case clearly show that petitioner,
through its employee Mr. Atienza, was partly responsible for the loss of private respondents money and is liable for its
restitution.
Petitioners rules for savings deposits written on the passbook it issued Mrs. Vives on behalf of Sterela for Savings
Account No. 10-1567 expressly states that
2. Deposits and withdrawals must be made by the depositor personally or upon his written authority duly authenticated, and neither a
deposit nor a withdrawal will be permitted except upon the production of the depositor savings bank book in which will be
entered by the Bank the amount deposited or withdrawn.[30]
Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the Assistant Branch Manager for
the Buendia Branch of petitioner, to withdraw therefrom even without presenting the passbook (which Atienza very well
knew was in the possession of Mrs. Vives), not just once, but several times. Both the Court of Appeals and the trial court
found that Atienza allowed said withdrawals because he was party to Doronillas scheme of defrauding private respondent:
XXX
But the scheme could not have been executed successfully without the knowledge, help and cooperation of Rufo Atienza, assistant
manager and cashier of the Makati (Buendia) branch of the defendant bank. Indeed, the evidence indicates that Atienza had not only
facilitated the commission of the fraud but he likewise helped in devising the means by which it can be done in such manner as to
make it appear that the transaction was in accordance with banking procedure.
To begin with, the deposit was made in defendants Buendia branch precisely because Atienza was a key officer therein. The records
show that plaintiff had suggested that the P200,000.00 be deposited in his bank, the Manila Banking Corporation, but Doronilla and
Dumagpi insisted that it must be in defendants branch in Makati for it will be easier for them to get a certification. In fact before he
was introduced to plaintiff, Doronilla had already prepared a letter addressed to the Buendia branch manager authorizing Angeles B.
Sanchez and company to open a savings account for Sterela in the amount of P200,000.00, as per coordination with Mr. Rufo Atienza,
Assistant Manager of the Bank x x x (Exh. 1). This is a clear manifestation that the other defendants had been in consultation with
Atienza from the inception of the scheme.Significantly, there were testimonies and admission that Atienza is the brother-in-law of a
certain Romeo Mirasol, a friend and business associate of Doronilla.
Then there is the matter of the ownership of the fund. Because of the coordination between Doronilla and Atienza, the latter knew
before hand that the money deposited did not belong to Doronilla nor to Sterela. Aside from such foreknowledge, he was explicitly
told by Inocencia Vives that the money belonged to her and her husband and the deposit was merely to accommodate Doronilla.
Atienza even declared that the money came from Mrs. Vives.

Although the savings account was in the name of Sterela, the bank records disclose that the only ones empowered to withdraw the
same were Inocencia Vives and Angeles B. Sanchez. In the signature card pertaining to this account (Exh. J), the authorized
signatories were Inocencia Vives &/or Angeles B. Sanchez. Atienza stated that it is the usual banking procedure that withdrawals of
savings deposits could only be made by persons whose authorized signatures are in the signature cards on file with the bank. He,
however, said that this procedure was not followed here because Sterela was owned by Doronilla. He explained that Doronilla had the
full authority to withdraw by virtue of such ownership. The Court is not inclined to agree with Atienza. In the first place, he was all the
time aware that the money came from Vives and did not belong to Sterela. He was also told by Mrs. Vives that they were only
accommodating Doronilla so that a certification can be issued to the effect that Sterela had a deposit of so much amount to be sued in
the incorporation of the firm. In the second place, the signature of Doronilla was not authorized in so far as that account is concerned
inasmuch as he had not signed the signature card provided by the bank whenever a deposit is opened. In the third place, neither Mrs.
Vives nor Sanchez had given Doronilla the authority to withdraw.
Moreover, the transfer of fund was done without the passbook having been presented. It is an accepted practice that whenever a
withdrawal is made in a savings deposit, the bank requires the presentation of the passbook. In this case, such recognized practice was
dispensed with. The transfer from the savings account to the current account was without the submission of the passbook which
Atienza had given to Mrs. Vives. Instead, it was made to appear in a certification signed by Estrella Dumagpi that a duplicate
passbook was issued to Sterela because the original passbook had been surrendered to the Makati branch in view of a loan
accommodation assigning the savings account (Exh. C). Atienza, who undoubtedly had a hand in the execution of this certification,
was aware that the contents of the same are not true. He knew that the passbook was in the hands of Mrs. Vives for he was the one
who gave it to her. Besides, as assistant manager of the branch and the bank official servicing the savings and current accounts in
question, he also was aware that the original passbook was never surrendered. He was also cognizant that Estrella Dumagpi was not
among those authorized to withdraw so her certification had no effect whatsoever.
The circumstance surrounding the opening of the current account also demonstrate that Atienzas active participation in the
perpetration of the fraud and deception that caused the loss. The records indicate that this account was opened three days later after
the P200,000.00 was deposited. In spite of his disclaimer, the Court believes that Atienza was mindful and posted regarding the
opening of the current account considering that Doronilla was all the while in coordination with him. That it was he who facilitated the
approval of the authority to debit the savings account to cover any overdrawings in the current account (Exh. 2) is not hard to
comprehend.
Clearly Atienza had committed wrongful acts that had resulted to the loss subject of this case. x x x.[31]
Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for damages caused by
their employees acting within the scope of their assigned tasks. To hold the employer liable under this provision, it must be
shown that an employer-employee relationship exists, and that the employee was acting within the scope of his assigned
task when the act complained of was committed. [32] Case law in the United States of America has it that a corporation that
entrusts a general duty to its employee is responsible to the injured party for damages flowing from the employees
wrongful act done in the course of his general authority, even though in doing such act, the employee may have failed in
its duty to the employer and disobeyed the latters instructions. [33]
There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner did not deny that Atienza was
acting within the scope of his authority as Assistant Branch Manager when he assisted Doronilla in withdrawing funds
from Sterelas Savings Account No. 10-1567, in which account private respondents money was deposited, and in
transferring the money withdrawn to Sterelas Current Account with petitioner. Atienzas acts of helping Doronilla, a
customer of the petitioner, were obviously done in furtherance of petitioners interests [34] even though in the process,
Atienza violated some of petitioners rules such as those stipulated in its savings account passbook. [35] It was established
that the transfer of funds from Sterelas savings account to its current account could not have been accomplished by
Doronilla without the invaluable assistance of Atienza, and that it was their connivance which was the cause of private
respondents loss.
The foregoing shows that the Court of Appeals correctly held that under Article 2180 of the Civil Code, petitioner is
liable for private respondents loss and is solidarily liable with Doronilla and Dumagpi for the return of the P200,000.00
since it is clear that petitioner failed to prove that it exercised due diligence to prevent the unauthorized withdrawals from
Sterelas savings account, and that it was not negligent in the selection and supervision of Atienza. Accordingly, no error

was committed by the appellate court in the award of actual, moral and exemplary damages, attorneys fees and costs of
suit to private respondent.
WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the Court of Appeals are
AFFIRMED.
SO ORDERED.

[G.R. No. 146364. June 3, 2004]

COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE GUEVARRA, respondents.
DECISION
CARPIO, J.:

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

The Antecedents

In June 1979, petitioner Colito T. Pajuyo (Pajuyo) paid P400 to a certain Pedro Perez for the rights over a 250-square
meter lot in Barrio Payatas, Quezon City. Pajuyo then constructed a house made of light materials on the lot. Pajuyo and
his family lived in the house from 1979 to 7 December 1985.
On 8 December 1985, Pajuyo and private respondent Eddie Guevarra (Guevarra) executed a Kasunduan or
agreement. Pajuyo, as owner of the house, allowed Guevarra to live in the house for free provided Guevarra would
maintain the cleanliness and orderliness of the house. Guevarra promised that he would voluntarily vacate the premises
on Pajuyos demand.
In September 1994, Pajuyo informed Guevarra of his need of the house and demanded that Guevarra vacate the
house. Guevarra refused.
Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of Quezon City, Branch 31 (MTC).
In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession over the lot where the house
stands because the lot is within the 150 hectares set aside by Proclamation No. 137 for socialized housing. Guevarra
pointed out that from December 1985 to September 1994, Pajuyo did not show up or communicate with him. Guevarra
insisted that neither he nor Pajuyo has valid title to the lot.
On 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The dispositive portion of the MTC decision
reads:
WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and against defendant, ordering the latter to:
A) vacate the house and lot occupied by the defendant or any other person or persons claiming any right under
him;
B) pay unto plaintiff the sum of THREE HUNDRED PESOS (P300.00) monthly as reasonable compensation for
the use of the premises starting from the last demand;
C) pay plaintiff the sum of P3,000.00 as and by way of attorneys fees; and
D) pay the cost of suit.
SO ORDERED.[7]
Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch 81 (RTC).
On 11 November 1996, the RTC affirmed the MTC decision. The dispositive portion of the RTC decision reads:
WHEREFORE, premises considered, the Court finds no reversible error in the decision appealed from, being in accord with the law
and evidence presented, and the same is hereby affirmed en toto.
SO ORDERED.[8]
Guevarra received the RTC decision on 29 November 1996. Guevarra had only until 14 December 1996 to file his
appeal with the Court of Appeals. Instead of filing his appeal with the Court of Appeals, Guevarra filed with the Supreme
Court a Motion for Extension of Time to File Appeal by Certiorari Based on Rule 42 (motion for extension). Guevarra
theorized that his appeal raised pure questions of law. The Receiving Clerk of the Supreme Court received the motion for
extension on 13 December 1996 or one day before the right to appeal expired.
On 3 January 1997, Guevarra filed his petition for review with the Supreme Court.
On 8 January 1997, the First Division of the Supreme Court issued a Resolution [9] referring the motion for extension
to the Court of Appeals which has concurrent jurisdiction over the case. The case presented no special and important
matter for the Supreme Court to take cognizance of at the first instance.
On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a Resolution [10] granting the motion for
extension conditioned on the timeliness of the filing of the motion.
On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on Guevaras petition for review. On 11 April
1997, Pajuyo filed his Comment.
On 21 June 2000, the Court of Appeals issued its decision reversing the RTC decision. The dispositive portion of the
decision reads:

WHEREFORE, premises considered, the assailed Decision of the court a quo in Civil Case No. Q-96-26943 is REVERSED and SET
ASIDE; and it is hereby declared that the ejectment case filed against defendant-appellant is without factual and legal basis.
SO ORDERED.[11]
Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out that the Court of Appeals should have
dismissed outright Guevarras petition for review because it was filed out of time. Moreover, it was Guevarras counsel and
not Guevarra who signed the certification against forum-shopping.
On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyos motion for reconsideration. The
dispositive portion of the resolution reads:
WHEREFORE, for lack of merit, the motion for reconsideration is hereby DENIED. No costs.
SO ORDERED.[12]

The Ruling of the MTC

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

The Ruling of the RTC

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

The Ruling of the Court of Appeals

The Court of Appeals declared that Pajuyo and Guevarra are squatters. Pajuyo and Guevarra illegally occupied the
contested lot which the government owned.
Perez, the person from whom Pajuyo acquired his rights, was also a squatter. Perez had no right or title over the lot
because it is public land. The assignment of rights between Perez and Pajuyo, and the Kasunduan between Pajuyo and
Guevarra, did not have any legal effect. Pajuyo and Guevarra are in pari delicto or in equal fault. The court will leave them
where they are.
The Court of Appeals reversed the MTC and RTC rulings, which held that the Kasunduan between Pajuyo and
Guevarra created a legal tie akin to that of a landlord and tenant relationship. The Court of Appeals ruled that
the Kasunduan is not a lease contract but a commodatum because the agreement is not for a price certain.
Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the appellate court held that Guevarra
has a better right over the property under Proclamation No. 137. President Corazon C. Aquino (President Aquino) issued
Proclamation No. 137 on 7 September 1987. At that time, Guevarra was in physical possession of the property. Under
Article VI of the Code of Policies Beneficiary Selection and Disposition of Homelots and Structures in the National
Housing Project (the Code), the actual occupant or caretaker of the lot shall have first priority as beneficiary of the
project. The Court of Appeals concluded that Guevarra is first in the hierarchy of priority.
In denying Pajuyos motion for reconsideration, the appellate court debunked Pajuyos claim that Guevarra filed his
motion for extension beyond the period to appeal.

The Court of Appeals pointed out that Guevarras motion for extension filed before the Supreme Court was stamped
13 December 1996 at 4:09 PM by the Supreme Courts Receiving Clerk. The Court of Appeals concluded that the motion
for extension bore a date, contrary to Pajuyos claim that the motion for extension was undated. Guevarra filed the motion
for extension on time on 13 December 1996 since he filed the motion one day before the expiration of the reglementary
period on 14 December 1996. Thus, the motion for extension properly complied with the condition imposed by the Court
of Appeals in its 28 January 1997 Resolution. The Court of Appeals explained that the thirty-day extension to file the
petition for review was deemed granted because of such compliance.
The Court of Appeals rejected Pajuyos argument that the appellate court should have dismissed the petition for
review because it was Guevarras counsel and not Guevarra who signed the certification against forum-shopping. The
Court of Appeals pointed out that Pajuyo did not raise this issue in his Comment. The Court of Appeals held that Pajuyo
could not now seek the dismissal of the case after he had extensively argued on the merits of the case. This technicality,
the appellate court opined, was clearly an afterthought.

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

The Ruling of the Court

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

Procedural Issues
Pajuyo insists that the Court of Appeals should have dismissed outright Guevarras petition for review because the
RTC decision had already become final and executory when the appellate court acted on Guevarras motion for extension
to file the petition. Pajuyo points out that Guevarra had only one day before the expiry of his period to appeal the RTC
decision. Instead of filing the petition for review with the Court of Appeals, Guevarra filed with this Court an undated
motion for extension of 30 days to file a petition for review. This Court merely referred the motion to the Court of
Appeals. Pajuyo believes that the filing of the motion for extension with this Court did not toll the running of the period to
perfect the appeal. Hence, when the Court of Appeals received the motion, the period to appeal had already expired.
We are not persuaded.

Decisions of the regional trial courts in the exercise of their appellate jurisdiction are appealable to the Court of
Appeals by petition for review in cases involving questions of fact or mixed questions of fact and law. [14] Decisions of the
regional trial courts involving pure questions of law are appealable directly to this Court by petition for review. [15] These
modes of appeal are now embodied in Section 2, Rule 41 of the 1997 Rules of Civil Procedure.
Guevarra believed that his appeal of the RTC decision involved only questions of law. Guevarra thus filed his motion
for extension to file petition for review before this Court on 14 December 1996. On 3 January 1997, Guevarra then filed
his petition for review with this Court. A perusal of Guevarras petition for review gives the impression that the issues he
raised were pure questions of law. There is a question of law when the doubt or difference is on what the law is on a
certain state of facts.[16] There is a question of fact when the doubt or difference is on the truth or falsity of the facts
alleged.[17]
In his petition for review before this Court, Guevarra no longer disputed the facts. Guevarras petition for review raised
these questions: (1) Do ejectment cases pertain only to possession of a structure, and not the lot on which the structure
stands? (2) Does a suit by a squatter against a fellow squatter constitute a valid case for ejectment? (3) Should a
Presidential Proclamation governing the lot on which a squatters structure stands be considered in an ejectment suit filed
by the owner of the structure?
These questions call for the evaluation of the rights of the parties under the law on ejectment and the Presidential
Proclamation. At first glance, the questions Guevarra raised appeared purely legal. However, some factual questions still
have to be resolved because they have a bearing on the legal questions raised in the petition for review. These factual
matters refer to the metes and bounds of the disputed property and the application of Guevarra as beneficiary of
Proclamation No. 137.
The Court of Appeals has the power to grant an extension of time to file a petition for review. In Lacsamana v.
Second Special Cases Division of the Intermediate Appellate Court,[18] we declared that the Court of Appeals could
grant extension of time in appeals by petition for review. In Liboro v. Court of Appeals,[19] we clarified that the prohibition
against granting an extension of time applies only in a case where ordinary appeal is perfected by a mere notice of
appeal. The prohibition does not apply in a petition for review where the pleading needs verification. A petition for review,
unlike an ordinary appeal, requires preparation and research to present a persuasive position. [20] The drafting of the
petition for review entails more time and effort than filing a notice of appeal. [21] Hence, the Court of Appeals may allow an
extension of time to file a petition for review.
In the more recent case of Commissioner of Internal Revenue v. Court of Appeals,[22] we held that Liboros
clarification of Lacsamana is consistent with the Revised Internal Rules of the Court of Appeals and Supreme Court
Circular No. 1-91. They all allow an extension of time for filing petitions for review with the Court of Appeals. The
extension, however, should be limited to only fifteen days save in exceptionally meritorious cases where the Court of
Appeals may grant a longer period.
A judgment becomes final and executory by operation of law. Finality of judgment becomes a fact on the lapse of the
reglementary period to appeal if no appeal is perfected. [23] The RTC decision could not have gained finality because the
Court of Appeals granted the 30-day extension to Guevarra.
The Court of Appeals did not commit grave abuse of discretion when it approved Guevarras motion for extension.
The Court of Appeals gave due course to the motion for extension because it complied with the condition set by the
appellate court in its resolution dated 28 January 1997. The resolution stated that the Court of Appeals would only give
due course to the motion for extension if filed on time. The motion for extension met this condition.
The material dates to consider in determining the timeliness of the filing of the motion for extension are (1) the date of
receipt of the judgment or final order or resolution subject of the petition, and (2) the date of filing of the motion for
extension.[24]It is the date of the filing of the motion or pleading, and not the date of execution, that determines the
timeliness of the filing of that motion or pleading. Thus, even if the motion for extension bears no date, the date of filing
stamped on it is the reckoning point for determining the timeliness of its filing.
Guevarra had until 14 December 1996 to file an appeal from the RTC decision. Guevarra filed his motion for
extension before this Court on 13 December 1996, the date stamped by this Courts Receiving Clerk on the motion for
extension. Clearly, Guevarra filed the motion for extension exactly one day before the lapse of the reglementary period to
appeal.
Assuming that the Court of Appeals should have dismissed Guevarras appeal on technical grounds, Pajuyo did not
ask the appellate court to deny the motion for extension and dismiss the petition for review at the earliest
opportunity. Instead, Pajuyo vigorously discussed the merits of the case. It was only when the Court of Appeals ruled in
Guevarras favor that Pajuyo raised the procedural issues against Guevarras petition for review.
A party who, after voluntarily submitting a dispute for resolution, receives an adverse decision on the merits, is
estopped from attacking the jurisdiction of the court. [25] Estoppel sets in not because the judgment of the court is a valid

and conclusive adjudication, but because the practice of attacking the courts jurisdiction after voluntarily submitting to it is
against public policy.[26]
In his Comment before the Court of Appeals, Pajuyo also failed to discuss Guevarras failure to sign the certification
against forum shopping. Instead, Pajuyo harped on Guevarras counsel signing the verification, claiming that the counsels
verification is insufficient since it is based only on mere information.
A partys failure to sign the certification against forum shopping is different from the partys failure to sign personally
the verification. The certificate of non-forum shopping must be signed by the party, and not by counsel. [27] The certification
of counsel renders the petition defective.[28]
On the other hand, the requirement on verification of a pleading is a formal and not a jurisdictional requisite. [29] It is
intended simply to secure an assurance that what are alleged in the pleading are true and correct and not the product of
the imagination or a matter of speculation, and that the pleading is filed in good faith. [30] The party need not sign the
verification. A partys representative, lawyer or any person who personally knows the truth of the facts alleged in the
pleading may sign the verification.[31]
We agree with the Court of Appeals that the issue on the certificate against forum shopping was merely an
afterthought. Pajuyo did not call the Court of Appeals attention to this defect at the early stage of the proceedings. Pajuyo
raised this procedural issue too late in the proceedings.

Absence of Title over the Disputed Property will not Divest the Courts of Jurisdiction to Resolve the Issue of
Possession
Settled is the rule that the defendants claim of ownership of the disputed property will not divest the inferior court of
its jurisdiction over the ejectment case.[32] Even if the pleadings raise the issue of ownership, the court may pass on such
issue to determine only the question of possession, especially if the ownership is inseparably linked with the possession.
[33]
The adjudication on the issue of ownership is only provisional and will not bar an action between the same parties
involving title to the land. [34] This doctrine is a necessary consequence of the nature of the two summary actions of
ejectment, forcible entry and unlawful detainer, where the only issue for adjudication is the physical or material possession
over the real property.[35]
In this case, what Guevarra raised before the courts was that he and Pajuyo are not the owners of the contested
property and that they are mere squatters. Will the defense that the parties to the ejectment case are not the owners of
the disputed lot allow the courts to renounce their jurisdiction over the case? The Court of Appeals believed so and held
that it would just leave the parties where they are since they are in pari delicto.
We do not agree with the Court of Appeals.
Ownership or the right to possess arising from ownership is not at issue in an action for recovery of possession. The
parties cannot present evidence to prove ownership or right to legal possession except to prove the nature of the
possession when necessary to resolve the issue of physical possession. [36] The same is true when the defendant asserts
the absence of title over the property. The absence of title over the contested lot is not a ground for the courts to withhold
relief from the parties in an ejectment case.
The only question that the courts must resolve in ejectment proceedings is - who is entitled to the physical
possession of the premises, that is, to the possession de facto and not to the possession de jure.[37] It does not even
matter if a partys title to the property is questionable, [38] or when both parties intruded into public land and their
applications to own the land have yet to be approved by the proper government agency. [39] Regardless of the actual
condition of the title to the property, the party in peaceable quiet possession shall not be thrown out by a strong hand,
violence or terror.[40] Neither is the unlawful withholding of property allowed. Courts will always uphold respect for prior
possession.
Thus, a party who can prove prior possession can recover such possession even against the owner himself.
Whatever may be the character of his possession, if he has in his favor prior possession in time, he has the security
that entitles him to remain on the property until a person with a better right lawfully ejects him. [42] To repeat, the only issue
that the court has to settle in an ejectment suit is the right to physical possession.
[41]

In Pitargue v. Sorilla,[43] the government owned the land in dispute. The government did not authorize either the
plaintiff or the defendant in the case of forcible entry case to occupy the land. The plaintiff had prior possession and had
already introduced improvements on the public land. The plaintiff had a pending application for the land with the Bureau of
Lands when the defendant ousted him from possession. The plaintiff filed the action of forcible entry against the
defendant. The government was not a party in the case of forcible entry.

The defendant questioned the jurisdiction of the courts to settle the issue of possession because while the
application of the plaintiff was still pending, title remained with the government, and the Bureau of Public Lands had
jurisdiction over the case. We disagreed with the defendant. We ruled that courts have jurisdiction to entertain ejectment
suits even before the resolution of the application. The plaintiff, by priority of his application and of his entry, acquired prior
physical possession over the public land applied for as against other private claimants. That prior physical possession
enjoys legal protection against other private claimants because only a court can take away such physical possession in an
ejectment case.
While the Court did not brand the plaintiff and the defendant in Pitargue[44] as squatters, strictly speaking, their entry
into the disputed land was illegal. Both the plaintiff and defendant entered the public land without the owners
permission. Title to the land remained with the government because it had not awarded to anyone ownership of the
contested public land. Both the plaintiff and the defendant were in effect squatting on government property. Yet, we upheld
the courts jurisdiction to resolve the issue of possession even if the plaintiff and the defendant in the ejectment case did
not have any title over the contested land.
Courts must not abdicate their jurisdiction to resolve the issue of physical possession because of the public need to
preserve the basic policy behind the summary actions of forcible entry and unlawful detainer. The underlying philosophy
behind ejectment suits is to prevent breach of the peace and criminal disorder and to compel the party out of possession
to respect and resort to the law alone to obtain what he claims is his. [45] The party deprived of possession must not take
the law into his own hands.[46] Ejectment proceedings are summary in nature so the authorities can settle speedily actions
to recover possession because of the overriding need to quell social disturbances. [47]
We further explained in Pitargue the greater interest that is at stake in actions for recovery of possession. We made
the following pronouncements in Pitargue:
The question that is before this Court is: Are courts without jurisdiction to take cognizance of possessory actions involving these
public lands before final award is made by the Lands Department, and before title is given any of the conflicting claimants? It is one
of utmost importance, as there are public lands everywhere and there are thousands of settlers, especially in newly opened regions. It
also involves a matter of policy, as it requires the determination of the respective authorities and functions of two coordinate branches
of the Government in connection with public land conflicts.
Our problem is made simple by the fact that under the Civil Code, either in the old, which was in force in this country before the
American occupation, or in the new, we have a possessory action, the aim and purpose of which is the recovery of the physical
possession of real property, irrespective of the question as to who has the title thereto. Under the Spanish Civil Code we had the accion
interdictal, a summary proceeding which could be brought within one year from dispossession (Roman Catholic Bishop of Cebu vs.
Mangaron, 6 Phil. 286, 291); and as early as October 1, 1901, upon the enactment of the Code of Civil Procedure (Act No. 190 of the
Philippine Commission) we implanted the common law action of forcible entry (section 80 of Act No. 190), the object of which has
been stated by this Court to be to prevent breaches of the peace and criminal disorder which would ensue from the withdrawal of
the remedy, and the reasonable hope such withdrawal would create that some advantage must accrue to those persons who,
believing themselves entitled to the possession of property, resort to force to gain possession rather than to some appropriate action
in the court to assert their claims. (Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) So before the enactment of the first
Public Land Act (Act No. 926) the action of forcible entry was already available in the courts of the country. So the question to be
resolved is, Did the Legislature intend, when it vested the power and authority to alienate and dispose of the public lands in the Lands
Department, to exclude the courts from entertaining the possessory action of forcible entry between rival claimants or occupants of
any land before award thereof to any of the parties? Did Congress intend that the lands applied for, or all public lands for that matter,
be removed from the jurisdiction of the judicial Branch of the Government, so that any troubles arising therefrom, or any breaches of
the peace or disorders caused by rival claimants, could be inquired into only by the Lands Department to the exclusion of the courts?
The answer to this question seems to us evident. The Lands Department does not have the means to police public lands; neither does it
have the means to prevent disorders arising therefrom, or contain breaches of the peace among settlers; or to pass promptly upon
conflicts of possession. Then its power is clearly limited to disposition and alienation, and while it may decide conflicts of
possession in order to make proper award, the settlement of conflicts of possession which is recognized in the court herein has
another ultimate purpose, i.e., the protection of actual possessors and occupants with a view to the prevention of breaches of the
peace. The power to dispose and alienate could not have been intended to include the power to prevent or settle disorders or
breaches of the peace among rival settlers or claimants prior to the final award. As to this, therefore, the corresponding branches of
the Government must continue to exercise power and jurisdiction within the limits of their respective functions. The vesting of the
Lands Department with authority to administer, dispose, and alienate public lands, therefore, must not be understood as depriving
the other branches of the Government of the exercise of the respective functions or powers thereon, such as the authority to stop
disorders and quell breaches of the peace by the police, the authority on the part of the courts to take jurisdiction over possessory
actions arising therefrom not involving, directly or indirectly, alienation and disposition.
Our attention has been called to a principle enunciated in American courts to the effect that courts have no jurisdiction to determine
the rights of claimants to public lands, and that until the disposition of the land has passed from the control of the Federal
Government, the courts will not interfere with the administration of matters concerning the same. (50 C. J. 1093-1094.) We have no

quarrel with this principle. The determination of the respective rights of rival claimants to public lands is different from the
determination of who has the actual physical possession or occupation with a view to protecting the same and preventing disorder and
breaches of the peace. A judgment of the court ordering restitution of the possession of a parcel of land to the actual occupant, who has
been deprived thereof by another through the use of force or in any other illegal manner, can never be prejudicial interference with the
disposition or alienation of public lands. On the other hand, if courts were deprived of jurisdiction of cases involving conflicts of
possession, that threat of judicial action against breaches of the peace committed on public lands would be eliminated, and a state
of lawlessness would probably be produced between applicants, occupants or squatters, where force or might, not right or justice,
would rule.
It must be borne in mind that the action that would be used to solve conflicts of possession between rivals or conflicting applicants or
claimants would be no other than that of forcible entry. This action, both in England and the United States and in our jurisdiction, is a
summary and expeditious remedy whereby one in peaceful and quiet possession may recover the possession of which he has been
deprived by a stronger hand, by violence or terror; its ultimate object being to prevent breach of the peace and criminal disorder.
(Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) The basis of the remedy is mere possession as a fact, of physical
possession, not a legal possession. (Mediran vs. Villanueva, 37 Phil. 752.) The title or right to possession is never in issue in an action
of forcible entry; as a matter of fact, evidence thereof is expressly banned, except to prove the nature of the possession. (Second 4,
Rule 72, Rules of Court.) With this nature of the action in mind, by no stretch of the imagination can conclusion be arrived at that the
use of the remedy in the courts of justice would constitute an interference with the alienation, disposition, and control of public lands.
To limit ourselves to the case at bar can it be pretended at all that its result would in any way interfere with the manner of the
alienation or disposition of the land contested? On the contrary, it would facilitate adjudication, for the question of priority of
possession having been decided in a final manner by the courts, said question need no longer waste the time of the land officers
making the adjudication or award. (Emphasis ours)

The Principle of Pari Delicto is not Applicable to Ejectment Cases

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

into their own hands. However, the principle of pari delicto as applied by the Court of Appeals would give squatters free
rein to dispossess fellow squatters or violently retake possession of properties usurped from them. Courts should not
leave squatters to their own devices in cases involving recovery of possession.

Possession is the only Issue for Resolution in an Ejectment Case

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

The Court of Appeals determination of Pajuyo and Guevarras rights under Proclamation No. 137 was
premature. Pajuyo and Guevarra were at most merely potential beneficiaries of the law. Courts should not preempt the
decision of the administrative agency mandated by law to determine the qualifications of applicants for the acquisition of
public lands. Instead, courts should expeditiously resolve the issue of physical possession in ejectment cases to prevent
disorder and breaches of peace.[58]

Pajuyo is Entitled to Physical Possession of the Disputed Property

Guevarra does not dispute Pajuyos prior possession of the lot and ownership of the house built on it. Guevarra
expressly admitted the existence and due execution of the Kasunduan. The Kasunduan reads:
Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon City, ay nagbibigay pahintulot kay G. Eddie Guevarra,
na pansamantalang manirahan sa nasabing bahay at lote ng walang bayad. Kaugnay nito, kailangang panatilihin nila ang kalinisan at
kaayusan ng bahay at lote.
Sa sandaling kailangan na namin ang bahay at lote, silay kusang aalis ng walang reklamo.

Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and lot free of rent, but Guevarra was
under obligation to maintain the premises in good condition. Guevarra promised to vacate the premises on Pajuyos
demand but Guevarra broke his promise and refused to heed Pajuyos demand to vacate.
These facts make out a case for unlawful detainer. Unlawful detainer involves the withholding by a person from
another of the possession of real property to which the latter is entitled after the expiration or termination of the formers
right to hold possession under a contract, express or implied.[59]
Where the plaintiff allows the defendant to use his property by tolerance without any contract, the defendant is
necessarily bound by an implied promise that he will vacate on demand, failing which, an action for unlawful detainer will
lie.[60] The defendants refusal to comply with the demand makes his continued possession of the property unlawful. [61] The
status of the defendant in such a case is similar to that of a lessee or tenant whose term of lease has expired but whose
occupancy continues by tolerance of the owner.[62]
This principle should apply with greater force in cases where a contract embodies the permission or tolerance to use
the property. The Kasunduan expressly articulated Pajuyos forbearance. Pajuyo did not require Guevarra to pay any rent
but only to maintain the house and lot in good condition. Guevarra expressly vowed in the Kasunduan that he would
vacate the property on demand. Guevarras refusal to comply with Pajuyos demand to vacate made Guevarras continued
possession of the property unlawful.
We do not subscribe to the Court of Appeals theory that the Kasunduan is one of commodatum.
In a contract of commodatum, one of the parties delivers to another something not consumable so that the latter may
use the same for a certain time and return it. [63] An essential feature of commodatum is that it is gratuitous. Another feature
ofcommodatum is that the use of the thing belonging to another is for a certain period. [64] Thus, the bailor cannot demand
the return of the thing loaned until after expiration of the period stipulated, or after accomplishment of the use for which
thecommodatum is constituted.[65] If the bailor should have urgent need of the thing, he may demand its return for
temporary use.[66] If the use of the thing is merely tolerated by the bailor, he can demand the return of the thing at will, in
which case the contractual relation is called a precarium.[67] Under the Civil Code, precarium is a kind of commodatum.[68]
The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not essentially gratuitous.
While the Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the property in good condition. The
imposition of this obligation makes the Kasunduan a contract different from a commodatum. The effects of
the Kasunduan are also different from that of a commodatum. Case law on ejectment has treated relationship based on
tolerance as one that is akin to a landlord-tenant relationship where the withdrawal of permission would result in the
termination of the lease.[69] The tenants withholding of the property would then be unlawful. This is settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum, Guevarra as bailee
would still have the duty to turn over possession of the property to Pajuyo, the bailor. The obligation to deliver or to return
the thing received attaches to contracts for safekeeping, or contracts of commission, administration and commodatum.
[70]
These contracts certainly involve the obligation to deliver or return the thing received. [71]
Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also a squatter. Squatters,
Guevarra pointed out, cannot enter into a contract involving the land they illegally occupy. Guevarra insists that the
contract is void.
Guevarra should know that there must be honor even between squatters. Guevarra freely entered into
the Kasunduan. Guevarra cannot now impugn the Kasunduan after he had benefited from it. The Kasunduan binds
Guevarra.
The Kasunduan is not void for purposes of determining who between Pajuyo and Guevarra has a right to physical
possession of the contested property. The Kasunduan is the undeniable evidence of Guevarras recognition of Pajuyos
better right of physical possession. Guevarra is clearly a possessor in bad faith. The absence of a contract would not yield
a different result, as there would still be an implied promise to vacate.
Guevarra contends that there is a pernicious evil that is sought to be avoided, and that is allowing an absentee
squatter who (sic) makes (sic) a profit out of his illegal act. [72] Guevarra bases his argument on the preferential right given
to the actual occupant or caretaker under Proclamation No. 137 on socialized housing.
We are not convinced.
Pajuyo did not profit from his arrangement with Guevarra because Guevarra stayed in the property without paying
any rent. There is also no proof that Pajuyo is a professional squatter who rents out usurped properties to other
squatters.Moreover, it is for the proper government agency to decide who between Pajuyo and Guevarra qualifies for
socialized housing. The only issue that we are addressing is physical possession.

Prior possession is not always a condition sine qua non in ejectment.[73] This is one of the distinctions between
forcible entry and unlawful detainer.[74] In forcible entry, the plaintiff is deprived of physical possession of his land or
building by means of force, intimidation, threat, strategy or stealth. Thus, he must allege and prove prior possession.
[75]
But in unlawful detainer, the defendant unlawfully withholds possession after the expiration or termination of his right to
possess under any contract, express or implied. In such a case, prior physical possession is not required. [76]
Pajuyos withdrawal of his permission to Guevarra terminated the Kasunduan. Guevarras transient right to possess
the property ended as well. Moreover, it was Pajuyo who was in actual possession of the property because Guevarra had
to seek Pajuyos permission to temporarily hold the property and Guevarra had to follow the conditions set by Pajuyo in
the Kasunduan. Control over the property still rested with Pajuyo and this is evidence of actual possession.
Pajuyos absence did not affect his actual possession of the disputed property. Possession in the eyes of the law
does not mean that a man has to have his feet on every square meter of the ground before he is deemed in possession.
[77]
One may acquire possession not only by physical occupation, but also by the fact that a thing is subject to the action of
ones will.[78] Actual or physical occupation is not always necessary.[79]

Ruling on Possession Does not Bind Title to the Land in Dispute

We are aware of our pronouncement in cases where we declared that squatters and intruders who clandestinely
enter into titled government property cannot, by such act, acquire any legal right to said property. [80] We made this
declaration because the person who had title or who had the right to legal possession over the disputed property was a
party in the ejectment suit and that party instituted the case against squatters or usurpers.
In this case, the owner of the land, which is the government, is not a party to the ejectment case. This case is
between squatters. Had the government participated in this case, the courts could have evicted the contending squatters,
Pajuyo and Guevarra.
Since the party that has title or a better right over the property is not impleaded in this case, we cannot evict on our
own the parties. Such a ruling would discourage squatters from seeking the aid of the courts in settling the issue of
physical possession. Stripping both the plaintiff and the defendant of possession just because they are squatters would
have the same dangerous implications as the application of the principle of pari delicto. Squatters would then rather settle
the issue of physical possession among themselves than seek relief from the courts if the plaintiff and defendant in the
ejectment case would both stand to lose possession of the disputed property. This would subvert the policy underlying
actions for recovery of possession.
Since Pajuyo has in his favor priority in time in holding the property, he is entitled to remain on the property until a
person who has title or a better right lawfully ejects him. Guevarra is certainly not that person. The ruling in this case,
however, does not preclude Pajuyo and Guevarra from introducing evidence and presenting arguments before the proper
administrative agency to establish any right to which they may be entitled under the law. [81]
In no way should our ruling in this case be interpreted to condone squatting. The ruling on the issue of physical
possession does not affect title to the property nor constitute a binding and conclusive adjudication on the merits on the
issue of ownership.[82] The owner can still go to court to recover lawfully the property from the person who holds the
property without legal title. Our ruling here does not diminish the power of government agencies, including local
governments, to condemn, abate, remove or demolish illegal or unauthorized structures in accordance with existing laws.

Attorneys Fees and Rentals

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

the Metropolitan Trial Court of Quezon City, Branch 31 in Civil Case No. 12432, is REINSTATED with MODIFICATION.
The award of attorneys fees is deleted. No costs.
SO ORDERED.

G.R. No. L-17474

October 25, 1962

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
JOSE V. BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V. Bagtas, petitioner-appellant.
D. T. Reyes, Liaison and Associates for petitioner-appellant.
Office of the Solicitor General for plaintiff-appellee.
PADILLA, J.:
The Court of Appeals certified this case to this Court because only questions of law are raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of Animal Industry three
bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of
one year from 8 May 1948 to 7 May 1949 for breeding purposes subject to a government charge of breeding fee of 10%
of the book value of the bulls. Upon the expiration on 7 May 1949 of the contract, the borrower asked for a renewal for
another period of one year. However, the Secretary of Agriculture and Natural Resources approved a renewal thereof of
only one bull for another year from 8 May 1949 to 7 May 1950 and requested the return of the other two. On 25 March
1950 Jose V. Bagtas wrote to the Director of Animal Industry that he would pay the value of the three bulls. On 17 October
1950 he reiterated his desire to buy them at a value with a deduction of yearly depreciation to be approved by the Auditor
General. On 19 October 1950 the Director of Animal Industry advised him that the book value of the three bulls could not
be reduced and that they either be returned or their book value paid not later than 31 October 1950. Jose V. Bagtas failed
to pay the book value of the three bulls or to return them. So, on 20 December 1950 in the Court of First Instance of
Manila the Republic of the Philippines commenced an action against him praying that he be ordered to return the three
bulls loaned to him or to pay their book value in the total sum of P3,241.45 and the unpaid breeding fee in the sum of
P199.62, both with interests, and costs; and that other just and equitable relief be granted in (civil No. 12818).
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that because of the bad peace
and order situation in Cagayan Valley, particularly in the barrio of Baggao, and of the pending appeal he had taken to the
Secretary of Agriculture and Natural Resources and the President of the Philippines from the refusal by the Director of
Animal Industry to deduct from the book value of the bulls corresponding yearly depreciation of 8% from the date of

acquisition, to which depreciation the Auditor General did not object, he could not return the animals nor pay their value
and prayed for the dismissal of the complaint.
After hearing, on 30 July 1956 the trial court render judgment
. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value of the three bulls plus the
breeding fees in the amount of P626.17 with interest on both sums of (at) the legal rate from the filing of this
complaint and costs.
On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court granted on 18 October and issued
on 11 November 1958. On 2 December 1958 granted an ex-parte motion filed by the plaintiff on November 1958 for the
appointment of a special sheriff to serve the writ outside Manila. Of this order appointing a special sheriff, on 6 December
1958, Felicidad M. Bagtas, the surviving spouse of the defendant Jose Bagtas who died on 23 October 1951 and as
administratrix of his estate, was notified. On 7 January 1959 she file a motion alleging that on 26 June 1952 the two bull
Sindhi and Bhagnari were returned to the Bureau Animal of Industry and that sometime in November 1958 the third bull,
the Sahiniwal, died from gunshot wound inflicted during a Huk raid on Hacienda Felicidad Intal, and praying that the writ of
execution be quashed and that a writ of preliminary injunction be issued. On 31 January 1959 the plaintiff objected to her
motion. On 6 February 1959 she filed a reply thereto. On the same day, 6 February, the Court denied her motion. Hence,
this appeal certified by the Court of Appeals to this Court as stated at the beginning of this opinion.
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late defendant, returned the Sindhi and
Bhagnari bulls to Roman Remorin, Superintendent of the NVB Station, Bureau of Animal Industry, Bayombong, Nueva
Vizcaya, as evidenced by a memorandum receipt signed by the latter (Exhibit 2). That is why in its objection of 31 January
1959 to the appellant's motion to quash the writ of execution the appellee prays "that another writ of execution in the sum
of P859.53 be issued against the estate of defendant deceased Jose V. Bagtas." She cannot be held liable for the two
bulls which already had been returned to and received by the appellee.
The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huk in November 1953 upon
the surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan, where the animal was kept, and that as such death
was due to force majeure she is relieved from the duty of returning the bull or paying its value to the appellee. The
contention is without merit. The loan by the appellee to the late defendant Jose V. Bagtas of the three bulls for breeding
purposes for a period of one year from 8 May 1948 to 7 May 1949, later on renewed for another year as regards one bull,
was subject to the payment by the borrower of breeding fee of 10% of the book value of the bulls. The appellant contends
that the contract was commodatum and that, for that reason, as the appellee retained ownership or title to the bull it
should suffer its loss due to force majeure. A contract ofcommodatum is essentially gratuitous.1 If the breeding fee be
considered a compensation, then the contract would be a lease of the bull. Under article 1671 of the Civil Code the lessee
would be subject to the responsibilities of a possessor in bad faith, because she had continued possession of the bull after
the expiry of the contract. And even if the contract be commodatum, still the appellant is liable, because article 1942 of the
Civil Code provides that a bailee in a contract of commodatum
. . . is liable for loss of the things, even if it should be through a fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the
bailee from responsibility in case of a fortuitous event;
The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was renewed for another period
of one year to end on 8 May 1950. But the appellant kept and used the bull until November 1953 when during a Huk raid it
was killed by stray bullets. Furthermore, when lent and delivered to the deceased husband of the appellant the bulls had
each an appraised book value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46.
It was not stipulated that in case of loss of the bull due to fortuitous event the late husband of the appellant would be
exempt from liability.

The appellant's contention that the demand or prayer by the appellee for the return of the bull or the payment of its value
being a money claim should be presented or filed in the intestate proceedings of the defendant who died on 23 October
1951, is not altogether without merit. However, the claim that his civil personality having ceased to exist the trial court lost
jurisdiction over the case against him, is untenable, because section 17 of Rule 3 of the Rules of Court provides that
After a party dies and the claim is not thereby extinguished, the court shall order, upon proper notice, the legal
representative of the deceased to appear and to be substituted for the deceased, within a period of thirty (30)
days, or within such time as may be granted. . . .
and after the defendant's death on 23 October 1951 his counsel failed to comply with section 16 of Rule 3 which provides
that
Whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform the court promptly of
such death . . . and to give the name and residence of the executory administrator, guardian, or other legal
representative of the deceased . . . .
The notice by the probate court and its publication in the Voz de Manila that Felicidad M. Bagtas had been issue letters of
administration of the estate of the late Jose Bagtas and that "all persons having claims for monopoly against the deceased
Jose V. Bagtas, arising from contract express or implied, whether the same be due, not due, or contingent, for funeral
expenses and expenses of the last sickness of the said decedent, and judgment for monopoly against him, to file said
claims with the Clerk of this Court at the City Hall Bldg., Highway 54, Quezon City, within six (6) months from the date of
the first publication of this order, serving a copy thereof upon the aforementioned Felicidad M. Bagtas, the appointed
administratrix of the estate of the said deceased," is not a notice to the court and the appellee who were to be notified of
the defendant's death in accordance with the above-quoted rule, and there was no reason for such failure to notify,
because the attorney who appeared for the defendant was the same who represented the administratrix in the special
proceedings instituted for the administration and settlement of his estate. The appellee or its attorney or representative
could not be expected to know of the death of the defendant or of the administration proceedings of his estate instituted in
another court that if the attorney for the deceased defendant did not notify the plaintiff or its attorney of such death as
required by the rule.
As the appellant already had returned the two bulls to the appellee, the estate of the late defendant is only liable for the
sum of P859.63, the value of the bull which has not been returned to the appellee, because it was killed while in the
custody of the administratrix of his estate. This is the amount prayed for by the appellee in its objection on 31 January
1959 to the motion filed on 7 January 1959 by the appellant for the quashing of the writ of execution.
Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas having been
instituted in the Court of First Instance of Rizal (Q-200), the money judgment rendered in favor of the appellee cannot be
enforced by means of a writ of execution but must be presented to the probate court for payment by the appellant, the
administratrix appointed by the court.
ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to costs.

G.R. No. L-46240

November 3, 1939

MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-appellants,

vs.
BECK, defendant-appellee.
Mauricio Carlos for appellants.
Felipe Buencamino, Jr. for appellee.

IMPERIAL, J.:
The plaintiff brought this action to compel the defendant to return her certain furniture which she lent him for his use. She
appealed from the judgment of the Court of First Instance of Manila which ordered that the defendant return to her the
three has heaters and the four electric lamps found in the possession of the Sheriff of said city, that she call for the other
furniture from the said sheriff of Manila at her own expense, and that the fees which the Sheriff may charge for the deposit
of the furniture be paid pro rata by both parties, without pronouncement as to the costs.
The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del Pilar street, No. 1175. On
January 14, 1936, upon the novation of the contract of lease between the plaintiff and the defendant, the former
gratuitously granted to the latter the use of the furniture described in the third paragraph of the stipulation of facts, subject
to the condition that the defendant would return them to the plaintiff upon the latter's demand. The plaintiff sold the
property to Maria Lopez and Rosario Lopez and on September 14, 1936, these three notified the defendant of the
conveyance, giving him sixty days to vacate the premises under one of the clauses of the contract of lease. There after
the plaintiff required the defendant to return all the furniture transferred to him for them in the house where they were
found. On
November 5, 1936, the defendant, through another person, wrote to the plaintiff reiterating that she may
call for the furniture in the ground floor of the house. On the 7th of the same month, the defendant wrote another letter to
the plaintiff informing her that he could not give up the three gas heaters and the four electric lamps because he would
use them until the 15th of the same month when the lease in due to expire. The plaintiff refused to get the furniture in view
of the fact that the defendant had declined to make delivery of all of them. On
November 15th, before vacating the
house, the defendant deposited with the Sheriff all the furniture belonging to the plaintiff and they are now on deposit in
the warehouse situated at No. 1521, Rizal Avenue, in the custody of the said sheriff.
In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied the law: in holding that they
violated the contract by not calling for all the furniture on November 5, 1936, when the defendant placed them at their
disposal; in not ordering the defendant to pay them the value of the furniture in case they are not delivered; in holding that
they should get all the furniture from the Sheriff at their expenses; in ordering them to pay-half of the expenses claimed by
the Sheriff for the deposit of the furniture; in ruling that both parties should pay their respective legal expenses or the
costs; and in denying pay their respective legal expenses or the costs; and in denying the motions for reconsideration and
new trial. To dispose of the case, it is only necessary to decide whether the defendant complied with his obligation to
return the furniture upon the plaintiff's demand; whether the latter is bound to bear the deposit fees thereof, and whether
she is entitled to the costs of litigation.lawphi1.net
The contract entered into between the parties is one of commadatum, because under it the plaintiff gratuitously granted
the use of the furniture to the defendant, reserving for herself the ownership thereof; by this contract the defendant bound
himself to return the furniture to the plaintiff, upon the latters demand (clause 7 of the contract, Exhibit A; articles 1740,
paragraph 1, and 1741 of the Civil Code). The obligation voluntarily assumed by the defendant to return the furniture upon

the plaintiff's demand, means that he should return all of them to the plaintiff at the latter's residence or house. The
defendant did not comply with this obligation when he merely placed them at the disposal of the plaintiff, retaining for his
benefit the three gas heaters and the four eletric lamps. The provisions of article 1169 of the Civil Code cited by counsel
for the parties are not squarely applicable. The trial court, therefore, erred when it came to the legal conclusion that the
plaintiff failed to comply with her obligation to get the furniture when they were offered to her.
As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the latter's demand, the Court
could not legally compel her to bear the expenses occasioned by the deposit of the furniture at the defendant's behest.
The latter, as bailee, was not entitled to place the furniture on deposit; nor was the plaintiff under a duty to accept the offer
to return the furniture, because the defendant wanted to retain the three gas heaters and the four electric lamps.
As to the value of the furniture, we do not believe that the plaintiff is entitled to the payment thereof by the defendant in
case of his inability to return some of the furniture because under paragraph 6 of the stipulation of facts, the defendant
has neither agreed to nor admitted the correctness of the said value. Should the defendant fail to deliver some of the
furniture, the value thereof should be latter determined by the trial Court through evidence which the parties may desire to
present.
The costs in both instances should be borne by the defendant because the plaintiff is the prevailing party (section 487 of
the Code of Civil Procedure). The defendant was the one who breached the contract of commodatum, and without any
reason he refused to return and deliver all the furniture upon the plaintiff's demand. In these circumstances, it is just and
equitable that he pay the legal expenses and other judicial costs which the plaintiff would not have otherwise defrayed.
The appealed judgment is modified and the defendant is ordered to return and deliver to the plaintiff, in the residence to
return and deliver to the plaintiff, in the residence or house of the latter, all the furniture described in paragraph 3 of the
stipulation of facts Exhibit A. The expenses which may be occasioned by the delivery to and deposit of the furniture with
the Sheriff shall be for the account of the defendant. the defendant shall pay the costs in both instances. So ordered.

[G.R. No. 184698, January 21, 2013]

SPOUSES ALBERTO AND SUSAN CASTRO, Petitioners, v. AMPARO PALENZUELA, FOR HERSELF
AND AS AUTHORIZED REPRESENTATIVE OF VIRGINIA ABELLO, GERARDO ANTONIO ABELLO,
ALBERTO DEL ROSARIO, INGEBORG REGINA DEL ROSARIO, HANS DEL ROSARIO, MARGARET
DEL ROSARIO ISLETA, ENRIQUE PALENZUELA AND CARLOS MIGUEL PALENZUELA, Respondents.
DECISION
DEL CASTILLO, J.:
A demand letter presented in evidence by a lessee to prove a lesser liability for unpaid rentals than that
awarded by the trial court constitutes an admission of liability to the extent of such lesser amount.

This Petition for Review on Certiorari1 assails the January 29, 2008 Decision2 of the Court of Appeals (CA)
which dismissed the appeal in CA-G.R. CV No. 86925, and its September 15, 2008 Resolution3 denying
petitioners Motion for Reconsideration.
Factual Antecedents
Respondents Amparo Palenzuela, Virginia Abello, Gerardo Antonio Abello, Alberto Del Rosario, Ingeborg
Regina Del Rosario, Hans Del Rosario, Margaret Del Rosario Isleta, Enrique Palenzuela and Carlos Miguel
Palenzuela own several fishponds in Bulacan, Bulacan totaling 72 hectares.4 In March 1994, respondents,
through their duly appointed attorney-in-fact and co-respondent Amparo Palenzuela, leased out these
fishponds to petitioners, spouses Alberto and Susan Castro. The lease was to be for five years, or from
March 1, 1994 up to June 30, 1999.5 The Contract of Lease6 of the parties provided for the following
salient provisions:
1. For the entire duration of the lease, the Castro spouses shall pay a total consideration of
P14,126,600.00,7 via postdated checks8 and according to the following schedule:
a. Upon signing of the lease agreement, petitioners shall pay P842,300.00 for the lease period March
1, 1994 to June 30, 1994;9
b. On or before June 1, 1994, petitioners shall pay P2,520,000.00 for the one-year lease period July
1, 1994 to June 30, 1995;10
c. On or before June 1, 1995, petitioners shall pay P2,520,000.00 for the one-year lease period July
1, 1995 to June 30, 1996;11
d. On or before June 1, 1996, petitioners shall pay P2,520,000.00 for the one-year lease period July
1, 1996 to June 30, 1997;12
e. On or before June 1, 1997, petitioners shall pay P2,796,000.00 for the one-year lease period July
1, 1997 to June 30, 1998;13 and
f.

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

2. Petitioners committed to pay respondents the amount of P500,000.00 in five yearly installments from
June 1, 1994. The amount represents arrears of the previous lessee, which petitioners agreed to
assume;15
3. Petitioners shall exercise extraordinary care and diligence in the maintenance of the leased premises,
with the obligation to maintain in good order, repair and condition, among others, two warehouses found
thereon;16
4. Necessary repairs,17 licenses, permits, and other fees18 necessary and incidental to the operation of the
fishpond shall be for petitioners account;
5. Petitioners shall not sublease the premises to third parties;19 and,
6. Should respondents be constrained to file suit against petitioners on account of the lease, the latter
agrees to pay liquidated damages in the amount of P1,000,000.00, 25% as attorneys fees, and costs of
the suit.20
The lease expired on June 30, 1999, but petitioners did not vacate and continued to occupy and operate
the fishponds until August 11, 1999, or an additional 41 days beyond the contract expiration date.
Previously, or on July 22, 1999, respondents sent a letter21 to petitioners declaring the latter as

trespassers and demanding the settlement of the latters outstanding obligations, including rent for
petitioners continued stay within the premises, in the amount of P378,451.00, broken down as follows:
Unpaid balance as of May 31, 1999 for the fifth year of
the lease
Accrued interest from May 31, 1999 to July 31, 1999 at
16%
Trespassing fee for the whole month of July 1999

P111,082.00
23,344.00
244,025.0022
P378,451.00

Total owed to the Lessors

Petitioners are in actual receipt of this letter.23
On June 8, 2000,24 respondents instituted Civil Case No. Q-00-41011 for collection of a sum of money with
damages in the Regional Trial Court (RTC) of Quezon City, Branch 215, claiming that petitioners committed
violations of their lease agreement non-payment of rents as stipulated, subletting the fishponds, failure
to maintain the warehouses, and refusal to vacate the premises on expiration of the lease which caused
respondents to incur actual and liquidated damages and other expenses in the respective amounts of
P570,101.0025 for unpaid rent, P275,430.0026 for unpaid additional rent for petitioners one-month
extended stay beyond the contract date, and P2,000,000.0027 for expenses incurred in restoring and
repairing their damaged warehouses. In addition, respondents prayed to be awarded moral and
exemplary damages, attorneys fees, and costs of litigation.28
For failure to file their Answer, petitioners were declared in default,29 and on August 16, 2000, during the
presentation of evidence for the plaintiffs, respondent Amparo Palenzuela testified, detailing petitioners
several violations of the lease contract; petitioners failure to maintain the warehouses in good condition;
their unauthorized subleasing of the premises to one Cynthia Reyes; their failure to pay the license fees,
permits and other fees; their extended stay for 41 days, or until August 11, 1999 despite expiration of the
lease on June 30, 1999; and petitioners unpaid rents in the aggregate amount of P863,796.00, interest
included.30
During said proceedings, respondents presented in evidence a statement of account 31 detailing petitioners
outstanding obligations as of July 31, 1999.
In a subsequent Order,32 the trial court, on petitioners motion, lifted its previous Order of default, and the
latter were given the opportunity to cross-examine respondents witnesses which they failed to do.
Moreover, they also failed to attend subsequent scheduled hearings. The trial court thus declared the
forfeiture, on waiver, of petitioners rights to cross-examine and present their evidence, and considered
the case submitted for decision based solely on respondents evidence.33 However, on petitioners
motion,34the trial court again reconsidered, and scheduled the presentation of their evidence on October 5,
2001.35
However, petitioners moved to reset the October 5, 2001 hearing. 36 After several postponements, the trial
was reset to April 11, 2002.37 On said date, the testimony of the first witness for the defense, petitioner
Alberto Castro, was taken and completed. Cross-examination was scheduled on May 30, 2002,38 but was
rescheduled to be taken on August 21, 2002.39
On August 21, 2002, petitioners once more failed to appear; the trial court, in an Order 40 of even date,
decreed that petitioner Alberto Castros testimony be stricken off the record and declared the case
submitted for decision. Petitioners moved for reconsideration;41 respondents opposed,42 noting that for
more than two years and in spite of several opportunities afforded them, petitioners have been unable to
participate in the proceedings and present their evidence. The trial court did not reconsider.43
Petitioners took issue in the CA via Petition for Certiorari,44 but the appellate court, in a February 18, 2004
Decision,45 sustained the trial court and declared that no grave abuse of discretion was committed when it
ordered the striking out of petitioner Alberto Castros testimony and the termination of trial.
Petitioners next filed a Motion to Inhibit46 claiming that they could not obtain justice and a fair trial from

the presiding judge. In her April 21, 2003 Order,47 Judge Ma. Luisa Quijano-Padilla voluntarily inhibited
herself from trying the case. She stressed, however, that she was doing so only in order that the probity
and objectivity of the court could be maintained, but not because petitioners grounds for seeking
inhibition are meritorious.
The case was then re-raffled to Branch 85 of the Quezon City RTC, which required the parties to submit
memoranda.48 While respondents submitted theirs, petitioners did not.
Ruling of the Regional Trial Court
On January 31, 2005, the trial court issued its Decision,49 decreeing as follows:
WHEREFORE, judgment is hereby rendered ordering the defendants, jointly and severally, to pay plaintiffs
the following:
1. Eight Hundred Sixty-three Thousand Seven Hundred Ninety Six Pesos (P863,796.00), by way of
actual or compensatory damages;
2. Fifty Thousand Pesos (P50,000.00), by way of moral damages;
3. Fifty Thousand Pesos (P50,000.00), by way of exemplary damages;
4. The amount equivalent to twenty-five (25%) percent of the total amount recoverable herein by
plaintiffs, by way of attorneys fees; and
5. Costs of suit.
SO ORDERED.50
The trial court held that petitioners violated the terms of the lease: 51 petitioners failed to pay rent on
time,52 the warehouses were shown to be in damaged condition,53 and they overstayed beyond the
contract period.54 However, respondents failed to prove the actual amount of their pecuniary losses in
regard to the damaged warehouses, which entitles them merely to nominal damages. 55 As to moral
damages, the trial court held that because petitioners acted in gross and wanton disregard of their
contractual obligations, respondents are entitled to such damages, as well as attorneys fees as stipulated
at 25% of the total amount recoverable.56
With respect to petitioners, the trial court said that although they claim to have paid all their obligations in
full, no evidence to such effect has been presented,57 for the precise reason that they failed to participate
in the proceedings on their own account.
Both parties moved for reconsideration. Respondents prayed that petitioners be made additionally liable
for liquidated damages and P2,000,000.00 as compensation for the restoration of the damaged
warehouses.58
Petitioners, in their Verified Motion for Reconsideration,59 argued that the evidence is not sufficient to
warrant a finding of liability on their part, and the award is excessive. They claimed that they should not
be made to pay additional rent for their unauthorized stay beyond the lease expiration date, or from July 1
to August 11, 1999, because the lease agreement did not provide for such. Likewise, they claimed that,
as represented by respondents themselves in their July 22, 1999 demand letter,60 which they annexed to
their Verified Motion for Reconsideration and was presented to the court for the first time, petitioners
outstanding obligation, including back rentals, interest, and the supposed one-month additional rent, was
pegged at a mere P378,451.00; thus, the judgment award of P863,796.00 is excessive and illegal.
Petitioners added that there is no factual basis for the award of moral and exemplary damages. Thus, they
prayed that the Decision be reconsidered and that the Complaint be dismissed.
In a January 30, 2006 Omnibus Order,61 the trial court declined to reconsider. Only petitioners went up to
the CA on appeal.

Ruling of the Court of Appeals

In the CA, petitioners maintained that the Decision is erroneous and the awards excessive, echoing their
previous argument below that the lease agreement did not authorize respondents to charge additional
rents for their extended stay and interest on delayed rental payments. They added that respondents are
not entitled to moral and exemplary damages and attorneys fees. Finally, they bemoaned the trial courts
act of resolving their Verified Motion for Reconsideration of the Decision without conducting oral
arguments.
The CA, however, was unconvinced. It held that the preponderance of evidence,62 which remained
uncontroverted by petitioners, points to the fact that petitioners indeed failed to pay rent in full,
considering that their postdated checks bounced upon presentment,63 and their unauthorized extended
stay from July 1 until August 11, 1999.64 It added that petitioners were undeniably guilty of violating
several provisions of the lease agreement, as it has also been shown that they failed to pay rent on time
and illegally subleased the property to one Cynthia Reyes, who even made direct payments of rentals to
respondents on several occasions.65
On petitioners argument that respondents are not entitled to additional rent for petitioners extended stay
beyond the lease expiration date, the CA held that the respondents are in fact authorized to collect
whatever damages they may have incurred by reason of the lease,66 citing Section 16 of the lease
agreement which provides as follows:
SECTION 16. TERMINATION OR CANCELLATION OF THE LEASE. Any delay in or violation, failure or
refusal of the LESSEE to perform and comply with any of the obligations stipulated hereunder shall
automatically give an absolute right to the LESSORS to cancel, terminate or otherwise rescind this
Contract of Lease. x x x.
xxxx
The above provisions shall, however, be without prejudice to any right of claim by the LESSORS
against the LESSEE for whatever damages which may be incurred or assessed under this
Contract of Lease.67 (Emphasis supplied)
The CA found no error in the award of moral and exemplary damages, noting that petitioners violations of
the lease agreement compelled respondents to litigate and endure unreasonable delays, sleepless nights,
mental anguish, and serious anxiety.68 As for attorneys fees, the CA sustained the trial courts award of
25%, saying that such stipulation may be justified under Article 2208 of the Civil Code.69 Since
respondents were compelled to incur expenses to protect their interests as a result of petitioners acts and
omissions, they should be allowed to collect the stipulated attorneys fees. 70
Finally, the CA held that the matter of conducting further oral arguments on a partys Motion for
Reconsideration rests upon the sound discretion of the court. Because petitioners Verified Motion for
Reconsideration is a mere reiteration of their defenses which they raised all throughout the proceedings
below, conducting a hearing on the motion would have been a mere superfluity.71
The CA thus dismissed the petitioners appeal and sustained in toto the January 31, 2005 decision of the
trial court.72 Their Motion for Reconsideration73 was denied as well, through the questioned September 15,
2008 Resolution.74
Issues
The instant Petition thus raises the following issues:
A
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT CALLING THE TRIAL COURT TO TASK
FOR REFUSING TO RECEIVE EVIDENCE IN SUPPORT OF THE VERIFIED MOTION FOR RECONSIDERATION
OF PETITIONERS ON THE GROUND THAT THE AWARD OF DAMAGES IS EXCESSIVE.

B
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT DISCERNING THE INTERNAL FACTUAL
INCONSISTENCIES OF THE FINDINGS OF THE TRIAL COURT AS WELL AS THE LACK OF LEGAL BASIS
THEREOF, VIS--VIS THE CLAIM OF UNPAID RENT AND INTEREST, IN CLEAR DISREGARD OF THE
PRONOUNCEMENTS OF THIS HONORABLE COURT IN MARTIN V. COURT OF APPEALS.
C
THERE IS SIMILARLY NO BASIS FOR THE AWARD OF MORAL AND EXEMPLARY DAMAGES, AND THE
HONORABLE COURT OF APPEALS WAS IN GRIEVOUS ERROR IN SUSTAINING THE TRIAL COURT IN CLEAR
DISREGARD OF THIS HONORABLE COURTS PRONOUNCEMENTS INABS-CBN BROADCASTING
CORPORATION V. COURT OF APPEALS.75
Petitioners Arguments
Petitioners pray for the setting aside of the questioned Decision and Resolution of the CA, as well as the
dismissal of respondents Complaint, claiming that they have in fact settled all their obligations to
respondents.
Petitioners first claim that they should have been given the opportunity to present evidence during
proceedings covering their Verified Motion for Reconsideration of the trial courts Decision, invoking Section
1, Rule 37 of the Rules of Court76 which allows them to question the trial courts Decision on the ground
that the damages awarded are excessive or that the evidence is insufficient to justify the Decision. 77
Petitioners direct the Courts attention to respondents July 22, 1999 demand letter 78 indicating that their
outstanding obligation was only P378,451.00, which thus renders excessive the award of P863,796.00.
Petitioners next insist that the lease agreement did not authorize respondents to charge additional rents
for their July 1 to August 11, 1999 extended stay,79 which thus renders without legal or factual basis and
excessive the award of P863,796.00.80 If at all, the basis for computation thereof should be the
immediately preceding monthly rental of P244,025.00.81 Nor is the imposition of interest allowed under
the agreement. Petitioners concede that in the absence of stipulation as to interest, respondents are
entitled only to 6% annual interest as indemnity for damages,82 pursuant to Article 2209 of the Civil
Code.83
On the issue of petitioners contract violations, it is claimed that petitioners are not guilty of subleasing the
property to one Cynthia Reyes (Reyes). They argue that although Reyes paid a portion of the rentals, this
may not be taken as sufficient proof of the existence of a sublease agreement between them; and even
assuming that a sublease agreement indeed existed between them, such arrangement was condoned by
respondents when they accepted payments of rents made directly to them by Reyes. 84
Regarding damages and attorneys fees, petitioners maintain that there could not have been delay in the
payment of rentals as to warrant the award of moral damages, since they have paid the rents in full; their
supposed liability was only for the additional rent incurred for their extended stay. Petitioners proceed to
argue that if only respondents had exercised their option allowed under the lease agreement to
forcibly evict petitioners from the premises, then they would not have incurred the damages they claim to
be entitled to. As for the award of exemplary damages and attorneys fees, petitioners find no factual and
legal bases for the grant thereof. Since they did not act with malice or bad faith in all matters relative to
the lease, respondents should not be entitled thereto.85
Respondents Arguments
In their Comment,86 respondents insist that petitioners committed several violations of the lease
agreement,87 specifically: for their failure to pay the rents on time,88 for subleasing the property to
Reyes,89 for neglecting to maintain the warehouses which resulted in their damaged condition after the
lease,90 for refusing to vacate the premises upon the expiration of the lease,91 and for their neglect and
refusal to pay the required fishpond license and permit fees imposed by the municipality of Bulacan. 92
Respondents add that for these violations, they incurred actual damages and suffered moral damages,

which further entitles them to exemplary damages and attorneys fees as stipulated in the lease
agreement.93
Respondents insist that far from being excessive, the trial courts award is instead insufficient, considering
the damages suffered as a result of the petitioners neglect to maintain the premises, specifically the
warehouses, as agreed.
Respondents maintain that in the event of expiration of the lease period and the lessee maintains himself
within the premises, the law authorizes the collection of rentals on a month-to-month or year-to-year
basis,94 citing Articles 1670 and 1687 of the Civil Code.95 Thus, even if the lease agreement with
petitioners failed to provide for a stipulation covering lease extension, the obligation to pay rent is not
extinguished by the expiration of the lease on June 30, 1999.96
Respondents further claim that interest should be paid at 12% per annum, and not merely 6%, on the
outstanding obligation.97
Our Ruling
While this Court is not a trier of facts, it appears that both the trial court and the CA have misappreciated
the facts and the evidence; rectification is thus in order, if justice is to be properly served.
But first, on the procedural issue raised, the Court cannot subscribe to petitioners argument that they had
a right to a hearing on their motion for reconsideration. The trial court may not be faulted for denying
what it could have perceived was another of petitioners delaying tactics, given how they acted throughout
the proceedings. It may have been a baffling situation for the trial court to find itself suddenly confronted
with petitioners zeal in presenting their case, at such a late stage, when they have repeatedly waived
such right during the trial of the case. Indeed, it possessed sufficient discretion to grant or deny the
hearing sought for their motion for reconsideration; under the circumstances, the Court finds that such
discretion was exercised soundly. Besides, as will be seen, the evidence is ample and clear enough to
warrant judgment outside of a hearing.
Both courts erred in finding that there are outstanding rents owing to the respondents in the amount of
P863,796.00. Attention must be called to respondents July 22, 1999 demand letter.98 The letter, which
appears to have been handwritten and signed by Amparo Palenzuela herself, makes a demand upon
petitioners to pay the total amount of P378,451.00 which respondents claim constitutes what is owing to
them as of July 31, 1999 by way of unpaid rentals (P111,082.00); additional rent for the whole duration of
petitioners stay on the premises beyond the contract date, or for the whole of July 1999 (P244,025.00);
and interest from May 31, 1999 up to July 31, 1999 (P23,344.00). This letter belies the claim that
petitioners owed respondents a greater amount by way of unpaid rents. Even though it is not newlydiscovered evidence, it is material; indeed, petitioners could not have presented it during trial because
they were declared in default.
Of this amount P378,451.00 petitioners admit to paying nothing. Thus, for petitioners, this is their
admitted liability.
The Court notes further that respondents do not even dispute petitioners argument that the amount of
P863,796.00 actually represented rentals being claimed for their one-month extended stay on the
premises, which to them is excessive. This argument of the petitioners finds support in the direct
testimony of respondents witness, Amparo Palenzuela, thus
Q
A
Q
A

x x x Madam Witness, you mentioned x x x that the defendants have outstanding obligation to
you. Can you tell the Court how much is the outstanding obligation to you of the defendants
with respect to their occupation of your fishponds?
Up to July 31, 2000,99 Mr. Castros obligation is P863,796.00.
Can you briefly explain to the Court how you came about this figure?
Actually this is what he owes for back lease that he has not paid including interest. This one is
supposedly for overstaying of one month. We did not charge him 41 days, we are only charging
him one month and that is the total.100

Q
A

With respect to this P863,796.00 this is the total as of July?

July 31.

Q
A

2000?101
Thats right.

Q
A

And this pertains to unpaid rent and interest thereof?

Thats right.

Q
A

The stipulated interest thereof?

Thats right.

Q
A

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

Q
A

And the unpaid municipal fees are also not included in this?
Not included but they have been paid.102 (Emphasis supplied)

Indeed, respondents do not deny that this amount of P863,796.00 is what they are actually charging
petitioners for one months extended use of their fishponds. If this is so, then it is truly excessive,
considering that for the immediately preceding month the whole of June 1999 it costs only
P244,025.00103 for the petitioners to rent the same property. The trial court may have been impelled to
accept respondents own computation104 of what they believed was due from petitioners on account of the
fact that at that time, petitioners were declared in default and could not cross-examine the respondents
witness. But the fact remains that the July 22, 1999 demand letter105 clearly sets forth in detail what
appears to be the true, accurate and reasonable amount of petitioners outstanding obligation. If this
document were a forgery, respondents would have vehemently objected to its presentation at the very
first opportunity. Yet they did not. Such document could thus be considered and given weight. [T]he
omission x x x to rebut that which would have naturally invited an immediate, pervasive and stiff
opposition x x x create[s] an adverse inference that either the controverting [evidence] x x x presented x
x x will only prejudice its case, or that the uncontroverted evidence indeed speaks of the truth.106
As for petitioners submission that respondents were not authorized to charge additional rent for their
extended stay, this issue should be deemed settled by their very reliance on the July 22, 1999 demand
letter,107 where a charge for additional rent for their extended stay in the amount of P244,025.00 is
included. By adopting the letter as their own evidence in seeking a reduction in the award of unpaid rent,
petitioners are considered to have admitted liability for additional rent as stated therein, in the amount of
P244,025.00. Petitioners may not simultaneously accept and reject the demand letter; this would go
against the rules of fair play. Besides, respondents are correct in saying that when the lease expired on
June 30, 1999 and petitioners continued enjoying the premises without objection from the respondents,
an implied new lease was created pursuant to Article 1670 of the Civil Code, which placed upon petitioners
the obligation to pay additional rent.
On the matter of interest, the proper rate is not 6% as petitioners argue, but 12% per annum, collected
from the time of extrajudicial demand on July 22, 1999. Back rentals in this case are equivalent to a loan
or forbearance of money.108
On the issue of moral and exemplary damages, the Court finds no reason to disturb the trial and appellate
courts award in this regard. Petitioners have not been exactly above-board in dealing with respondents.
They have been found guilty of several violations of the agreement, and not just one. They incurred delay
in their payments, and their check payments bounced, for one; for another, they subleased the premises
to Reyes, in blatant disregard of the express prohibition in the lease agreement; thirdly, they refused to
honor their obligation, as stipulated under the lease agreement, to pay the fishpond license and other
permit fees and; finally, they refused to vacate the premises after the expiration of the lease.
Even though respondents received payments directly from the sublessee Reyes, this could not erase the
fact that petitioners are guilty of subleasing the fishponds to her. Respondents may have been compelled
to accept payment from Reyes only because petitioners have been remiss in honoring their obligation to

pay rent.
Bad faith means breach of a known duty through some motive or interest or ill will.109 By refusing to
honor their solemn obligations under the lease, and instead unduly profiting from these violations,
petitioners are guilty of bad faith. Moral damages may be awarded when the breach of contract is
attended with bad faith.110 Exemplary damages may [also] be awarded when a wrongful act is
accompanied by bad faith or when the defendant acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner x x x. [And] since the award of exemplary damages is proper in this case, attorneys
fees and costs of the suit may also be recovered,111 as stipulated in the lease agreement.
WHEREFORE, premises considered, the Petition is DENIED. The January 29, 2008 Decision of the Court
of Appeals in CA-G.R. CV No. 86925 which affirmed in toto the January 31, 2005 Decision of the Regional
Trial Court of Quezon City, Branch 85 in Civil Case No. Q-00-41011 is AFFIRMED with
theMODIFICATION that the actual and compensatory damages are reduced to P378,451.00, the same to
earn legal interest at the rate of twelve percent (12%) per annum from July 22, 1999 until fully paid.
SO ORDERED.

[G.R. No. 138569. September 11, 2003]

THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs. COURT OF APPEALS and L.C. DIAZ and
COMPANY, CPAs, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review of the Decision [1] of the Court of Appeals dated 27 October 1998 and its Resolution
dated 11 May 1999. The assailed decision reversed the Decision [2] of the Regional Trial Court of Manila, Branch 8,
absolving petitioner Consolidated Bank and Trust Corporation, now known as Solidbank Corporation (Solidbank), of any
liability. The questioned resolution of the appellate court denied the motion for reconsideration of Solidbank but modified
the decision by deleting the award of exemplary damages, attorneys fees, expenses of litigation and cost of suit.
The Facts
Solidbank is a domestic banking corporation organized and existing under Philippine laws. Private respondent L.C.
Diaz and Company, CPAs (L.C. Diaz), is a professional partnership engaged in the practice of accounting.

Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank, designated as Savings Account No.
S/A 200-16872-6.
On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya (Macaraya), filled up a savings (cash) deposit
slip for P990 and a savings (checks) deposit slip for P50. Macaraya instructed the messenger of L.C. Diaz, Ismael
Calapre (Calapre), to deposit the money with Solidbank. Macaraya also gave Calapre the Solidbank passbook.
Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the passbook. The teller
acknowledged receipt of the deposit by returning to Calapre the duplicate copies of the two deposit slips. Teller No. 6
stamped the deposit slips with the words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE. Since the
transaction took time and Calapre had to make another deposit for L.C. Diaz with Allied Bank, he left the passbook with
Solidbank. Calapre then went to Allied Bank. When Calapre returned to Solidbank to retrieve the passbook, Teller No. 6
informed him that somebody got the passbook.[3] Calapre went back to L.C. Diaz and reported the incident to Macaraya.
Macaraya immediately prepared a deposit slip in duplicate copies with a check of P200,000. Macaraya, together with
Calapre, went to Solidbank and presented to Teller No. 6 the deposit slip and check. The teller stamped the words
DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE on the duplicate copy of the deposit slip. When
Macaraya asked for the passbook, Teller No. 6 told Macaraya that someone got the passbook but she could not
remember to whom she gave the passbook. When Macaraya asked Teller No. 6 if Calapre got the passbook, Teller No. 6
answered that someone shorter than Calapre got the passbook. Calapre was then standing beside Macaraya.
Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the deposit of a check for P90,000 drawn on
Philippine Banking Corporation (PBC). This PBC check of L.C. Diaz was a check that it had long closed. [4] PBC
subsequently dishonored the check because of insufficient funds and because the signature in the check differed from
PBCs specimen signature. Failing to get back the passbook, Macaraya went back to her office and reported the matter to
the Personnel Manager of L.C. Diaz, Emmanuel Alvarez.
The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer, Luis C. Diaz (Diaz), called up
Solidbank to stop any transaction using the same passbook until L.C. Diaz could open a new account. [5] On the same day,
Diaz formally wrote Solidbank to make the same request. It was also on the same day that L.C. Diaz learned of the
unauthorized withdrawal the day before, 14 August 1991, of P300,000 from its savings account. The withdrawal slip for
the P300,000 bore the signatures of the authorized signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo. The
signatories, however, denied signing the withdrawal slip. A certain Noel Tamayo received the P300,000.
In an Information[6] dated 5 September 1991, L.C. Diaz charged its messenger, Emerano Ilagan (Ilagan) and one
Roscon Verdazola with Estafa through Falsification of Commercial Document. The Regional Trial Court of Manila
dismissed the criminal case after the City Prosecutor filed a Motion to Dismiss on 4 August 1992.
On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the return of its money. Solidbank
refused.
On 25 August 1992, L.C. Diaz filed a Complaint [7] for Recovery of a Sum of Money against Solidbank with the
Regional Trial Court of Manila, Branch 8. After trial, the trial court rendered on 28 December 1994 a decision absolving
Solidbank and dismissing the complaint.
L.C. Diaz then appealed[8] to the Court of Appeals. On 27 October 1998, the Court of Appeals issued its Decision
reversing the decision of the trial court.
On 11 May 1999, the Court of Appeals issued its Resolution denying the motion for reconsideration of Solidbank. The
appellate court, however, modified its decision by deleting the award of exemplary damages and attorneys fees.
The Ruling of the Trial Court

In absolving Solidbank, the trial court applied the rules on savings account written on the passbook. The rules state
that possession of this book shall raise the presumption of ownership and any payment or payments made by the bank
upon the production of the said book and entry therein of the withdrawal shall have the same effect as if made to the
depositor personally.[9]
At the time of the withdrawal, a certain Noel Tamayo was not only in possession of the passbook, he also presented
a withdrawal slip with the signatures of the authorized signatories of L.C. Diaz. The specimen signatures of these persons
were in the signature cards. The teller stamped the withdrawal slip with the words Saving Teller No. 5. The teller then
passed on the withdrawal slip to Genere Manuel (Manuel) for authentication. Manuel verified the signatures on the
withdrawal slip. The withdrawal slip was then given to another officer who compared the signatures on the withdrawal slip
with the specimen on the signature cards. The trial court concluded that Solidbank acted with care and observed the rules
on savings account when it allowed the withdrawal of P300,000 from the savings account of L.C. Diaz.
The trial court pointed out that the burden of proof now shifted to L.C. Diaz to prove that the signatures on the
withdrawal slip were forged. The trial court admonished L.C. Diaz for not offering in evidence the National Bureau of
Investigation (NBI) report on the authenticity of the signatures on the withdrawal slip for P300,000. The trial court believed
that L.C. Diaz did not offer this evidence because it is derogatory to its action.
Another provision of the rules on savings account states that the depositor must keep the passbook under lock and
key.[10] When another person presents the passbook for withdrawal prior to Solidbanks receipt of the notice of loss of the
passbook, that person is considered as the owner of the passbook. The trial court ruled that the passbook presented
during the questioned transaction was now out of the lock and key and presumptively ready for a business transaction. [11]
Solidbank did not have any participation in the custody and care of the passbook. The trial court believed that
Solidbanks act of allowing the withdrawal of P300,000 was not the direct and proximate cause of the loss. The trial court
held that L.C. Diazs negligence caused the unauthorized withdrawal. Three facts establish L.C. Diazs negligence: (1) the
possession of the passbook by a person other than the depositor L.C. Diaz; (2) the presentation of a signed withdrawal
receipt by an unauthorized person; and (3) the possession by an unauthorized person of a PBC check long closed by L.C.
Diaz, which check was deposited on the day of the fraudulent withdrawal.
The trial court debunked L.C. Diazs contention that Solidbank did not follow the precautionary procedures observed
by the two parties whenever L.C. Diaz withdrew significant amounts from its account. L.C. Diaz claimed that a letter must
accompany withdrawals of more than P20,000. The letter must request Solidbank to allow the withdrawal and convert the
amount to a managers check. The bearer must also have a letter authorizing him to withdraw the same amount. Another
person driving a car must accompany the bearer so that he would not walk from Solidbank to the office in making the
withdrawal. The trial court pointed out that L.C. Diaz disregarded these precautions in its past withdrawal. On 16 July
1991, L.C. Diaz withdrew P82,554 without any separate letter of authorization or any communication with Solidbank that
the money be converted into a managers check.
The trial court further justified the dismissal of the complaint by holding that the case was a last ditch effort of L.C.
Diaz to recover P300,000 after the dismissal of the criminal case against Ilagan.
The dispositive portion of the decision of the trial court reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the complaint.
The Court further renders judgment in favor of defendant bank pursuant to its counterclaim the amount of Thirty Thousand Pesos
(P30,000.00) as attorneys fees.
With costs against plaintiff.
SO ORDERED.[12]

The Ruling of the Court of Appeals

The Court of Appeals ruled that Solidbanks negligence was the proximate cause of the unauthorized withdrawal
of P300,000 from the savings account of L.C. Diaz. The appellate court reached this conclusion after applying the
provision of the Civil Code on quasi-delict, to wit:
Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage
done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is
governed by the provisions of this chapter.
The appellate court held that the three elements of a quasi-delict are present in this case, namely: (a) damages suffered
by the plaintiff; (b) fault or negligence of the defendant, or some other person for whose acts he must respond; and (c) the
connection of cause and effect between the fault or negligence of the defendant and the damage incurred by the plaintiff.
The Court of Appeals pointed out that the teller of Solidbank who received the withdrawal slip for P300,000 allowed
the withdrawal without making the necessary inquiry. The appellate court stated that the teller, who was not presented by
Solidbank during trial, should have called up the depositor because the money to be withdrawn was a significant
amount. Had the teller called up L.C. Diaz, Solidbank would have known that the withdrawal was unauthorized. The teller
did not even verify the identity of the impostor who made the withdrawal. Thus, the appellate court found Solidbank liable
for its negligence in the selection and supervision of its employees.
The appellate court ruled that while L.C. Diaz was also negligent in entrusting its deposits to its messenger and its
messenger in leaving the passbook with the teller, Solidbank could not escape liability because of the doctrine of last clear
chance. Solidbank could have averted the injury suffered by L.C. Diaz had it called up L.C. Diaz to verify the withdrawal.
The appellate court ruled that the degree of diligence required from Solidbank is more than that of a good father of a
family. The business and functions of banks are affected with public interest. Banks are obligated to treat the accounts of
their depositors with meticulous care, always having in mind the fiduciary nature of their relationship with their clients. The
Court of Appeals found Solidbank remiss in its duty, violating its fiduciary relationship with L.C. Diaz.
The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, premises considered, the decision appealed from is hereby REVERSED and a new one entered.
1. Ordering defendant-appellee Consolidated Bank and Trust Corporation to pay plaintiff-appellant the sum of Three
Hundred Thousand Pesos (P300,000.00), with interest thereon at the rate of 12% per annum from the date of filing
of the complaint until paid, the sum ofP20,000.00 as exemplary damages, and P20,000.00 as attorneys fees and
expenses of litigation as well as the cost of suit; and
2. Ordering the dismissal of defendant-appellees counterclaim in the amount of P30,000.00 as attorneys fees.
SO ORDERED.[13]
Acting on the motion for reconsideration of Solidbank, the appellate court affirmed its decision but modified the award of
damages. The appellate court deleted the award of exemplary damages and attorneys fees. Invoking Article 2231 [14] of the
Civil Code, the appellate court ruled that exemplary damages could be granted if the defendant acted with gross
negligence. Since Solidbank was guilty of simple negligence only, the award of exemplary damages was not justified.
Consequently, the award of attorneys fees was also disallowed pursuant to Article 2208 of the Civil Code. The expenses
of litigation and cost of suit were also not imposed on Solidbank.
The dispositive portion of the Resolution reads as follows:

WHEREFORE, foregoing considered, our decision dated October 27, 1998 is affirmed with modification by deleting the award of
exemplary damages and attorneys fees, expenses of litigation and cost of suit.
SO ORDERED.[15]
Hence, this petition.
The Issues
Solidbank seeks the review of the decision and resolution of the Court of Appeals on these grounds:
I. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK SHOULD SUFFER THE LOSS
BECAUSE ITS TELLER SHOULD HAVE FIRST CALLED PRIVATE RESPONDENT BY TELEPHONE
BEFORE IT ALLOWED THE WITHDRAWAL OF P300,000.00 TO RESPONDENTS MESSENGER EMERANO
ILAGAN, SINCE THERE IS NO AGREEMENT BETWEEN THE PARTIES IN THE OPERATION OF THE
SAVINGS ACCOUNT, NOR IS THERE ANY BANKING LAW, WHICH MANDATES THAT A BANK TELLER
SHOULD FIRST CALL UP THE DEPOSITOR BEFORE ALLOWING A WITHDRAWAL OF A BIG AMOUNT
IN A SAVINGS ACCOUNT.
II. THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF LAST CLEAR CHANCE AND IN
HOLDING THAT PETITIONER BANKS TELLER HAD THE LAST OPPORTUNITY TO WITHHOLD THE
WITHDRAWAL WHEN IT IS UNDISPUTED THAT THE TWO SIGNATURES OF RESPONDENT ON THE
WITHDRAWAL SLIP ARE GENUINE AND PRIVATE RESPONDENTS PASSBOOK WAS DULY PRESENTED,
AND CONTRARIWISE RESPONDENT WAS NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS
MESSENGER EMERANO ILAGAN, AND IN THE SAFEKEEPING OF ITS CHECKS AND OTHER
FINANCIAL DOCUMENTS.
III. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE INSTANT CASE IS A LAST DITCH EFFORT
OF PRIVATE RESPONDENT TO RECOVER ITS P300,000.00 AFTER FAILING IN ITS EFFORTS TO
RECOVER THE SAME FROM ITS EMPLOYEE EMERANO ILAGAN.
IV. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE DAMAGES AWARDED AGAINST PETITIONER
UNDER ARTICLE 2197 OF THE CIVIL CODE, NOTWITHSTANDING ITS FINDING THAT PETITIONER
BANKS NEGLIGENCE WAS ONLY CONTRIBUTORY.[16]
The Ruling of the Court
The petition is partly meritorious.
Solidbanks Fiduciary Duty under the Law
The rulings of the trial court and the Court of Appeals conflict on the application of the law. The trial court pinned the
liability on L.C. Diaz based on the provisions of the rules on savings account, a recognition of the contractual relationship
between Solidbank and L.C. Diaz, the latter being a depositor of the former. On the other hand, the Court of Appeals
applied the law on quasi-delict to determine who between the two parties was ultimately negligent. The law on quasi-delict
or culpa aquiliana is generally applicable when there is no pre-existing contractual relationship between the parties.
We hold that Solidbank is liable for breach of contract due to negligence, or culpa contractual.
The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan.
Article 1980 of the Civil Code expressly provides that x x x savings x x x deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan. There is a debtor-creditor relationship between
the bank and its depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the bank money
[17]

and the bank agrees to pay the depositor on demand. The savings deposit agreement between the bank and the
depositor is the contract that determines the rights and obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of Republic Act No.
8791 (RA 8791),[18] which took effect on 13 June 2000, declares that the State recognizes the fiduciary nature of banking
that requires high standards of integrity and performance. [19] This new provision in the general banking law, introduced in
2000, is a statutory affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v. Court
of Appeals,[20] holding that the bank is under obligation to treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship. [21]
This fiduciary relationship means that the banks obligation to observe high standards of integrity and performance is
deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires
banks to assume a degree of diligence higher than that of a good father of a family. Article 1172 of the Civil Code states
that the degree of diligence required of an obligor is that prescribed by law or contract, and absent such stipulation then
the diligence of a good father of a family.[22] Section 2 of RA 8791 prescribes the statutory diligence required from banks
that banks must observe high standards of integrity and performance in servicing their depositors. Although RA 8791 took
effect almost nine years after the unauthorized withdrawal of the P300,000 from L.C. Diazs savings account,
jurisprudence[23] at the time of the withdrawal already imposed on banks the same high standard of diligence required
under RA No. 8791.
However, the fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and its
depositors from a simple loan to a trust agreement, whether express or implied. Failure by the bank to pay the depositor is
failure to pay a simple loan, and not a breach of trust. [24] The law simply imposes on the bank a higher standard of
integrity and performance in complying with its obligations under the contract of simple loan, beyond those required of
non-bank debtors under a similar contract of simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do not accept
deposits to enrich depositors but to earn money for themselves. The law allows banks to offer the lowest possible interest
rate to depositors while charging the highest possible interest rate on their own borrowers. The interest spread or
differential belongs to the bank and not to the depositors who are not cestui que trust of banks. If depositors are cestui
que trust of banks, then the interest spread or income belongs to the depositors, a situation that Congress certainly did
not intend in enacting Section 2 of RA 8791.
Solidbanks Breach of its Contractual Obligation
Article 1172 of the Civil Code provides that responsibility arising from negligence in the performance of every kind of
obligation is demandable. For breach of the savings deposit agreement due to negligence, or culpa contractual, the bank
is liable to its depositor.
Calapre left the passbook with Solidbank because the transaction took time and he had to go to Allied Bank for
another transaction. The passbook was still in the hands of the employees of Solidbank for the processing of the deposit
when Calapre left Solidbank. Solidbanks rules on savings account require that the deposit book should be carefully
guarded by the depositor and kept under lock and key, if possible. When the passbook is in the possession of Solidbanks
tellers during withdrawals, the law imposes on Solidbank and its tellers an even higher degree of diligence in safeguarding
the passbook.
Likewise, Solidbanks tellers must exercise a high degree of diligence in insuring that they return the passbook only to
the depositor or his authorized representative. The tellers know, or should know, that the rules on savings account provide
that any person in possession of the passbook is presumptively its owner. If the tellers give the passbook to the wrong
person, they would be clothing that person presumptive ownership of the passbook, facilitating unauthorized withdrawals
by that person. For failing to return the passbook to Calapre, the authorized representative of L.C. Diaz, Solidbank and
Teller No. 6 presumptively failed to observe such high degree of diligence in safeguarding the passbook, and in insuring
its return to the party authorized to receive the same.

In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption that the defendant was at
fault or negligent. The burden is on the defendant to prove that he was not at fault or negligent. In contrast, in culpa
aquiliana the plaintiff has the burden of proving that the defendant was negligent. In the present case, L.C. Diaz has
established that Solidbank breached its contractual obligation to return the passbook only to the authorized representative
of L.C. Diaz. There is thus a presumption that Solidbank was at fault and its teller was negligent in not returning the
passbook to Calapre. The burden was on Solidbank to prove that there was no negligence on its part or its employees.
Solidbank failed to discharge its burden. Solidbank did not present to the trial court Teller No. 6, the teller with whom
Calapre left the passbook and who was supposed to return the passbook to him. The record does not indicate that Teller
No. 6 verified the identity of the person who retrieved the passbook. Solidbank also failed to adduce in evidence its
standard procedure in verifying the identity of the person retrieving the passbook, if there is such a procedure, and that
Teller No. 6 implemented this procedure in the present case.
Solidbank is bound by the negligence of its employees under the principle of respondeat superior or command
responsibility. The defense of exercising the required diligence in the selection and supervision of employees is not a
complete defense in culpa contractual, unlike in culpa aquiliana.[25]
The bank must not only exercise high standards of integrity and performance, it must also insure that its employees
do likewise because this is the only way to insure that the bank will comply with its fiduciary duty. Solidbank failed to
present the teller who had the duty to return to Calapre the passbook, and thus failed to prove that this teller exercised the
high standards of integrity and performance required of Solidbanks employees.
Proximate Cause of the Unauthorized Withdrawal
Another point of disagreement between the trial and appellate courts is the proximate cause of the unauthorized
withdrawal. The trial court believed that L.C. Diazs negligence in not securing its passbook under lock and key was the
proximate cause that allowed the impostor to withdraw the P300,000. For the appellate court, the proximate cause was
the tellers negligence in processing the withdrawal without first verifying with L.C. Diaz. We do not agree with either court.
Proximate cause is that cause which, in natural and continuous sequence, unbroken by any efficient intervening
cause, produces the injury and without which the result would not have occurred. [26] Proximate cause is determined by the
facts of each case upon mixed considerations of logic, common sense, policy and precedent. [27]
L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. Solidbank was in possession of the
passbook while it was processing the deposit. After completion of the transaction, Solidbank had the contractual obligation
to return the passbook only to Calapre, the authorized representative of L.C. Diaz. Solidbank failed to fulfill its contractual
obligation because it gave the passbook to another person.
Solidbanks failure to return the passbook to Calapre made possible the withdrawal of the P300,000 by the impostor
who took possession of the passbook. Under Solidbanks rules on savings account, mere possession of the passbook
raises the presumption of ownership. It was the negligent act of Solidbanks Teller No. 6 that gave the impostor
presumptive ownership of the passbook. Had the passbook not fallen into the hands of the impostor, the loss of P300,000
would not have happened. Thus, the proximate cause of the unauthorized withdrawal was Solidbanks negligence in not
returning the passbook to Calapre.
We do not subscribe to the appellate courts theory that the proximate cause of the unauthorized withdrawal was the
tellers failure to call up L.C. Diaz to verify the withdrawal. Solidbank did not have the duty to call up L.C. Diaz to confirm
the withdrawal. There is no arrangement between Solidbank and L.C. Diaz to this effect. Even the agreement between
Solidbank and L.C. Diaz pertaining to measures that the parties must observe whenever withdrawals of large amounts are
made does not direct Solidbank to call up L.C. Diaz.
There is no law mandating banks to call up their clients whenever their representatives withdraw significant amounts
from their accounts. L.C. Diaz therefore had the burden to prove that it is the usual practice of Solidbank to call up its
clients to verify a withdrawal of a large amount of money. L.C. Diaz failed to do so.

Teller No. 5 who processed the withdrawal could not have been put on guard to verify the withdrawal. Prior to the
withdrawal of P300,000, the impostor deposited with Teller No. 6 the P90,000 PBC check, which later bounced. The
impostor apparently deposited a large amount of money to deflect suspicion from the withdrawal of a much bigger amount
of money. The appellate court thus erred when it imposed on Solidbank the duty to call up L.C. Diaz to confirm the
withdrawal when no law requires this from banks and when the teller had no reason to be suspicious of the transaction.
Solidbank continues to foist the defense that Ilagan made the withdrawal. Solidbank claims that since Ilagan was
also a messenger of L.C. Diaz, he was familiar with its teller so that there was no more need for the teller to verify the
withdrawal. Solidbank relies on the following statements in the Booking and Information Sheet of Emerano Ilagan:
xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and indicated the amount of P90,000 which he deposited
in favor of L.C. Diaz and Company. After successfully withdrawing this large sum of money, accused Ilagan gave alias Rey (Noel
Tamayo) his share of the loot. Ilagan then hired a taxicab in the amount of P1,000 to transport him (Ilagan) to his home province at
Bauan, Batangas. Ilagan extravagantly and lavishly spent his money but a big part of his loot was wasted in cockfight and horse
racing. Ilagan was apprehended and meekly admitted his guilt.[28] (Emphasis supplied.)
L.C. Diaz refutes Solidbanks contention by pointing out that the person who withdrew the P300,000 was a certain
Noel Tamayo. Both the trial and appellate courts stated that this Noel Tamayo presented the passbook with the withdrawal
slip.
We uphold the finding of the trial and appellate courts that a certain Noel Tamayo withdrew the P300,000. The Court
is not a trier of facts. We find no justifiable reason to reverse the factual finding of the trial court and the Court of
Appeals. The tellers who processed the deposit of the P90,000 check and the withdrawal of the P300,000 were not
presented during trial to substantiate Solidbanks claim that Ilagan deposited the check and made the questioned
withdrawal. Moreover, the entry quoted by Solidbank does not categorically state that Ilagan presented the withdrawal slip
and the passbook.
Doctrine of Last Clear Chance
The doctrine of last clear chance states that where both parties are negligent but the negligent act of one is
appreciably later than that of the other, or where it is impossible to determine whose fault or negligence caused the loss,
the one who had the last clear opportunity to avoid the loss but failed to do so, is chargeable with the loss. [29] Stated
differently, the antecedent negligence of the plaintiff does not preclude him from recovering damages caused by the
supervening negligence of the defendant, who had the last fair chance to prevent the impending harm by the exercise of
due diligence.[30]
We do not apply the doctrine of last clear chance to the present case. Solidbank is liable for breach of contract due to
negligence in the performance of its contractual obligation to L.C. Diaz. This is a case of culpa contractual, where neither
the contributory negligence of the plaintiff nor his last clear chance to avoid the loss, would exonerate the defendant from
liability.[31] Such contributory negligence or last clear chance by the plaintiff merely serves to reduce the recovery of
damages by the plaintiff but does not exculpate the defendant from his breach of contract. [32]
Mitigated Damages
Under Article 1172, liability (for culpa contractual) may be regulated by the courts, according to the circumstances.
This means that if the defendant exercised the proper diligence in the selection and supervision of its employee, or if the
plaintiff was guilty of contributory negligence, then the courts may reduce the award of damages. In this case, L.C. Diaz
was guilty of contributory negligence in allowing a withdrawal slip signed by its authorized signatories to fall into the hands
of an impostor. Thus, the liability of Solidbank should be reduced.
In Philippine Bank of Commerce v. Court of Appeals,[33] where the Court held the depositor guilty of contributory
negligence, we allocated the damages between the depositor and the bank on a 40-60 ratio. Applying the same ruling to
this case, we hold that L.C. Diaz must shoulder 40% of the actual damages awarded by the appellate court. Solidbank
must pay the other 60% of the actual damages.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner Solidbank
Corporation shall pay private respondent L.C. Diaz and Company, CPAs only 60% of the actual damages awarded by the
Court of Appeals. The remaining 40% of the actual damages shall be borne by private respondent L.C. Diaz and
Company, CPAs. Proportionate costs.
SO ORDERED.

CITIBANK, N.A. (Formerly FirstNational

City Bank) and INVESTORS FINANCE
CORPORATION, doing business under the
name and style of FNCB Finance,
Petitioners,
- versusMODESTA R. SABENIANO,
Respondent.

G.R. No. 156132

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

October 16, 2006

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION

CHICO-NAZARIO, J.:

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

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

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

Respondent Modesta R. Sabeniano was a client of both petitioners Citibank and FNCB Finance. Regrettably, the business
relations among the parties subsequently went awry.

On 8 August 1985, respondent filed a Complaint [5] against petitioners, docketed as Civil Case No. 11336, before the Regional
Trial Court (RTC) of Makati City. Respondent claimed to have substantial deposits and money market placements with the petitioners,
as well as money market placements with the Ayala Investment and Development Corporation (AIDC), the proceeds of which were
supposedly deposited automatically and directly to respondents accounts with petitioner Citibank. Respondent alleged that petitioners
refused to return her deposits and the proceeds of her money market placements despite her repeated demands, thus, compelling
respondent to file Civil Case No. 11336 against petitioners for Accounting, Sum of Money and Damages. Respondent eventually filed
an Amended Complaint[6] on 9 October 1985 to include additional claims to deposits and money market placements inadvertently left
out from her original Complaint.

In their joint Answer[7] and Answer to Amended Complaint,[8] filed on 12 September 1985 and 6 November 1985,
respectively, petitioners admitted that respondent had deposits and money market placements with them, including dollar accounts in
the Citibank branch in Geneva, Switzerland (Citibank-Geneva). Petitioners further alleged that the respondent later obtained several
loans from petitioner Citibank, for which she executed Promissory Notes (PNs), and secured by (a) a Declaration of Pledge of her
dollar accounts in Citibank-Geneva, and (b) Deeds of Assignment of her money market placements with petitioner FNCB
Finance. When respondent failed to pay her loans despite repeated demands by petitioner Citibank, the latter exercised its right to off-

set or compensate respondents outstanding loans with her deposits and money market placements, pursuant to the Declaration of
Pledge and the Deeds of Assignment executed by respondent in its favor. Petitioner Citibank supposedly informed respondent
Sabeniano of the foregoing compensation through letters, dated 28 September 1979 and 31 October 1979. Petitioners were therefore
surprised when six years later, in 1985, respondent and her counsel made repeated requests for the withdrawal of respondents deposits
and money market placements with petitioner Citibank, including her dollar accounts with Citibank-Geneva and her money market
placements with petitioner FNCB Finance. Thus, petitioners prayed for the dismissal of the Complaint and for the award of actual,
moral, and exemplary damages, and attorneys fees.

When the parties failed to reach a compromise during the pre-trial hearing, [9] trial proper ensued and the parties proceeded
with the presentation of their respective evidence. Ten years after the filing of the Complaint on 8 August 1985, a Decision [10] was
finally rendered in Civil Case No. 11336 on 24 August 1995 by the fourth Judge [11] who handled the said case, Judge Manuel D.
Victorio, the dispositive portion of which reads
WHEREFORE, in view of all the foregoing, decision is hereby rendered as follows:
(1) Declaring as illegal, null and void the setoff effected by the defendant Bank [petitioner Citibank] of
plaintiffs [respondent Sabeniano] dollar deposit with Citibank, Switzerland, in the amount of US$149,632.99, and
ordering the said defendant [petitioner Citibank] to refund the said amount to the plaintiff with legal interest at the
rate of twelve percent (12%) per annum, compounded yearly, from 31 October 1979 until fully paid, or its peso
equivalent at the time of payment;
(2) Declaring the plaintiff [respondent Sabeniano] indebted to the defendant Bank [petitioner Citibank] in
the amount of P1,069,847.40 as of 5 September 1979 and ordering the plaintiff [respondent Sabeniano] to pay said
amount, however, there shall be no interest and penalty charges from the time the illegal setoff was effected on 31
October 1979;
(3) Dismissing all other claims and counterclaims interposed by the parties against each other.
Costs against the defendant Bank.

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

On 26 March 2002, the Court of Appeals rendered its Decision[12] affirming with modification the RTC Decision in Civil Case No.
11336, dated 24 August 1995, and ruling entirely in favor of respondent in this wise

Wherefore, premises considered, the assailed 24 August 1995 Decision of the court a quo is
hereby AFFIRMED with MODIFICATION, as follows:
1. Declaring as illegal, null and void the set-off effected by the defendant-appellant Bank of the plaintiffappellants dollar deposit with Citibank, Switzerland, in the amount of US$149,632.99, and ordering defendantappellant Citibank to refund the said amount to the plaintiff-appellant with legal interest at the rate of twelve percent
(12%) per annum, compounded yearly, from 31 October 1979 until fully paid, or its peso equivalent at the time of
payment;
2. As defendant-appellant Citibank failed to establish by competent evidence the alleged indebtedness of
plaintiff-appellant, the set-off of P1,069,847.40 in the account of Ms. Sabeniano is hereby declared as without legal
and factual basis;
3. As defendants-appellants failed to account the following plaintiff-appellants money market placements,
savings account and current accounts, the former is hereby ordered to return the same, in accordance with the terms
and conditions agreed upon by the contending parties as evidenced by the certificates of investments, to wit:
(i) Citibank NNPN Serial No. 023356 (Cancels and Supersedes NNPN No. 22526) issued
on 17 March 1977, P318,897.34 with 14.50% interest p.a.;
(ii) Citibank NNPN Serial No. 23357 (Cancels and Supersedes NNPN No. 22528) issued
on 17 March 1977, P203,150.00 with 14.50 interest p.a.;
(iii) FNCB NNPN Serial No. 05757 (Cancels and Supersedes NNPN No. 04952), issued
on 02 June 1977, P500,000.00 with 17% interest p.a.;
(iv) FNCB NNPN Serial No. 05758 (Cancels and Supersedes NNPN No. 04962), issued
on 02 June 1977, P500,000.00 with 17% interest per annum;
(v) The Two Million (P2,000,000.00) money market placements of Ms. Sabeniano with
the Ayala Investment & Development Corporation (AIDC) with legal interest at the rate of twelve
percent (12%) per annum compounded yearly, from 30 September 1976 until fully paid;
4. Ordering defendants-appellants to jointly and severally pay the plaintiff-appellant the sum of FIVE
HUNDRED THOUSAND PESOS (P500,000.00) by way of moral damages, FIVE HUNDRED THOUSAND
PESOS (P500,000.00) as exemplary damages, and ONE HUNDRED THOUSAND PESOS (P100,000.00) as
attorneys fees.
Apparently, the parties to the case, namely, the respondent, on one hand, and the petitioners, on the other, made separate attempts to
bring the aforementioned Decision of the Court of Appeals, dated 26 March 2002, before this Court for review.

G.R. No. 152985

Respondent no longer sought a reconsideration of the Decision of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March
2002, and instead, filed immediately with this Court on 3 May 2002 a Motion for Extension of Time to File a Petition for Review,
[13]

which, after payment of the docket and other lawful fees, was assigned the docket number G.R. No. 152985. In the said Motion,

respondent alleged that she received a copy of the assailed Court of Appeals Decision on 18 April 2002 and, thus, had 15 days
therefrom or until 3 May 2002 within which to file her Petition for Review. Since she informed her counsel of her desire to pursue an
appeal of the Court of Appeals Decision only on 29 April 2002, her counsel neither had enough time to file a motion for

reconsideration of the said Decision with the Court of Appeals, nor a Petition for Certiorari with this Court. Yet, the Motion failed to
state the exact extension period respondent was requesting for.

Since this Court did not act upon respondents Motion for Extension of Time to file her Petition for Review, then the period
for appeal continued to run and still expired on 3 May 2002. [14] Respondent failed to file any Petition for Review within the prescribed
period for appeal and, hence, this Court issued a Resolution,[15] dated 13 November 2002, in which it pronounced that
G.R. No. 152985 (Modesta R. Sabeniano vs. Court of Appeals, et al.). It appearing that petitioner failed to
file the intended petition for review on certiorari within the period which expired on May 3, 2002, the Court
Resolves toDECLARE THIS CASE TERMINATED and DIRECT the Division Clerk of Court to INFORM the
parties that the judgment sought to be reviewed has become final and executory.

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

G.R. No. 156132

Meanwhile, petitioners filed with the Court of Appeals a Motion for Reconsideration of its Decision in CA-G.R. CV No.
51930, dated 26 March 2002. Acting upon the said Motion, the Court of Appeals issued the Resolution, [16]dated 20 November 2002,
modifying its Decision of 26 March 2002, as follows
WHEREFORE, premises considered, the instant Motion for Reconsideration is PARTIALLY
GRANTED as Sub-paragraph (V) paragraph 3 of the assailed Decisions dispositive portion is hereby
ordered DELETED.
The challenged 26 March 2002 Decision of the Court is AFFIRMED with MODIFICATION.

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

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

I
The Resolution of this Court, dated 13 November 2002, in G.R. No. 152985,
declaring the Decision of the Court of Appeals, dated 26 March 2002, final
and executory, pertains to respondent Sabeniano alone.

Before proceeding to a discussion of the merits of the instant Petition, this Court wishes to address first the argument,
persistently advanced by respondent in her pleadings on record, as well as her numerous personal and unofficial letters to this Court
which were no longer made part of the record, that the Decision of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March
2002, had already become final and executory by virtue of the Resolution of this Court in G.R. No. 152985, dated 13 November 2002.
G.R. No. 152985 was the docket number assigned by this Court to respondents Motion for Extension of Time to File a
Petition for Review. Respondent, though, did not file her supposed Petition. Thus, after the lapse of the prescribed period for the filing
of the Petition, this Court issued the Resolution, dated 13 November 2002, declaring the Decision of the Court of Appeals, dated 26
March 2002, final and executory. It should be pointed out, however, that the Resolution, dated 13 November 2002, referred only to
G.R. No. 152985, respondents appeal, which she failed to perfect through the filing of a Petition for Review within the prescribed
period. The declaration of this Court in the same Resolution would bind respondent solely, and not petitioners which filed their own
separate appeal before this Court, docketed as G.R. No. 156132, the Petition at bar. This would mean that respondent, on her part,
should be bound by the findings of fact and law of the Court of Appeals, including the monetary amounts consequently awarded to her
by the appellate court in its Decision, dated 26 March 2002; and she can no longer refute or assail any part thereof. [19]

This Court already explained the matter to respondent when it issued a Resolution [20] in G.R. No. 156132, dated 2 February
2004, which addressed her Urgent Motion for the Release of the Decision with the Implementation of the Entry of Judgment in the
following manner
[A]cting on Citibanks and FNCB Finances Motion for Reconsideration, we resolved to grant the motion, reinstate
the petition and require Sabeniano to file a comment thereto in our Resolution of June 23, 2003. Sabeniano filed
aComment dated July 17, 2003 to which Citibank and FNCB Finance filed a Reply dated August 20, 2003.
From the foregoing, it is clear that Sabeniano had knowledge of, and in fact participated in, the proceedings in G.R.
No. 156132. She cannot feign ignorance of the proceedings therein and claim that the Decision of the Court of
Appeals has become final and executory. More precisely, the Decision became final and executory only with regard
to Sabeniano in view of her failure to file a petition for review within the extended period granted by the Court, and
not to Citibank and FNCB Finance whose Petition for Review was duly reinstated and is now submitted for decision.
Accordingly, the instant Urgent Motion is hereby DENIED. (Emphasis supplied.)

To sustain the argument of respondent would result in an unjust and incongruous situation wherein one party may frustrate the efforts
of the opposing party to appeal the case by merely filing with this Court a Motion for Extension of Time to File a Petition for Review,

ahead of the opposing party, then not actually filing the intended Petition. [21] The party who fails to file its intended Petition within the
reglementary or extended period should solely bear the consequences of such failure.
Respondent Sabeniano did not commit forum shopping.

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

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

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

This Court, however, finds no sufficient basis to hold respondent liable for forum shopping.
Forum shopping has been defined as the filing of two or more suits involving the same parties for the same cause of action, either
simultaneously or successively, for the purpose of obtaining a favorable judgment. [22] The test for determining forum shopping is
whether in the two (or more) cases pending, there is an identity of parties, rights or causes of action, and relief sought. [23] To guard
against this deplorable practice, Rule 7, Section 5 of the revised Rules of Court imposes the following requirement
SEC. 5. Certification against forum shopping. The plaintiff or principal party shall certify under oath in the
complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto and
simultaneously filed therewith: (a) that he has not theretofore commenced any action or filed any claim involving
the same issues in any court, tribunal or quasi-judicial agency and, to the best of his knowledge, no such other action
or claim is pending therein; (b) if there is such other pending action or claim, a complete statement of the present
status thereof; and (c) if he should thereafter learn that the same or similar action or claim has been filed or is
pending, he shall report that fact within five (5) days therefrom to the court wherein his aforesaid complaint or
initiatory pleading has been filed.
Failure to comply with the foregoing requirements shall not be curable by mere amendment of the
complaint or other initiatory pleading but shall be cause for the dismissal of the case without prejudice, unless
otherwise provided, upon motion and after hearing.The submission of a false certification or non-compliance with
any of the undertakings therein shall constitute indirect contempt of court, without prejudice to the corresponding
administrative and criminal actions. If the acts of the party or his counsel clearly constitute willful and deliberate

forum shopping, the same shall be ground for summary dismissal with prejudice and shall constitute direct
contempt, as well as cause for administrative sanctions.

Although it may seem at first glance that respondent was simultaneously seeking recourse from the Court of Appeals and this Court, a
careful and closer scrutiny of the details of the case at bar would reveal otherwise.

It should be recalled that respondent did nothing more in G.R. No. 152985 than to file with this Court a Motion for Extension
of Time within which to file her Petition for Review. For unexplained reasons, respondent failed to submit to this Court her intended
Petition within the reglementary period. Consequently, this Court was prompted to issue a Resolution, dated 13 November 2002,
declaring G.R. No. 152985 terminated, and the therein assailed Court of Appeals Decision final and executory. G.R. No. 152985,
therefore, did not progress and respondents appeal was unperfected.

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

Without any particular idea as to the assignments of error or the relief respondent intended to seek from this Court, in light of
her failure to file her Petition for Review, there is actually no second case involving the same parties, rights or causes of action, and
relief sought, as that in CA-G.R. CV No. 51930.
It should also be noted that the Certification against Forum Shopping is required to be attached to the initiatory pleading,
which, in G.R. No. 152985, should have been respondents Petition for Review. It is in that Certification wherein respondent certifies,
under oath, that: (a) she has not commenced any action or filed any claim involving the same issues in any court, tribunal or quasijudicial agency and, to the best of her knowledge, no such other action or claim is pending therein; (b) if there is such other pending
action or claim, that she is presenting a complete statement of the present status thereof; and (c) if she should thereafter learn that the
same or similar action or claim has been filed or is pending, she shall report that fact within five days therefrom to this Court. Without
her Petition for Review, respondent had no obligation to execute and submit the foregoing Certification against Forum
Shopping. Thus, respondent did not violate Rule 7, Section 5 of the Revised Rules of Court; neither did she mislead this Court as to
the pendency of another similar case.

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

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

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

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

The fact that the trial judge who rendered the RTC Decision in Civil Case No.
11336, dated 24 August 1995, was not the same judge who heard and tried the
case, does not, by itself, render the said Decision erroneous.

The Decision in Civil Case No. 11336 was rendered more than 10 years from the institution of the said case. In the course of its trial,
the case was presided over by four (4) different RTC judges. [26] It was Judge Victorio, the fourth judge assigned to the case, who wrote
the RTC Decision, dated 24 August 1995. In his Decision,[27] Judge Victorio made the following findings
After carefully evaluating the mass of evidence adduced by the parties, this Court is not inclined to believe
the plaintiffs assertion that the promissory notes as well as the deeds of assignments of her FNCB Finance money
market placements were simulated. The evidence is overwhelming that the plaintiff received the proceeds of the
loans evidenced by the various promissory notes she had signed. What is more, there was not an iota of proof save
the plaintiffs bare testimony that she had indeed applied for loan with the Development Bank of the Philippines.
More importantly, the two deeds of assignment were notarized, hence they partake the nature of a public
document. It makes more than preponderant proof to overturn the effect of a notarial attestation. Copies of the deeds
of assignments were actually filed with the Records Management and Archives Office.
Finally, there were sufficient evidence wherein the plaintiff had admitted the existence of her loans with the
defendant Bank in the total amount of P1,920,000.00 exclusive of interests and penalty charges (Exhibits 28, 31, 32,
and 33).
In fine, this Court hereby finds that the defendants had established the genuineness and due execution of
the various promissory notes heretofore identified as well as the two deeds of assignments of the plaintiffs money
market placements with defendant FNCB Finance, on the strength of which the said money market placements were
applied to partially pay the plaintiffs past due obligation with the defendant Bank. Thus, the total sum
of P1,053,995.80 of the plaintiffs past due obligation was partially offset by the said money market placement
leaving a balance of P1,069,847.40 as of 5 September 1979 (Exhibit 34).
Disagreeing in the foregoing findings, the Court of Appeals stressed, in its Decision in CA-G.R. CV No. 51930, dated 26 March 2002,
that the ponente of the herein assailed Decision is not the Presiding Judge who heard and tried the case. [28] This brings us to the
question of whether the fact alone that the RTC Decision was rendered by a judge other than the judge who actually heard and tried
the case is sufficient justification for the appellate court to disregard or set aside the findings in the Decision of the court a quo?

This Court rules in the negative.

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

In People v. Gazmen,[30] this Court already elucidated its position on such an issue
Accused-appellant makes an issue of the fact that the judge who penned the decision was not the judge who
heard and tried the case and concludes therefrom that the findings of the former are erroneous. Accused-appellants
argument does not merit a lengthy discussion. It is well-settled that the decision of a judge who did not try the case
is not by that reason alone erroneous.
It is true that the judge who ultimately decided the case had not heard the controversy at all, the trial having
been conducted by then Judge Emilio L. Polig, who was indefinitely suspended by this Court. Nonetheless, the
transcripts of stenographic notes taken during the trial were complete and were presumably examined and studied by
Judge Baguilat before he rendered his decision. It is not unusual for a judge who did not try a case to decide it on the
basis of the record. The fact that he did not have the opportunity to observe the demeanor of the witnesses during the
trial but merely relied on the transcript of their testimonies does not for that reason alone render the judgment
erroneous.
(People vs. Jaymalin, 214 SCRA 685, 692 [1992])
Although it is true that the judge who heard the witnesses testify is in a better position to observe the
witnesses on the stand and determine by their demeanor whether they are telling the truth or mouthing falsehood, it
does not necessarily follow that a judge who was not present during the trial cannot render a valid decision since he
can rely on the transcript of stenographic notes taken during the trial as basis of his decision.
Accused-appellants contention that the trial judge did not have the opportunity to observe the conduct and
demeanor of the witnesses since he was not the same judge who conducted the hearing is also untenable. While it is
true that the trial judge who conducted the hearing would be in a better position to ascertain the truth and falsity of
the testimonies of the witnesses, it does not necessarily follow that a judge who was not present during the trial
cannot render a valid and just decision since the latter can also rely on the transcribed stenographic notes taken
during the trial as the basis of his decision.
(People vs. De Paz, 212 SCRA 56, 63 [1992])
At any rate, the test to determine the value of the testimony of the witness is whether or not such is in
conformity with knowledge and consistent with the experience of mankind (People vs. Morre, 217 SCRA 219
[1993]). Further, the credibility of witnesses can also be assessed on the basis of the substance of their testimony and
the surrounding circumstances (People v. Gonzales, 210 SCRA 44 [1992]). A critical evaluation of the testimony of
the prosecution witnesses reveals that their testimony accords with the aforementioned tests, and carries with it the
ring of truth end perforce, must be given full weight and credit.

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

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

Respondent alleged that she had several deposits and money market placements with petitioners. These deposits and money
market placements, as determined by the Court of Appeals in its Decision, dated 26 March 2002, and as modified by its Resolution,
dated 20 November 2002, are as follows

Deposit/Placement
Dollar deposit with Citibank-Geneva
Money market placement with Citibank, evidenced by Promissory
Note (PN) No. 23356 (which cancels and supersedes PN No. 22526),
earning 14.5% interest per annum (p.a.)

Amount
$ 149,632.99

P 318,897.34
Money market placement with Citibank, evidenced by PN No. 23357
(which cancels and supersedes PN No. 22528), earning 14.5% interest
p.a.
Money market placement with FNCB Finance, evidenced by PN No.
5757 (which cancels and supersedes PN No. 4952), earning 17%
interest p.a.
Money market placement with FNCB Finance, evidenced by PN No.
5758 (which cancels and supersedes PN No. 2962), earning 17%
interest p.a.

P 203,150.00
P 500,000.00
P 500,000.00

This Court is tasked to determine whether petitioners are indeed liable to return the foregoing amounts, together with the appropriate
interests and penalties, to respondent. It shall trace respondents transactions with petitioners, from her money market placements with
petitioner Citibank and petitioner FNCB Finance, to her savings and current accounts with petitioner Citibank, and to her dollar
accounts with Citibank-Geneva.

Money market placements with petitioner Citibank

The history of respondents money market placements with petitioner Citibank began on 6 December 1976, when she made a
placement of P500,000.00 as principal amount, which was supposed to earn an interest of 16% p.a. and for which PN No. 20773 was

issued. Respondent did not yet claim the proceeds of her placement and, instead, rolled-over or re-invested the principal and proceeds
several times in the succeeding years for which new PNs were issued by petitioner Citibank to replace the ones which
matured. Petitioner Citibank accounted for respondents original placement and the subsequent roll-overs thereof, as follows

Date
(mm/dd/yyyy)
12/06/1976
01/14/1977
02/09/1977
03/17/1977

PN No.

Cancels PN No.

Maturity Date
(mm/dd/yyyy)

20773
21686
22526
22528
23356
23357

None
20773
21686
21686
22526
22528

01/13/1977
02/08/1977
03/16/1977
03/16/1977
04/20/1977
04/20/1977

Amount
(P)
500,000.00
508,444.44
313,952.59
200,000.00
318,897.34
203,150.00

Interest
(p.a.)
16%
15%
15-3/4%
15-3/4%
14-1/2%
14-1/2%

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

Petitioner Citibank did not deny the existence nor questioned the authenticity of PNs No. 23356 and 23357 it issued in favor
of respondent for her money market placements. In fact, it admitted the genuineness and due execution of the said PNs, but qualified
that they were no longer outstanding.[31] In Hibberd v. Rohde and McMillian,[32] this Court delineated the consequences of such an
admission
By the admission of the genuineness and due execution of an instrument, as provided in this section, is
meant that the party whose signature it bears admits that he signed it or that it was signed by another for him with
his authority; that at the time it was signed it was in words and figures exactly as set out in the pleading of the party
relying upon it; that the document was delivered; and that any formal requisites required by law, such as a seal, an
acknowledgment, or revenue stamp, which it lacks, are waived by him. Hence, such defenses as that the signature is
a forgery (Puritan Mfg. Co. vs. Toti & Gradi, 14 N. M., 425; Cox vs. Northwestern Stage Co., 1 Idaho, 376;
Woollen vs. Whitacre, 73 Ind., 198; Smith vs. Ehnert, 47 Wis., 479; Faelnar vs. Escao, 11 Phil. Rep., 92); or that it
was unauthorized, as in the case of an agent signing for his principal, or one signing in behalf of a partnership
(Country Bank vs. Greenberg, 127 Cal., 26; Henshaw vs. Root, 60 Inc., 220; Naftzker vs. Lantz, 137 Mich., 441) or
of a corporation (Merchant vs. International Banking Corporation, 6 Phil Rep., 314; Wanita vs. Rollins, 75 Miss.,
253; Barnes vs. Spencer & Barnes Co., 162 Mich., 509); or that, in the case of the latter, that the corporation was
authorized under its charter to sign the instrument (Merchant vs. International Banking Corporation, supra); or that
the party charged signed the instrument in some other capacity than that alleged in the pleading setting it out
(Payne vs. National Bank, 16 Kan., 147); or that it was never delivered (Hunt vs. Weir, 29 Ill., 83;
Elbring vs. Mullen, 4 Idaho, 199; Thorp vs. Keokuk Coal Co., 48 N.Y., 253; Fire Association of
Philadelphia vs. Ruby, 60 Neb., 216) are cut off by the admission of its genuineness and due execution.
The effect of the admission is such that in the case of a promissory note a prima facie case is made for the
plaintiff which dispenses with the necessity of evidence on his part and entitles him to a judgment on the pleadings
unless a special defense of new matter, such as payment, is interposed by the defendant (Papa vs. Martinez, 12 Phil.
Rep., 613; Chinese Chamber of Commerce vs. Pua To Ching, 14 Phil. Rep., 222; Banco Espaol-Filipino vs. McKay
& Zoeller, 27 Phil. Rep., 183). x x x

Since the genuineness and due execution of PNs No. 23356 and 23357 are uncontested, respondent was able to establish prima
facie that petitioner Citibank is liable to her for the amounts stated therein. The assertion of petitioner Citibank of payment of the said
PNs is an affirmative allegation of a new matter, the burden of proof as to such resting on petitioner Citibank. Respondent having
proved the existence of the obligation, the burden of proof was upon petitioner Citibank to show that it had been discharged. [33] It has
already been established by this Court that
As a general rule, one who pleads payment has the burden of proving it. Even where the plaintiff must
allege non-payment, the general rule is that the burden rests on the defendant to prove payment, rather than on the
plaintiff to prove non-payment. The debtor has the burden of showing with legal certainty that the obligation has
been discharged by payment.
When the existence of a debt is fully established by the evidence contained in the record, the burden of
proving that it has been extinguished by payment devolves upon the debtor who offers such defense to the claim of
the creditor. Where the debtor introduces some evidence of payment, the burden of going forward with the evidence
as distinct from the general burden of proof shifts to the creditor, who is then under the duty of producing some
evidence of non-payment.[34]

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

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

The relevant portion[37] of Mr. Pujedas testimony as to PNs No. 23356 and 23357 (referred to therein as Exhibits No. 47 and
48, respectively) is reproduced below
Atty. Mabasa:
Okey [sic]. Now Mr. Witness, you were asked to testify in this case and this case is [sic] consist [sic] of several
documents involving transactions between the plaintiff and the defendant. Now, were you able to make
your own memorandum regarding all these transactions?
A Yes, based on my recollection of these facts, I did come up of [sic] the outline of the chronological sequence of
events.
Court:

Are you trying to say that you have personal knowledge or participation to these transactions?
A Yes, your Honor, I was the officer-in charge of the unit that was processing these transactions. Some of the
documents bear my signature.
Court:
And this resume or summary that you have prepared is based on purely your recollection or documents?
A Based on documents, your Honor.
Court:
Are these documents still available now?
A Yes, your honor.
Court:
Better present the documents.
Atty. Mabasa:
Yes, your Honor, that is why your Honor.
Atty. Mabasa:
Q Now, basing on the notes that you prepared, Mr. Witness, and according to you basing also on your personal
recollection about all the transactions involved between Modesta Sabeniano and defendant City Bank [sic]
in this case. Now, would you tell us what happened to the money market placements of Modesta Sabeniano
that you have earlier identified in Exhs. 47 and 48?
A The transactions which I said earlier were terminated and booked to time deposits.
Q And you are saying time deposits with what bank?
A With First National Citibank.
Q Is it the same bank as Citibank, N.A.?
A Yes, sir.
Q And how much was the amount booked as time deposit with defendant Citibank?
A In the amount of P500,000.00.
Q And outside this P500,000.00 which you said was booked out of the proceeds of Exhs. 47 and 48, were there
other time deposits opened by Mrs. Modesta Sabeniano at that time.
A Yes, she also opened another time deposit for P600,000.00.
Q So all in all Mr. Witness, sometime in April of 1978 Mrs. Modesta Sabeneano [sic] had time deposit placements
with Citibank in the amount of P500,000.00 which is the proceeds of Exh. 47 and 48 and
another P600,000.00, is it not?
A Yes, sir.
Q And would you know where did the other P600,000 placed by Mrs. Sabeneano [sic] in a time deposit with
Citibank, N.A. came [sic] from?
A She funded it directly.

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

In his deposition in Hong Kong, Mr. Tan recounted what happened to PNs No. 23356 and 23357 (referred to therein as
Exhibits E and F, respectively), as follows
Atty. Mabasa : Now from the Exhibits that you have identified Mr. Tan from Exhibits A to F, which are Exhibits of
the plaintiff. Now, do I understand from you that the original amount is Five Hundred
Thousand and thereafter renewed in the succeeding exhibits?
Mr. Tan : Yes, Sir.
Atty. Mabasa : Alright, after these Exhibits E and F matured, what happened thereafter?
Mr. Tan : Split into two time deposits.
Atty. Mabasa : Exhibits E and F?

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

Moreover, while there are documentary evidences to support and trace respondents money market placements with petitioner
Citibank, from the original PN No. 20773, rolled-over several times to, finally, PNs No. 23356 and 23357, there is an evident absence
of any documentary evidence on the payment of these last two PNs and the use of the proceeds thereof by respondent for opening TD

accounts. The paper trail seems to have ended with the copies of PNs No. 23356 and 23357. Although both Mr. Pujeda and Mr. Tan
said that they based their testimonies, not just on their memories but also on the documents on file, the supposed documents on which
they based those portions of their testimony on the payment of PNs No. 23356 and 23357 and the opening of the TD accounts from
the proceeds thereof, were never presented before the courts nor made part of the records of the case. Respondents money market
placements were of substantial amounts consisting of the principal amount of P500,000.00, plus the interest it should have earned
during the years of placement and it is difficult for this Court to believe that petitioner Citibank would not have had documented the
payment thereof.
When Mr. Pujeda testified before the RTC on 6 February 1990, [39] petitioners counsel attempted to present in evidence a
document that would supposedly support the claim of petitioner Citibank that the proceeds of PNs No. 23356 and 23357 were used by
respondent to open one of her two TD accounts in the amount of P500,000.00. Respondents counsel objected to the presentation of the
document since it was a mere xerox" copy, and was blurred and hardly readable. Petitioners counsel then asked for a continuance of
the hearing so that they can have time to produce a better document, which was granted by the court. However, during the next
hearing and continuance of Mr. Pujedas testimony on 12 March 1990, petitioners counsel no longer referred to the said document.
As respondent had established a prima facie case that petitioner Citibank is obligated to her for the amounts stated in PNs No.
23356 and 23357, and as petitioner Citibank failed to present sufficient proof of payment of the said PNs and the use by the
respondent of the proceeds thereof to open her TD accounts, this Court finds that PNs No. 23356 and 23357 are still outstanding
and petitioner Citibank is still liable to respondent for the amounts stated therein.

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

Money market placements with petitioner FNCB Finance

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

Date
(mm/dd/yyyy)
04/29/1977
06/02/1977
08/31/1977

PN No.

Cancels PN No.

Maturity Date
(mm/dd/yyyy)

4952
4962
5757
5758
8167
8169

None
None
4952
4962
5757
5752

06/01/1977
06/01/1977
08/31/1977
08/31/1977
08/25/1978
08/25/1978

Amount
(P)
500,000.00
600,000.00
500,000.00
500,000.00
500,000.00
500,000.00

Interest
(p.a.)
17%
17%
17%
17%
14%
14%

As presented by the petitioner FNCB Finance, respondent rolled-over only the principal amounts of her money market placements as
she chose to receive the interest income therefrom. Petitioner FNCB Finance also pointed out that when PN No. 4962, with principal
amount of P600,000.00, matured on 1 June 1977, respondent received a partial payment of the principal which, together with the
interest, amounted to P102,633.33;[44] thus, only the amount ofP500,000.00 from PN No. 4962 was rolled-over to PN No. 5758.

Based on the foregoing records, the principal amounts of PNs No. 5757 and 5758, upon their maturity, were rolled over to PNs No.
8167 and 8169, respectively. PN No. 8167[45] expressly canceled and superseded PN No. 5757, while PN No. 8169 [46] also explicitly
canceled and superseded PN No. 5758. Thus, it is patently erroneous for the Court of Appeals to still award to respondent the principal

amounts and interests covered by PNs No. 5757 and 5758 when these were already canceled and superseded. It is now incumbent
upon this Court to determine what subsequently happened to PNs No. 8167 and 8169.

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

Date of Issuance
(mm/dd/yyyy)
09/01/1978

Check No.
76962

Amount
(P)
12,833.34

Notation
Interest payment on PN#08167

09/01/1978

76961

12,833.34

Interest payment on PN#08169

09/05/1978

77035

500,000.00

09/05/ 1978

77034

500,000.00

Full payment of principal on PN#08167 which is

hereby cancelled
Full payment of principal on PN#08169 which is
hereby cancelled

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

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

Savings and current accounts with petitioner Citibank

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

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

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

Dollar accounts with Citibank-Geneva

Respondent made an effort of preparing and presenting before the RTC her own computations of her money market placements and
dollar accounts with Citibank-Geneva, purportedly amounting to a total of United States (US) $343,220.98, as of 23 June 1985. [51] In
her Memorandum filed with the RTC, she claimed a much bigger amount of deposits and money market placements with CitibankGeneva, totaling US$1,336,638.65.[52] However, respondent herself also submitted as part of her formal offer of evidence the
computation of her money market placements and dollar accounts with Citibank-Geneva as determined by the latter. [53] CitibankGeneva accounted for respondents money market placements and dollar accounts as follows
MODESTA SABENIANO &/OR
==================
US$
+ US$
- US$

30000.-339.06
95.--

US$

30244.06

Principal Fid. Placement

Interest at 3,875% p.a. from 12.07. 25.10.79
Commission (minimum)
Total proceeds on 25.10.1979

US$
+ US$
- US$

114000.-1358.50
41.17

Principal Fid. Placement

Interest at 4,125% p.a. from 12.07. 25.10.79
Commission

US$

115317.33

Total proceeds on 25.10.1979

US$
+ US$

145561.39
11381.31

Total proceeds of both placements on 25.10.1979

total of both current accounts

US$

156942.70

Total funds available

- US$

149632.99

Transfer to Citibank Manila on 26.10.1979

(counter value of Pesos 1102944.78)

US$

7309.71

Balance in current accounts

- US$

6998.84

Transfer to Citibank Zuerich ac no. 121359 on March

13, 1980

US$

310.87

various charges including closing charges

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

III
Petitioner Citibank was able to establish by preponderance of evidence the
existence of respondents loans.

Petitioners version of events

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

Description
Principal and interests of PNs No. 20138 and 20139
(money market placements with petitioner FNCB Finance)
Savings account with petitioner Citibank
Dollar remittance from Citibank-Geneva (peso equivalent
Of US$149,632.99)

Amount
P 1,022,916.66
31,079.14
1,102,944.78

Total

P 2,156,940.58

According to petitioner Citibank, respondent incurred her loans under the circumstances narrated below.
As early as 9 February 1978, respondent obtained her first loan from petitioner Citibank in the principal amount
of P200,000.00, for which she executed PN No. 31504.[54] Petitioner Citibank extended to her several other loans in the succeeding
months. Some of these loans were paid, while others were rolled-over or renewed. Significant to the Petition at bar are the loans which
respondent obtained from July 1978 to January 1979, appropriately covered by PNs (first set). [55] The aggregate principal amount of
these loans was P1,920,000.00, which could be broken down as follows

PN No.

Date of Issuance
(mm/dd/yyyy)

Date of Maturity
(mm/dd/yyyy)

32935
33751
33798
34025
34079
34192
34402
34534
34609
34740

07/20/1978
10/13/1978
10/19/1978
11/15/1978
11/21/1978
12/04/1978
12/26/1978
01/09/1979
01/17/1979
01/30/1979

09/18/1978
12/12/1978
11/03/1978
01/15/1979
01/19/1979
01/18/1979
02/23/1979
03/09/1979
03/19/1979
03/30/1979

Total

Principal
Amount
P 400,000.00
100,000.00
100,000.00
150,000.00
250,000.00
100,000.00
300,000.00
150,000.00
150,000.00
220,000.00

Date of Release
(mm/dd/yyyy)

MC No.

07/20/1978
220701
Unrecovered
10/19/1978
226285
11/16/1978
226439
11/21/1978
226467
12/05/1978
228057
12/26/1978
228203
01/09/1979
228270
01/17/1979
228357
01/30/1979
228400

P1,920,000.00

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

PN No.
34510
34509
34534
34612

Date of Issuance
(mm/dd/yyyy)
01/01/1979
01/02/1979
01/09/1979
01/19/1979

Date of Maturity
(mm/dd/yyyy)
03/02/1979
03/02/1979
03/09/1979
03/16/1979

Principal Amount
P 400,000.00
100,000.00
150,000.00
150,000.00

34741
35689
35694
35695
356946
35697

01/26/1979
02/23/1979
03/19/1979
03/19/1979
03/20/1979
03/30/1979

03/12/1979
05/29/1979
05/29/1979
05/29/1979
05/29/1979
05/29/1979

Total

100,000.00
300,000.00
150,000.00
100,000.00
250,000.00
220,000.00
P 1,920,000.00

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

Respondent secured her foregoing loans with petitioner Citibank by executing Deeds of Assignment of her money market
placements with petitioner FNCB Finance. On 2 March 1978, respondent executed in favor of petitioner Citibank a Deed of
Assignment[57] of PN No. 8169, which was issued by petitioner FNCB Finance, to secure payment of the credit and banking facilities
extended to her by petitioner Citibank, in the aggregate principal amount ofP500,000.00. On 9 March 1978, respondent executed in
favor of petitioner Citibank another Deed of Assignment, [58] this time, of PN No. 8167, also issued by petitioner FNCB Finance, to
secure payment of the credit and banking facilities extended to her by petitioner Citibank, in the aggregate amount
of P500,000.00. When PNs No. 8167 and 8169, representing respondents money market placements with petitioner FNCB Finance,
matured and were rolled-over to PNs No. 20138 and 20139, respondent executed new Deeds of Assignment, [59] in favor of petitioner
Citibank, on 25 August 1978. According to the more recent Deeds, respondent assigned PNs No. 20138 and 20139, representing her
rolled-over money market placements with petitioner FNCB Finance, to petitioner Citibank as security for the banking and credit
facilities it extended to her, in the aggregate principal amount of P500,000.00 per Deed.
In addition to the Deeds of Assignment of her money market placements with petitioner FNCB Finance, respondent also executed a
Declaration of Pledge,[60] in which she supposedly pledged [a]ll present and future fiduciary placements held in my personal and/or
joint name with Citibank, Switzerland, to secure all claims the petitioner Citibank may have or, in the future, acquire against
respondent. The petitioners copy of the Declaration of Pledge is undated, while that of the respondent, a copy certified by a CitibankGeneva officer, bore the date 24 September 1979.[61]

When respondent failed to pay the second set of PNs upon their maturity, an exchange of letters ensued between respondent and/or her
representatives, on one hand, and the representatives of petitioners, on the other.

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

Despite our repeated requests and follow-up, we regret you have not granted us with any response or payment.
We, therefore, have no alternative but to call your loan of P1,920,000.00 plus interests and other charges due and
demandable. If you still fail to settle this obligation by 4/27/79, we shall have no other alternative but to refer your
account to our lawyers for legal action to protect the interest of the bank.

Respondent sent a reply letter [63] dated 26 April 1979, printed on paper bearing the letterhead of respondents company, MC Adore
International Palace, the body of which reads
This is in reply to your letter dated April 5, 1979 inviting my attention to my loan which has become due. Pursuant
to our representation with you over the telephone through Mr. F. A. Tan, you allow us to pay the interests due for the
meantime.
Please accept our Comtrust Check in the amount of P62,683.33.
Please bear with us for a little while, at most ninety days. As you know, we have a pending loan with the
Development Bank of the Philippines in the amount of P11-M. This loan has already been recommended for
approval and would be submitted to the Board of Governors. In fact, to further facilitate the early release of this
loan, we have presented and furnished Gov. J. Tengco a xerox copy of your letter.
You will be doing our corporation a very viable service, should you grant us our request for a little more time.

A week later or on 3 May 1979, a certain C. N. Pugeda, designated as Executive Secretary, sent a letter [64] to petitioner
Citibank, on behalf of respondent. The letter was again printed on paper bearing the letterhead of MC Adore International Palace. The
pertinent paragraphs of the said letter are reproduced below
Per instructions of Mrs. Modesta R. Sabeniano, we would like to request for a re-computation of the interest and
penalty charges on her loan in the aggregate amount of P1,920,000.00 with maturity date of all promissory notes at
June 30, 1979. As she has personally discussed with you yesterday, this date will more or less assure you of early
settlement.
In this regard, please entrust to bearer, our Comtrust check for P62,683.33 to be replaced by another check with
amount resulting from the new computation. Also, to facilitate the processing of the same, may we request for
another set of promissory notes for the signature of Mrs. Sabeniano and to cancel the previous ones she has signed
and forwarded to you.

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

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

Re: PN No. 20138 for P500,000.00 & PN No. 20139 for P500,000.00 totalling P1
Million, both PNs will mature on 9/3/1979.
This is to authorize you to release the accrued quarterly interests payment from my captioned placements
and forward directly to Citibank, Manila Attention: Mr. F. A. Tan, Manager, to apply to my interest payable on my
outstanding loan with Citibank.
Please note that the captioned two placements are continuously pledged/hypothecated to Citibank, Manila
to support my personal outstanding loan. Therefore, please do not release the captioned placements upon maturity
until you have received the instruction from Citibank, Manila.
On even date, respondent sent another letter[67] to Mr. Tan of petitioner Citibank, stating that
Re: S/A No. 25-225928
and C/A No. 484-946
This letter serves as an authority to debit whatever the outstanding balance from my captioned accounts and
credit the amount to my loan outstanding account with you.

Unlike respondents earlier letters, both letters, dated 21 June 1979, are printed on plain paper, without the letterhead of her company,
MC Adore International Palace.

By 5 September 1979, respondents outstanding and past due obligations to petitioner Citibank totaled P2,123,843.20, representing the
principal amounts plus interests. Relying on respondents Deeds of Assignment, petitioner Citibank applied the proceeds of
respondents money market placements with petitioner FNCB Finance, as well as her deposit account with petitioner Citibank, to partly
liquidate respondents outstanding loan balance,[68] as follows
Respondents outstanding obligation (principal and interest)
Less:
Proceeds from respondents money market placements
with petitioner FNCB Finance (principal and interest)
Deposits in respondents bank accounts with petitioner
Citibank

P 2,123,843.20

Balance of respondents obligation

P 1,069,847.40

(1,022,916.66)
(31,079.14)

Mr. Tan of petitioner Citibank subsequently sent a letter, [69] dated 28 September 1979, notifying respondent of the status of her loans
and the foregoing compensation which petitioner Citibank effected. In the letter, Mr. Tan informed respondent that she still had a
remaining past-due obligation in the amount of P1,069,847.40, as of 5 September 1979, and should respondent fail to pay the amount
by 15 October 1979, then petitioner Citibank shall proceed to off-set the unpaid amount with respondents other collateral, particularly,
a money market placement in Citibank-Hongkong.

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

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

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

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

Respondents version of events

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

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

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

Respondent likewise questioned the MCs presented by petitioners, except for one (MC No. 228270 in particular), as proof that she
received the proceeds of the loans covered by the first set of PNs. As recounted in the preceding paragraph, respondent admitted to
obtaining a loan of P150,000.00, covered by PN No. 34534, and receiving MC No. 228270 representing the proceeds thereof, but
claimed that she already paid the same. She denied ever receiving MCs No. 220701 (for the loan of P400,000.00, covered by PN No.
33935) and No. 226467 (for the loan of P250,000.00, covered by PN No. 34079), and pointed out that the checks did not bear her
indorsements. She did not deny receiving all other checks but she interposed that she received these checks, not as proceeds of loans,
but as payment of the principal amounts and/or interests from her money market placements with petitioner Citibank. She also raised
doubts as to the notation on each of the checks that reads RE: Proceeds of PN#[corresponding PN No.], saying that such notation did
not appear on the MCs when she originally received them and that the notation appears to have been written by a typewriter different
from that used in writing all other information on the checks (i.e., date, payee, and amount).[76] She even testified that MCs were not
supposed to bear notations indicating the purpose for which they were issued.
As to the second set of PNs, respondent acknowledged having signed them all. However, she asserted that she only executed these
PNs as part of the simulated loans she and Mr. Tan of petitioner Citibank concocted. Respondent explained that she had a pending loan
application for a big amount with the Development Bank of the Philippines (DBP), and when Mr. Tan found out about this, he
suggested that they could make it appear that the respondent had outstanding loans with petitioner Citibank and the latter was already

demanding payment thereof; this might persuade DBP to approve respondents loan application. Mr. Tan made the respondent sign the
second set of PNs, so that he may have something to show the DBP investigator who might inquire with petitioner Citibank as to
respondents loans with the latter. On her own copies of the said PNs, respondent wrote by hand the notation, This isa (sic) simulated
non-negotiable note, signed copy given to Mr. Tan., (sic) per agreement to be shown to DBP representative. itwill (sic) be returned to
me if the P11=M (sic) loan for MC Adore Palace Hotel is approved by DBP.[77]
Findings of this Court as to the existence of the loans

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

Respondents outstanding obligation for P1,920,000.00 had been sufficiently documented by petitioner Citibank.

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

It bears to emphasize that the proceeds of the loans were paid to respondent in MCs, with the respondent specifically named as
payee. MCs checks are drawn by the banks manager upon the bank itself and regarded to be as good as the money it represents.
[79]

Moreover, the MCs were crossed checks, with the words Payees Account Only.

In general, a crossed check cannot be presented to the drawee bank for payment in cash. Instead, the check can only be deposited with
the payees bank which, in turn, must present it for payment against the drawee bank in the course of normal banking hours. The
crossed check cannot be presented for payment, but it can only be deposited and the drawee bank may only pay to another bank in the
payees or indorsers account.[80] The effect of crossing a check was described by this Court in Philippine Commercial International
Bank v. Court of Appeals[81]
[T]he crossing of a check with the phrase Payees Account Only is a warning that the check should be deposited in
the account of the payee. Thus, it is the duty of the collecting bank PCI Bank to ascertain that the check be deposited

in payees account only. It is bound to scrutinize the check and to know its depositors before it can make the clearing
indorsement all prior indorsements and/or lack of indorsement guaranteed.

The crossed MCs presented by petitioner Bank were indeed deposited in several different bank accounts and cleared by the Clearing
Office of the Central Bank of the Philippines, as evidenced by the stamp marks and notations on the said checks. The crossed MCs are
already in the possession of petitioner Citibank, the drawee bank, which was ultimately responsible for the payment of the amount
stated in the checks. Given that a check is more than just an instrument of credit used in commercial transactions for it also serves as a
receipt or evidence for the drawee bank of the cancellation of the said check due to payment, [82] then, the possession by petitioner
Citibank of the said MCs, duly stamped Paid gives rise to the presumption that the said MCs were already paid out to the intended
payee, who was in this case, the respondent.

This Court finds applicable herein the presumptions that private transactions have been fair and regular, [83] and that the ordinary course
of business has been followed. [84] There is no question that the loan transaction between petitioner Citibank and the respondent is a
private transaction. The transactions revolving around the crossed MCs from their issuance by petitioner Citibank to respondent as
payment of the proceeds of her loans; to its deposit in respondents accounts with several different banks; to the clearing of the MCs by
an independent clearing house; and finally, to the payment of the MCs by petitioner Citibank as the drawee bank of the said checks are
all private transactions which shall be presumed to have been fair and regular to all the parties concerned. In addition, the banks
involved in the foregoing transactions are also presumed to have followed the ordinary course of business in the acceptance of the
crossed MCs for deposit in respondents accounts, submitting them for clearing, and their eventual payment and cancellation.
The afore-stated presumptions are disputable, meaning, they are satisfactory if uncontradicted, but may be contradicted and overcome
by other evidence.[85] Respondent, however, was unable to present sufficient and credible evidence to dispute these presumptions.

It should be recalled that out of the nine MCs presented by petitioner Citibank, respondent admitted to receiving one as proceeds of a
loan (MC No. 228270), denied receiving two (MCs No. 220701 and 226467), and admitted to receiving all the rest, but not as
proceeds of her loans, but as return on the principal amounts and interests from her money market placements.

Respondent admitted receiving MC No. 228270 representing the proceeds of her loan covered by PN No. 34534. Although the
principal amount of the loan is P150,000.00, respondent only received P146,312.50, because the interest and handling fee on the loan
transaction were already deducted therefrom.[86] Stamps and notations at the back of MC No. 228270 reveal that it was deposited at the
Bank of the Philippine Islands (BPI), Cubao Branch, in Account No. 0123-0572-28. [87] The check also bore the signature of respondent
at the back.[88] And, although respondent would later admit that she did sign PN No. 34534 and received MC No. 228270 as proceeds

of the loan extended to her by petitioner Citibank, she contradicted herself when, in an earlier testimony, she claimed that PN No.
34534 was among the PNs she executed as simulated loans with petitioner Citibank.[89]

Respondent denied ever receiving MCs No. 220701 and 226467. However, considering that the said checks were crossed for payees
account only, and that they were actually deposited, cleared, and paid, then the presumption would be that the said checks were
properly deposited to the account of respondent, who was clearly named the payee in the checks. Respondents bare allegations that she
did not receive the two checks fail to convince this Court, for to sustain her, would be for this Court to conclude that an irregularity
had occurred somewhere from the time of the issuance of the said checks, to their deposit, clearance, and payment, and which would
have involved not only petitioner Citibank, but also BPI, which accepted the checks for deposit, and the Central Bank of the
Philippines, which cleared the checks. It falls upon the respondent to overcome or dispute the presumption that the crossed checks
were issued, accepted for deposit, cleared, and paid for by the banks involved following the ordinary course of their business.

The mere fact that MCs No. 220701 and 226467 do not bear respondents signature at the back does not negate deposit thereof in her
account. The liability for the lack of indorsement on the MCs no longer fall on petitioner Citibank, but on the bank who received the
same for deposit, in this case, BPI Cubao Branch. Once again, it must be noted that the MCs were crossed, for payees account only,
and the payee named in both checks was none other than respondent. The crossing of the MCs was already a warning to BPI to receive
said checks for deposit only in respondents account. It was up to BPI to verify whether it was receiving the crossed MCs in accordance
with the instructions on the face thereof. If, indeed, the MCs were deposited in accounts other than respondents, then the respondent
would have a cause of action against BPI.[90]

BPI further stamped its guarantee on the back of the checks to the effect that, All prior endorsement and/or Lack of endorsement
guaranteed. Thus, BPI became the indorser of the MCs, and assumed all the warranties of an indorser, [91]specifically, that the checks
were genuine and in all respects what they purported to be; that it had a good title to the checks; that all prior parties had capacity to
contract; and that the checks were, at the time of their indorsement, valid and subsisting. [92] So even if the MCs deposited by BPI's
client, whether it be by respondent herself or some other person, lacked the necessary indorsement, BPI, as the collecting bank, is
bound by its warranties as an indorser and cannot set up the defense of lack of indorsement as against petitioner Citibank, the drawee
bank.[93]

Furthermore, respondents bare and unsubstantiated denial of receipt of the MCs in question and their deposit in her account is
rendered suspect when MC No. 220701 was actually deposited in Account No. 0123-0572-28 of BPI Cubao Branch, the very same

account in which MC No. 228270 (which respondent admitted to receiving as proceeds of her loan from petitioner Citibank), and MCs
No. 228203, 228357, and 228400 (which respondent admitted to receiving as proceeds from her money market placements) were
deposited. Likewise, MC No. 226467 was deposited in Account No. 0121-002-43 of BPI Cubao Branch, to which MCs No. 226285
and 226439 (which respondent admitted to receiving as proceeds from her money market placements) were deposited. It is an apparent
contradiction for respondent to claim having received the proceeds of checks deposited in an account, and then deny receiving the
proceeds of another check deposited in the very same account.

Another inconsistency in respondents denial of receipt of MC No. 226467 and her deposit of the same in her account, is her
presentation of Exhibit HHH, a provisional receipt which was supposed to prove that respondent turned overP500,000.00 to Mr. Tan
of petitioner Citibank, that the said amount was split into three money market placements, and that MC No. 226467 represented the
return on her investment from one of these placements. [94] Because of her Exhibit HHH, respondent effectively admitted receipt of MC
No. 226467, although for reasons other than as proceeds of a loan.

Neither can this Court give credence to respondents contention that the notations on the MCs, stating that they were the proceeds of
particular PNs, were not there when she received the checks and that the notations appeared to be written by a typewriter different
from that used to write the other information on the checks. Once more, respondents allegations were uncorroborated by any other
evidence. Her and her counsels observation that the notations on the MCs appear to be written by a typewriter different from that used
to write the other information on the checks hardly convinces this Court considering that it constitutes a mere opinion on the
appearance of the notation by a witness who does not possess the necessary expertise on the matter. In addition, the notations on the
MCs were written using both capital and small letters, while the other information on the checks were written using capital letters
only, such difference could easily confuse an untrained eye and lead to a hasty conclusion that they were written by different
typewriters.

Respondents testimony, that based on her experience transacting with banks, the MCs were not supposed to include notations on the
purpose for which the checks were issued, also deserves scant consideration. While respondent may have extensive experience dealing
with banks, it still does not qualify her as a competent witness on banking procedures and practices. Her testimony on this matter is
even belied by the fact that the other MCs issued by petitioner Citibank (when it was still named First National City Bank) and by
petitioner FNCB Finance, the existence and validity of which were not disputed by respondent, also bear similar notations that state
the reason for which they were issued.

Respondent presented several more pieces of evidence to substantiate her claim that she received MCs No. 226285, 226439, 226467,
226057, 228357, and 228400, not as proceeds of her loans from petitioner Citibank, but as the return of the principal amounts and
payment of interests from her money market placements with petitioners. Part of respondents exhibits were personal checks [95] drawn
by respondent on her account with Feati Bank & Trust Co., which she allegedly invested in separate money market placements with
both petitioners, the returns from which were paid to her via MCs No. 226285 and 228400. Yet, to this Court, the personal checks only
managed to establish respondents issuance thereof, but there was nothing on the face of the checks that would reveal the purpose for
which they were issued and that they were actually invested in money market placements as respondent claimed.

Respondent further submitted handwritten notes that purportedly computed and presented the returns on her money market
placements, corresponding to the amount stated in the MCs she received from petitioner Citibank. Exhibit HHH-1[96] was a
handwritten note, which respondent attributed to Mr. Tan of petitioner Citibank, showing the breakdown of her BPI Check
for P500,000.00 into three different money market placements with petitioner Citibank. This Court, however, noticed several factors
which render the note highly suspect. One, it was written on the reversed side of Provisional Receipt No. 12724 of petitioner Citibank
which bore the initials of Mr. Tan acknowledging receipt of respondents BPI Check No. 120989 for P500,000.00; but the initials on
the handwritten note appeared to be that of Mr. Bobby Mendoza of petitioner FNCB Finance. [97] Second, according to Provisional
Receipt No. 12724, BPI Check No. 120989 for P500,000.00 was supposed to be invested in three money market placements with
petitioner Citibank for the period of 60 days. Since all these money market placements were made through one check deposited on the
same day, 10 November 1978, it made no sense that the handwritten note at the back of Provisional Receipt No. 12724 provided for
different dates of maturity for each of the money market placements (i.e., 16 November 1978, 17 January 1979, and 21 November
1978), and such dates did not correspond to the 60 day placement period stated on the face of the provisional receipt. And third, the
principal amounts of the money market placements as stated in the handwritten note P145,000.00, P145,000.00 and P242,000.00
totaled P532,000.00, and was obviously in excess of the P500,000.00 acknowledged on the face of Provisional Receipt No. 12724.

Exhibits III and III-1, the front and bank pages of a handwritten note of Mr. Bobby Mendoza of petitioner FNCB Finance,
[98]

also did not deserve much evidentiary weight, and this Court cannot rely on the truth and accuracy of the computations presented

therein. Mr. Mendoza was not presented as a witness during the trial before the RTC, so that the document was not properly
authenticated nor its contents sufficiently explained. No one was able to competently identify whether the initials as appearing on the
note were actually Mr. Mendozas.

Also, going by the information on the front page of the note, this Court observes that payment of respondents alleged money
market placements with petitioner FNCB Finance were made using Citytrust Checks; the MCs in question, including MC No. 228057,
were issued by petitioner Citibank. Although Citytrust (formerly Feati Bank & Trust Co.), petitioner FNCB Finance, and petitioner
Citibank may be affiliates of one another, they each remained separate and distinct corporations, each having its own financial system
and records. Thus, this Court cannot simply assume that one corporation, such as petitioner Citibank or Citytrust, can issue a check to
discharge an obligation of petitioner FNCB Finance. It should be recalled that when petitioner FNCB Finance paid for respondents
money market placements, covered by its PNs No. 8167 and 8169, as well as PNs No. 20138 and 20139, petitioner FNCB Finance
issued its own checks.

As a last point on this matter, if respondent truly had money market placements with petitioners, then these would have been
evidenced by PNs issued by either petitioner Citibank or petitioner FNCB Finance, acknowledging the principal amounts of the
investments, and stating the applicable interest rates, as well as the dates of their of issuance and maturity. After respondent had so
meticulously reconstructed her other money market placements with petitioners and consolidated the documentary evidence thereon,
she came surprisingly short of offering similar details and substantiation for these particular money market placements.

Since this Court is satisfied that respondent indeed received the proceeds of the first set of PNs, then it proceeds to analyze her
evidence of payment thereof.

In support of respondents assertion that she had already paid whatever loans she may have had with petitioner Citibank, she
presented as evidence Provisional Receipts No. 19471, dated 11 August 1978, and No. 12723, dated 10 November 1978, both of
petitioner Citibank and signed by Mr. Tan, for the amounts of P500,744.00 and P500,000.00, respectively. While these provisional
receipts did state that Mr. Tan, on behalf of petitioner Citibank, received respondents checks as payment for her loans, they failed to
specifically identify which loans were actually paid. Petitioner Citibank was able to present evidence that respondent had executed
several PNs in the years 1978 and 1979 to cover the loans she secured from the said bank. Petitioner Citibank did admit that
respondent was able to pay for some of these PNs, and what it identified as the first and second sets of PNs were only those which
remained unpaid. It thus became incumbent upon respondent to prove that the checks received by Mr. Tan were actually applied to the
PNs in either the first or second set; a fact that, unfortunately, cannot be determined from the provisional receipts submitted by
respondent since they only generally stated that the checks received by Mr. Tan were payment for respondents loans.

Mr. Tan, in his deposition, further explained that provisional receipts were issued when payment to the bank was made using
checks, since the checks would still be subject to clearing. The purpose for the provisional receipts was merely to acknowledge the
delivery of the checks to the possession of the bank, but not yet of payment. [99] This bank practice finds legitimacy in the
pronouncement of this Court that a check, whether an MC or an ordinary check, is not legal tender and, therefore, cannot constitute
valid tender of payment. In Philippine Airlines, Inc. v. Court of Appeals, [100] this Court elucidated that:
Since a negotiable instrument is only a substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment (Sec. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan
Landon Co. v. American Bank, 7 Phil. 255; Tan Sunco, v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check, whether a
manager's check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid
tender of payment and may be refused receipt by the obligee or creditor. Mere delivery of checks does not discharge
the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by
commercial document is actually realized (Art. 1249, Civil Code, par. 3).

In the case at bar, the issuance of an official receipt by petitioner Citibank would have been dependent on whether the checks
delivered by respondent were actually cleared and paid for by the drawee banks.

As for PN No. 34534, respondent asserted payment thereof at two separate instances by two different means. In her formal offer of
exhibits, respondent submitted a deposit slip of petitioner Citibank, dated 11 August 1978, evidencing the deposit of BPI Check No.
5785 for P150,000.00.[101] In her Formal Offer of Documentary Exhibits, dated 7 July 1989, respondent stated that the purpose for the
presentation of the said deposit slip was to prove that she already paid her loan covered by PN No. 34534. [102] In her testimony before
the RTC three years later, on 28 November 1991, she changed her story. This time she narrated that the loan covered by PN No. 34534
was secured by her money market placement with petitioner FNCB Finance, and when she failed to pay the said PN when it became
due, the security was applied to the loan, therefore, the loan was considered paid. [103] Given the foregoing, respondents assertion of
payment of PN No. 34534 is extremely dubious.

According to petitioner Citibank, the PNs in the second set, except for PN No. 34534, were mere renewals of the unpaid PNs
in the first set, which was why the PNs stated that they were for the purpose of liquidating existing obligations. PN No. 34534,
however, which was part of the first set, was still valid and subsisting and so it was included in the second set without need for its
renewal, and it still being the original PN for that particular loan, its stated purpose was for personal investment. [104] Respondent
essentially admitted executing the second set of PNs, but they were only meant to cover simulated loans. Mr. Tan supposedly
convinced her that her pending loan application with DBP would have a greater chance of being approved if they made it appear that
respondent urgently needed the money because petitioner Citibank was already demanding payment for her simulated loans.

Respondents defense of simulated loans to escape liability for the second set of PNs is truly a novel one. It is regrettable, however, that
she was unable to substantiate the same. Yet again, respondents version of events is totally based on her own uncorroborated
testimony. The notations on the second set of PNs, that they were non-negotiable simulated notes, were admittedly made by
respondent herself and were, thus, self-serving. Equally self-serving was respondents letter, written on 7 October 1985, or more than
six years after the execution of the second set of PNs, in which she demanded return of the simulated or fictitious PNs, together with
the letters relating thereto, which Mr. Tan purportedly asked her to execute. Respondent further failed to present any proof of her
alleged loan application with the DBP, and of any circumstance or correspondence wherein the simulated or fictitious PNs were indeed
used for their supposed purpose.

In contrast, petitioner Citibank, as supported by the testimonies of its officers and available documentation, consistently treated the
said PNs as regular loans accepted, approved, and paid in the ordinary course of its business.

The PNs executed by the respondent in favor of petitioner Citibank to cover her loans were duly-filled out and signed, including the
disclosure statement found at the back of the said PNs, in adherence to the Central Bank requirement to disclose the full finance
charges to a loan granted to borrowers.

Mr. Tan, then an account officer with the Marketing Department of petitioner Citibank, testified that he dealt directly with
respondent; he facilitated the loans; and the PNs, at least in the second set, were signed by respondent in his presence. [105]

Mr. Pujeda, the officer who was previously in charge of loans and placements, confirmed that the signatures on the PNs were
verified against respondents specimen signature with the bank. [106]

Ms. Cristina Dondoyano, who worked at petitioner Citibank as a loan processor, was responsible for booking respondents
loans. Booking the loans means recording it in the General Ledger. She explained the procedure for booking loans, as follows: The
account officer, in the Marketing Department, deals directly with the clients who wish to borrow money from petitioner Citibank. The
Marketing Department will forward a loan booking checklist, together with the borrowing clients PNs and other supporting
documents, to the loan pre-processor, who will check whether the details in the loan booking checklist are the same as those in the
PNs. The documents are then sent to Signature Control for verification of the clients signature in the PNs, after which, they are
returned to the loan pre-processor, to be forwarded finally to the loan processor. The loan processor shall book the loan in the General
Ledger, indicating therein the client name, loan amount, interest rate, maturity date, and the corresponding PN number. Since she

booked respondents loans personally, Ms. Dondoyano testified that she saw the original PNs. In 1986, Atty. Fernandez of petitioner
Citibank requested her to prepare an accounting of respondents loans, which she did, and which was presented as Exhibit 120 for the
petitioners. The figures from the said exhibit were culled from the bookings in the General Ledger, a fact which respondents counsel
was even willing to stipulate.[107]

Ms. Teresita Glorioso was an Investigation and Reconcilement Clerk at the Control Department of petitioner Citibank. She was
presented by petitioner Citibank to expound on the microfilming procedure at the bank, since most of the copies of the PNs were
retrieved from microfilm. Microfilming of the documents are actually done by people at the Operations Department. At the end of the
day or during the day, the original copies of all bank documents, not just those pertaining to loans, are microfilmed. She refuted the
possibility that insertions could be made in the microfilm because the microfilm is inserted in a cassette; the cassette is placed in the
microfilm machine for use; at the end of the day, the cassette is taken out of the microfilm machine and put in a safe vault; and the
cassette is returned to the machine only the following day for use, until the spool is full. This is the microfilming procedure followed
everyday.When the microfilm spool is already full, the microfilm is developed, then sent to the Control Department, which double
checks the contents of the microfilms against the entries in the General Ledger. The Control Department also conducts a random
comparison of the contents of the microfilms with the original documents; a random review of the contents is done on every role of
microfilm.[108]

Ms. Renee Rubio worked for petitioner Citibank for 20 years. She rose from the ranks, initially working as a secretary in the Personnel
Group; then as a secretary to the Personnel Group Head; a Service Assistant with the Marketing Group, in 1972 to 1974, dealing
directly with corporate and individual clients who, among other things, secured loans from petitioner Citibank; the Head of the
Collection Group of the Foreign Department in 1974 to 1976; the Head of the Money Transfer Unit in 1976 to 1978; the Head of the
Loans and Placements Unit up to the early 1980s; and, thereafter, she established operations training for petitioner Citibank in the
Asia-Pacific Region responsible for the training of the officers of the bank. She testified on the standard loan application process at
petitioner Citibank. According to Ms. Rubio, the account officer or marketing person submits a proposal to grant a loan to an
individual or corporation. Petitioner Citibank has a worldwide policy that requires a credit committee, composed of a minimum of
three people, which would approve the loan and amount thereof. There can be no instance when only one officer has the power to
approve the loan application. When the loan is approved, the account officer in charge will obtain the corresponding PNs from the
client. The PNs are sent to the signature verifier who would validate the signatures therein against those appearing in the signature
cards previously submitted by the client to the bank. The Operations Unit will check and review the documents, including the PNs, if
it is a clean loan, and securities and deposits, if it is collateralized. The loan is then recorded in the General Ledger. The Loans and

Placements Department will not book the loans without the PNs. When the PNs are liquidated, whether they are paid or rolled-over,
they are returned to the client. [109] Ms. Rubio further explained that she was familiar with respondents accounts since, while she was
still the Head of the Loan and Placements Unit, she was asked by Mr. Tan to prepare a list of respondents outstanding obligations.
[110]

She thus calculated respondents outstanding loans, which was sent as an attachment to Mr. Tans letter to respondent, dated 28

September 1979, and presented before the RTC as Exhibits 34-B and 34-C.[111]
Lastly, the exchange of letters between petitioner Citibank and respondent, as well as the letters sent by other people working for
respondent, had consistently recognized that respondent owed petitioner Citibank money.

In consideration of the foregoing discussion, this Court finds that the preponderance of evidence supports the existence of the
respondents loans, in the principal sum of P1,920,000.00, as of 5 September 1979. While it is well-settled that the term preponderance
of evidence should not be wholly dependent on the number of witnesses, there are certain instances when the number of witnesses
become the determining factor
The preponderance of evidence may be determined, under certain conditions, by the number of witnesses
testifying to a particular fact or state of facts. For instance, one or two witnesses may testify to a given state of facts,
and six or seven witnesses of equal candor, fairness, intelligence, and truthfulness, and equally well corroborated by
all the remaining evidence, who have no greater interest in the result of the suit, testify against such state of facts.
Then the preponderance of evidence is determined by the number of witnesses. (Wilcox vs. Hines, 100 Tenn. 524, 66
Am. St. Rep., 761.)[112]

Best evidence rule

This Court disagrees in the pronouncement made by the Court of Appeals summarily dismissing the documentary evidence
submitted by petitioners based on its broad and indiscriminate application of the best evidence rule.
In general, the best evidence rule requires that the highest available degree of proof must be produced. Accordingly, for
documentary evidence, the contents of a document are best proved by the production of the document itself, [113] to the exclusion of any
secondary or substitutionary evidence.[114]

The best evidence rule has been made part of the revised Rules of Court, Rule 130, Section 3, which reads
SEC. 3. Original document must be produced; exceptions. When the subject of inquiry is the contents of a
document, no evidence shall be admissible other than the original document itself, except in the following cases:
(a) When the original has been lost or destroyed, or cannot be produced in court, without bad faith on the
part of the offeror;
(b) When the original is in the custody or under the control of the party against whom the evidence is
offered, and the latter fails to produce it after reasonable notice;

(c) When the original consists of numerous accounts or other documents which cannot be examined in
court without great loss of time and the fact sought to be established from them is only the general result of the
whole; and
(d) When the original is a public record in the custody of a public officer or is recorded in a public office.

As the afore-quoted provision states, the best evidence rule applies only when the subject of the inquiry is the contents of the
document. The scope of the rule is more extensively explained thus
But even with respect to documentary evidence, the best evidence rule applies only when the content of
such document is the subject of the inquiry. Where the issue is only as to whether such document was actually
executed, or exists, or on the circumstances relevant to or surrounding its execution, the best evidence rule does not
apply and testimonial evidence is admissible (5 Moran, op. cit., pp. 76-66; 4 Martin, op. cit., p. 78). Any other
substitutionary evidence is likewise admissible without need for accounting for the original.
Thus, when a document is presented to prove its existence or condition it is offered not as documentary, but
as real, evidence. Parol evidence of the fact of execution of the documents is allowed (Hernaez, et al. vs. McGrath,
etc., et al., 91 Phil 565). x x x [115]

In Estrada v. Desierto,[116] this Court had occasion to rule that

It is true that the Court relied not upon the original but only copy of the Angara Diary as published in the
Philippine Daily Inquirer on February 4-6, 2001. In doing so, the Court, did not, however, violate the best evidence
rule. Wigmore, in his book on evidence, states that:
Production of the original may be dispensed with, in the trial courts discretion, whenever in the case in
hand the opponent does not bona fide dispute the contents of the document and no other useful purpose will be
served by requiring production.24
xxxx
In several Canadian provinces, the principle of unavailability has been abandoned, for certain documents in
which ordinarily no real dispute arised. This measure is a sensible and progressive one and deserves universal
adoption (post, sec. 1233). Its essential feature is that a copy may be used unconditionally, if the opponent has been
given an opportunity to inspect it. (Emphasis supplied.)

This Court did not violate the best evidence rule when it considered and weighed in evidence the photocopies and microfilm
copies of the PNs, MCs, and letters submitted by the petitioners to establish the existence of respondents loans. The terms or contents
of these documents were never the point of contention in the Petition at bar. It was respondents position that the PNs in the first set
(with the exception of PN No. 34534) never existed, while the PNs in the second set (again, excluding PN No. 34534) were merely
executed to cover simulated loan transactions. As for the MCs representing the proceeds of the loans, the respondent either denied
receipt of certain MCs or admitted receipt of the other MCs but for another purpose. Respondent further admitted the letters she wrote
personally or through her representatives to Mr. Tan of petitioner Citibank acknowledging the loans, except that she claimed that these
letters were just meant to keep up the ruse of the simulated loans. Thus, respondent questioned the documents as to their existence or

execution, or when the former is admitted, as to the purpose for which the documents were executed, matters which are, undoubtedly,
external to the documents, and which had nothing to do with the contents thereof.
Alternatively, even if it is granted that the best evidence rule should apply to the evidence presented by petitioners regarding
the existence of respondents loans, it should be borne in mind that the rule admits of the following exceptions under Rule 130, Section
5 of the revised Rules of Court
SEC. 5. When the original document is unavailable. When the original document has been lost or
destroyed, or cannot be produced in court, the offeror, upon proof of its execution or existence and the cause of its
unavailability without bad faith on his part, may prove its contents by a copy, or by a recital of its contents in some
authentic document, or by the testimony of witnesses in the order stated.

The execution or existence of the original copies of the documents was established through the testimonies of witnesses, such
as Mr. Tan, before whom most of the documents were personally executed by respondent. The original PNs also went through the
whole loan booking system of petitioner Citibank from the account officer in its Marketing Department, to the pre-processor, to the
signature verifier, back to the pre-processor, then to the processor for booking. [117] The original PNs were seen by Ms. Dondoyano, the
processor, who recorded them in the General Ledger. Mr. Pujeda personally saw the original MCs, proving respondents receipt of the
proceeds of her loans from petitioner Citibank, when he helped Attys. Cleofe and Fernandez, the banks legal counsels, to reconstruct
the records of respondents loans. The original MCs were presented to Atty. Cleofe who used the same during the preliminary
investigation of the case, sometime in years 1986-1987. The original MCs were subsequently turned over to the Control and
Investigation Division of petitioner Citibank.[118]

It was only petitioner FNCB Finance who claimed that they lost the original copies of the PNs when it moved to a new
office. Citibank did not make a similar contention; instead, it explained that the original copies of the PNs were returned to the
borrower upon liquidation of the loan, either through payment or roll-over. Petitioner Citibank proffered the excuse that they were still
looking for the documents in their storage or warehouse to explain the delay and difficulty in the retrieval thereof, but not their
absence or loss. The original documents in this case, such as the MCs and letters, were destroyed and, thus, unavailable for
presentation before the RTC only on 7 October 1987, when a fire broke out on the 7 th floor of the office building of petitioner
Citibank. There is no showing that the fire was intentionally set. The fire destroyed relevant documents, not just of the present case,
but also of other cases, since the 7 thfloor housed the Control and Investigation Division, in charge of keeping the necessary documents
for cases in which petitioner Citibank was involved.

The foregoing would have been sufficient to allow the presentation of photocopies or microfilm copies of the PNs, MCs, and
letters by the petitioners as secondary evidence to establish the existence of respondents loans, as an exception to the best evidence
rule.
The impact of the Decision of the Court of Appeals in the Dy case

In its assailed Decision, the Court of Appeals made the following pronouncement
Besides, We find the declaration and conclusions of this Court in CA-G.R. CV No. 15934 entitled Sps. Dr.
Ricardo L. Dy and Rosalind O. Dy vs. City Bank, N.A., et al, promulgated on 15 January 1990, as disturbing taking
into consideration the similarities of the fraud, machinations, and deceits employed by the defendant-appellant
Citibank and its Account Manager Francisco Tan.
Worthy of note is the fact that Our declarations and conclusions against Citibank and the person of
Francisco Tan in CA-G.R. CV No. 15934 were affirmed in toto by the Highest Magistrate in a Minute
Resolution dated 22 August 1990 entitled Citibank, N.A., vs. Court of Appeals, G.R. 93350.
As the factual milieu of the present appeal created reasonable doubts as to whether the nine (9) Promissory
Notes were indeed executed with considerations, the doubts, coupled by the findings and conclusions of this Court
in CA-G.R. CV No. 15934 and the Supreme Court in G.R. No. 93350. should be construed against herein
defendants-appellants Citibank and FNCB Finance.

What this Court truly finds disturbing is the significance given by the Court of Appeals in its assailed Decision to the Decision [119] of
its Third Division in CA-G.R. CV No. 15934 (or the Dy case), when there is an absolute lack of legal basis for doing such.

Although petitioner Citibank and its officer, Mr. Tan, were also involved in the Dy case, that is about the only connection between the
Dy case and the one at bar. Not only did the Dy case tackle transactions between parties other than the parties presently before this
Court, but the transactions are absolutely independent and unrelated to those in the instant Petition.

In the Dy case, Severino Chua Caedo managed to obtain loans from herein petitioner Citibank amounting to P7,000,000.00, secured to
the extent of P5,000,000.00 by a Third Party Real Estate Mortgage of the properties of Caedos aunt, Rosalind Dy. It turned out that
Rosalind Dy and her husband were unaware of the said loans and the mortgage of their properties. The transactions were carried out
exclusively between Caedo and Mr. Tan of petitioner Citibank.The RTC found Mr. Tan guilty of fraud for his participation in the
questionable transactions, essentially because he allowed Caedo to take out the signature cards, when these should have been signed
by the Dy spouses personally before him. Although the Dy spouses signatures in the PNs and Third Party Real Estate Mortgage were
forged, they were approved by the signature verifier since the signature cards against which they were compared to were also
forged.Neither the RTC nor the Court of Appeals, however, categorically declared Mr. Tan personally responsible for the forgeries,
which, in the narration of the facts, were more likely committed by Caedo.

In the Petition at bar, respondent dealt with Mr. Tan directly, there was no third party involved who could have perpetrated any fraud
or forgery in her loan transactions. Although respondent attempted to raise suspicion as to the authenticity of her signatures on certain
documents, these were nothing more than naked allegations with no corroborating evidence; worse, even her own allegations were
replete with inconsistencies. She could not even establish in what manner or under what circumstances the fraud or forgery was
committed, or how Mr. Tan could have been directly responsible for the same.

While the Court of Appeals can take judicial notice of the Decision of its Third Division in the Dy case, it should not have given the
said case much weight when it rendered the assailed Decision, since the former does not constitute a precedent. The Court of Appeals,
in the challenged Decision, did not apply any legal argument or principle established in the Dy case but, rather, adopted the findings
therein of wrongdoing or misconduct on the part of herein petitioner Citibank and Mr. Tan. Any finding of wrongdoing or misconduct
as against herein petitioners should be made based on the factual background and pieces of evidence submitted in this case, not those
in another case.

It is apparent that the Court of Appeals took judicial notice of the Dy case not as a legal precedent for the present case, but rather as
evidence of similar acts committed by petitioner Citibank and Mr. Tan. A basic rule of evidence,however, states that, Evidence that
one did or did not do a certain thing at one time is not admissible to prove that he did or did not do the same or similar thing at another
time; but it may be received to prove a specific intent or knowledge, identity, plan, system, scheme, habit, custom or usage, and the
like.[120] The rationale for the rule is explained thus
The rule is founded upon reason, public policy, justice and judicial convenience. The fact that a person has
committed the same or similar acts at some prior time affords, as a general rule, no logical guaranty that he
committed the act in question. This is so because, subjectively, a mans mind and even his modes of life may change;
and, objectively, the conditions under which he may find himself at a given time may likewise change and thus
induce him to act in a different way. Besides, if evidence of similar acts are to be invariably admitted, they will give
rise to a multiplicity of collateral issues and will subject the defendant to surprise as well as confuse the court and
prolong the trial.[121]

The factual backgrounds of the two cases are so different and unrelated that the Dy case cannot be used to prove specific intent,
knowledge, identity, plan, system, scheme, habit, custom or usage on the part of petitioner Citibank or its officer, Mr. Tan, to defraud
respondent in the present case.

IV

The liquidation of respondents outstanding loans were valid in so far as

petitioner Citibank used respondents savings account with the bank and her
money market placements with petitioner FNCB Finance; but illegal and void
in so far as petitioner Citibank used respondents dollar accounts with
Citibank-Geneva.
Savings Account with petitioner Citibank

Compensation is a recognized mode of extinguishing obligations. Relevant provisions of the Civil Code provides
Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of
each other.
Art. 1279. In order that compensation may be proper, it is necessary;
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor
of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.

There is little controversy when it comes to the right of petitioner Citibank to compensate respondents outstanding loans with
her deposit account. As already found by this Court, petitioner Citibank was the creditor of respondent for her outstanding loans. At
the same time, respondent was the creditor of petitioner Citibank, as far as her deposit account was concerned, since bank deposits,
whether fixed, savings, or current, should be considered as simple loan ormutuum by the depositor to the banking institution. [122] Both
debts consist in sums of money. By June 1979, all of respondents PNs in the second set had matured and became demandable, while
respondents savings account was demandable anytime. Neither was there any retention or controversy over the PNs and the deposit
account commenced by a third person and communicated in due time to the debtor concerned. Compensation takes place by operation
of law,[123] therefore, even in the absence of an expressed authority from respondent, petitioner Citibank had the right to effect, on 25
June 1979, the partial compensation or off-set of respondents outstanding loans with her deposit account, amounting to P31,079.14.

Money market placements with FNCB Finance

Things though are not as simple and as straightforward as regards to the money market placements and bank account used by
petitioner Citibank to complete the compensation or off-set of respondents outstanding loans, which came from persons other than
petitioner Citibank.

Respondents money market placements were with petitioner FNCB Finance, and after several roll-overs, they were
ultimately covered by PNs No. 20138 and 20139, which, by 3 September 1979, the date the check for the proceeds of the said PNs
were issued, amounted to P1,022,916.66, inclusive of the principal amounts and interests. As to these money market placements,
respondent was the creditor and petitioner FNCB Finance the debtor; while, as to the outstanding loans, petitioner Citibank was the
creditor and respondent the debtor. Consequently, legal compensation, under Article 1278 of the Civil Code, would not apply since the
first requirement for a valid compensation, that each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other, was not met.

What petitioner Citibank actually did was to exercise its rights to the proceeds of respondents money market placements with
petitioner FNCB Finance by virtue of the Deeds of Assignment executed by respondent in its favor.

The Court of Appeals did not consider these Deeds of Assignment because of petitioners failure to produce the original
copies thereof in violation of the best evidence rule. This Court again finds itself in disagreement in the application of the best
evidence rule by the appellate court.

To recall, the best evidence rule, in so far as documentary evidence is concerned, requires the presentation of the original
copy of the document only when the context thereof is the subject of inquiry in the case. Respondent does not question the contents of
the Deeds of Assignment. While she admitted the existence and execution of the Deeds of Assignment, dated 2 March 1978 and 9
March 1978, covering PNs No. 8169 and 8167 issued by petitioner FNCB Finance, she claimed, as defense, that the loans for which
the said Deeds were executed as security, were already paid. She denied ever executing both Deeds of Assignment, dated 25 August
1978, covering PNs No. 20138 and 20139.These are again issues collateral to the contents of the documents involved, which could be
proven by evidence other than the original copies of the said documents.

Moreover, the Deeds of Assignment of the money market placements with petitioner FNCB Finance were notarized
documents, thus, admissible in evidence. Rule 132, Section 30 of the Rules of Court provides that

SEC. 30. Proof of notarial documents. Every instrument duly acknowledged or proved and certified as
provided by law, may be presented in evidence without further proof, the certificate of acknowledgement
being prima facie evidence of the execution of the instrument or document involved.
Significant herein is this Courts elucidation in De Jesus v. Court of Appeals,[124] which reads

On the evidentiary value of these documents, it should be recalled that the notarization of a private
document converts it into a public one and renders it admissible in court without further proof of its authenticity
(Joson vs. Baltazar, 194 SCRA 114 [1991]). This is so because a public document duly executed and entered in the
proper registry is presumed to be valid and genuine until the contrary is shown by clear and convincing proof (Asido
vs. Guzman, 57 Phil. 652 [1918]; U.S. vs. Enriquez, 1 Phil 241 [1902]; Favor vs. Court of Appeals, 194 SCRA 308
[1991]). As such, the party challenging the recital of the document must prove his claim with clear and convincing
evidence (Diaz vs. Court of Appeals, 145 SCRA 346 [1986]).

The rule on the evidentiary weight that must be accorded a notarized document is clear and unambiguous. The certificate of
acknowledgement in the notarized Deeds of Assignment constituted prima facie evidence of the execution thereof. Thus, the burden of
refuting this presumption fell on respondent. She could have presented evidence of any defect or irregularity in the execution of the
said documents[125] or raised questions as to the verity of the notary publics acknowledgment and certificate in the Deeds. [126] But
again, respondent admitted executing the Deeds of Assignment, dated 2 March 1978 and 9 March 1978, although claiming that the
loans for which they were executed as security were already paid. And, she assailed the Deeds of Assignment, dated 25 August 1978,
with nothing more than her bare denial of execution thereof, hardly the clear and convincing evidence required to trounce the
presumption of due execution of a notarized document.

Petitioners not only presented the notarized Deeds of Assignment, but even secured certified literal copies thereof from the National
Archives.[127] Mr. Renato Medua, an archivist, working at the Records Management and Archives Office of the National Library,
testified that the copies of the Deeds presented before the RTC were certified literal copies of those contained in the Notarial
Registries of the notary publics concerned, which were already in the possession of the National Archives. He also explained that he
could not bring to the RTC the Notarial Registries containing the original copies of the Deeds of Assignment, because the Department
of Justice (DOJ) Circular No. 97, dated 8 November 1968, prohibits the bringing of original documents to the courts to prevent the
loss of irreplaceable and priceless documents.[128]

Accordingly, this Court gives the Deeds of Assignment grave importance in establishing the authority given by the respondent to
petitioner Citibank to use as security for her loans her money her market placements with petitioner FNCB Finance, represented by
PNs No. 8167 and 8169, later to be rolled-over as PNs No. 20138 and 20139. These Deeds of Assignment constitute the law between
the parties, and the obligations arising therefrom shall have the force of law between the parties and should be complied with in good
faith.[129] Standard clauses in all of the Deeds provide that
The ASSIGNOR and the ASSIGNEE hereby further agree as follows:
xxxx
2. In the event the OBLIGATIONS are not paid at maturity or upon demand, as the case may be, the
ASSIGNEE is fully authorized and empowered to collect and receive the PLACEMENT (or so much thereof as may
be necessary) and apply the same in payment of the OBLIGATIONS. Furthermore, the ASSIGNOR agrees that at

any time, and from time to time, upon request by the ASSIGNEE, the ASSIGNOR will promptly execute and deliver
any and all such further instruments and documents as may be necessary to effectuate this Assignment.
xxxx
5. This Assignment shall be considered as sufficient authority to FNCB Finance to pay and deliver the
PLACEMENT or so much thereof as may be necessary to liquidate the OBLIGATIONS, to the ASSIGNEE in
accordance with terms and provisions hereof.[130]

Petitioner Citibank was only acting upon the authority granted to it under the foregoing Deeds when it finally used the proceeds of
PNs No. 20138 and 20139, paid by petitioner FNCB Finance, to partly pay for respondents outstanding loans. Strictly speaking, it did
not effect a legal compensation or off-set under Article 1278 of the Civil Code, but rather, it partly extinguished respondents
obligations through the application of the security given by the respondent for her loans. Although the pertinent documents were
entitled Deeds of Assignment, they were, in reality, more of a pledge by respondent to petitioner Citibank of her credit due from
petitioner FNCB Finance by virtue of her money market placements with the latter. According to Article 2118 of the Civil Code
ART. 2118. If a credit has been pledged becomes due before it is redeemed, the pledgee may collect and
receive the amount due. He shall apply the same to the payment of his claim, and deliver the surplus, should there be
any, to the pledgor.

PNs No. 20138 and 20139 matured on 3 September 1979, without them being redeemed by respondent, so that petitioner Citibank
collected from petitioner FNCB Finance the proceeds thereof, which included the principal amounts and interests earned by the money
market placements, amounting to P1,022,916.66, and applied the same against respondents outstanding loans, leaving no surplus to be
delivered to respondent.

Dollar accounts with Citibank-Geneva

Despite the legal compensation of respondents savings account and the total application of the proceeds of PNs No. 20138 and 20139
to respondents outstanding loans, there still remained a balance of P1,069,847.40. Petitioner Citibank then proceeded to applying
respondents dollar accounts with Citibank-Geneva against her remaining loan balance, pursuant to a Declaration of Pledge supposedly
executed by respondent in its favor.

Certain principles of private international law should be considered herein because the property pledged was in the possession of an
entity in a foreign country, namely, Citibank-Geneva. In the absence of any allegation and evidence presented by petitioners of the
specific rules and laws governing the constitution of a pledge in Geneva, Switzerland, they will be presumed to be the same as
Philippine local or domestic laws; this is known as processual presumption.[131]

Upon closer scrutiny of the Declaration of Pledge, this Court finds the same exceedingly suspicious and irregular.

First of all, it escapes this Court why petitioner Citibank took care to have the Deeds of Assignment of the PNs notarized, yet left the
Declaration of Pledge unnotarized. This Court would think that petitioner Citibank would take greater cautionary measures with the
preparation and execution of the Declaration of Pledge because it involved respondents all present and future fiduciary placements
with a Citibank branch in another country, specifically, in Geneva, Switzerland. While there is no express legal requirement that the
Declaration of Pledge had to be notarized to be effective, even so, it could not enjoy the same prima facie presumption of due
execution that is extended to notarized documents, and petitioner Citibank must discharge the burden of proving due execution and
authenticity of the Declaration of Pledge.

Second, petitioner Citibank was unable to establish the date when the Declaration of Pledge was actually executed. The photocopy of
the Declaration of Pledge submitted by petitioner Citibank before the RTC was undated. [132] It presented only a photocopy of the
pledge because it already forwarded the original copy thereof to Citibank-Geneva when it requested for the remittance of respondents
dollar accounts pursuant thereto. Respondent, on the other hand, was able to secure a copy of the Declaration of Pledge, certified by an
officer of Citibank-Geneva, which bore the date 24 September 1979.[133] Respondent, however, presented her passport and plane tickets
to prove that she was out of the country on the said date and could not have signed the pledge. Petitioner Citibank insisted that the
pledge was signed before 24 September 1979, but could not provide an explanation as to how and why the said date was written on the
pledge. Although Mr. Tan testified that the Declaration of Pledge was signed by respondent personally before him, he could not give
the exact date when the said signing took place. It is important to note that the copy of the Declaration of Pledge submitted by the
respondent to the RTC was certified by an officer of Citibank-Geneva, which had possession of the original copy of the pledge. It is
dated 24 September 1979, and this Court shall abide by the presumption that the written document is truly dated. [134] Since it is
undeniable that respondent was out of the country on 24 September 1979, then she could not have executed the pledge on the said
date.

Third, the Declaration of Pledge was irregularly filled-out. The pledge was in a standard printed form. It was constituted in favor of
Citibank, N.A., otherwise referred to therein as the Bank. It should be noted, however, that in the space which should have named the
pledgor, the name of petitioner Citibank was typewritten, to wit
The pledge right herewith constituted shall secure all claims which the Bank now has or in the future acquires
against Citibank, N.A., Manila (full name and address of the Debtor), regardless of the legal cause or the transaction
(for example current account, securities transactions, collections, credits, payments, documentary credits and

collections) which gives rise thereto, and including principal, all contractual and penalty interest, commissions,
charges, and costs.

The pledge, therefore, made no sense, the pledgor and pledgee being the same entity. Was a mistake made by whoever filled-out the
form? Yes, it could be a possibility. Nonetheless, considering the value of such a document, the mistake as to a significant detail in the
pledge could only be committed with gross carelessness on the part of petitioner Citibank, and raised serious doubts as to the
authenticity and due execution of the same. The Declaration of Pledge had passed through the hands of several bank officers in the
country and abroad, yet, surprisingly and implausibly, no one noticed such a glaring mistake.

Lastly, respondent denied that it was her signature on the Declaration of Pledge. She claimed that the signature was a forgery. When a
document is assailed on the basis of forgery, the best evidence rule applies
Basic is the rule of evidence that when the subject of inquiry is the contents of a document, no evidence is
admissible other than the original document itself except in the instances mentioned in Section 3, Rule 130 of the
Revised Rules of Court. Mere photocopies of documents are inadmissible pursuant to the best evidence rule. This is
especially true when the issue is that of forgery.
As a rule, forgery cannot be presumed and must be proved by clear, positive and convincing evidence and
the burden of proof lies on the party alleging forgery. The best evidence of a forged signature in an instrument is the
instrument itself reflecting the alleged forged signature. The fact of forgery can only be established by a comparison
between the alleged forged signature and the authentic and genuine signature of the person whose signature is
theorized upon to have been forged. Without the original document containing the alleged forged signature, one
cannot make a definitive comparison which would establish forgery. A comparison based on a mere xerox copy or
reproduction of the document under controversy cannot produce reliable results.[135]

Respondent made several attempts to have the original copy of the pledge produced before the RTC so as to have it examined
by experts. Yet, despite several Orders by the RTC, [136] petitioner Citibank failed to comply with the production of the original
Declaration of Pledge. It is admitted that Citibank-Geneva had possession of the original copy of the pledge. While petitioner Citibank
in Manila and its branch in Geneva may be separate and distinct entities, they are still incontestably related, and between petitioner
Citibank and respondent, the former had more influence and resources to convince Citibank-Geneva to return, albeit temporarily, the
original Declaration of Pledge. Petitioner Citibank did not present any evidence to convince this Court that it had exerted diligent
efforts to secure the original copy of the pledge, nor did it proffer the reason why Citibank-Geneva obstinately refused to give it back,
when such document would have been very vital to the case of petitioner Citibank. There is thus no justification to allow the
presentation of a mere photocopy of the Declaration of Pledge in lieu of the original, and the photocopy of the pledge presented by
petitioner Citibank has nil probative value.[137] In addition, even if this Court cannot make a categorical finding that respondents
signature on the original copy of the pledge was forged, it is persuaded that petitioner Citibank willfully suppressed the presentation of
the original document, and takes into consideration the presumption that the evidence willfully suppressed would be adverse to
petitioner Citibank if produced.[138]

Without the Declaration of Pledge, petitioner Citibank had no authority to demand the remittance of respondents dollar
accounts with Citibank-Geneva and to apply them to her outstanding loans. It cannot effect legal compensation under Article 1278 of
the Civil Code since, petitioner Citibank itself admitted that Citibank-Geneva is a distinct and separate entity. As for the dollar
accounts, respondent was the creditor and Citibank-Geneva is the debtor; and as for the outstanding loans, petitioner Citibank was the
creditor and respondent was the debtor. The parties in these transactions were evidently not the principal creditor of each other.

Therefore, this Court declares that the remittance of respondents dollar accounts from Citibank-Geneva and the application thereof to
her outstanding loans with petitioner Citibank was illegal, and null and void. Resultantly, petitioner Citibank is obligated to return to
respondent the amount of US$149,632,99 from her Citibank-Geneva accounts, or its present equivalent value in Philippine currency;
and, at the same time, respondent continues to be obligated to petitioner Citibank for the balance of her outstanding loans which, as of
5 September 1979, amounted to P1,069,847.40.
V
The parties shall be liable for interests on their monetary obligations to each
other, as determined herein.

In summary, petitioner Citibank is ordered by this Court to pay respondent the proceeds of her money market placements,
represented by PNs No. 23356 and 23357, amounting to P318,897.34 and P203,150.00, respectively, earning an interest of 14.5% per
annum as stipulated in the PNs,[139] beginning 17 March 1977, the date of the placements.

Petitioner Citibank is also ordered to refund to respondent the amount of US$149,632.99, or its equivalent in Philippine
currency, which had been remitted from her Citibank-Geneva accounts. These dollar accounts, consisting of two fiduciary placements
and current accounts with Citibank-Geneva shall continue earning their respective stipulated interests from 26 October 1979, the date
of their remittance by Citibank-Geneva to petitioner Citibank in Manila and applied against respondents outstanding loans.

As for respondent, she is ordered to pay petitioner Citibank the balance of her outstanding loans, which amounted
to P1,069,847.40 as of 5 September 1979. These loans continue to earn interest, as stipulated in the corresponding PNs, from the time
of their respective maturity dates, since the supposed payment thereof using respondents dollar accounts from Citibank-Geneva is
deemed illegal, null and void, and, thus, ineffective.

VI
Petitioner Citibank shall be liable for damages to respondent.

Petitioners protest the award by the Court of Appeals of moral damages, exemplary damages, and attorneys fees in favor of
respondent. They argued that the RTC did not award any damages, and respondent, in her appeal before the Court of Appeals, did not
raise in issue the absence of such.

While it is true that the general rule is that only errors which have been stated in the assignment of errors and properly argued in the
brief shall be considered, this Court has also recognized exceptions to the general rule, wherein it authorized the review of matters,
even those not assigned as errors in the appeal, if the consideration thereof is necessary in arriving at a just decision of the case, and
there is a close inter-relation between the omitted assignment of error and those actually assigned and discussed by the appellant.
[140]

Thus, the Court of Appeals did not err in awarding the damages when it already made findings that would justify and support the

said award.
Although this Court appreciates the right of petitioner Citibank to effect legal compensation of respondents local deposits, as well as
its right to the proceeds of PNs No. 20138 and 20139 by virtue of the notarized Deeds of Assignment, to partly extinguish respondents
outstanding loans, it finds that petitioner Citibank did commit wrong when it failed to pay and properly account for the proceeds of
respondents money market placements, evidenced by PNs No. 23356 and 23357, and when it sought the remittance of respondents
dollar accounts from Citibank-Geneva by virtue of a highly-suspect Declaration of Pledge to be applied to the remaining balance of
respondents outstanding loans. It bears to emphasize that banking is impressed with public interest and its fiduciary character requires
high standards of integrity and performance.[141] A bank is under the obligation to treat the accounts of its depositors with meticulous
care whether such accounts consist only of a few hundred pesos or of millions of pesos. [142] The bank must record every single
transaction accurately, down to the last centavo, and as promptly as possible. [143] Petitioner Citibank evidently failed to exercise the
required degree of care and transparency in its transactions with respondent, thus, resulting in the wrongful deprivation of her
property.

Respondent had been deprived of substantial amounts of her investments and deposits for more than two decades. During this
span of years, respondent had found herself in desperate need of the amounts wrongfully withheld from her. In her
testimony[144] before the RTC, respondent narrated
Q By the way Mrs. Witness will you kindly tell us again, you said before that you are a businesswoman, will you tell
us again what are the businesses you are engaged into [sic]?

A I am engaged in real estate. I am the owner of the Modesta Village 1 and 2 in San Mateo, Rizal. I am also the
President and Chairman of the Board of Macador [sic] Co. and Business Inc. which operates the Macador
[sic] International Palace Hotel. I am also the President of the Macador [sic] International Palace Hotel, and
also the Treasures Home Industries, Inc. which I am the Chairman and president of the Board and also
operating affiliated company in the name of Treasures Motor Sales engaged in car dealers [sic] like Delta
Motors, we are the dealers of the whole Northern Luzon and I am the president of the Disto Company, Ltd.,
based in Hongkong licensed in Honkong [sic] and now operating in Los Angeles, California.
Q What is the business of that Disto Company Ltd.?
A Disto Company, Ltd., is engaged in real estate and construction.
Q Aside from those businesses are you a member of any national or community organization for social and civil
activities?
A Yes sir.
Q What are those?
A I am the Vice-President of thes [sic] Subdivision Association of the Philippines in 1976, I am also an officer of the
Chamber of Real Estate Business Association; I am also an officer of the Chatholic [sic] Womens League
and I am also a member of the CMLI, I forgot the definition.
Q How about any political affiliation or government position held if any?
A I was also a candidate for Mayo last January 30, 1980.
Q Where?
A In Dagupan City, Pangasinan.
Q What else?
A I also ran as an Assemblywoman last May, 1984, Independent party in Regional I, Pangasinan.
Q What happened to your businesses you mentioned as a result of your failure to recover you [sic] investments and
bank deposits from the defendants?
A They are not all operating, in short, I was hampered to push through the businesses that I have.
A [sic] Of all the businesses and enterprises that you mentioned what are those that are paralyzed and what remain
inactive?
A Of all the company [sic] that I have, only the Disto Company that is now operating in California.
Q How about your candidacy as Mayor of Dagupan, [sic] City, and later as Assemblywoman of Region I, what
happened to this?
A I won by voting but when election comes on [sic] the counting I lost and I protested this, it is still pending and
because I dont have financial resources I was not able to push through the case. I just have it pending in the
Comelec.
Q Now, do these things also affect your social and civic activities?
A Yes sir, definitely.
Q How?
A I was embarrassed because being a businesswoman I would like to inform the Honorable Court that I was
awarded as the most outstanding businesswoman of the year in 1976 but when this money was not given

back to me I was not able to comply with the commitments that I have promised to these associations that I
am engaged into [sic], sir.

For the mental anguish, serious anxiety, besmirched reputation, moral shock and social humiliation suffered by the respondent, the
award of moral damages is but proper. However, this Court reduces the amount thereof to P300,000.00, for the award of moral
damages is meant to compensate for the actual injury suffered by the respondent, not to enrich her.[145]

Having failed to exercise more care and prudence than a private individual in its dealings with respondent, petitioner Citibank
should be liable for exemplary damages, in the amount of P250,000.00, in accordance with Article 2229[146] and 2234[147] of the Civil
Code.

With the award of exemplary damages, then respondent shall also be entitled to an award of attorneys fees. [148] Additionally, attorney's
fees may be awarded when a party is compelled to litigate or to incur expenses to protect his interest by reason of an unjustified act of
the other party.[149] In this case, an award of P200,000.00 attorneys fees shall be satisfactory.

In contrast, this Court finds no sufficient basis to award damages to petitioners. Respondent was compelled to institute the present case
in the exercise of her rights and in the protection of her interests. In fact, although her Complaint before the RTC was not sustained in
its entirety, it did raise meritorious points and on which this Court rules in her favor. Any injury resulting from the exercise of ones
rights is damnum absque injuria.[150]

IN VIEW OF THE FOREGOING, the instant Petition is PARTLY GRANTED. The assailed Decision of the Court of
Appeals in CA-G.R. No. 51930, dated 26 March 2002, as already modified by its Resolution, dated 20 November 2002, is
hereby AFFIRMED WITH MODIFICATION, as follows

1. PNs No. 23356 and 23357 are DECLARED subsisting and outstanding. Petitioner Citibank is ORDERED to return to
respondent the principal amounts of the said PNs, amounting to Three Hundred Eighteen Thousand Eight Hundred Ninety-Seven
Pesos and Thirty-Four Centavos (P318,897.34) and Two Hundred Three Thousand One Hundred Fifty Pesos (P203,150.00),
respectively, plus the stipulated interest of Fourteen and a half percent (14.5%) per annum, beginning 17 March 1977;

2. The remittance of One Hundred Forty-Nine Thousand Six Hundred Thirty Two US Dollars and Ninety-Nine Cents
(US$149,632.99) from respondents Citibank-Geneva accounts to petitioner Citibank in Manila, and the application of the same against

respondents outstanding loans with the latter, is DECLARED illegal, null and void. Petitioner Citibank is ORDERED to refund to
respondent the said amount, or its equivalent in Philippine currency using the exchange rate at the time of payment, plus the stipulated
interest for each of the fiduciary placements and current accounts involved, beginning 26 October 1979;

3. Petitioner Citibank is ORDERED to pay respondent moral damages in the amount of Three Hundred Thousand Pesos
(P300,000.00); exemplary damages in the amount of Two Hundred Fifty Thousand Pesos (P250,000.00); and attorneys fees in the
amount of Two Hundred Thousand Pesos (P200,000.00); and

4. Respondent is ORDERED to pay petitioner Citibank the balance of her outstanding loans, which, from the respective
dates of their maturity to 5 September 1979, was computed to be in the sum of One Million Sixty-Nine Thousand Eight Hundred
Forty-Seven Pesos and Forty Centavos (P1,069,847.40), inclusive of interest. These outstanding loans shall continue to earn interest,
at the rates stipulated in the corresponding PNs, from 5 September 1979 until payment thereof.
SO ORDERED.