SPOUSES DEO AGNER and MARICON AGNER, Petitioners,

vs.
BPI FAMILY SAVINGS BANK, INC., Respondent.
DECISION
PERALTA, J.:
This is a petition for review on certiorari assailing the April 30, 2007 Decision 1 and May 19,
2008 Resolution2of the Court of Appeals in CAG.R. CV No. 86021, which affirmed the August
11, 2005 Decision3 of the Regional Trial Court, Branch 33, Manila City.
On February 15, 2001, petitioners spouses Deo Agner and Maricon Agner executed a
Promissory Note with Chattel Mortgage in favor of Citimotors, Inc. The contract provides,
among others, that: for receiving the amount of Php834, 768.00, petitioners shall pay Php
17,391.00 every 15th day of each succeeding month until fully paid; the loan is secured by a
2001 Mitsubishi Adventure Super Sport; and an interest of 6% per month shall be imposed
for failure to pay each installment on or before the stated due date. 4
On the same day, Citimotors, Inc. assigned all its rights, title and interests in the Promissory
Note with Chattel Mortgage to ABN AMRO Savings Bank, Inc. (ABN AMRO), which, on May 31,
2002, likewise assigned the same to respondent BPI Family Savings Bank, Inc. 5
For failure to pay four successive installments from May 15, 2002 to August 15, 2002,
respondent, through counsel, sent to petitioners a demand letter dated August 29, 2002,
declaring the entire obligation as due and demandable and requiring to pay Php576,664.04,
or surrender the mortgaged vehicle immediately upon receiving the letter. 6 As the demand
was left unheeded, respondent filed on October 4, 2002 an action for Replevin and Damages
before the Manila Regional Trial Court (RTC).
A writ of replevin was issued.7 Despite this, the subject vehicle was not seized. 8 Trial on the
merits ensued. On August 11, 2005, the Manila RTC Br. 33 ruled for the respondent and
ordered petitioners to jointly and severally pay the amount of Php576,664.04 plus interest at
the rate of 72% per annum from August 20, 2002 until fully paid, and the costs of suit.
Petitioners appealed the decision to the Court of Appeals (CA), but the CA affirmed the lower
courts decision and, subsequently, denied the motion for reconsideration; hence, this
petition.
Before this Court, petitioners argue that: (1) respondent has no cause of action, because the
Deed of Assignment executed in its favor did not specifically mention ABN AMROs account
receivable from petitioners; (2) petitioners cannot be considered to have defaulted in
payment for lack of competent proof that they received the demand letter; and (3)
respondents remedy of resorting to both actions of replevin and collection of sum of money
is contrary to the provision of Article 14849 of the Civil Code and the Elisco Tool
Manufacturing Corporation v. Court of Appeals10ruling.
The contentions are untenable.

With respect to the first issue, it would be sufficient to state that the matter surrounding the
Deed of Assignment had already been considered by the trial court and the CA. Likewise, it
is an issue of fact that is not a proper subject of a petition for review under Rule 45. An issue
is factual when the doubt or difference arises as to the truth or falsehood of alleged facts, or
when the query invites calibration of the whole evidence, considering mainly the credibility
of witnesses, existence and relevancy of specific surrounding circumstances, their relation to
each other and to the whole, and the probabilities of the situation. 11 Time and again, We
stress that this Court is not a trier of facts and generally does not weigh anew evidence
which lower courts have passed upon.
As to the second issue, records bear that both verbal and written demands were in fact
made by respondent prior to the institution of the case against petitioners. 12 Even assuming,
for arguments sake, that no demand letter was sent by respondent, there is really no need
for it because petitioners legally waived the necessity of notice or demand in the Promissory
Note with Chattel Mortgage, which they voluntarily and knowingly signed in favor of
respondents predecessor-in-interest. Said contract expressly stipulates:
In case of my/our failure to pay when due and payable, any sum which I/We are obliged to
pay under this note and/or any other obligation which I/We or any of us may now or in the
future owe to the holder of this note or to any other party whether as principal or guarantor
x x x then the entire sum outstanding under this note shall, without prior notice or demand,
immediately become due and payable. (Emphasis and underscoring supplied)
A provision on waiver of notice or demand has been recognized as legal and valid in Bank of
the Philippine Islands v. Court of Appeals,13 wherein We held:
The Civil Code in Article 1169 provides that one incurs in delay or is in default from the time
the obligor demands the fulfillment of the obligation from the obligee. However, the law
expressly provides that demand is not necessary under certain circumstances, and one of
these circumstances is when the parties expressly waive demand. Hence, since the cosignors expressly waived demand in the promissory notes, demand was unnecessary for
them to be in default.14
Further, the Court even ruled in Navarro v. Escobido 15 that prior demand is not a condition
precedent to an action for a writ of replevin, since there is nothing in Section 2, Rule 60 of
the Rules of Court that requires the applicant to make a demand on the possessor of the
property before an action for a writ of replevin could be filed.
Also, petitioners representation that they have not received a demand letter is completely
inconsequential as the mere act of sending it would suffice. Again, We look into the
Promissory Note with Chattel Mortgage, which provides:
All correspondence relative to this mortgage, including demand letters, summonses,
subpoenas, or notifications of any judicial or extrajudicial action shall be sent to the
MORTGAGOR at the address indicated on this promissory note with chattel mortgage or at
the address that may hereafter be given in writing by the MORTGAGOR to the MORTGAGEE
or his/its assignee. The mere act of sending any correspondence by mail or by personal
delivery to the said address shall be valid and effective notice to the mortgagor for all legal
purposes and the fact that any communication is not actually received by the MORTGAGOR
or that it has been returned unclaimed to the MORTGAGEE or that no person was found at

the address given, or that the address is fictitious or cannot be located shall not excuse or
relieve the MORTGAGOR from the effects of such notice.16 (Emphasis and underscoring
supplied)
The Court cannot yield to petitioners denial in receiving respondents demand letter. To
note, their postal address evidently remained unchanged from the time they executed the
Promissory Note with Chattel Mortgage up to time the case was filed against them. Thus, the
presumption that "a letter duly directed and mailed was received in the regular course of the
mail"17 stands in the absence of satisfactory proof to the contrary.
Petitioners cannot find succour from Ting v. Court of Appeals 18 simply because it pertained to
violation of Batas Pambansa Blg. 22 or the Bouncing Checks Law. As a higher quantum of
proof that is, proof beyond reasonable doubt is required in view of the criminal nature of
the case, We found insufficient the mere presentation of a copy of the demand letter
allegedly sent through registered mail and its corresponding registry receipt as proof of
receiving the notice of dishonor.
Perusing over the records, what is clear is that petitioners did not take advantage of all the
opportunities to present their evidence in the proceedings before the courts below. They
miserably failed to produce the original cash deposit slips proving payment of the monthly
amortizations in question. Not even a photocopy of the alleged proof of payment was
appended to their Answer or shown during the trial. Neither have they demonstrated any
written requests to respondent to furnish them with official receipts or a statement of
account. Worse, petitioners were not able to make a formal offer of evidence considering
that they have not marked any documentary evidence during the presentation of Deo
Agners testimony.19
Jurisprudence abounds that, in civil cases, one who pleads payment has the burden of
proving it; the burden rests on the defendant to prove payment, rather than on the plaintiff
to prove non-payment.20 When the creditor is in possession of the document of credit, proof
of non-payment is not needed for it is presumed. 21 Respondent's possession of the
Promissory Note with Chattel Mortgage strongly buttresses its claim that the obligation has
not been extinguished. As held in Bank of the Philippine Islands v. Spouses Royeca: 22
x x x The creditor's possession of the evidence of debt is proof that the debt has not been
discharged by payment. A promissory note in the hands of the creditor is a proof of
indebtedness rather than proof of payment. In an action for replevin by a mortgagee, it is
prima facie evidence that the promissory note has not been paid. Likewise, an uncanceled
mortgage in the possession of the mortgagee gives rise to the presumption that the
mortgage debt is unpaid.23
Indeed, 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. 24 The debtor has the burden of
showing with legal certainty that the obligation has been discharged by payment. 25
Lastly, there is no violation of Article 1484 of the Civil Code and the Courts decision in Elisco
Tool Manufacturing Corporation v. Court of Appeals.26
In Elisco, petitioner's complaint contained the following prayer:

WHEREFORE, plaintiffs pray that judgment be rendered as follows:

ON THE FIRST CAUSE OF ACTION
Ordering defendant Rolando Lantan to pay the plaintiff the sum of P39,054.86 plus legal
interest from the date of demand until the whole obligation is fully paid;
ON THE SECOND CAUSE OF ACTION
To forthwith issue a Writ of Replevin ordering the seizure of the motor vehicle more
particularly described in paragraph 3 of the Complaint, from defendant Rolando Lantan
and/or defendants Rina Lantan, John Doe, Susan Doe and other person or persons in whose
possession the said motor vehicle may be found, complete with accessories and equipment,
and direct deliver thereof to plaintiff in accordance with law, and after due hearing to
confirm said seizure and plaintiff's possession over the same;
PRAYER COMMON TO ALL CAUSES OF ACTION
1. Ordering the defendant Rolando Lantan to pay the plaintiff an amount equivalent
to twenty-five percent (25%) of his outstanding obligation, for and as attorney's fees;
2. Ordering defendants to pay the cost or expenses of collection, repossession,
bonding fees and other incidental expenses to be proved during the trial; and
3. Ordering defendants to pay the costs of suit.
Plaintiff also prays for such further reliefs as this Honorable Court may deem just and
equitable under the premises.27
The Court therein ruled:
The remedies provided for in Art. 1484 are alternative, not cumulative. The exercise of one
bars the exercise of the others. This limitation applies to contracts purporting to be leases of
personal property with option to buy by virtue of Art. 1485. The condition that the lessor has
deprived the lessee of possession or enjoyment of the thing for the purpose of applying Art.
1485 was fulfilled in this case by the filing by petitioner of the complaint for replevin to
recover possession of movable property. By virtue of the writ of seizure issued by the trial
court, the deputy sheriff seized the vehicle on August 6, 1986 and thereby deprived private
respondents of its use. The car was not returned to private respondent until April 16, 1989,
after two (2) years and eight (8) months, upon issuance by the Court of Appeals of a writ of
execution.
Petitioner prayed that private respondents be made to pay the sum of P39,054.86, the
amount that they were supposed to pay as of May 1986, plus interest at the legal rate. At
the same time, it prayed for the issuance of a writ of replevin or the delivery to it of the
motor vehicle "complete
with accessories and equipment." In the event the car could not be delivered to petitioner, it
was prayed that private respondent Rolando Lantan be made to pay petitioner the amount
of P60,000.00, the "estimated actual value" of the car, "plus accrued monthly rentals thereof

with interests at the rate of fourteen percent (14%) per annum until fully paid." This prayer
of course cannot be granted, even assuming that private respondents have defaulted in the
payment of their obligation. This led the trial court to say that petitioner wanted to eat its
cake and have it too.28
In contrast, respondent in this case prayed:
(a) Before trial, and upon filing and approval of the bond, to forthwith issue a Writ of
Replevin ordering the seizure of the motor vehicle above-described, complete with all
its accessories and equipments, together with the Registration Certificate thereof,
and direct the delivery thereof to plaintiff in accordance with law and after due
hearing, to confirm the said seizure;
(b) Or, in the event that manual delivery of the said motor vehicle cannot be effected
to render judgment in favor of plaintiff and against defendant(s) ordering them to pay
to plaintiff, jointly and severally, the sum of P576,664.04 plus interest and/or late
payment charges thereon at the rate of 72% per annum from August 20, 2002 until
fully paid;
(c) In either case, to order defendant(s) to pay jointly and severally:
(1) the sum of P297,857.54 as attorneys fees, liquidated damages, bonding
fees and other expenses incurred in the seizure of the said motor vehicle; and
(2) the costs of suit.
Plaintiff further prays for such other relief as this Honorable Court may deem just and
equitable in the premises.29
Compared with Elisco, the vehicle subject matter of this case was never recovered and
delivered to respondent despite the issuance of a writ of replevin. As there was no seizure
that transpired, it cannot be said that petitioners were deprived of the use and enjoyment of
the mortgaged vehicle or that respondent pursued, commenced or concluded its actual
foreclosure. The trial court, therefore, rightfully granted the alternative prayer for sum of
money, which is equivalent to the remedy of "exacting fulfillment of the obligation."
Certainly, there is no double recovery or unjust enrichment 30 to speak of.1wphi1
All the foregoing notwithstanding, We are of the opinion that the interest of 6% per month
should be equitably reduced to one percent (1%) per month or twelve percent (12%) per
annum, to be reckoned from May 16, 2002 until full payment and with the remaining
outstanding balance of their car loan as of May 15, 2002 as the base amount.
Settled is the principle which this Court has affirmed in a number of cases that stipulated
interest rates of three percent (3%) per month and higher are excessive, iniquitous,
unconscionable, and exorbitant.31 While Central Bank Circular No. 905-82, which took effect
on January 1, 1983, effectively removed the ceiling on interest rates for both secured and
unsecured loans, regardless of maturity, nothing in the said circular could possibly be read
as granting carte blanche authority to lenders to raise interest rates to levels which would
either enslave their borrowers or lead to a hemorrhaging of their assets.32 Since the
stipulation on the interest rate is void for being contrary to morals, if not against the law, it

is as if there was no express contract on said interest rate; thus, the interest rate may be
reduced as reason and equity demand.33
WHEREFORE, the petition is DENIED and the Court AFFIRMS WITH MODIFICATION the April
30, 2007 Decision and May 19, 2008 Resolution of the Court of Appeals in CA-G.R. CV No.
86021. Petitioners spouses Deo Agner and Maricon Agner are ORDERED to pay, jointly and
severally, respondent BPI Family Savings Bank, Inc. ( 1) the remaining outstanding balance
of their auto loan obligation as of May 15, 2002 with interest at one percent ( 1 o/o) per
month from May 16, 2002 until fully paid; and (2) costs of suit.
SO ORDERED.

EFFECT OF DEATH
STRONGHOLD INSURANCE COMPANY, INC., Petitioner,
vs.
REPUBLIC-ASAHI GLASS CORPORATION, Respondent.
DECISION
PANGANIBAN, CJ:
Asurety companys liability under the performance bond it issues is solidary. The death of
the principal obligor does not, as a rule, extinguish the obligation and the solidary nature of
that liability.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to reverse the
March 13, 2001 Decision2 of the Court of Appeals (CA) in CA-GR CV No. 41630. The assailed
Decision disposed as follows:
"WHEREFORE, the Order dated January 28, 1993 issued by the lower court is REVERSED and
SET ASIDE. Let the records of the instant case be REMANDED to the lower court for the
reception of evidence of all parties."3
The Facts
The facts of the case are narrated by the CA in this wise:
"On May 24, 1989, [respondent] Republic-Asahi Glass Corporation (Republic-Asahi) entered
into a contract with x x x Jose D. Santos, Jr., the proprietor of JDS Construction (JDS), for the
construction of roadways and a drainage system in Republic-Asahis compound in Barrio
Pinagbuhatan, Pasig City, where [respondent] was to pay x x x JDS five million three hundred
thousand pesos (P5,300,000.00) inclusive of value added tax for said construction, which
was supposed to be completed within a period of two hundred forty (240) days beginning
May 8, 1989. In order to guarantee the faithful and satisfactory performance of its
undertakings x x x JDS, shall post a performance bond of seven hundred ninety five

thousand pesos (P795,000.00). x x x JDS executed, jointly and severally with [petitioner]
Stronghold Insurance Co., Inc. (SICI) Performance Bond No. SICI-25849/g(13)9769.
"On May 23, 1989, [respondent] paid to x x x JDS seven hundred ninety five thousand pesos
(P795,000.00) by way of downpayment.
"Two progress billings dated August 14, 1989 and September 15, 1989, for the total amount
of two hundred seventy four thousand six hundred twenty one pesos and one centavo
(P274,621.01) were submitted by x x x JDS to [respondent], which the latter paid. According
to [respondent], these two progress billings accounted for only 7.301% of the work supposed
to be undertaken by x x x JDS under the terms of the contract.
"Several times prior to November of 1989, [respondents] engineers called the attention of x
x x JDS to the alleged alarmingly slow pace of the construction, which resulted in the fear
that the construction will not be finished within the stipulated 240-day period. However, said
reminders went unheeded by x x x JDS.
"On November 24, 1989, dissatisfied with the progress of the work undertaken by x x x JDS,
[respondent] Republic-Asahi extrajudicially rescinded the contract pursuant to Article XIII of
said contract, and wrote a letter to x x x JDS informing the latter of such rescission. Such
rescission, according to Article XV of the contract shall not be construed as a waiver of
[respondents] right to recover damages from x x x JDS and the latters sureties.
"[Respondent] alleged that, as a result of x x x JDSs failure to comply with the provisions of
the contract, which resulted in the said contracts rescission, it had to hire another
contractor to finish the project, for which it incurred an additional expense of three million
two hundred fifty six thousand, eight hundred seventy four pesos (P3,256,874.00).
"On January 6, 1990, [respondent] sent a letter to [petitioner] SICI filing its claim under the
bond for not less than P795,000.00. On March 22, 1991, [respondent] again sent another
letter reiterating its demand for payment under the aforementioned bond. Both letters
allegedly went unheeded.
"[Respondent] then filed [a] complaint against x x x JDS and SICI. It sought from x x x JDS
payment of P3,256,874.00 representing the additional expenses incurred by [respondent] for
the completion of the project using another contractor, and from x x x JDS and SICI, jointly
and severally, payment of P750,000.00 as damages in accordance with the performance
bond; exemplary damages in the amount of P100,000.00 and attorneys fees in the amount
of at least P100,000.00.
"According to the Sheriffs Return dated June 14, 1991, submitted to the lower court by
Deputy Sheriff Rene R. Salvador, summons were duly served on defendant-appellee SICI.
However, x x x Jose D. Santos, Jr. died the previous year (1990), and x x x JDS Construction
was no longer at its address at 2nd Floor, Room 208-A, San Buena Bldg. Cor. Pioneer St.,
Pasig, Metro Manila, and its whereabouts were unknown.
"On July 10, 1991, [petitioner] SICI filed its answer, alleging that the [respondents] money
claims against [petitioner and JDS] have been extinguished by the death of Jose D. Santos, Jr.
Even if this were not the case, [petitioner] SICI had been released from its liability under the
performance bond because there was no liquidation, with the active participation and/or

involvement, pursuant to procedural due process, of herein surety and contractor Jose D.
Santos, Jr., hence, there was no ascertainment of the corresponding liabilities of Santos and
SICI under the performance bond. At this point in time, said liquidation was impossible
because of the death of Santos, who as such can no longer participate in any liquidation.
The unilateral liquidation on the party (sic) of [respondent] of the work accomplishments did
not bind SICI for being violative of procedural due process. The claim of [respondent] for the
forfeiture of the performance bond in the amount of P795,000.00 had no factual and legal
basis, as payment of said bond was conditioned on the payment of damages which
[respondent] may sustain in the event x x x JDS failed to complete the contracted works.
[Respondent] can no longer prove its claim for damages in view of the death of Santos. SICI
was not informed by [respondent] of the death of Santos. SICI was not informed by
[respondent] of the unilateral rescission of its contract with JDS, thus SICI was deprived of its
right to protect its interests as surety under the performance bond, and therefore it was
released from all liability. SICI was likewise denied due process when it was not notified of
plaintiff-appellants process of determining and fixing the amount to be spent in the
completion of the unfinished project. The procedure contained in Article XV of the contract is
against public policy in that it denies SICI the right to procedural due process. Finally, SICI
alleged that [respondent] deviated from the terms and conditions of the contract without the
written consent of SICI, thus the latter was released from all liability. SICI also prayed for the
award of P59,750.00 as attorneys fees, and P5,000.00 as litigation expenses.
"On August 16, 1991, the lower court issued an order dismissing the complaint of
[respondent] against x x x JDS and SICI, on the ground that the claim against JDS did not
survive the death of its sole proprietor, Jose D. Santos, Jr. The dispositive portion of the
[O]rder reads as follows:
ACCORDINGLY, the complaint against the defendants Jose D. Santos, Jr., doing business
under trade and style, JDS Construction and Stronghold Insurance Company, Inc. is ordered
DISMISSED.
SO ORDERED.
"On September 4, 1991, [respondent] filed a Motion for Reconsideration seeking
reconsideration of the lower courts August 16, 1991 order dismissing its complaint.
[Petitioner] SICI field its Comment and/or Opposition to the Motion for Reconsideration. On
October 15, 1991, the lower court issued an Order, the dispositive portion of which reads as
follows:
WHEREFORE, premises considered, the Motion for Reconsideration is hereby given due
course. The Order dated 16 August 1991 for the dismissal of the case against Stronghold
Insurance Company, Inc., is reconsidered and hereby reinstated (sic). However, the case
against defendant Jose D. Santos, Jr. (deceased) remains undisturbed.
Motion for Preliminary hearing and Manifestation with Motion filed by [Stronghold] Insurance
Company Inc., are set for hearing on November 7, 1991 at 2:00 oclock in the afternoon.
SO ORDERED.

"On June 4, 1992, [petitioner] SICI filed its Memorandum for Bondsman/Defendant SICI (Re:
Effect of Death of defendant Jose D. Santos, Jr.) reiterating its prayer for the dismissal of
[respondents] complaint.
"On January 28, 1993, the lower court issued the assailed Order reconsidering its Order
dated October 15, 1991, and ordered the case, insofar as SICI is concerned, dismissed.
[Respondent] filed its motion for reconsideration which was opposed by [petitioner] SICI. On
April 16, 1993, the lower court denied [respondents] motion for reconsideration. x x x." 4
Ruling of the Court of Appeals
The CA ruled that SICIs obligation under the surety agreement was not extinguished by the
death of Jose D. Santos, Jr. Consequently, Republic-Asahi could still go after SICI for the bond.
The appellate court also found that the lower court had erred in pronouncing that the
performance of the Contract in question had become impossible by respondents act of
rescission. The Contract was rescinded because of the dissatisfaction of respondent with the
slow pace of work and pursuant to Article XIII of its Contract with JDS.
The CA ruled that "[p]erformance of the [C]ontract was impossible, not because of
[respondents] fault, but because of the fault of JDS Construction and Jose D. Santos, Jr. for
failure on their part to make satisfactory progress on the project, which amounted to nonperformance of the same. x x x [P]ursuant to the [S]urety [C]ontract, SICI is liable for the
non-performance of said [C]ontract on the part of JDS Construction."5
Hence, this Petition.6
Issue
Petitioner states the issue for the Courts consideration in the following manner:
"Death is a defense of Santos heirs which Stronghold could also adopt as its defense against
obligees claim."7
More precisely, the issue is whether petitioners liability under the performance bond was
automatically extinguished by the death of Santos, the principal.
The Courts Ruling
The Petition has no merit.
Sole Issue:
Effect of Death on the Suretys Liability
Petitioner contends that the death of Santos, the bond principal, extinguished his liability
under the surety bond. Consequently, it says, it is automatically released from any liability
under the bond.

As a general rule, the death of either the creditor or the debtor does not extinguish the
obligation.8 Obligations are transmissible to the heirs, except when the transmission is
prevented by the law, the stipulations of the parties, or the nature of the obligation. 9 Only
obligations that are personal10 or are identified with the persons themselves are
extinguished by death.11
Section 5 of Rule 8612 of the Rules of Court expressly allows the prosecution of money claims
arising from a contract against the estate of a deceased debtor. Evidently, those claims are
not actually extinguished.13 What is extinguished is only the obligees action or suit filed
before the court, which is not then acting as a probate court. 14
In the present case, whatever monetary liabilities or obligations Santos had under his
contracts with respondent were not intransmissible by their nature, by stipulation, or by
provision of law. Hence, his death did not result in the extinguishment of those obligations or
liabilities, which merely passed on to his estate.15 Death is not a defense that he or his
estate can set up to wipe out the obligations under the performance bond. Consequently,
petitioner as surety cannot use his death to escape its monetary obligation under its
performance bond.
The liability of petitioner is contractual in nature, because it executed a performance bond
worded as follows:
"KNOW ALL MEN BY THESE PRESENTS:
"That we, JDS CONSTRUCTION of 208-A San Buena Building, contractor, of Shaw Blvd., Pasig,
MM Philippines, as principal and the STRONGHOLD INSURANCE COMPANY, INC. a corporation
duly organized and existing under and by virtue of the laws of the Philippines with head
office at Makati, as Surety, are held and firmly bound unto the REPUBLIC ASAHI GLASS
CORPORATION and to any individual, firm, partnership, corporation or association supplying
the principal with labor or materials in the penal sum of SEVEN HUNDRED NINETY FIVE
THOUSAND (P795,000.00), Philippine Currency, for the payment of which sum, well and truly
to be made, we bind ourselves, our heirs, executors, administrators, successors and assigns,
jointly and severally, firmly by these presents.
"The CONDITIONS OF THIS OBLIGATION are as follows;
"WHEREAS the above bounden principal on the ___ day of __________, 19__ entered into a
contract with the REPUBLIC ASAHI GLASS CORPORATION represented by _________________, to
fully and faithfully. Comply with the site preparation works road and drainage system of
Philippine Float Plant at Pinagbuhatan, Pasig, Metro Manila.
"WHEREAS, the liability of the Surety Company under this bond shall in no case exceed the
sum of PESOS SEVEN HUNDRED NINETY FIVE THOUSAND (P795,000.00) Philippine Currency,
inclusive of interest, attorneys fee, and other damages, and shall not be liable for any
advances of the obligee to the principal.
"WHEREAS, said contract requires the said principal to give a good and sufficient bond in the
above-stated sum to secure the full and faithfull performance on its part of said contract,
and the satisfaction of obligations for materials used and labor employed upon the work;

"NOW THEREFORE, if the principal shall perform well and truly and fulfill all the
undertakings, covenants, terms, conditions, and agreements of said contract during the
original term of said contract and any extension thereof that may be granted by the obligee,
with notice to the surety and during the life of any guaranty required under the contract, and
shall also perform well and truly and fulfill all the undertakings, covenants, terms,
conditions, and agreements of any and all duly authorized modifications of said contract that
may hereinafter be made, without notice to the surety except when such modifications
increase the contract price; and such principal contractor or his or its sub-contractors shall
promptly make payment to any individual, firm, partnership, corporation or association
supplying the principal of its sub-contractors with labor and materials in the prosecution of
the work provided for in the said contract, then, this obligation shall be null and void;
otherwise it shall remain in full force and effect. Any extension of the period of time which
may be granted by the obligee to the contractor shall be considered as given, and any
modifications of said contract shall be considered as authorized, with the express consent of
the Surety.
"The right of any individual, firm, partnership, corporation or association supplying the
contractor with labor or materials for the prosecution of the work hereinbefore stated, to
institute action on the penal bond, pursuant to the provision of Act No. 3688, is hereby
acknowledge and confirmed."16
As a surety, petitioner is solidarily liable with Santos in accordance with the Civil Code, which
provides as follows:
"Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill
the obligation of the principal debtor in case the latter should fail to do so.
"If a person binds himself solidarily with the principal debtor, the provisions of Section
4,17 Chapter 3, Title I of this Book shall be observed. In such case the contract is called a
suretyship."
xxxxxxxxx
"Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all
of them simultaneously. The demand made against one of them shall not be an obstacle to
those which may subsequently be directed against the others, so long as the debt has not
been fully collected."
Elucidating on these provisions, the Court in Garcia v. Court of Appeals 18 stated thus:
"x x x. The suretys obligation is not an original and direct one for the performance of his
own act, but merely accessory or collateral to the obligation contracted by the principal.
Nevertheless, although the contract of a surety is in essence secondary only to a valid
principal obligation, his liability to the creditor or promisee of the principal is said to be
direct, primary and absolute; in other words, he is directly and equally bound with the
principal. x x x."19
Under the law and jurisprudence, respondent may sue, separately or together, the principal
debtor and the petitioner herein, in view of the solidary nature of their liability. The death of
the principal debtor will not work to convert, decrease or nullify the substantive right of the

solidary creditor. Evidently, despite the death of the principal debtor, respondent may still
sue petitioner alone, in accordance with the solidary nature of the latters liability under the
performance bond.
WHEREFORE, the Petition is DENIED and the Decision of the Court of Appeals AFFIRMED.
Costs against petitioner.
SO ORDERED.

TO WHOM PAYMENT SHALL BE MADE

PHILIPPINE NATIONAL BANK, petitioner,
vs.
COURT OF APPEALS and LORETO TAN, respondents.

ROMERO, J.:p
Petitioner Philippine National Bank (PNB) questions the decision 1 of the Court of Appeals
partially affirming the judgment of the Regional Trial Court, Branch 44, Bacolod City. The
dispositive portion of the trial court's decision states:
WHEREFORE, premises considered, the Court hereby renders judgment in
favor of the plaintiff and against the defendants as follows:
1) Ordering defendants to pay plaintiff jointly and severally the sum of
P32,480.00, with legal rate of interest to be computed from May 2, 1979, date
of filing of this complaint until fully paid;
2) Ordering defendants to pay plaintiff jointly and severally the sum of
P5,000.00 as exemplary damages;
3) Ordering defendants to pay plaintiff jointly and severally the sum of
P5,000.00 as attorney's fees; and
4) To pay the costs of this suit.
SO ORDERED. 2
The facts are the following:
Private respondent Loreto Tan (Tan) is the owner of a parcel of land abutting the national
highway in Mandalagan, Bacolod City. Expropriation proceedings were instituted by the
government against private respondent Tan and other property owners before the then
Court of First Instance of Negros Occidental, Branch IV, docketed as Civil Case No. 12924.

Tan filed a motion dated May 10, 1978 requesting issuance of an order for the release to him
of the expropriation price of P32,480.00.
On May 22, 1978, petitioner PNB (Bacolod Branch) was required by the trial court to release
to Tan the amount of P32,480.00 deposited with it by the government.
On May 24, 1978, petitioner, through its Assistant Branch Manager Juan Tagamolila, issued a
manager's check for P32,480.00 and delivered the same to one Sonia Gonzaga without Tan's
knowledge, consent or authority. Sonia Gonzaga deposited it in her account with Far East
Bank and Trust Co. (FEBTC) and later on withdrew the said amount.
Private respondent Tan subsequently demanded payment in the amount of P32,480.00 from
petitioner, but the same was refused on the ground that petitioner had already paid and
delivered the amount to Sonia Gonzaga on the strength of a Special Power of Attorney (SPA)
allegedly executed in her favor by Tan.
On June 8, 1978, Tan executed an affidavit before petitioner's lawyer, Alejandro S. Some,
stating that:
1) he had never executed any Special Power of Attorney in favor of Sonia S. Gonzaga;
2) he had never authorized Sonia Gonzaga to receive the sum of P32,480.00 from petitioner;
3) he signed a motion for the court to issue an Order to release the said sum of money to
him and gave the same to Mr. Nilo Gonzaga (husband of Sonia) to be filed in court. However,
after the Order was subsequently issued by the court, a certain Engineer Decena of the
Highway Engineer's Office issued the authority to release the funds not to him but to Mr.
Gonzaga.
When he failed to recover the amount from PNB, private respondent filed a motion with the
court to require PNB to pay the same to him.
Petitioner filed an opposition contending that Sonia Gonzaga presented to it a copy of the
May 22, 1978 order and a special power of attorney by virtue of which petitioner delivered
the check to her.
The matter was set for hearing on July 21, 1978 and petitioner was directed by the court to
produce the said special power of attorney thereat. However, petitioner failed to do so.
The court decided that there was need for the matter to be ventilated in a separate civil
action and thus private respondent filed a complaint with the Regional Trial Court in Bacolod
City (Branch 44) against petitioner and Juan Tagamolila, PNB's Assistant Branch Manager, to
recover the said amount.
In its defense, petitioner contended that private respondent had duly authorized Sonia
Gonzaga to act as his agent.
On September 28, 1979, petitioner filed a third-party complaint against the spouses Nilo and
Sonia Gonzaga praying that they be ordered to pay private respondent the amount of

P32,480.00. However, for failure of petitioner to have the summons served on the Gonzagas
despite opportunities given to it, the third-party complaint was dismissed.
Tagamolila, in his answer, stated that Sonia Gonzaga presented a Special Power of Attorney
to him but borrowed it later with the promise to return it, claiming that she needed it to
encash the check.
On June 7, 1989, the trial court rendered judgment ordering petitioner and Tagamolila to pay
private respondent jointly and severally the amount of P32,480.00 with legal interest,
damages and attorney's fees.
Both petitioner and Tagamolila appealed the case to the Court of Appeals.
In a resolution dated April 8, 1991, the appellate court dismissed Tagamolila's appeal for
failure to pay the docket fee within the reglementary period.
On August 31, 1992, the Court of Appeals affirmed the decision of the trial court against
petitioner, with the modification that the award of P5,000.00 for exemplary damages and
P5,000.00 for attorney's fees by the trial court was deleted.
Hence, this petition.
Petitioner PNB states that the issue in this case is whether or not the SPA ever existed. It
argues that the existence of the SPA need not be proved by it under the "best evidence rule"
because it already proved the existence of the SPA from the testimonies of its witnesses and
by the certification issued by the Far East Bank and Trust Company that it allowed Sonia
Gonzaga to encash Tan's check on the basis of the SPA.
We find the petition unmeritorious.
There is no question that no payment had ever been made to private respondent as the
check was never delivered to him. When the court ordered petitioner to pay private
respondent the amount of P32,480.00, it had the obligation to deliver the same to him.
Under Art. 1233 of the Civil Code, a debt shall not be understood to have been paid unless
the thing or service in which the obligation consists has been completely delivered or
rendered, as the case may be.
The burden of proof of such payment lies with the debtor. 3 In the instant case, neither the
SPA nor the check issued by petitioner was ever presented in court.
The testimonies of petitioner's own witnesses regarding the check were conflicting.
Tagamolila testified that the check was issued to the order of "Sonia Gonzaga as attorney-infact of Loreto Tan," 4 while Elvira Tibon, assistant cashier of PNB (Bacolod Branch), stated
that the check was issued to the order of "Loreto Tan." 5
Furthermore, contrary to petitioner's contention that all that is needed to be proved is the
existence of the SPA, it is also necessary for evidence to be presented regarding the nature
and extent of the alleged powers and authority granted to Sonia Gonzaga; more specifically,
to determine whether the document indeed authorized her to receive payment intended for
private respondent. However, no such evidence was ever presented.

Section 2, Rule 130 of the Rules of Court states that:

Sec. 2. Original writing must produced; exceptions. There can be no
evidence of a writing the contents of which is the subject of inquiry, other
than the original writing itself, except in the following cases:
(a) When the original has been lost, destroyed, or cannot be produced in
court;
(b) When the original is in the possession of the party against whom the
evidence is offered, and the latter fails to produce it after reasonable notice;
(c) When the original is a record or other document in the custody of a public
officer;
(d) When the original has been recorded in an existing record a certified copy
of which is made evidence by law;
(e) 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.
Section 4, Rule 130 of the Rules of Court allows the presentation of secondary evidence
when the original is lost or destroyed, thus:
Sec. 4. Secondary evidence when original is lost or destroyed. When the
original writing has been lost or destroyed, or cannot be produced in court,
upon proof of its execution and loss or destruction, or unavailability, its
contents may be proved by a copy, or by a recital of its contents in some
authentic document, or by the recollection of witnesses.
Considering that the contents of the SPA are also in issue here, the best evidence rule
applies. Hence, only the original document (which has not been presented at all) is the best
evidence of the fact as to whether or not private respondent indeed authorized Sonia
Gonzaga to receive the check from petitioner. In the absence of such document, petitioner's
arguments regarding due payment must fail.
Regarding the award of attorney's fees, we hold that private respondent Tan is entitled to the
same. Art. 2208 of the Civil Code allows attorney's fees to be awarded if the claimant is
compelled to litigate with third persons or to incur expenses to protect his interest by reason
of an unjustified act or omission of the party from whom it is sought. 6
In Rasonable v. NLRC, et al., 7 we held that when a party is forced to litigate to protect his
rights, he is entitled to an award of attorney's fees.
As for the award of exemplary damages, we agree with the appellate court that the same
should be deleted.
Under Art. 2232 of the Civil Code, exemplary damages may be awarded if a party acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner. However, they cannot be

recovered as a matter of right; the court has yet to decide whether or not they should be
adjudicated. 8
Jurisprudence has set down the requirements for exemplary damages to be awarded:
1. they may be imposed by way of example in addition to compensatory damages, and only
after the claimant's right to them has been established;
2. they cannot be recovered as a matter of right, their determination depending upon the
amount of compensatory damages that may be awarded to the claimant;
3. the act must be accompanied by bad faith or done in a wanton, fraudulent, oppressive or
malevolent manner. 9
In the case at bench, while there is a clear breach of petitioner's obligation to pay private
respondents, there is no evidence that it acted in a fraudulent, wanton, reckless or
oppressive manner. Furthermore, there is no award of compensatory damages which is a
prerequisite before exemplary damages may be awarded. Therefore, the award by the trial
court of P5,000.00 as exemplary damages is baseless.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the modification that the
award by the Regional Trial Court of P5,000.00 as attorney's fees is REINSTATED.
SO ORDERED.
FRANCISCO CULABA and DEMETRIA CULABA, doing business under the name and
style "Culaba Store",petitioners,
vs.
COURT OF APPEALS and SAN MIGUEL CORPORATION, respondents.

DECISION

CALLEJO, SR., J.:

This is a petition for review under Rule 45 of the Revised Rules of Civil Procedure of the
Decision1 of the Court of Appeals in CA-G.R. CV No. 19836 affirming in toto the Decision 2 of
the Regional Trial Court of Makati, Branch 138, in Civil Case No. 1033 for collection of sum of
money, and the Resolution3 denying the motion for reconsideration of the said decision.
The Undisputed Facts
The spouses Francisco and Demetria Culaba were the owners and proprietors of the Culaba
Store and were engaged in the sale and distribution of San Miguel Corporations (SMC) beer
products. SMC sold beer products on credit to the Culaba spouses in the amount of
P28,650.00, as evidenced by Temporary Credit Invoice No. 42943. 4Thereafter, the Culaba

spouses made a partial payment of P3,740.00, leaving an unpaid balance of P24,910.00. As

they failed to pay despite repeated demands, SMC filed an action for collection of a sum of
money against them before the RTC of Makati, Branch 138.
The defendant-spouses denied any liability, claiming that they had already paid the plaintiff
in full on four separate occasions. To substantiate this claim, the defendants presented four
(4) Temporary Charge Sales (TCS) Liquidation Receipts, as follows:

April 19, 1983

Receipt No. 27331

for P8,0005

April 22, 1983

Receipt No. 27318

for P9,0006

April 27, 1983

Receipt No. 27339

for P4,5007

April 30, 1983

Receipt No. 27346

for P3,4108

Defendant Francisco Culaba testified that he made the foregoing payments to an SMC
supervisor who came in an SMC van. He was then showed a list of customers
accountabilities which included his account. The defendant, in good faith, then paid to the
said supervisor, and he was, in turn, issued genuine SMC liquidation receipts.
For its part, SMC submitted a publishers affidavit9 to prove that the entire booklet of TCSL
Receipts bearing Nos. 27301-27350 were reported lost by it, and that it caused the
publication of the notice of loss in the July 9, 1983 issue of the Daily Express, as follows:
NOTICE OF LOSS
OUR CUSTOMERS ARE HEREBY INFORMED THAT TEMPORARY CHARGE SALES
LIQUIDATION RECEIPTS WITH SERIAL NOS. 27301-27350 HAVE BEEN LOST.
ANY TRANSACTION, THEREFORE, ENTERED INTO WITH THE USE OF THE ABOVE
RECEIPTS WILL NOT BE HONORED.
SAN MIGUEL CORPORATION
BEER DIVISION
Makati Beer Region10
The Trial Courts Ruling
After trial on the merits, the trial court rendered judgment in favor of SMC, and held the
Culaba spouses liable on the balance of its obligation, thus:
Wherefore, judgment is hereby rendered in favor of the plaintiff, as follows:

1. Ordering defendants to pay the amount of P24,910.00 plus legal interest of 6% per
annum from April 12, 1983 until the whole amount is fully paid;
2. Ordering defendants to pay 20% of the amount due to plaintiff as and for
attorneys fees plus costs.
SO ORDERED.11
According to the trial court, it was unusual that defendant Francisco Culaba forgot the name
of the collector to whom he made the payments and that he did not require the said
collector to print his name on the receipts. The court also noted that although they were part
of a single booklet, the TCS Liquidation Receipts submitted by the defendants did not appear
to have been issued in their natural sequence. Furthermore, they were part of the lost
booklet receipts, which the public was duly warned of through the Notice of Loss the plaintiff
caused to be published in a daily newspaper. This confirmed the plaintiffs claim that the
receipts presented by the defendants were spurious ones.
The Case on Appeal
On appeal, the appellants interposed the following assignment of errors:
I
THE TRIAL COURT ERRED IN FINDING THAT THE RECEIPTS PRESENTED BY
DEFENDANTS EVIDENCING HIS PAYMENTS TO PLAINTIFF SAN MIGUEL CORPORATION,
ARE SPURIOUS.
II
THE TRIAL COURT ERRED IN CONCLUDING THAT PLAINTIFF-APPELLEE HAS
SUFFICIENTLY PROVED ITS CAUSE OF ACTION AGAINST THE DEFENDANTS.
III
THE TRIAL COURT ERRED IN ORDERING DEFENDANTS TO PAY 20% OF THE AMOUNT
DUE TO PLAINTIFF AS ATTORNEYS FEES.12
The appellants asserted that while the trial courts observations were true, it was the usual
business practice in previous transactions between them and SMC. The SMC previously
honored receipts not bearing the salesmans name. According to appellant Francisco Culaba,
he even lost some of the receipts, but did not encounter any problems.
According to appellant Francisco, he could not be faulted for paying the SMC collector who
came in a van and was in uniform, and that any regular customer would, without any
apprehension, transact with such an SMC employee. Furthermore, the respective receipts
issued to him at the time he paid on the four occasions mentioned had not yet then been
declared lost. Thus, the subsequent publication in a daily newspaper declaring the booklets
lost did not affect the validity and legality of the payments made. Accordingly, by its
actuations, the SMC was estopped from questioning the legality of the payments and had no
cause of action against the appellants.

Anent the issue of attorneys fees, the order of the trial court for payment thereof is without
basis. According to the appellant, the provision for attorneys fees is a contingent fee,
already provided for in the SMCs contract with the law firm. To further order them to pay
20% of the amount due as attorneys fees is double payment, tantamount to undue
enrichment and therefore improper.13
The appellee, for its part, contended that the primary issue in the case at bar revolved
around the basic and fundamental principles of agency.14 It was incumbent upon the
defendants-appellants to exercise ordinary prudence and reasonable diligence to verify and
identify the extent of the alleged agents authority. It was their burden to establish the true
identity of the assumed agent, and this could not be established by mere representation,
rumor or general reputation. As they utterly failed in this regard, the appellants must suffer
the consequences.
The Court of Appeals affirmed the decision of the trial court, thus:
In the face of the somewhat tenuous evidence presented by the appellants, we
cannot fault the lower court for giving more weight to appellees testimonial and
documentary evidence, all of which establish with some degree of preponderance the
existence of the account sued upon.
ALL CONSIDERED, we cannot find any justification to reject the factual findings of
the lower court to which we must accord respect, for which reason, the judgment
appealed from is hereby AFFIRMED in all respects.
SO ORDERED.15
Hence, the instant petition.
The petitioners pose the following issues for the Courts resolution:
I. WHETHER OR NOT THE RESPONDENT HAD PROVEN BY PREPONDERANT EVIDENCE
THAT IT HAD PROPERLY AND TIMELY NOTIFIED PETITIONER OF LOST BOOKLET OF
RECEIPTS
II. WHETHER OR NOT RESPONDENT HAD PROVEN BY PREPONDERANT EVIDENCE THAT
PETITIONER WAS REMISS IN THE PAYMENT OF HIS ACCOUNTS TO ITS AGENT. 16
According to the petitioners, receiving receipts from the private respondents agents instead
of its salesmen was a usual occurrence, as they had been operating the store since 1979.
Thus, on four occasions in April 1983, when an agent of the respondent came to the store
wearing an SMC uniform and driving an SMC van, petitioner Francisco Culaba, without
question, paid his accounts. He received the receipts without fear, as they were similar to
what he used to receive before. Furthermore, the petitioners assert that, common
experience will attest that unless the attention of the customers is called for, they would not
take note of the serial number of the receipts.
The petitioners contend that the private respondent advertised its warning to the public only
after the damage was done, or on July 9, 1993. Its belated notice showed its glaring lack of
interest or concern for its customers welfare, and, in sum, its negligence.
Anent the second issue, petitioner Francisco Culaba avers that the agent to whom the
accounts were paid had all the physical and material attributes or indications of a

representative of the private respondent, leaving no doubt that he was duly authorized by
the latter. Petitioner Francisco Culabas testimony that "he does not necessarily check the
contents of the receipts issued to him except for the amount indicated if [the] same
accurately reflects his actual payment" is a common attitude of customers. He could, thus,
not be faulted for paying the private respondents agent on four occasions. Petitioner
Francisco Culaba asserts that he made the payment in good faith, to an agent who issued
SMC receipts which appeared to be genuine. Thus, according to the petitioners, they had
duly paid their obligation in accordance with Articles 1240 and 1242 of the New Civil Code.
The private respondent, for its part, avers that the burden of proving payment is with the
debtor, in consonance with the express provision of Article 1233 of the New Civil Code. The
petitioners miserably failed to prove the self-serving allegation that they already paid their
liability to the private respondent. Furthermore, under normal circumstances, an obligor
would not just pay a substantial amount to someone whom he saw for the first time, without
even asking for the latters name.
The Ruling of the Court
The petition is dismissed.
The petitioners question the findings of the Court of Appeals as to whether the payment of
the petitioners obligation to the private respondent was properly made, thus, extinguishing
the same. This is clearly a factual issue, and beyond the purview of the Court to delve into.
This is in consonance with the well-settled rule that findings of fact of the trial court,
especially when affirmed by the Court of Appeals, are accorded the highest degree of
respect, and generally will not be disturbed on appeal. Such findings are binding and
conclusive on the Court.17 Furthermore, it is not the Courts function under Rule 45 of the
Rules of Court, as amended, to review, examine and evaluate or weigh the probative value
of the evidence presented.18
To reiterate, the issue being raised by the petitioners does not involve a question of law, but
a question of fact, not cognizable by this Court in a petition for review under Rule 45. The
jurisdiction of the Court in such a case is limited to reviewing only errors of law, unless the
factual findings being assailed are not supported by evidence on record or the impugned
judgment is based on a misapprehension of facts.19
A careful study of the records of the case reveal that the appellate court affirmed the trial
courts factual findings as follows:
First. Receipts Nos. 27331, 27318, 27339 and 27346 were included in the private
respondents lost booklet, which loss was duly advertised in a newspaper of general
circulation; thus, the private respondent could not have officially issued them to the
petitioners to cover the alleged payments on the dates appearing thereon.
Second. There was something amiss in the way the receipts were issued to the petitioners,
as one receipt bearing a higher serial number was issued ahead of another receipt bearing a
lower serial number, supposedly covering a later payment. The petitioners failed to explain
the apparent mix-up in these receipts, and no attempt was made in this regard.
Third. The fact that the salesmans name was invariably left blank in the four receipts and
that the petitioners could not even remember the name of the supposed impostor who
received the said payments strongly argue against the veracity of the petitioners claim.

We find no cogent reason to reverse the said findings.

The dismissal of the petition is inevitable even upon close perusal of the merits of the case.
Payment is a mode of extinguishing an obligation.20 Article 1240 of the Civil Code provides
that payment shall be made to the person in whose favor the obligation has been
constituted, or his successor-in-interest, or any person authorized to receive it. 21 In this case,
the payments were purportedly made to a "supervisor" of the private respondent, who was
clad in an SMC uniform and drove an SMC van. He appeared to be authorized to accept
payments as he showed a list of customers accountabilities and even issued SMC liquidation
receipts which looked genuine. Unfortunately for petitioner Francisco Culaba, he did not
ascertain the identity and authority of the said supervisor, nor did he ask to be shown any
identification to prove that the latter was, indeed, an SMC supervisor. The petitioners relied
solely on the mans representation that he was collecting payments for SMC. Thus, the
payments the petitioners claimed they made were not the payments that discharged their
obligation to the private respondent.
The basis of agency is representation.22 A person dealing with an agent is put upon inquiry
and must discover upon his peril the authority of the agent.23 In the instant case, the
petitioners loss could have been avoided if they had simply exercised due diligence in
ascertaining the identity of the person to whom they allegedly made the payments. The fact
that they were parting with valuable consideration should have made them more
circumspect in handling their business transactions. Persons dealing with an assumed agent
are bound at their peril to ascertain not only the fact of agency but also the nature and
extent of authority, and in case either is controverted, the burden of proof is upon them to
establish it.24 The petitioners in this case failed to discharge this burden, considering that the
private respondent vehemently denied that the payments were accepted by it and were
made to its authorized representative.
Negligence is the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or the doing
of something, which a prudent and reasonable man would not do. 25 In the case at bar, the
most prudent thing the petitioners should have done was to ascertain the identity and
authority of the person who collected their payments. Failing this, the petitioners cannot
claim that they acted in good faith when they made such payments. Their claim therefor is
negated by their negligence, and they are bound by its consequences. Being negligent in
this regard, the petitioners cannot seek relief on the basis of a supposed agency. 26
WHEREFORE, the instant petition is hereby DENIED. The assailed Decision dated April 16,
1996, and the Resolution dated July 19, 1996 of the Court of Appeals are AFFIRMED. Costs
against the petitioners.
SO ORDERED.

ALLIED BANKING CORPORATION, Petitioner,

vs.
LIM SIO WAN, METROPOLITAN BANK AND TRUST CO., and PRODUCERS
BANK, Respondents.
DECISION

VELASCO, JR., J.:

To ingratiate themselves to their valued depositors, some banks at times bend over
backwards that they unwittingly expose themselves to great risks.
The Case
This Petition for Review on Certiorari under Rule 45 seeks to reverse the Court of Appeals
(CAs) Decision promulgated on March 18, 19981 in CA-G.R. CV No. 46290 entitled Lim Sio
Wan v. Allied Banking Corporation, et al. The CA Decision modified the Decision dated
November 15, 19932 of the Regional Trial Court (RTC), Branch 63 in Makati City rendered in
Civil Case No. 6757.
The Facts
The facts as found by the RTC and affirmed by the CA are as follows:
On November 14, 1983, respondent Lim Sio Wan deposited with petitioner Allied Banking
Corporation (Allied) at its Quintin Paredes Branch in Manila a money market placement of
PhP 1,152,597.35 for a term of 31 days to mature on December 15, 1983, 3 as evidenced by
Provisional Receipt No. 1356 dated November 14, 1983. 4
On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an officer
of Allied, and instructed the latter to pre-terminate Lim Sio Wans money market placement,
to issue a managers check representing the proceeds of the placement, and to give the
check to one Deborah Dee Santos who would pick up the check. 5 Lim Sio Wan described the
appearance of Santos so that So could easily identify her.6
Later, Santos arrived at the bank and signed the application form for a managers check to
be issued.7 The bank issued Managers Check No. 035669 for PhP 1,158,648.49,
representing the proceeds of Lim Sio Wans money market placement in the name of Lim Sio
Wan, as payee.8 The check was cross-checked "For Payees Account Only" and given to
Santos.9
Thereafter, the managers check was deposited in the account of Filipinas Cement
Corporation (FCC) at respondent Metropolitan Bank and Trust Co. (Metrobank), 10 with the
forged signature of Lim Sio Wan as indorser.11
Earlier, on September 21, 1983, FCC had deposited a money market placement for PhP 2
million with respondent Producers Bank. Santos was the money market trader assigned to
handle FCCs account.12 Such deposit is evidenced by Official Receipt No. 317568 13 and a
Letter dated September 21, 1983 of Santos addressed to Angie Lazo of FCC, acknowledging
receipt of the placement.14 The placement matured on October 25, 1983 and was rolled-over
until December 5, 1983 as evidenced by a Letter dated October 25, 1983. 15 When the
placement matured, FCC demanded the payment of the proceeds of the placement. 16 On
December 5, 1983, the same date that So received the phone call instructing her to preterminate Lim Sio Wans placement, the managers check in the name of Lim Sio Wan was
deposited in the account of FCC, purportedly representing the proceeds of FCCs money
market placement with Producers Bank.17 In other words, the Allied check was deposited
with Metrobank in the account of FCC as Producers Banks payment of its obligation to FCC.

To clear the check and in compliance with the requirements of the Philippine Clearing House
Corporation (PCHC) Rules and Regulations, Metrobank stamped a guaranty on the check,
which reads: "All prior endorsements and/or lack of endorsement guaranteed." 18
The check was sent to Allied through the PCHC. Upon the presentment of the check, Allied
funded the check even without checking the authenticity of Lim Sio Wans purported
indorsement. Thus, the amount on the face of the check was credited to the account of
FCC.19
On December 9, 1983, Lim Sio Wan deposited with Allied a second money market placement
to mature on January 9, 1984.20
On December 14, 1983, upon the maturity date of the first money market placement, Lim
Sio Wan went to Allied to withdraw it.21 She was then informed that the placement had been
pre-terminated upon her instructions. She denied giving any instructions and receiving the
proceeds thereof. She desisted from further complaints when she was assured by the banks
manager that her money would be recovered.22
When Lim Sio Wans second placement matured on January 9, 1984, So called Lim Sio Wan
to ask for the latters instructions on the second placement. Lim Sio Wan instructed So to
roll-over the placement for another 30 days.23On January 24, 1984, Lim Sio Wan, realizing
that the promise that her money would be recovered would not materialize, sent a demand
letter to Allied asking for the payment of the first placement. 24 Allied refused to pay Lim Sio
Wan, claiming that the latter had authorized the pre-termination of the placement and its
subsequent release to Santos.25
Consequently, Lim Sio Wan filed with the RTC a Complaint dated February 13,
198426 docketed as Civil Case No. 6757 against Allied to recover the proceeds of her first
money market placement. Sometime in February 1984, she withdrew her second placement
from Allied.
Allied filed a third party complaint27 against Metrobank and Santos. In turn, Metrobank filed a
fourth party complaint28 against FCC. FCC for its part filed a fifth party complaint 29 against
Producers Bank. Summonses were duly served upon all the parties except for Santos, who
was no longer connected with Producers Bank.30
On May 15, 1984, or more than six (6) months after funding the check, Allied informed
Metrobank that the signature on the check was forged.31 Thus, Metrobank withheld the
amount represented by the check from FCC. Later on, Metrobank agreed to release the
amount to FCC after the latter executed an Undertaking, promising to indemnify Metrobank
in case it was made to reimburse the amount.32
Lim Sio Wan thereafter filed an amended complaint to include Metrobank as a partydefendant, along with Allied.33The RTC admitted the amended complaint despite the
opposition of Metrobank.34 Consequently, Allieds third party complaint against Metrobank
was converted into a cross-claim and the latters fourth party complaint against FCC was
converted into a third party complaint.35
After trial, the RTC issued its Decision, holding as follows:

WHEREFORE, judgment is hereby rendered as follows:

1. Ordering defendant Allied Banking Corporation to pay plaintiff the amount of
P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully paid;
2. Ordering defendant Allied Bank to pay plaintiff the amount of P100,000.00 by way
of moral damages;
3. Ordering defendant Allied Bank to pay plaintiff the amount of P173,792.20 by way
of attorneys fees; and,
4. Ordering defendant Allied Bank to pay the costs of suit.
Defendant Allied Banks cross-claim against defendant Metrobank is DISMISSED.
Likewise defendant Metrobanks third-party complaint as against Filipinas Cement
Corporation is DISMISSED.
Filipinas Cement Corporations fourth-party complaint against Producers Bank is also
DISMISSED.
SO ORDERED.36
The Decision of the Court of Appeals
Allied appealed to the CA, which in turn issued the assailed Decision on March 18, 1998,
modifying the RTC Decision, as follows:
WHEREFORE, premises considered, the decision appealed from is MODIFIED. Judgment is
rendered ordering and sentencing defendant-appellant Allied Banking Corporation to pay
sixty (60%) percent and defendant-appellee Metropolitan Bank and Trust Company forty
(40%) of the amount of P1,158,648.49 plus 12% interest per annum from March 16, 1984
until fully paid. The moral damages, attorneys fees and costs of suit adjudged shall likewise
be paid by defendant-appellant Allied Banking Corporation and defendant-appellee
Metropolitan Bank and Trust Company in the same proportion of 60-40. Except as thus
modified, the decision appealed from is AFFIRMED.
SO ORDERED.37
Hence, Allied filed the instant petition.
The Issues
Allied raises the following issues for our consideration:
The Honorable Court of Appeals erred in holding that Lim Sio Wan did not authorize [Allied]
to pre-terminate the initial placement and to deliver the check to Deborah Santos.

The Honorable Court of Appeals erred in absolving Producers Bank of any liability for the
reimbursement of amount adjudged demandable.
The Honorable Court of Appeals erred in holding [Allied] liable to the extent of 60% of
amount adjudged demandable in clear disregard to the ultimate liability of Metrobank as
guarantor of all endorsement on the check, it being the collecting bank. 38
The petition is partly meritorious.
A Question of Fact
Allied questions the finding of both the trial and appellate courts that Allied was not
authorized to release the proceeds of Lim Sio Wans money market placement to Santos.
Allied clearly raises a question of fact. When the CA affirms the findings of fact of the RTC,
the factual findings of both courts are binding on this Court.39
We also agree with the CA when it said that it could not disturb the trial courts findings on
the credibility of witness So inasmuch as it was the trial court that heard the witness and
had the opportunity to observe closely her deportment and manner of testifying. Unless the
trial court had plainly overlooked facts of substance or value, which, if considered, might
affect the result of the case,40 we find it best to defer to the trial court on matters pertaining
to credibility of witnesses.
Additionally, this Court has held that the matter of negligence is also a factual
question.41 Thus, the finding of the RTC, affirmed by the CA, that the respective parties were
negligent in the exercise of their obligations is also conclusive upon this Court.
The Liability of the Parties
As to the liability of the parties, we find that Allied is liable to Lim Sio Wan. Fundamental and
familiar is the doctrine that the relationship between a bank and a client is one of debtorcreditor.
Articles 1953 and 1980 of the Civil Code provide:
Art. 1953. A person who receives a loan of money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the creditor an equal amount of the same kind
and quality.
Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions
shall be governed by the provisions concerning simple loan.
Thus, we have ruled in a line of cases that a bank deposit is in the nature of a simple loan or
mutuum.42 More succinctly, in Citibank, N.A. (Formerly First National City Bank) v. Sabeniano,
this Court ruled that a money market placement is a simple loan or mutuum. 43 Further, we
defined a money market in Cebu International Finance Corporation v. Court of Appeals, as
follows:
[A] money market is a market dealing in standardized short-term credit instruments
(involving large amounts) where lenders and borrowers do not deal directly with each other

but through a middle man or dealer in open market. In a money market transaction, the
investor is a lender who loans his money to a borrower through a middleman or dealer.
In the case at bar, the money market transaction between the petitioner and the private
respondent is in the nature of a loan.44
Lim Sio Wan, as creditor of the bank for her money market placement, is entitled to payment
upon her request, or upon maturity of the placement, or until the bank is released from its
obligation as debtor. Until any such event, the obligation of Allied to Lim Sio Wan remains
unextinguished.
Art. 1231 of the Civil Code enumerates the instances when obligations are considered
extinguished, thus:
Art. 1231. Obligations are extinguished:
(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a
resolutory condition, and prescription, are governed elsewhere in this Code. (Emphasis
supplied.)
From the factual findings of the trial and appellate courts that Lim Sio Wan did not authorize
the release of her money market placement to Santos and the bank had been negligent in
so doing, there is no question that the obligation of Allied to pay Lim Sio Wan had not been
extinguished. Art. 1240 of the Code states that "payment shall be made to the person in
whose favor the obligation has been constituted, or his successor in interest, or any person
authorized to receive it." As commented by Arturo Tolentino:
Payment made by the debtor to a wrong party does not extinguish the obligation as to the
creditor, if there is no fault or negligence which can be imputed to the latter. Even when the
debtor acted in utmost good faith and by mistake as to the person of his creditor, or through
error induced by the fraud of a third person, the payment to one who is not in fact his
creditor, or authorized to receive such payment, is void, except as provided in Article 1241.
Such payment does not prejudice the creditor, and accrual of interest is not suspended by
it.45 (Emphasis supplied.)
Since there was no effective payment of Lim Sio Wans money market placement, the bank
still has an obligation to pay her at six percent (6%) interest from March 16, 1984 until the
payment thereof.

We cannot, however, say outright that Allied is solely liable to Lim Sio Wan.
Allied claims that Metrobank is the proximate cause of the loss of Lim Sio Wans money. It
points out that Metrobank guaranteed all prior indorsements inscribed on the managers
check, and without Metrobanks guarantee, the present controversy would never have
occurred. According to Allied:
Failure on the part of the collecting bank to ensure that the proceeds of the check is paid to
the proper party is, aside from being an efficient intervening cause, also the last negligent
act, x x x contributory to the injury caused in the present case, which thereby leads to the
conclusion that it is the collecting bank, Metrobank that is the proximate cause of the
alleged loss of the plaintiff in the instant case.46
We are not persuaded.
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."47 Thus, there is an efficient supervening event if the event breaks the sequence
leading from the cause to the ultimate result. To determine the proximate cause of a
controversy, the question that needs to be asked is: If the event did not happen, would the
injury have resulted? If the answer is NO, then the event is the proximate cause.
In the instant case, Allied avers that even if it had not issued the check payment, the money
represented by the check would still be lost because of Metrobanks negligence in indorsing
the check without verifying the genuineness of the indorsement thereon.
Section 66 in relation to Sec. 65 of the Negotiable Instruments Law provides:
Section 66. Liability of general indorser.Every indorser who indorses without qualification,
warrants to all subsequent holders in due course;
a) The matters and things mentioned in subdivisions (a), (b) and (c) of the next
preceding section; and
b) That the instrument is at the time of his indorsement valid and subsisting;
And in addition, he engages that on due presentment, it shall be accepted or paid, or both,
as the case may be according to its tenor, and that if it be dishonored, and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to
any subsequent indorser who may be compelled to pay it.
Section 65. Warranty where negotiation by delivery, so forth.Every person negotiating an
instrument by delivery or by a qualified indorsement, warrants:
a) That the instrument is genuine and in all respects what it purports to be;
b) That he has a good title of it;
c) That all prior parties had capacity to contract;

d) That he has no knowledge of any fact which would impair the validity of the
instrument or render it valueless.
But when the negotiation is by delivery only, the warranty extends in favor of no holder
other than the immediate transferee.
The provisions of subdivision (c) of this section do not apply to persons negotiating public or
corporation securities, other than bills and notes. (Emphasis supplied.)
The warranty "that the instrument is genuine and in all respects what it purports to be"
covers all the defects in the instrument affecting the validity thereof, including a forged
indorsement. Thus, the last indorser will be liable for the amount indicated in the negotiable
instrument even if a previous indorsement was forged. We held in a line of cases that "a
collecting bank which indorses a check bearing a forged indorsement and presents it to the
drawee bank guarantees all prior indorsements, including the forged indorsement itself, and
ultimately should be held liable therefor."48
However, this general rule is subject to exceptions. One such exception is when the issuance
of the check itself was attended with negligence. Thus, in the cases cited above where the
collecting bank is generally held liable, in two of the cases where the checks were
negligently issued, this Court held the institution issuing the check just as liable as or more
liable than the collecting bank.
In isolated cases where the checks were deposited in an account other than that of the
payees on the strength of forged indorsements, we held the collecting bank solely liable for
the whole amount of the checks involved for having indorsed the same. In Republic Bank v.
Ebrada,49 the check was properly issued by the Bureau of Treasury. While in Banco de Oro
Savings and Mortgage Bank (Banco de Oro) v. Equitable Banking Corporation, 50 Banco de
Oro admittedly issued the checks in the name of the correct payees. And in Traders Royal
Bank v. Radio Philippines Network, Inc.,51 the checks were issued at the request of Radio
Philippines Network, Inc. from Traders Royal Bank.1avvphi1
However, in Bank of the Philippine Islands v. Court of Appeals, we said that the drawee bank
is liable for 60% of the amount on the face of the negotiable instrument and the collecting
bank is liable for 40%. We also noted the relative negligence exhibited by two banks, to wit:
Both banks were negligent in the selection and supervision of their employees resulting in
the encashment of the forged checks by an impostor. Both banks were not able to overcome
the presumption of negligence in the selection and supervision of their employees. It was
the gross negligence of the employees of both banks which resulted in the fraud and the
subsequent loss. While it is true that petitioner BPIs negligence may have been the
proximate cause of the loss, respondent CBCs negligence contributed equally to the success
of the impostor in encashing the proceeds of the forged checks. Under these circumstances,
we apply Article 2179 of the Civil Code to the effect that while respondent CBC may recover
its losses, such losses are subject to mitigation by the courts. (See Phoenix Construction Inc.
v. Intermediate Appellate Courts, 148 SCRA 353 [1987]).
Considering the comparative negligence of the two (2) banks, we rule that the demands of
substantial justice are satisfied by allocating the loss of P2,413,215.16 and the costs of the

arbitration proceeding in the amount of P7,250.00 and the cost of litigation on a 60-40
ratio.52
Similarly, we ruled in Associated Bank v. Court of Appeals that the issuing institution and the
collecting bank should equally share the liability for the loss of amount represented by the
checks concerned due to the negligence of both parties:
The Court finds as reasonable, the proportionate sharing of fifty percent-fifty percent (50%50%). Due to the negligence of the Province of Tarlac in releasing the checks to an
unauthorized person (Fausto Pangilinan), in allowing the retired hospital cashier to receive
the checks for the payee hospital for a period close to three years and in not properly
ascertaining why the retired hospital cashier was collecting checks for the payee hospital in
addition to the hospitals real cashier, respondent Province contributed to the loss
amounting to P203,300.00 and shall be liable to the PNB for fifty (50%) percent thereof. In
effect, the Province of Tarlac can only recover fifty percent (50%) of P203,300.00 from PNB.
The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of
P203,300.00. It is liable on its warranties as indorser of the checks which were deposited by
Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements, including
that of the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in
its duty to ascertain the genuineness of the payees indorsement.53
A reading of the facts of the two immediately preceding cases would reveal that the reason
why the bank or institution which issued the check was held partially liable for the amount of
the check was because of the negligence of these parties which resulted in the issuance of
the checks.
In the instant case, the trial court correctly found Allied negligent in issuing the managers
check and in transmitting it to Santos without even a written authorization. 54 In fact, Allied
did not even ask for the certificate evidencing the money market placement or call up Lim
Sio Wan at her residence or office to confirm her instructions. Both actions could have
prevented the whole fraudulent transaction from unfolding. Allieds negligence must be
considered as the proximate cause of the resulting loss.
To reiterate, had Allied exercised the diligence due from a financial institution, the check
would not have been issued and no loss of funds would have resulted. In fact, there would
have been no issuance of indorsement had there been no check in the first place.
The liability of Allied, however, is concurrent with that of Metrobank as the last indorser of
the check. When Metrobank indorsed the check in compliance with the PCHC Rules and
Regulations55 without verifying the authenticity of Lim Sio Wans indorsement and when it
accepted the check despite the fact that it was cross-checked payable to payees account
only,56 its negligent and cavalier indorsement contributed to the easier release of Lim Sio
Wans money and perpetuation of the fraud. Given the relative participation of Allied and
Metrobank to the instant case, both banks cannot be adjudged as equally liable. Hence, the
60:40 ratio of the liabilities of Allied and Metrobank, as ruled by the CA, must be upheld.
FCC, having no participation in the negotiation of the check and in the forgery of Lim Sio
Wans indorsement, can raise the real defense of forgery as against both banks. 57

As to Producers Bank, Allied Banks argument that Producers Bank must be held liable as
employer of Santos under Art. 2180 of the Civil Code is erroneous. Art. 2180 pertains to the
vicarious liability of an employer for quasi-delicts that an employee has committed. Such
provision of law does not apply to civil liability arising from delict.
One also cannot apply the principle of subsidiary liability in Art. 103 of the Revised Penal
Code in the instant case. Such liability on the part of the employer for the civil aspect of the
criminal act of the employee is based on the conviction of the employee for a crime. Here,
there has been no conviction for any crime.
As to the claim that there was unjust enrichment on the part of Producers Bank, the same is
correct. Allied correctly claims in its petition that Producers Bank should reimburse Allied for
whatever judgment that may be rendered against it pursuant to Art. 22 of the Civil Code,
which provides: "Every person who through an act of performance by another, or any other
means, acquires or comes into possession of something at the expense of the latter without
just cause or legal ground, shall return the same to him."1avvphi1
The above provision of law was clarified in Reyes v. Lim, where we ruled that "[t]here is
unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a
person retains money or property of another against the fundamental principles of justice,
equity and good conscience."58
In Tamio v. Ticson, we further clarified the principle of unjust enrichment, thus: "Under Article
22 of the Civil Code, there is unjust enrichment when (1) a person is unjustly benefited, and
(2) such benefit is derived at the expense of or with damages to another." 59
In the instant case, Lim Sio Wans money market placement in Allied Bank was preterminated and withdrawn without her consent. Moreover, the proceeds of the placement
were deposited in Producers Banks account in Metrobank without any justification. In other
words, there is no reason that the proceeds of Lim Sio Wans placement should be deposited
in FCCs account purportedly as payment for FCCs money market placement and interest in
Producers Bank.lavvphil With such payment, Producers Banks indebtedness to FCC was
extinguished, thereby benefitting the former. Clearly, Producers Bank was unjustly enriched
at the expense of Lim Sio Wan. Based on the facts and circumstances of the case, Producers
Bank should reimburse Allied and Metrobank for the amounts the two latter banks are
ordered to pay Lim Sio Wan.
It cannot be validly claimed that FCC, and not Producers Bank, should be considered as
having been unjustly enriched. It must be remembered that FCCs money market placement
with Producers Bank was already due and demandable; thus, Producers Banks payment
thereof was justified. FCC was entitled to such payment. As earlier stated, the fact that the
indorsement on the check was forged cannot be raised against FCC which was not a part in
any stage of the negotiation of the check. FCC was not unjustly enriched.
From the facts of the instant case, we see that Santos could be the architect of the entire
controversy. Unfortunately, since summons had not been served on Santos, the courts have
not acquired jurisdiction over her.60 We, therefore, cannot ascribe to her liability in the
instant case.

Clearly, Producers Bank must be held liable to Allied and Metrobank for the amount of the
check plus 12% interest per annum, moral damages, attorneys fees, and costs of suit which
Allied and Metrobank are adjudged to pay Lim Sio Wan based on a proportion of 60:40.
WHEREFORE, the petition is PARTLY GRANTED. The March 18, 1998 CA Decision in CA-G.R.
CV No. 46290 and the November 15, 1993 RTC Decision in Civil Case No. 6757 are AFFIRMED
with MODIFICATION.
Thus, the CA Decision is AFFIRMED, the fallo of which is reproduced, as follows:
WHEREFORE, premises considered, the decision appealed from is MODIFIED. Judgment is
rendered ordering and sentencing defendant-appellant Allied Banking Corporation to pay
sixty (60%) percent and defendant-appellee Metropolitan Bank and Trust Company forty
(40%) of the amount of P1,158,648.49 plus 12% interest per annum from March 16, 1984
until fully paid. The moral damages, attorneys fees and costs of suit adjudged shall likewise
be paid by defendant-appellant Allied Banking Corporation and defendant-appellee
Metropolitan Bank and Trust Company in the same proportion of 60-40. Except as thus
modified, the decision appealed from is AFFIRMED.
SO ORDERED.
Additionally and by way of MODIFICATION, Producers Bank is hereby ordered to pay Allied
and Metrobank the aforementioned amounts. The liabilities of the parties are concurrent and
independent of each other.
SO ORDERED.

ART 1242
NATL POWER CORP V IBRAHIM
DECISION
AZCUNA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking
to annul the Decision[1] dated June 8, 2005 rendered by the Court of Appeals (CA) in C.A.-G.R.
CV No. 57792.
The facts are as follows:
On November 23, 1994, respondent Lucman G. Ibrahim, in his personal capacity and
in behalf of his co-heirs Omar G. Maruhom, Elias G. Maruhom, Bucay G. Maruhom, Mamod G.
Maruhom, Farouk G. Maruhom, Hidjara G. Maruhom, Rocania G. Maruhom, Potrisam G.

Maruhom, Lumba G. Maruhom, Sinab G. Maruhom, Acmad G. Maruhom, Solayman G.

Maruhom, Mohamad M. Ibrahim and Caironesa M. Ibrahim, instituted an action against
petitioner National Power Corporation (NAPOCOR) for recovery of possession of land and
damages before the Regional Trial Court (RTC) of Lanao del Sur.

In their complaint, Ibrahim and his co-heirs claimed that they were owners of several
parcels of land described in Survey Plan FP (VII-5) 2278 consisting of 70,000 square meters,
divided into three (3) lots, i.e. Lots 1, 2, and 3 consisting of 31,894, 14,915, and 23,191
square meters each respectively. Sometime in 1978, NAPOCOR, through alleged stealth and
without respondents knowledge and prior consent, took possession of the sub-terrain area of
their lands and constructed therein underground tunnels. The existence of the tunnels was
only discovered sometime in July 1992 by respondents and then later confirmed on
November 13, 1992 by NAPOCOR itself through a memorandum issued by the latters Acting
Assistant Project Manager. The tunnels were apparently being used by NAPOCOR in
siphoning the water of Lake Lanao and in the operation of NAPOCORs Agus II, III, IV, V, VI, VII
projects located in Saguiran, Lanao del Sur; Nangca and Balo-i in Lanao del Norte; and
Ditucalan and Fuentes in Iligan City.

On September 19, 1992, respondent Omar G. Maruhom requested the Marawi City
Water District for a permit to construct and/or install a motorized deep well in Lot 3 located
in Saduc, Marawi City but his request was turned down because the construction of the deep
well would cause danger to lives and property.On October 7, 1992, respondents demanded
that NAPOCOR pay damages and vacate the sub-terrain portion of their lands but the latter
refused to vacate much less pay damages. Respondents further averred that the
construction of the underground tunnels has endangered their lives and properties
as Marawi City lies in an area of local volcanic and tectonic activity. Further, these illegally
constructed tunnels caused them sleepless nights, serious anxiety and shock thereby
entitling them to recover moral damages and that by way of example for the public good,
NAPOCOR must be held liable for exemplary damages.

Disputing respondents claim, NAPOCOR filed an answer with counterclaim denying the
material allegations of the complaint and interposing affirmative and special defenses,
namely that (1) there is a failure to state a cause of action since respondents seek
possession of the sub-terrain portion when they were never in possession of the same, (2)
respondents have no cause of action because they failed to show proof that they were the
owners of the property, and (3) the tunnels are a government project for the benefit of all
and all private lands are subject to such easement as may be necessary for the same. [2]
On August 7, 1996, the RTC rendered a Decision, the decretal portion of which reads as
follows:
WHEREFORE, judgment is hereby rendered:
1.
Denying plaintiffs [private respondents] prayer for
defendant [petitioner] National Power Corporation to dismantle the
underground tunnels constructed between the lands of plaintiffs in Lots 1, 2,
and 3 of Survey Plan FP (VII-5) 2278;
2.
Ordering defendant to pay to plaintiffs the fair market
value of said 70,000 square meters of land covering Lots 1, 2, and 3 as
described in Survey Plan FP (VII-5) 2278 less the area of 21,995 square meters
at P1,000.00 per square meter or a total of P48,005,000.00 for the remaining
unpaid portion of 48,005 square meters; with 6% interest per annum from the
filing of this case until paid;
3.
Ordering defendant to pay plaintiffs a reasonable monthly
rental of P0.68 per square meter of the total area of 48,005 square meters
effective from its occupancy of the foregoing area in 1978 or a total
of P7,050,974.40.
4.
Ordering defendant
of P200,000.00 as moral damages; and

to

5.
Ordering
defendant
to
of P200,000.00 as attorneys fees and the costs.

pay
pay

plaintiffs
the

the

sum

further

sum

SO ORDERED.[3]
On August 15, 1996, Ibrahim, joined by his co-heirs, filed an Urgent Motion for Execution of
Judgment Pending Appeal. On the other hand, NAPOCOR filed a Notice of Appeal by
registered mail on August 19, 1996. Thereafter, NAPOCOR filed a vigorous opposition to the
motion for execution of judgment pending appeal with a motion for reconsideration of the
Decision which it had received on August 9, 1996.

On August 26, 1996, NAPOCOR filed a Manifestation and Motion withdrawing its
Notice of Appeal purposely to give way to the hearing of its motion for reconsideration.

On August 28, 1996, the RTC issued an Order granting execution pending appeal and
denying NAPOCORs motion for reconsideration, which Order was received by NAPOCOR
on September 6, 1996.

On September 9, 1996, NAPOCOR filed its Notice of Appeal by registered mail which
was denied by the RTC on the ground of having been filed out of time. Meanwhile, the
Decision of the RTC was executed pending appeal and funds of NAPOCOR were garnished by
respondents Ibrahim and his co-heirs.
On October 4, 1996, a Petition for Relief from Judgment was filed by respondents
Omar G. Maruhom, Elias G. Maruhom, Bucay G. Maruhom, Mamod G. Maruhom, Farouk G.
Maruhom, Hidjara G. Maruhom, Potrisam G. Maruhom and Lumba G. Maruhom asserting as
follows:
1)

they did not file a motion to reconsider or appeal the decision

within the reglementary period of fifteen (15) days from receipt of
judgment because they believed in good faith that the decision was for
damages and rentals and attorneys fees only as prayed for in the
complaint:

2)

it was only on August 26, 1996 that they learned that the
amounts awarded to the plaintiffs represented not only rentals,
damages and attorneys fees but the greatest portion of which was
payment of just compensation which in effect would make the
defendant NPC the owner of the parcels of land involved in the case;

3)

when they learned of the nature of the judgment, the period of

appeal has already expired;

4)

they were prevented by fraud, mistake, accident, or excusable

negligence from taking legal steps to protect and preserve their rights
over their parcels of land in so far as the part of the decision decreeing
just compensation for petitioners properties;

5)

they would never have agreed to the alienation of their property

in favor of anybody, considering the fact that the parcels of land
involved in this case were among the valuable properties they

inherited from their dear father and they would rather see their land
crumble to dust than sell it to anybody.[4]

The RTC granted the petition and rendered a modified judgment dated September 8,
1997, thus:
WHEREFORE, a modified judgment is hereby rendered:

1)

Reducing the judgment award of plaintiffs for the fair

market value of P48,005,000.00 by 9,526,000.00 or for a
difference by P38,479,000.00 and by the further sum
of P33,603,500.00 subject of the execution pending appeal
leaving a difference of 4,878,500.00 which may be the subject
of execution upon the finality of this modified judgment with 6%
interest per annum from the filing of the case until paid.

2)

Awarding the sum of P1,476,911.00 to herein petitioners

Omar G. Maruhom, Elias G. Maruhom, Bucay G. Maruhom,
Mahmod G. Maruhom, Farouk G. Maruhom, Hidjara G. Maruhom,
Portrisam G. Maruhom and Lumba G. Maruhom as reasonable
rental deductible from the awarded sum of P7,050,974.40
pertaining to plaintiffs.

3)

Ordering defendant embodied in the August 7, 1996

decision to pay plaintiffs the sum of P200,000.00 as moral
damages; and further sum of P200,000.00 as attorneys fees
and costs.
SO ORDERED.[5]

Subsequently, both respondent Ibrahim and NAPOCOR appealed to the CA.

In the Decision dated June 8, 2005, the CA set aside the modified judgment and
reinstated the original Decision dated August 7, 1996, amending it further by deleting the
award of moral damages and reducing the amount of rentals and attorneys fees, thus:
WHEREFORE,
premises
considered,
herein
Appeals
are
hereby
partially GRANTED, the Modified Judgment is ordered SET ASIDE and
rendered of no force and effect and the original Decision of the court a
quo dated 7 August 1996 is hereby RESTORED with the MODIFICATION that
the award of moral damages is DELETED and the amounts of rentals and
attorneys fees are REDUCED to P6,888,757.40 and P50,000.00, respectively.

In this connection, the Clerk of Court of RTC Lanao del Sur is hereby directed
to reassess and determine the additional filing fee that should be paid by
Plaintiff-Appellant IBRAHIM taking into consideration the total amount of
damages sought in the complaint vis--vis the actual amount of damages
awarded by this Court. Such additional filing fee shall constitute a lien on the
judgment.
SO ORDERED.[6]
Hence, this petition ascribing the following errors to the CA:
(a)

RESPONDENTS WERE NOT DENIED THE BENEFICIAL USE OF

THEIR SUBJECT PROPERTIES TO ENTITLE THEM TO JUST COMPENSATION
BY WAY OF DAMAGES;

(b)

ASSUMING THAT RESPONDENTS ARE ENTITLED TO JUST

COMPENSATION BY WAY OF DAMAGES, NO EVIDENCE WAS PRESENTED
ANENT THE VALUATION OF RESPONDENTS PROPERTY AT THE TIME OF
ITS TAKING IN THE YEAR 1978 TO JUSTIFY THE AWARD OF ONE
THOUSAND SQUARE METERS (P1000.00/SQ. M.) EVEN AS PAYMENT OF
BACK RENTALS IS ITSELF IMPROPER.

This case revolves around the propriety of paying just compensation to respondents, and, by
extension, the basis for computing the same. The threshold issue of whether respondents
are entitled to just compensation hinges upon who owns the sub-terrain area occupied by
petitioner.

Petitioner maintains that the sub-terrain portion where the underground tunnels were
constructed does not belong to respondents because, even conceding the fact that
respondents owned the property, their right to the subsoil of the same does not extend
beyond what is necessary to enable them to obtain all the utility and convenience that such
property can normally give. In any case, petitioner asserts that respondents were still able to
use the subject property even with the existence of the tunnels, citing as an example the
fact that one of the respondents, Omar G. Maruhom, had established his residence on a part
of the property. Petitioner concludes that the underground tunnels 115 meters below
respondents property could not have caused damage or prejudice to respondents and their
claim to this effect was, therefore, purely conjectural and speculative. [7]

The contention lacks merit.

Generally, in an appeal by certiorari under Rule 45 of the Rules of Court, the Court does not
pass upon questions of fact. Absent any showing that the trial and appellate courts gravely
abused their discretion, the Court will not examine the evidence introduced by the parties
below to determine if they correctly assessed and evaluated the evidence on record. [8] The
jurisdiction of the Court in cases brought to it from the CA is limited to reviewing and
revising the errors of law imputed to it, its findings of fact being as a rule conclusive and
binding on the Court.

In the present case, petitioner failed to point to any evidence demonstrating grave
abuse of discretion on the part of the CA or to any other circumstances which would call for
the application of the exceptions to the above rule. Consequently, the CAs findings which
upheld those of the trial court that respondents owned and possessed the property and that
its substrata was possessed by petitioner since 1978 for the underground tunnels, cannot be
disturbed. Moreover, the Court sustains the finding of the lower courts that the sub-terrain
portion of the property similarly belongs to respondents. This conclusion is drawn from
Article 437 of the Civil Code which provides:
ART. 437. The owner of a parcel of land is the owner of its surface and
of everything under it, and he can construct thereon any works or make any
plantations and excavations which he may deem proper, without detriment to
servitudes and subject to special laws and ordinances. He cannot complain of
the reasonable requirements of aerial navigation.
Thus, the ownership of land extends to the surface as well as to the subsoil under
it. In Republic of the Philippines v. Court of Appeals,[9] this principle was applied to show that
rights over lands are indivisible and, consequently, require a definitive and categorical
classification, thus:
The Court of Appeals justified this by saying there is no conflict of interest
between the owners of the surface rights and the owners of the sub-surface
rights. This is rather strange doctrine, for it is a well-known principle that the
owner of a piece of land has rights not only to its surface but also to
everything underneath and the airspace above it up to a reasonable height.
Under the aforesaid ruling, the land is classified as mineral underneath and
agricultural on the surface, subject to separate claims of title. This is also
difficult to understand, especially in its practical application.

Under the theory of the respondent court, the surface owner will be
planting on the land while the mining locator will be boring tunnels
underneath. The farmer cannot dig a well because he may interfere with the
mining operations below and the miner cannot blast a tunnel lest he destroy
the crops above. How deep can the farmer, and how high can the miner go
without encroaching on each others rights? Where is the dividing line
between the surface and the sub-surface rights?
The Court feels that the rights over the land are indivisible and that the
land itself cannot be half agricultural and half mineral. The classification must
be categorical; the land must be either completely mineral or completely
agricultural.

Registered landowners may even be ousted of ownership and possession of their

properties in the event the latter are reclassified as mineral lands because real properties
are characteristically indivisible. For the loss sustained by such owners, they are entitled to
just compensation under the Mining Laws or in appropriate expropriation proceedings. [10]

Moreover, petitioners argument that the landowners right extends to the sub-soil
insofar as necessary for their practical interests serves only to further weaken its case. The
theory would limit the right to the sub-soil upon the economic utility which such area offers
to the surface owners. Presumably, the landowners right extends to such height or depth
where it is possible for them to obtain some benefit or enjoyment, and it is extinguished
beyond such limit as there would be no more interest protected by law. [11]

In this regard, the trial court found that respondents could have dug upon their
property motorized deep wells but were prevented from doing so by the authorities precisely
because of the construction and existence of the tunnels underneath the surface of their
property. Respondents, therefore, still had a legal interest in the sub-terrain portion insofar
as they could have excavated the same for the construction of the deep well. The fact that
they could not was appreciated by the RTC as proof that the tunnels interfered with
respondents enjoyment of their property and deprived them of its full use and enjoyment,
thus:
Has it deprived the plaintiffs of the use of their lands when from the
evidence they have already existing residential houses over said tunnels and
it was not shown that the tunnels either destroyed said houses or disturb[ed]

the possession thereof by plaintiffs? From the evidence, an affirmative answer

seems to be in order. The plaintiffs and [their] co-heirs discovered [these] big
underground tunnels in 1992. This was confirmed by the defendant
on November 13, 1992 by the Acting Assistant Project Manager, Agus 1 Hydro
Electric Project (Exh. K). On September 16, 1992, Atty. Omar Maruhom (coheir) requested the Marawi City Water District for permit to construct a
motorized deep well over Lot 3 for his residential house (Exh. Q). He was
refused the permit because the construction of the deep well as (sic) the
parcels of land will cause danger to lives and property. He was informed that
beneath your lands are constructed the Napocor underground tunnel in
connection with Agua Hydroelectric plant (Exh. Q-2). There in fact exists
ample evidence that this construction of the tunnel without the prior consent
of plaintiffs beneath the latters property endangered the lives and properties
of said plaintiffs. It has been proved indubitably that Marawi City lies in an
area of local volcanic and tectonic activity. Lake Lanao has been formed by
extensive earth movements and is considered to be a drowned basin of
volcano/tectonic origin. In Marawi City, there are a number of former
volcanoes and an extensive amount of faulting. Some of these faults are still
moving. (Feasibility Report on Marawi City Water District by Kampsa-Kruger,
Consulting Engineers, Architects and Economists, Exh. R). Moreover, it has
been shown that the underground tunnels [have] deprived the plaintiffs of the
lawful use of the land and considerably reduced its value. On March 6, 1995,
plaintiffs applied for a two-million peso loan with the Amanah Islamic Bank for
the expansion of the operation of the Ameer Construction and Integrated
Services to be secured by said land (Exh. N), but the application was
disapproved by the bank in its letter of April 25, 1995 (Exh. O) stating that:
Apropos to this, we regret to inform you that we cannot
consider your loan application due to the following reasons, to
wit:
That per my actual ocular inspection and verification, subject
property offered as collateral has an existing underground
tunnel by the NPC for the Agus I Project, which tunnel is
traversing
underneath
your
property,
hence,
an
encumbrance. As a matter of bank policy, property with an
existing encumbrance cannot be considered neither accepted
as collateral for a loan.
All the foregoing evidence and findings convince this Court that
preponderantly plaintiffs have established the condemnation of their land
covering an area of 48,005 sq. meters located at Saduc, Marawi City by the
defendant National Power Corporation without even the benefit of
expropriation proceedings or the payment of any just compensation and/or
reasonable monthly rental since 1978.[12]

In the past, the Court has held that if the government takes property without expropriation
and devotes the property to public use, after many years, the property owner may demand
payment of just compensation in the event restoration of possession is neither convenient
nor feasible.[13] This is in accordance with the principle that persons shall not be deprived of

their property except by competent authority and for public use and always upon payment
of just compensation.[14]

Petitioner contends that the underground tunnels in this case constitute an easement
upon the property of respondents which does not involve any loss of title or possession. The
manner in which the easement was created by petitioner, however, violates the due process
rights of respondents as it was without notice and indemnity to them and did not go through
proper expropriation proceedings. Petitioner could have, at any time, validly exercised the
power of eminent domain to acquire the easement over respondents property as this power
encompasses not only the taking or appropriation of title to and possession of the
expropriated property but likewise covers even the imposition of a mere burden upon the
owner of the condemned property.[15] Significantly, though, landowners cannot be deprived
of their right over their land until expropriation proceedings are instituted in court. The court
must then see to it that the taking is for public use, that there is payment of just
compensation and that there is due process of law.[16]

In disregarding this procedure and failing to recognize respondents ownership of the

sub-terrain portion, petitioner took a risk and exposed itself to greater liability with the
passage of time. It must be emphasized that the acquisition of the easement is not without
expense. The underground tunnels impose limitations on respondents use of the property for
an indefinite period and deprive them of its ordinary use. Based upon the foregoing,
respondents are clearly entitled to the payment of just compensation. [17] Notwithstanding
the fact that petitioner only occupies the sub-terrain portion, it is liable to pay not merely an
easement fee but rather the full compensation for land. This is so because in this case, the
nature of the easement practically deprives the owners of its normal beneficial
use. Respondents, as the owners of the property thus expropriated, are entitled to a just
compensation which should be neither more nor less, whenever it is possible to make the
assessment, than the money equivalent of said property.[18]

The entitlement of respondents to just compensation having been settled, the issue
now is on the manner of computing the same. In this regard, petitioner claims that the basis
for the computation of the just compensation should be the value of the property at the time
it was taken in 1978. Petitioner also impugns the reliance made by the CA upon National
Power Corporation v. Court of Appeals and Macapanton Mangondato [19] as the basis for
computing the amount of just compensation in this action. The CA found that the award of
damages is not excessive because the P1000 per square meter as the fair market value was
sustained in a case involving a lot adjoining the property in question which case involved an
expropriation by [petitioner] of portion of Lot 1 of the subdivision plan (LRC) PSD 116159
which is adjacent to Lots 2 and 3 of the same subdivision plan which is the subject of the
instant controversy.[20]

Just compensation has been understood to be the just and complete equivalent of the
loss[21] and is ordinarily determined by referring to the value of the land and its character at
the time it was taken by the expropriating authority. [22] There is a taking in this sense when
the owners are actually deprived or dispossessed of their property, where there is a practical
destruction or a material impairment of the value of their property, or when they are
deprived of the ordinary use thereof. There is a taking in this context when the expropriator
enters private property not only for a momentary period but for more permanent duration,
for the purpose of devoting the property to a public use in such a manner as to oust the
owner and deprive him of all beneficial enjoyment thereof. [23]Moreover, taking of the
property for purposes of eminent domain entails that the entry into the property must be
under warrant or color of legal authority.[24]
Under the factual backdrop of this case, the last element of taking mentioned, i.e.,
that the entry into the property is under warrant or color of legal authority, is patently
lacking. Petitioner justified its nonpayment of the indemnity due respondents upon its
mistaken belief that the property formed part of the public dominion.

This situation is on all fours with that in the Mangondato case. NAPOCOR in that case
took the property of therein respondents in 1979, using it to build its Aqua I Hydroelectric

Plant Project, without paying any compensation, allegedly under the mistaken belief that it
was public land. It was only in 1990, after more than a decade of beneficial use, that
NAPOCOR recognized therein respondents ownership and negotiated for the voluntary
purchase of the property.

In Mangondato, this Court held:

The First Issue: Date of Taking or Date of Suit?
The general rule in determining just compensation in eminent
domain is the value of the property as of the date of the filing of the
complaint, as follows:
Sec. 4. Order of Condemnation. When such a motion is overruled or when any
party fails to defend as required by this rule, the court may enter an order of
condemnation declaring that the plaintiff has a lawful right to take the
property sought to be condemned, for the public use or purpose described in
the complaint, upon the payment of just compensation to be determined as of
the date of the filing of the complaint. x x x (Italics supplied).
Normally, the time of the taking coincides with the filing of the complaint for
expropriation. Hence, many ruling of this Court have equated just
compensation with the value of the property as of the time of filing of the
complaint consistent with the above provision of the Rules. So too, where the
institution of the action precedes entry to the property, the just compensation
is to be ascertained as of the time of filing of the complaint.
The general rule, however, admits of an exception: where this Court
fixed the value of the property as of the date it was taken and not
the date of the commencement of the expropriation proceedings.
In the old case of Provincial Government of Rizal vs. Caro de Araullo, the Court
ruled that x x x the owners of the land have no right to recover damages for
this unearned increment resulting from the construction of the public
improvement (lengthening of Taft Avenue from Manila to Pasay) from which
the land was taken. To permit them to do so would be to allow them to recover
more than the value of the land at the time it was taken, which is the true
measure of the damages, or just compensation, and would discourage the
construction of important public improvements.
In subsequent cases, the Court, following the above doctrine,
invariably held that the time of taking is the critical date in
determining lawful or just compensation.Justifying this stance, Mr. Justice
(later Chief Justice) Enrique Fernando, speaking for the Court in Municipality of
La Carlota vs. The Spouses Felicidad Baltazar and Vicente Gan, said, x x x the
owner as is the constitutional intent, is paid what he is entitled to according to
the value of the property so devoted to public use as of the date of
taking. From that time, he had been deprived thereof. He had no choice but to
submit. He is not, however, to be despoiled of such a right. No less than the
fundamental law guarantees just compensation. It would be injustice to him

certainly if from such a period, he could not recover the value of what was
lost. There could be on the other hand, injustice to the expropriator if
by a delay in the collection, the increment in price would accrue to
the owner. The doctrine to which this Court has been committed is intended
precisely to avoid either contingency fraught with unfairness.
Simply stated, the exception finds the application where the owner
would be given undue incremental advantages arising from the use
to which the government devotes the property expropriated -- as for
instance, the extension of a main thoroughfare as was in the case in Caro de
Araullo. In the instant case, however, it is difficult to conceive of how
there could have been an extra-ordinary increase in the value of the
owners land arising from the expropriation, as indeed the records do
not show any evidence that the valuation of P1,000.00 reached in
1992 was due to increments directly caused by petitioners use of the
land. Since the petitioner is claiming an exception to Rule 67, Section 4, it has
the burden in proving its claim that its occupancy and use -- not ordinary
inflation and increase in land values -- was the direct cause of the increase in
valuation from 1978 to 1992.
Side Issue: When is there Taking of Property?
But there is yet another cogent reason why this petition should be denied and
why the respondent Court should be sustained. An examination of the
undisputed factual environment would show that the taking was not really
made in 1978.
This Court has defined the elements of taking as the main ingredient in the
exercise of power of eminent domain, in the following words:
A number of circumstances must be present in taking of property for purposes
of eminent domain: (1) the expropriator must enter a private property; (2) the
entrance into private property must be for more than a momentary period;
(3) the entry into the property should be under warrant or color of legal
authority; (4) the property must be devoted to a public use or otherwise
informally appropriated or injuriously affected; and (5) the utilization of the
property for public use must be in such a way to oust the owner and deprive
him of all beneficial enjoyment of the property.(Italics supplied)
In this case, the petitioners entrance in 1978 was without intent to
expropriate or was not made under warrant or color of legal authority, for it
believed the property was public land covered by Proclamation No. 1354.
When the private respondent raised his claim of ownership sometime in 1979,
the petitioner flatly refused the claim for compensation, nakedly insisted that
the property was public land and wrongly justified its possession by alleging it
had already paid financial assistance to Marawi City in exchange for the rights
over the property. Only in 1990, after more than a decade of beneficial use,
did the petitioner recognize private respondents ownership and negotiate for
the voluntary purchase of the property. A Deed of Sale with provisional
payment and subject to negotiations for the correct price was then
executed. Clearly, this is not the intent nor the expropriation contemplated by
law. This is a simple attempt at a voluntary purchase and sale. Obviously, the
petitioner neglected and/or refused to exercise the power of eminent domain.

Only in 1992, after the private respondent sued to recover possession and
petitioner filed its Complaint to expropriate, did petitioner manifest its
intention to exercise the power of eminent domain. Thus the respondent Court
correctly held:
If We decree that the fair market value of the land be determined as
of 1978, then We would be sanctioning a deceptive scheme whereby
NAPOCOR, for any reason other than for eminent domain would
occupy anothers property and when later pressed for payment, first
negotiate for a low price and then conveniently expropriate the
property when the land owner refuses to accept its offer claiming
that the taking of the property for the purpose of the eminent
domain should be reckoned as of the date when it started to occupy
the property and that the value of the property should be computed
as of the date of the taking despite the increase in the meantime in
the value of the property.
In Noble vs. City of Manila, the City entered into a lease-purchase agreement
of a building constructed by the petitioners predecessor-in-interest in
accordance with the specifications of the former. The Court held that being
bound by the said contract, the City could not expropriate the
building. Expropriation could be resorted to only when it is made necessary by
the opposition of the owner to the sale or by the lack of any agreement as to
the price. Said the Court:
The contract, therefore, in so far as it refers to the purchase of the building, as
we have interpreted it, is in force, not having been revoked by the parties or
by judicial decision. This being the case, the city being bound to buy the
building at an agreed price, under a valid and subsisting contract, and the
plaintiff being agreeable to its sale, the expropriation thereof, as sought by
the defendant, is baseless. Expropriation lies only when it is made necessary
by the opposition of the owner to the sale or by the lack of any agreement as
to the price. There being in the present case a valid and subsisting contract,
between the owner of the building and the city, for the purchase thereof at an
agreed price, there is no reason for the expropriation. (Italics supplied)
In the instant case, petitioner effectively repudiated the deed of sale it
entered into with the private respondent when it passed Resolution No. 92121 on May 25, 1992 authorizing its president to negotiate, inter alia, that
payment shall be effective only after Agus I HE project has been placed in
operation. It was only then that petitioners intent to expropriate became
manifest as private respondent disagreed and, barely a month, filed suit. [25]
In the present case, to allow petitioner to use the date it constructed the tunnels as
the date of valuation would be grossly unfair. First, it did not enter the land under warrant or
color of legal authority or with intent to expropriate the same. In fact, it did not bother to
notify the owners and wrongly assumed it had the right to dig those tunnels under their
property. Secondly, the improvements introduced by petitioner, namely, the tunnels, in no
way contributed to an increase in the value of the land. The trial court, therefore, as affirmed
by the CA, rightly computed the valuation of the property as of 1992, when respondents

discovered the construction of the huge underground tunnels beneath their lands and
petitioner confirmed the same and started negotiations for their purchase but no agreement
could be reached.[26]

As to the amount of the valuation, the RTC and the CA both used as basis the value of
the adjacent property, Lot 1 (the property involved herein being Lots 2 and 3 of the same
subdivision plan), which was valued at P1,000 per sq. meter as of 1990, as sustained by this
Court in Mangondato, thus:
The Second Issue: Valuation
We now come to the issue of valuation.
The fair market value as held by the respondent Court, is the amount
of P1,000.00 per square meter. In an expropriation case where the principal
issue is the determination of just compensation, as is the case here, a trial
before Commissioners is indispensable to allow the parties to present
evidence on the issue of just compensation. Inasmuch as the determination of
just compensation in eminent domain cases is a judicial function and factual
findings of the Court of Appeals are conclusive on the parties and reviewable
only when the case falls within the recognized exceptions, which is not the
situation obtaining in this petition, we see no reason to disturb the factual
findings as to valuation of the subject property. As can be gleaned from the
records, the court-and-the-parties-appointed commissioners did not abuse
their authority in evaluating the evidence submitted to them nor
misappreciate the clear preponderance of evidence. The amount fixed and
agreed to by the respondent appellate Court is not grossly exorbitant. To
quote:
Commissioner Ali comes from the Office of the Register of Deeds who may
well be considered an expert, with a general knowledge of the appraisal of
real estate and the prevailing prices of land in the vicinity of the land in
question so that his opinion on the valuation of the property cannot be lightly
brushed aside.
The prevailing market value of the land is only one of the determinants used
by the commissioners report the other being as herein shown:
xxx
xxx
Commissioner Doromals report, recommending P300.00 per square meter,
differs from the 2 commissioners only because his report was based on the
valuation as of 1978 by the City Appraisal Committee as clarified by the
latters chairman in response to NAPOCORs general counsels query.
In sum, we agree with the Court of Appeals that petitioner has failed to show
why it should be granted an exemption from the general rule in determining

just compensation provided under Section 4 of Rule 67. On the contrary,

private respondent has convinced us that, indeed, such general rule should in
fact be observed in this case.[27]

Petitioner has not shown any error on the part of the CA in reaching such a
valuation. Furthermore, these are factual matters that are not within the ambit of the
present review.

WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals in
C.A.-G.R. CV No. 57792 dated June 8, 2005 is AFFIRMED.

No costs.
SO ORDERED.

ART 1245
SPS. RAFAEL P. ESTANISLAO AND ZENAIDA ESTANISLAO, petitioners,
vs.
EAST WEST BANKING CORPORATION, respondent.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review of the Decision1 of the Court of Appeals dated April 13, 2007 in CA-G.R.
CV No. 87114 which reversed and set aside the Decision of the Regional Trial Court of Antipolo City,
Branch 73 in Civil Case No. 00-5731. The appellate court entered a new judgment ordering
petitioners spouses Estanislao to pay respondent East West Banking Corporation P4,275,919.65
plus interest and attorneys fees. Also assailed is the Resolution2dated June 25, 2007 denying the
motion for reconsideration.
The facts are as follows:
On July 24, 1997, petitioners obtained a loan from the respondent in the amount of P3,925,000.00
evidenced by a promissory note and secured by two deeds of chattel mortgage dated July 10, 1997:
one covering two dump trucks and a bulldozer to secure the loan amount of P2,375,000.00, and
another covering bulldozer and a wheel loader to secure the loan amount of P1,550,000.00.
Petitioners defaulted in the amortizations and the entire obligation became due and demandable.
On April 10, 2000, respondent bank filed a suit for replevin with damages, praying that the
equipment covered by the first deed of chattel mortgage be seized and delivered to it. In the
alternative, respondent prayed that petitioners be ordered to pay the outstanding principal amount of

P3,846,127.73 with 19.5% interest per annum reckoned from judicial demand until fully paid,
exemplary damages of P50,000.00, attorneys fees equivalent to 20% of the total amount due, other
expenses and costs of suit.
The case was filed in the Regional Trial Court of Antipolo and raffled to Branch 73 thereof.
Subsequently, respondent moved for suspension of the proceedings on account of an earnest
attempt to arrive at an amicable settlement of the case. The trial court suspended the proceedings,
and during the course of negotiations, a deed of assignment3 dated August 16, 2000 was drafted by
the respondent, which provides in part, that:
x x x the ASSIGNOR is indebted to the ASSIGNEE in the aggregate sum of SEVEN
MILLION THREE HUNDRED FIVE THOUSAND FOUR HUNDRED FIFTY NINE PESOS
and FIFTY TWO CENTAVOS (P7,305,459.52), Philippine currency, inclusive of accrued
interests and penalties as of August 16, 2000, and in full payment thereof, the
ASSIGNOR does hereby ASSIGN, TRANSFER and CONVEY unto the ASSIGNEE those
motor vehicles, with all their tools and accessories, more particularly described as follows:
Make : Isuzu Dump Truck
xxx
Make : Isuzu Dump Truck
xxx
Make : x x x Caterpillar Bulldozer x x x
That the ASSIGNEE hereby accepts the assignment in full payment of the abovementioned debt x x x. (Emphasis supplied)
Petitioners affixed their signatures on the deed of assignment. However, for some unknown reason,
respondent banks duly authorized representative failed to sign the deed.
On October 6, 2000 and March 8, 2001, respectively, petitioners completed the delivery of the heavy
equipment mentioned in the deed of assignment two dump trucks and a bulldozer to respondent,
which accepted the same without protest or objection.
However, on June 20, 2001, respondent filed a manifestation and motion to admit an amended
complaint for the seizure and delivery of two more heavy equipment the bulldozer and wheel
loader which are covered under the second deed of chattel mortgage. Respondent claimed that its
representative inadvertently failed to include the second deed of chattel mortgage among the
documents forwarded to its counsel when the original complaint was being drafted. Respondent
likewise claimed that petitioners were given a chance to submit a refinancing scheme that would
allow them to keep the remaining two heavy equipment, but they failed to come up with such a
scheme despite repeated promises to do so.

Respondents amended complaint for replevin alleged that petitioners outstanding indebtedness as
of June 14, 2001 stood at P4,275,919.61 which is more or less equal to the aggregate value of the
additional units of heavy equipment sought to be recovered. It also prayed that, in the event the two
heavy equipment could not be replevied, petitioners be ordered to pay the outstanding sum of
P3,846,127.73 with 19.5% interest per annum reckoned from January 24, 1998, compound interest,
exemplary damages of P50,000.00, attorneys fees equivalent to 20% of the total amount due, other
expenses and costs of suit.
Petitioners sought to dismiss the amended complaint. They alleged that their previous payments on
loan amortizations, the execution of the deed of assignment on August 16, 2000, and respondents
acceptance of the three units of heavy equipment, had the effect of full payment or satisfaction of
their total outstanding obligation which is a bar on respondent bank from recovering any more
amounts from them. By way of counterclaim, petitioners sought the award of nominal damages in
the amount of P500,000.00, moral damages in the amount of P500,000.00, exemplary damages in
the amount of P500,000.00, attorneys fees, litigation expenses, interest and costs.
On March 14, 2006, the trial court dismissed the amended complaint for lack of merit. It held that the
deed of assignment and the petitioners delivery of the heavy equipment effectively extinguished
petitioners total loan obligation. It also held that respondent was estopped from further collecting
from the petitioners when it accepted, without any protest, delivery of the three units of heavy
equipment as full and complete satisfaction of the petitioners total loan obligation. Respondent
likewise failed to timely rectify its alleged mistake in the original complaint and deed of assignment,
taking almost a year to act.
Respondent bank appealed to the Court of Appeals, which reversed the trial courts decision, the
dispositive portion of which reads:
WHEREFORE, premises considered, the present appeal is hereby GRANTED. The Decision
dated March 14, 2006 of the Regional Trial Court of Antipolo City, Branch 73 in Civil Case
No. 00-5731 is hereby REVERSED and SET ASIDE. A new judgment is hereby entered
ordering the defendants-appellees to pay, jointly and severally, plaintiff-appellant East West
Banking Corporation the sum of FOUR MILLION TWO HUNDRED SEVENTY FIVE
THOUSAND NINE HUNDRED NINETEEN and 69/100 (P4,275,919.69) per Statement of
Account as of June 14, 2001 (Exh. "E", Records, p.328) with interest at 12% per annum from
June 15, 2001 until full payment thereof. Defendants-appellees are likewise ordered to pay
the plaintiff-appellant attorneys fees in the sum equivalent to ten per cent (10%) of the total
amount due.
No pronouncement as to costs.
SO ORDERED.4
The reversal of the lower courts decision hinges on: (1) the appellate courts finding that the deed of
assignment cannot bind the respondent because it did not sign the same. The appellate court ruled
that the assignment contract was never perfected although it was prepared and drafted by the
respondent; (2) respondent was not estopped by its own declarations in the deed of assignment,
because such declarations were the result of "ignorance founded upon an innocent mistake" and
"plain oversight" on the part of respondents staff in the banks loan operations department, who
failed to forward the complete documents pertaining to petitioners account to the banks legal

department, such that when the original complaint for replevin was prepared, the second deed of
chattel mortgage covering two other pieces of heavy equipment was inadvertently excluded; (3)
petitioners are aware that there were five pieces of heavy equipment under chattel mortgage for an
outstanding balance of over P7 million; and (4) the appellate court held that even after the delivery of
the heavy equipment covered by the deed of assignment, the petitioners continued to negotiate with
the respondent on a possible refinancing scheme that will enable them to retain the two other units
of heavy equipment still in their possession and which are the subject of the second deed of chattel
mortgage.
Petitioners argue that: a) the appellate court erred in ordering the payment of the principal obligation
in a replevin suit which it erroneously treated as a collection case; b) the deed of assignment is
binding between the parties although it was not signed by the respondent, constituting as it did an
offer which they validly accepted; and c) the respondent is estopped from collecting or foreclosing on
the second deed of chattel mortgage.
On the other hand, respondent argues that: a) the deed of assignment produced no legal effect
between the parties for failure of the respondent to sign the same; b) the deed was founded on a
mistake on its part because it honestly believed that only one chattel mortgage had been constituted
to secure the petitioners obligation; c) the non-inclusion of the second deed of chattel mortgage in
the original complaint was a case of "plain oversight" on the part of the loan operations unit of
respondent bank, which failed to forward to the legal department the complete documents pertaining
to the petitioners loan account; d) the continued negotiations in August 2001 between the parties,
after delivery of the three units of heavy equipment, proves that petitioners acknowledged their
continuing obligations to respondent under the second deed of mortgage; and, e) the deed of
assignment did not have the effect of novating the original loan obligation.
The issue for resolution is: Did the deed of assignment which expressly provides that the transfer
and conveyance to respondent of the three units of heavy equipment, and its acceptance thereof,
shall be in full payment of the petitioners total outstanding obligation to the latter operate to
extinguish petitioners debt to respondent, such that the replevin suit could no longer prosper?
We find merit in the petition.
The appellate court erroneously denominated the replevin suit as a collection case. A reading of the
original and amended complaints show that what the respondent initiated was a pure replevin suit,
and not a collection case. Recovery of the heavy equipment was the principal aim of the suit;
payment of the total obligation was merely an alternative prayer which respondent sought in the
event manual delivery of the heavy equipment could no longer be made.
Replevin, broadly understood, is both a form of principal remedy and a provisional relief. It may refer
either to the action itself, i.e., to regain the possession of personal chattels being wrongfully detained
from the plaintiff by another, or to the provisional remedy that would allow the plaintiff to retain the
thing during the pendency of the action and hold it pendente lite.5
The deed of assignment was a perfected agreement which extinguished petitioners total outstanding
obligation to the respondent. The deed explicitly provides that the assignor (petitioners), "in full
payment" of its obligation in the amount of P7,305,459.52, shall deliver the three units of heavy
equipment to the assignee (respondent), which "accepts the assignment in full payment of the
above-mentioned debt." This could only mean that should petitioners complete the delivery of the

three units of heavy equipment covered by the deed, respondents credit would have been
satisfied in full, and petitioners aggregate indebtedness of P7,305,459.52 would then be considered
to have been paid in full as well.
The nature of the assignment was a dation in payment, whereby property is alienated to the creditor
in satisfaction of a debt in money. Such transaction is governed by the law on sales. 6 Even if we
were to consider the agreement as a compromise agreement, there was no need for respondents
signature on the same, because with the delivery of the heavy equipment which the latter accepted,
the agreement was consummated. Respondents approval may be inferred from its unqualified
acceptance of the heavy equipment.
Consent to contracts is manifested by the meeting of the offer and the acceptance of the thing and
the cause which are to constitute the contract; the offer must be certain and the acceptance
absolute.7 The acceptance of an offer must be made known to the offeror, and unless the offeror
knows of the acceptance, there is no meeting of the minds of the parties, no real concurrence of
offer and acceptance.8 Upon due acceptance, the contract is perfected, and from that moment the
parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith, usage and law.9
With its years of banking experience, resources and manpower, respondent bank is presumed to be
familiar with the implications of entering into the deed of assignment, whose terms are categorical
and left nothing for interpretation. The alleged non-inclusion in the deed of certain units of heavy
equipment due to inadvertence, plain oversight or mistake, is tantamount to inexcusable manifest
negligence, which should not invalidate the juridical tie that was created. 10 Respondent is presumed
to have maintained a high level of meticulousness in its dealings with petitioners. The business of a
bank is affected with public interest; thus, it makes a sworn profession of diligence and
meticulousness in giving irreproachable service. 11
Besides, respondents protestations of mistake and plain oversight are self-serving. The evidence
show that from August 16, 2000 (date of the deed of assignment) up to March 8, 2001 (the date of
delivery of the last unit of heavy equipment covered under the deed), respondent did not raise any
objections nor make any move to question, invalidate or rescind the deed of assignment. It was not
until June 20, 2001 that respondent raised the issue of its alleged mistake by filing an amended
complaint for replevin involving different chattels, although founded on the same principal obligation.
The legal presumption is always on the validity of contracts. 12 In order to judge the intention of the
contracting parties, their contemporaneous and subsequent acts shall be principally
considered.13 When respondent accepted delivery of all three units of heavy equipment under the
deed of assignment, there could be no doubt that it intended to be bound under the agreement.
Since the agreement was consummated by the delivery on March 8, 2001 of the last unit of heavy
equipment under the deed, petitioners are deemed to have been released from all their obligations
to respondent.
Since there is no more credit to collect, no principal obligation to speak of, then there is no more
second deed of chattel mortgage that may subsist. A chattel mortgage cannot exist as an
independent contract since its consideration is the same as that of the principal contract. Being a
mere accessory contract, its validity would depend on the validity of the loan secured by it. 14 This

being so, the amended complaint for replevin should be dismissed, because the chattel mortgage
agreement upon which it is based had been rendered ineffectual.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals dated April 13, 2007
in CA-G.R. CV No. 87114 and its Resolution dated June 25, 2007 are hereby SET ASIDE. The
March 14, 2006 decision of the Regional Trial Court of Antipolo, Branch 73, which dismisses Civil
Case No. 00-5731, is hereby REINSTATED.
SO ORDERED.
SPOUSES WILFREDO N. ONG and EDNA SHEILA PAGUIO-ONG, Petitioners,
vs.
ROBAN LENDING CORPORATION, Respondent.
AUSTRIA-MARTINEZ,*
DECISION
CARPIO MORALES, J.:
On different dates from July 14, 1999 to March 20, 2000, petitioner-spouses Wilfredo N. Ong and
Edna Sheila Paguio-Ong obtained several loans from Roban Lending Corporation (respondent) in
the total amount of P4,000,000.00. These loans were secured by a real estate mortgage on
petitioners parcels of land located in Binauganan, Tarlac City and covered by TCT No. 297840. 1
On February 12, 2001, petitioners and respondent executed an Amendment to Amended Real
Estate Mortgage2consolidating their loans inclusive of charges thereon which totaled P5,916,117.50.
On even date, the parties executed a Dacion in Payment Agreement3 wherein petitioners assigned
the properties covered by TCT No. 297840 to respondent in settlement of their total obligation, and a
Memorandum of Agreement4 reading:
That the FIRST PARTY [Roban Lending Corporation] and the SECOND PARTY [the petitioners]
agreed to consolidate and restructure all aforementioned loans, which have been all past due and
delinquent since April 19, 2000, and outstanding obligations totaling P5,916,117.50. The SECOND
PARTY hereby sign [sic] another promissory note in the amount of P5,916,117.50 (a copy of which is
hereto attached and forms xxx an integral part of this document), with a promise to pay the FIRST
PARTY in full within one year from the date of the consolidation and restructuring, otherwise the
SECOND PARTY agree to have their "DACION IN PAYMENT" agreement, which they have
executed and signed today in favor of the FIRST PARTY be enforced[.]5
In April 2002 (the day is illegible), petitioners filed a Complaint, 6 docketed as Civil Case No. 9322,
before the Regional Trial Court (RTC) of Tarlac City, for declaration of mortgage contract as
abandoned, annulment of deeds, illegal exaction, unjust enrichment, accounting, and damages,
alleging that the Memorandum of Agreement and the Dacion in Payment executed are void for
being pactum commissorium.7
Petitioners alleged that the loans extended to them from July 14, 1999 to March 20, 2000 were
founded on several uniform promissory notes, which provided for 3.5% monthly interest rates, 5%

penalty per month on the total amount due and demandable, and a further sum of 25% attorneys
fees thereon,8 and in addition, respondent exacted certain sums denominated as
"EVAT/AR."9 Petitioners decried these additional charges as "illegal, iniquitous, unconscionable, and
revolting to the conscience as they hardly allow any borrower any chance of survival in case of
default."10
Petitioners further alleged that they had previously made payments on their loan accounts, but
because of the illegal exactions thereon, the total balance appears not to have moved at all, hence,
accounting was in order.11
Petitioners thus prayed for judgment:
a) Declaring the Real Estate Mortgage Contract and its amendments x x x as null and void
and without legal force and effect for having been renounced, abandoned, and given up;
b) Declaring the "Memorandum of Agreement" xxx and "Dacion in Payment" x x x as null and
void for being pactum commissorium;
c) Declaring the interests, penalties, Evat [sic] and attorneys fees assessed and loaded into
the loan accounts of the plaintiffs with defendant as unjust, iniquitous, unconscionable and
illegal and therefore, stricken out or set aside;
d) Ordering an accounting on plaintiffs loan accounts to determine the true and correct
balances on their obligation against legal charges only; and
e) Ordering defendant to [pay] to the plaintiffs: -e.1 Moral damages in an amount not less than P100,000.00 and exemplary
damages of P50,000.00;
e.2 Attorneys fees in the amount of P50,000.00 plus P1,000.00 appearance fee per
hearing; and
e.3 The cost of suit.12
as well as other just and equitable reliefs.
In its Answer with Counterclaim,13 respondent maintained the legality of its transactions with
petitioners, alleging that:
xxxx
If the voluntary execution of the Memorandum of Agreement and Dacion in Payment Agreement
novated the Real Estate Mortgage then the allegation of Pactum Commissorium has no more legal
leg to stand on;

The Dacion in Payment Agreement is lawful and valid as it is recognized x x x under Art. 1245 of the
Civil Code as a special form of payment whereby the debtor-Plaintiffs alienates their property to the
creditor-Defendant in satisfaction of their monetary obligation;
The accumulated interest and other charges which were computed for more than two (2) years
would stand reasonable and valid taking into consideration [that] the principal loan is P4,000,000
and if indeed it became beyond the Plaintiffs capacity to pay then the fault is attributed to them and
not the Defendant[.]14
After pre-trial, the initial hearing of the case, originally set on December 11, 2002, was reset several
times due to, among other things, the parties efforts to settle the case amicably.15
1avvphi1

During the scheduled initial hearing of May 7, 2003, the RTC issued the following order:
Considering that the plaintiff Wilfredo Ong is not around on the ground that he is in Manila and he is
attending to a very sick relative, without objection on the part of the defendants counsel, the initial
hearing of this case is reset to June 18, 2003 at 10:00 oclock in the morning.
Just in case [plaintiffs counsel] Atty. Concepcion cannot present his witness in the person of Mr.
Wilfredo Ong in the next scheduled hearing, the counsel manifested that he will submit the case for
summary judgment.16(Underscoring supplied)
It appears that the June 18, 2003 setting was eventually rescheduled to February 11, 2004 at which
both counsels were present17 and the RTC issued the following order:
The counsel[s] agreed to reset this case on April 14, 2004, at 10:00 oclock in the morning. However,
the counsels are directed to be ready with their memorand[a] together with all the exhibits or
evidence needed to support their respective positions which should be the basis for the judgment on
the pleadings if the parties fail to settle the case in the next scheduled setting.
x x x x18 (Underscoring supplied)
At the scheduled April 14, 2004 hearing, both counsels appeared but only the counsel of respondent
filed a memorandum.19
By Decision of April 21, 2004, Branch 64 of the Tarlac City RTC, finding on the basis of the pleadings
that there was no pactum commissorium, dismissed the complaint.20
On appeal,21 the Court of Appeals22 noted that
x x x [W]hile the trial court in its decision stated that it was rendering judgment on the pleadings, x x
x what it actually rendered was a summary judgment. A judgment on the pleadings is proper when
the answer fails to tender an issue, or otherwise admits the material allegations of the adverse
partys pleading. However, a judgment on the pleadings would not have been proper in this case as
the answer tendered an issue, i.e. the validity of the MOA and DPA. On the other hand, a summary
judgment may be rendered by the court if the pleadings, supporting affidavits, and other documents
show that, except as to the amount of damages, there is no genuine issue as to any material fact. 23

Nevertheless, finding the error in nomenclature "to be mere semantics with no bearing on the merits
of the case",24the Court of Appeals upheld the RTC decision that there was no pactum
commissorium.25
Their Motion for Reconsideration26 having been denied,27 petitioners filed the instant Petition for
Review on Certiorari,28 faulting the Court of Appeals for having committed a clear and reversible error
I. . . . WHEN IT FAILED AND REFUSED TO APPLY PROCEDURAL REQUISITES WHICH
WOULD WARRANT THE SETTING ASIDE OF THE SUMMARY JUDGMENT IN VIOLATION
OF APPELLANTS RIGHT TO DUE PROCESS;
II. . . . WHEN IT FAILED TO CONSIDER THAT TRIAL IN THIS CASE IS NECESSARY
BECAUSE THE FACTS ARE VERY MUCH IN DISPUTE;
III. . . . WHEN IT FAILED AND REFUSED TO HOLD THAT THE MEMORANDUM OF
AGREEMENT (MOA) AND THE DACION EN PAGO AGREEMENT (DPA) WERE
DESIGNED TO CIRCUMVENT THE LAW AGAINST PACTUM COMMISSORIUM; and
IV. . . . WHEN IT FAILED TO CONSIDER THAT THE MEMORANDUM OF AGREEMENT
(MOA) AND THE DACION EN PAGO (DPA) ARE NULL AND VOID FOR BEING
CONTRARY TO LAW AND PUBLIC POLICY.29
The petition is meritorious.
Both parties admit the execution and contents of the Memorandum of Agreement and Dacion in
Payment. They differ, however, on whether both contracts constitute pactum
commissorium or dacion en pago.
This Court finds that the Memorandum of Agreement and Dacion in Payment constitute pactum
commissorium, which is prohibited under Article 2088 of the Civil Code which provides:
The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them.
Any stipulation to the contrary is null and void."
The elements of pactum commissorium, which enables the mortgagee to acquire ownership of the
mortgaged property without the need of any foreclosure proceedings, 30 are: (1) there should be a
property mortgaged by way of security for the payment of the principal obligation, and (2) there
should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of
non-payment of the principal obligation within the stipulated period. 31
In the case at bar, the Memorandum of Agreement and the Dacion in Payment contain no provisions
for foreclosure proceedings nor redemption. Under the Memorandum of Agreement, the failure by
the petitioners to pay their debt within the one-year period gives respondent the right to enforce the
Dacion in Payment transferring to it ownership of the properties covered by TCT No. 297840.
Respondent, in effect, automatically acquires ownership of the properties upon petitioners failure to
pay their debt within the stipulated period.

Respondent argues that the law recognizes dacion en pago as a special form of payment whereby
the debtor alienates property to the creditor in satisfaction of a monetary obligation. 32 This does not
persuade. In a true dacion en pago, the assignment of the property extinguishes the monetary
debt.33 In the case at bar, the alienation of the properties was by way of security, and not by way of
satisfying the debt.34 The Dacion in Payment did not extinguish petitioners obligation to respondent.
On the contrary, under the Memorandum of Agreement executed on the same day as the Dacion in
Payment, petitioners had to execute a promissory note for P5,916,117.50 which they were to pay
within one year.35
Respondent cites Solid Homes, Inc. v. Court of Appeals36 where this Court upheld a Memorandum of
Agreement/Dacion en Pago.37 That case did not involve the issue of pactum commissorium.38
That the questioned contracts were freely and voluntarily executed by petitioners and respondent is
of no moment, pactum commissorium being void for being prohibited by law.39
Respecting the charges on the loans, courts may reduce interest rates, penalty charges, and
attorneys fees if they are iniquitous or unconscionable. 40
This Court, based on existing jurisprudence,41 finds the monthly interest rate of 3.5%, or 42% per
annum unconscionable and thus reduces it to 12% per annum. This Court finds too the penalty fee
at the monthly rate of 5% (60% per annum) of the total amount due and demandable principal plus
interest, with interest not paid when due added to and becoming part of the principal and likewise
bearing interest at the same rate, compounded monthly42 unconscionable and reduces it to a
yearly rate of 12% of the amount due, to be computed from the time of demand. 43 This Court finds
the attorneys fees of 25% of the principal, interests and interests thereon, and the penalty fees
unconscionable, and thus reduces the attorneys fees to 25% of the principal amount only.44
The prayer for accounting in petitioners complaint requires presentation of evidence, they claiming
to have made partial payments on their loans, vis a vis respondents denial thereof. 45 A remand of the
case is thus in order.
Prescinding from the above disquisition, the trial court and the Court of Appeals erred in holding that
a summary judgment is proper. A summary judgment is permitted only if there is no genuine issue as
to any material fact and a moving party is entitled to a judgment as a matter of law.46 A summary
judgment is proper if, while the pleadings on their face appear to raise issues, the affidavits,
depositions, and admissions presented by the moving party show that such issues are not
genuine.47 A genuine issue, as opposed to a fictitious or contrived one, is an issue of fact that
requires the presentation of evidence.48 As mentioned above, petitioners prayer for accounting
requires the presentation of evidence on the issue of partial payment.
But neither is a judgment on the pleadings proper. A judgment on the pleadings may be rendered
only when an answer fails to tender an issue or otherwise admits the material allegations of the
adverse partys pleadings.49 In the case at bar, respondents Answer with Counterclaim disputed
petitioners claims that the Memorandum of Agreement and Dation in Payment are illegal and that
the extra charges on the loans are unconscionable.50Respondent disputed too petitioners allegation
of bad faith.51
WHEREFORE, the challenged Court of Appeals Decision is REVERSED and SET ASIDE. The
Memorandum of Agreement and the Dacion in Payment executed by petitioner- spouses Wilfredo N.

Ong and Edna Sheila Paguio-Ong and respondent Roban Lending Corporation on February 12,
2001 are declared NULL AND VOID for being pactum commissorium.
In line with the foregoing findings, the following terms of the loan contracts between the parties are
MODIFIED as follows:
1. The monthly interest rate of 3.5%, or 42% per annum, is reduced to 12% per annum;
2. The monthly penalty fee of 5% of the total amount due and demandable is reduced to
12% per annum, to be computed from the time of demand; and
3. The attorneys fees are reduced to 25% of the principal amount only.
Civil Case No. 9322 is REMANDED to the court of origin only for the purpose of receiving evidence
on petitioners prayer for accounting.
SO ORDERED.
TAN SHUY, Petitioner,
vs.
Spouses GUILLERMO MAULAWIN and PARING CARIO-MAULAWIN, Respondents.
DECISION
SERENO, J.:
Before the Court is a Petition for Review on Certiorari filed under Rule 45 of the Rules of Court,
assailing the 31 July 2009 Decision and 13 November 2009 Resolution of the Court of Appeals
(CA).1
Facts
Petitioner Tan Shuy is engaged in the business of buying copra and corn in the Fourth District of
Quezon Province. According to Vicente Tan (Vicente), son of petitioner, whenever they would buy
copra or corn from crop sellers, they would prepare and issue a pesada in their favor. A pesada is a
document containing details of the transaction, including the date of sale, the weight of the crop
delivered, the trucking cost, and the net price of the crop. He then explained that when a pesada
contained the annotation "pd" on the total amount of the purchase price, it meant that the crop
delivered had already been paid for by petitioner.2
Guillermo Maulawin (Guillermo), respondent in this case, is a farmer-businessman engaged in the
buying and selling of copra and corn. On 10 July 1997, Tan Shuy extended a loan to Guillermo in the
amount of P 420,000. In consideration thereof, Guillermo obligated himself to pay the loan and to
sell lucad or copra to petitioner. Below is a reproduction of the contract: 3
No2567

Lopez, Quezon July 10, 1997

Tinanggap ko kay G. TAN SHUY ang halagang

. (P420,000.00) salaping

Filipino. Inaako ko na isusulit sa kanya ang aking LUCAD at babayaran ko

ang nasabing halaga. Kung hindi ako makasulit ng LUCAD o makabayad
bago sumapit ang ., 19 maaari niya akong ibigay sa
may kapangyarihan. Kung ang pagsisingilan ay makakarating sa Juzgado ay
sinasagutan ko ang lahat ng kaniyang gugol.
P................

[Sgd. by respondent]
.
Lagda

Most of the transactions involving Tan Shuy and Guillermo were coursed through Elena Tan,
daughter of petitioner. She served as cashier in the business of Tan Shuy, who primarily prepared
and issued the pesada. In case of her absence, Vicente would issue the pesada. He also helped his
father in buying copra and granting loans to customers (copra sellers). According to Vicente, part of
their agreement with Guillermo was that they would put the annotation "sulong" on the pesada when
partial payment for the loan was made.
Petitioner alleged that despite repeated demands, Guillermo remitted only P 23,000 in August 1998
and P 5,500 in October 1998, or a total of P 28,500.4 He claimed that respondent had an outstanding
balance of P 391,500. Thus, convinced that Guillermo no longer had the intention to pay the loan,
petitioner brought the controversy to the Lupon Tagapamayapa. When no settlement was reached,
petitioner filed a Complaint before the Regional Trial Court (RTC).
Respondent Guillermo countered that he had already paid the subject loan in full. According to him,
he continuously delivered and sold copra to petitioner from April 1998 to April 1999. Respondent said
they had an oral arrangement that the net proceeds thereof shall be applied as installment payments
for the loan. He alleged that his deliveries amounted to P 420,537.68 worth of copra. To bolster his
claim, he presented copies of pesadas issued by Elena and Vicente. He pointed out that the
pesadas did not contain the notation "pd," which meant that actual payment of the net proceeds from
copra deliveries was not given to him, but was instead applied as loan payment. He averred that Tan
Shuy filed a case against him, because petitioner got mad at him for selling copra to other copra
buyers.
On 27 July 2007, the trial court issued a Decision, ruling that the net proceeds from Guillermos
copra deliveries represented in the pesadas, which did not bear the notation "pd" should be
applied as installment payments for the loan. It gave weight and credence to the pesadas, as their
due execution and authenticity was established by Elena and Vicente, children of
petitioner.5 However, the court did not credit the net proceeds from 12 pesadas, as they were
deliveries for corn and not copra. According to the RTC, Guillermo himself testified that it was the net
proceeds from the copra deliveries that were to be applied as installment payments for the loan.
Thus, it ruled that the total amount of P 41,585.25, which corresponded to the net proceeds from
corn deliveries, should be deducted from the amount of P 420,537.68 claimed by Guillermo to be the
total value of his copra deliveries. Accordingly, the trial court found that respondent had not made a
full payment for the loan, as the total creditable copra deliveries merely amounted to P 378,952.43,
leaving a balance of P 41,047.57 in his loan.6
On 31 July 2009, the CA issued its assailed Decision, which affirmed the finding of the trial court.
According to the appellate court, petitioner could have easily belied the existence of the pesadas
and the purpose for which they were offered in evidence by presenting his daughter Elena as
witness; however, he failed to do so. Thus, it gave credence to the testimony of respondent
Guillermo in that the net proceeds from the copra deliveries were applied as installment payments

for the loan.7 On 13 November 2009, the CA issued its assailed Resolution, which denied the Motion
for Reconsideration of petitioner.
Petitioner now assails before this Court the aforementioned Decision and Resolution of the CA and
presents the following issues:
Issues
1. Whether the pesadas require authentication before they can be admitted in evidence, and
2. Whether the delivery of copra amounted to installment payments for the loan obtained by
respondents from petitioner.
Discussion
As regards the first issue, petitioner asserts that the pesadas should not have been admitted in
evidence, since they were private documents that were not duly authenticated. 8 He further contends
that the pesadas were fabricated in order to show that the goods delivered were copra and not corn.
Finally, he argues that five of the pesadas mentioned in the Formal Offer of Evidence of respondent
were not actually offered.9
With regard to the second issue, petitioner argues that respondent undertook two separate
obligations (1) to pay for the loan in cash and (2) to sell the latters lucad or copra. Since their
written agreement did not specifically provide for the application of the net proceeds from the
deliveries of copra for the loan, petitioner contends that he cannot be compelled to accept copra as
payment for the loan. He emphasizes that the pesadas did not specifically indicate that the net
proceeds from the copra deliveries were to be used as installment payments for the loan. He also
claims that respondents copra deliveries were duly paid for in cash, and that the pesadas were in
fact documentary receipts for those payments.
We reiterate our ruling in a line of cases that the jurisdiction of this Court, in cases brought before it
from the CA, is limited to reviewing or revising errors of law.10 Factual findings of courts, when
adopted and confirmed by the CA, are final and conclusive on this Court except if unsupported by
the evidence on record.11 There is a question of fact when doubt arises as to the truth or falsehood of
facts; or when there is a need to calibrate the whole evidence, considering mainly the credibility of
the witnesses and the probative weight thereof, the existence and relevancy of specific surrounding
circumstances, as well as their relation to one another and to the whole, and the probability of the
situation.12
Here, a finding of fact is required in the ascertainment of the due execution and authenticity of the
pesadas, as well as the determination of the true intention behind the parties oral agreement on the
application of the net proceeds from the copra deliveries as installment payments for the loan. 13 This
function was already exercised by the trial court and affirmed by the CA. Below is a reproduction of
the relevant portion of the trial courts Decision:
x x x The defendant further averred that if in the receipts or "pesadas" issued by the plaintiff to those
who delivered copras to them there is a notation "pd" on the total amount of purchase price of the
copras, it means that said amount was actually paid or given by the plaintiff or his daughter Elena
Tan Shuy to the seller of the copras. To prove his averments the defendant presented as evidence
two (2) receipts or pesadas issued by the plaintiff to a certain "Cario" (Exhibits "1" and "2"
defendant) showing the notation "pd" on the total amount of the purchase price for the copras. Such

claim of the defendant was further bolstered by the testimony of Apolinario Cario which affirmed
that he also sell copras to the plaintiff Tan Shuy. He also added that he incurred indebtedness to the
plaintiff and whenever he delivered copras the amount of the copras sold were applied as payments
to his loan. The witness also pointed out that the plaintiff did not give any official receipts to those
who transact business with him (plaintiff). This Court gave weight and credence to the documents
receipts (pesadas) (Exhibits "3" to "64") offered as evidence by the defendant which does not bear
the notation "pd" or paid on the total amount of the purchase price of copras appearing therein.
Although said "pesadas" were private instrument their execution and authenticity were established
by the plaintiffs daughter Elena Tan and sometimes by plaintiffs son Vicente Tan. x x x. 14 (Emphasis
supplied)
In affirming the finding of the RTC, the CA reasoned thus:
In his last assigned error, plaintiff-appellant herein impugns the conclusion arrived at by the trial
court, particularly with respect to the giving of evidentiary value to Exhs. "3" to "64" by the latter in
order to prove the claim of defendant-appellee Guillermo that he had fully paid the subject loan
already.
The foregoing deserves scant consideration.
Here, plaintiff-appellant could have easily belied the existence of Exhs. "3" to "64", the pesadas or
receipts, and the purposes for which they were offered in evidence by simply presenting his
daughter, Elena Tan Shuy, but no effort to do so was actually done by the former given that
scenario.15 (Emphasis supplied)
We found no clear showing that the trial court and the CA committed reversible errors of law in giving
credence and according weight to the pesadas presented by respondents. According to Rule 132,
Section 20 of the Rules of Court, there are two ways of proving the due execution and authenticity of
a private document, to wit:
SEC. 20. Proof of private document. Before any private document offered as authentic is received
in evidence, its due execution and authenticity must be proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or handwriting of the maker.
Any other private document need only be identified as that which it is claimed to be. (21a)
As reproduced above, the trial court found that the due execution and authenticity of the pesadas
were "established by the plaintiffs daughter Elena Tan and sometimes by plaintiffs son Vicente
Tan."16 The RTC said:
On cross-examination, [Vicente] reiterated that he and her [sic] sister Elena Tan who acted as their
cashier are helping their father in their business of buying copras and mais. That witness agreed that
in the business of buying copra and mais of their father, if a seller is selling copra, a pesada is being
issued by his sister. The pesada that she is preparing consists of the date when the copra is being
sold to the seller. Being familiar with the penmanship of Elena Tan, the witness was shown a sample
of the pesada issued by his sister Elena Tan. x x x
xxx

xxx

xxx

x x x. He clarified that in the "pesada" (Exh. "1") prepared by Elena and also in Exh "2", there
appears on the lower right hand portion of the said pesadas the letter "pd", the meaning of which is
to the effect that the seller of the copra has already been paid during that day. He also confirmed the
penmanship and handwriting of his sister Ate Elena who acted as a cashier in the pesada being
shown to him. He was even made to compare the xerox copies of the pesadas with the original
copies presented to him and affirmed that they are faithful reproduction of the originals. 17(Emphasis
supplied)
In any event, petitioner is already estopped from questioning the due execution and authenticity of
the pesadas. As found by the CA, Tan Shuy "could have easily belied the existence of x x x the
pesadas or receipts, and the purposes for which they were offered in evidence by simply presenting
his daughter, Elena Tan Shuy, but no effort to do so was actually done by the former given that
scenario." The pesadas having been admitted in evidence, with petitioner failing to timely object
thereto, these documents are already deemed sufficient proof of the facts contained therein. 18 We
hereby uphold the factual findings of the RTC, as affirmed by the CA, in that the pesadas served as
proof that the net proceeds from the copra deliveries were used as installment payments for the
debts of respondents.19
1wphi1

Indeed, pursuant to Article 1232 of the Civil Code, an obligation is extinguished by payment or
performance. There is payment when there is delivery of money or performance of an
obligation.20 Article 1245 of the Civil Code provides for a special mode of payment called dation in
payment (dacin en pago). There is dation in payment when property is alienated to the creditor in
satisfaction of a debt in money.21 Here, the debtor delivers and transmits to the creditor the formers
ownership over a thing as an accepted equivalent of the payment or performance of an outstanding
debt.22 In such cases, Article 1245 provides that the law on sales shall apply, since the undertaking
really partakes in one sense of the nature of sale; that is, the creditor is really buying the thing or
property of the debtor, the payment for which is to be charged against the debtors
obligation.23 Dation in payment extinguishes the obligation to the extent of the value of the thing
delivered, either as agreed upon by the parties or as may be proved, unless the parties by
agreement express or implied, or by their silence consider the thing as equivalent to the
obligation, in which case the obligation is totally extinguished.24
The trial court found thus:
x x x [T]he preponderance of evidence is on the side of the defendant. x x x The defendant explained
that for the receipts (pesadas) from April 1998 to April 1999 he only gets the payments for trucking
while the total amount which represent the total purchase price for the copras that he delivered to
the plaintiff were all given to Elena Tan Shuy as installments for the loan he owed to plaintiff. The
defendant further averred that if in the receipts or "pesadas" issued by the plaintiff to those who
delivered copras to them there is a notation "pd" on the total amount of purchase price of the copras,
it means that said amount was actually paid or given by the plaintiff or his daughter Elena Tan Shuy
to the seller of the copras. To prove his averments the defendant presented as evidence two (2)
receipts or pesadas issued by the plaintiff to a certain "Cario" (Exhibits "1" and "2" defendant)
showing the notation "pd" on the total amount of the purchase price for the copras. Such claim of the
defendant was further bolstered by the testimony of Apolinario Cario which affirmed that he also
sell [sic] copras to the plaintiff Tan Shuy. He also added that he incurred indebtedness to the plaintiff
and whenever he delivered copras the amount of the copras sold were applied as payments to his
loan. The witness also pointed out that the plaintiff did not give any official receipts to those who
transact business with him (plaintiff). x x x
Be that it may, this Court cannot however subscribe to the averments of the defendant that he has
fully paid the amount of his loan to the plaintiff from the proceeds of the copras he delivered to the

plaintiff as shown in the "pesadas" (Exhibits "3" to "64"). Defendant claimed that based on the said
"pesadas" he has paid the total amount of P420,537.68 to the plaintiff. However, this Court keenly
noted that some of the "pesadas" offered in evidence by the defendant were not for copras that he
delivered to the plaintiff but for "mais" (corn). The said pesadas for mais or corn were the following,
to wit:
xxx

xxx

xxx

To the mind of this Court the aforestated amount (P41,585.25) which the above listed pesadas show
as payment for mais or corn delivered by the defendant to the plaintiff cannot be claimed by the
defendant to have been applied also as payment to his loan with the plaintiff because he does not
testify on such fact. He even stressed during his testimony that it was the proceeds from the copras
that he delivered to the plaintiff which will be applied as payments to his loan. x x x Thus, equity
dictates that the total amount of P41,585.25 which corresponds to the payment for "mais" (corn)
delivered by the plaintiff shall be deducted from the total amount of P420,537.68 which according to
the defendant based on the pesadas (Exhibits "3" to "64") that he presented as evidence, is the total
amount of the payment that he made for his loan to the plaintiff. x x x
xxx

xxx

xxx

Clearly from the foregoing, since the total amount of defendants loan to the plaintiff is P420,000.00
and the evidence on record shows that the actual amount of payment made by the defendant from
the proceeds of the copras he delivered to the plaintiff is P378,952.43, the defendant is still indebted
to the plaintiff in the amount of P41,047.53 (sic) (P420,000.00-P378,952.43). 25 (Emphasis supplied)
In affirming this finding of fact by the trial court, the CA cited the above-quoted portion of the RTCs
Decision and stated the following:
In fact, as borne by the records on hand, herein defendant-appellee Guillermo was able to describe
and spell out the contents of Exhs. "3" to "64" which were then prepared by Elena Tan Shuy or
sometimes by witness Vicente Tan. Herein defendant-appellee Guillermo professed that since the
release of the subject loan was subject to the condition that he shall sell his copras to the plaintiffappellant, the former did not already receive any money for the copras he delivered to the latter
starting April 1998 to April 1999. Hence, this Court can only express its approval to the apt
observation of the trial court on this matter[.]
xxx

xxx

xxx

Notwithstanding the above, however, this Court fully agrees with the pronouncement of the trial court
that not all amounts indicated in Exhs. "3" to "64" should be applied as payments to the subject loan
since several of which clearly indicated "mais" deliveries on the part of defendant-appellee Guillermo
instead of "copras"[.]26 (Emphasis supplied)
The subsequent arrangement between Tan Shuy and Guillermo can thus be considered as one in
the nature of dation in payment. There was partial payment every time Guillermo delivered copra to
petitioner, chose not to collect the net proceeds of his copra deliveries, and instead applied the
collectible as installment payments for his loan from Tan Shuy. We therefore uphold the findings of
the trial court, as affirmed by the CA, that the net proceeds from Guillermos copra deliveries
amounted to P 378,952.43. With this partial payment, respondent remains liable for the balance
totaling P 41,047.57.27

WHEREFORE the Petition is DENIED. The 31 July 2009 Decision and 13 November 2009
Resolution of the Court of Appeals in CA-G.R. CV No. 90070 are hereby AFFIRMED.
SO ORDERED.

SPOUSES GODFREY and GERARDINA SERFINO, Petitioners,

vs.
FAR EAST BANK AND TRUST COMPANY, INC., now BANK OF THE PHILIPPINE
ISLANDS, Respondent.
DECISION
BRION, J.:
Before the Court is a petition for review on certiorari, 1 filed under Rule 45 of the Rules of Court,
assailing the decision2 dated February 23, 2006 of the Regional Trial Court (RTC) of Bacolod City,
Branch 41, in Civil Case No. 95-9344.
FACTUAL ANTECEDENTS
The present case traces its roots to the compromise judgment dated October 24, 19953 of the RTC
of Bacolod City, Branch 47, in Civil Case No. 95-9880. Civil Case No. 95-9880 was an action for
collection of sum of money instituted by the petitioner spouses Godfrey and Gerardina Serfino
(collectively, spouses Serfino) against the spouses Domingo and Magdalena Cortez
(collectively, spouses Cortez). By way of settlement, the spouses Serfino and the spouses Cortez
executed a compromise agreement on October 20, 1995, in which the spouses Cortez
acknowledged their indebtedness to the spouses Serfino in the amount of P 108,245.71. To satisfy
the debt, Magdalena bound herself "to pay in full the judgment debt out of her retirement
benefits[.]"4 Payment of the debt shall be made one (1) week after Magdalena has received her
retirement benefits from the Government Service Insurance System (GSIS). In case of default, the
debt may be executed against any of the properties of the spouses Cortez that is subject to
execution, upon motion of the spouses Serfino.5 After finding that the compromise agreement was
not contrary to law, morals, good custom, public order or public policy, the RTC approved the entirety
of the parties agreement and issued a compromise judgment based thereon. 6 The debt was later
reduced to P 155,000.00 from P 197,000.00 (including interest), with the promise that the spouses
Cortez would pay in full the judgment debt not later than April 23, 1996. 7
No payment was made as promised. Instead, Godfrey discovered that Magdalena deposited her
retirement benefits in the savings account of her daughter-in-law, Grace Cortez, with the respondent,
Far East Bank and Trust Company, Inc. (FEBTC). As of April 23, 1996, Graces savings account with
FEBTC amounted to P 245,830.37, the entire deposit coming from Magdalenas retirement
benefits.8 That same day, the spouses Serfinos counsel sent two letters to FEBTC informing
the bank that the deposit in Graces name was owned by the spouses Serfino by virtue of an
assignment made in their favor by the spouses Cortez. The letter requested FEBTC to prevent
the delivery of the deposit to either Grace or the spouses Cortez until its actual ownership has been
resolved in court.

On April 25, 1996, the spouses Serfino instituted Civil Case No. 95- 9344 against the spouses
Cortez, Grace and her husband, Dante Cortez, and FEBTC for the recovery of money on deposit
and the payment of damages, with a prayer for preliminary attachment.
On April 26, 1996, Grace withdrew P 150,000.00 from her savings account with FEBTC. On the
same day, the spouses Serfino sent another letter to FEBTC informing it of the pending action;
attached to the letter was a copy of the complaint filed as Civil Case No. 95-9344.
During the pendency of Civil Case No. 95-9344, the spouses Cortez manifested that they were
turning over the balance of the deposit in FEBTC (amounting to P 54,534.00) to the spouses Serfino
as partial payment of their obligation under the compromise judgment. The RTC issued an order
dated July 30, 1997, authorizing FEBTC to turn over the balance of the deposit to the spouses
Serfino.
On February 23, 2006, the RTC issued the assailed decision (a) finding the spouses Cortez, Grace
and Dante liable for fraudulently diverting the amount due the spouses Serfino, but (b) absolving
FEBTC from any liability for allowing Grace to withdraw the deposit. The RTC declared that
FEBTC was not a party to the compromise judgment; FEBTC was thus not chargeable with notice of
the parties agreement, as there was no valid court order or processes requiring it to withhold
payment of the deposit. Given the nature of bank deposits, FEBTC was primarily bound by its
contract of loan with Grace. There was, therefore, no legal justification for the bank to refuse
payment of the account, notwithstanding the claim of the spouses Serfino as stated in their three
letters.
THE PARTIES ARGUMENTS
The spouses Serfino appealed the RTCs ruling absolving FEBTC from liability for allowing
the withdrawal of the deposit. They allege that the RTC cited no legal basis for declaring that only
a court order or process can justify the withholding of the deposit in Graces name. Since FEBTC
was informed of their adverse claim after they sent three letters, they claim that:
Upon receipt of a notice of adverse claim in proper form, it becomes the duty of the bank to: 1.
Withhold payment of the deposit until there is a reasonable opportunity to institute legal proceedings
to contest ownership; and 2) give prompt notice of the adverse claim to the depositor. The bank may
be held liable to the adverse claimant if it disregards the notice of adverse claim and pays the
depositor.
When the bank has reasonable notice of a bona fide claim that money deposited with it is the
property of another than the depositor, it should withhold payment until there is reasonable
opportunity to institute legal proceedings to contest the ownership.9(emphases and underscoring
supplied)
Aside from the three letters, FEBTC should be deemed bound by the compromise judgment, since
Article 1625 of the Civil Code states that an assignment of credit binds third persons if it appears in a
public instrument.10 They conclude that FEBTC, having been notified of their adverse claim, should
not have allowed Grace to withdraw the deposit.

While they acknowledged that bank deposits are governed by the Civil Code provisions on loan, the
spouses Serfino allege that the provisions on voluntary deposits should apply by analogy in this
case, particularly Article 1988 of the Civil Code, which states:
Article 1988. The thing deposited must be returned to the depositor upon demand, even though a
specified period or time for such return may have been fixed.
This provision shall not apply when the thing is judicially attached while in the depositarys
possession, or should he have been notified of the opposition of a third person to the return or
the removal of the thing deposited. In these cases, the depositary must immediately inform the
depositor of the attachment or opposition.
Based on Article 1988 of the Civil Code, the depository is not obliged to return the thing to the
depositor if notified of a third partys adverse claim.
By allowing Grace to withdraw the deposit that is due them under the compromise judgment, the
spouses Serfino claim that FEBTC committed an actionable wrong that entitles them to the
payment of actual and moral damages.
FEBTC, on the other hand, insists on the correctness of the RTC ruling. It claims that it is not bound
by the compromise judgment, but only by its contract of loan with its depositor. As a loan, the bank
deposit is owned by the bank; hence, the spouses Serfinos claim of ownership over it is erroneous.
Based on these arguments, the case essentially involves a determination of the obligation of
banks to a third party who claims rights over a bank deposit standing in the name of another.
THE COURTS RULING
We find the petition unmeritorious and see no reason to reverse the RTCs ruling.
Claim for actual damages not
meritorious because there could be
no pecuniary loss that should be
compensated if there was no
assignment of credit
The spouses Serfinos claim for damages against FEBTC is premised on their claim of ownership of
the deposit with FEBTC. The deposit consists of Magdalenas retirement benefits, which the spouses
Serfino claim to have been assigned to them under the compromise judgment. That the retirement
benefits were deposited in Graces savings account with FEBTC supposedly did not divest them of
ownership of the amount, as "the money already belongs to the [spouses Serfino] having been
absolutely assigned to them and constructively delivered by virtue of the x x x public
instrument[.]"11 By virtue of the assignment of credit, the spouses Serfino claim ownership of the
deposit, and they posit that FEBTC was duty bound to protect their right by preventing the
withdrawal of the deposit since the bank had been notified of the assignment and of their claim.
We find no basis to support the spouses Serfinos claim of ownership of the deposit.

"An assignment of credit is an agreement by virtue of which the owner of a credit, known as the
assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory rights to another, known as the assignee,
who acquires the power to enforce it to the same extent as the assignor could enforce it against the
debtor. It may be in the form of sale, but at times it may constitute a dation in payment, such
as when a debtor, in order to obtain a release from his debt, assigns to his creditor a credit he
has against a third person."12 As a dation in payment, the assignment of credit operates as a
mode of extinguishing the obligation;13 the delivery and transmission of ownership of a thing (in
this case, the credit due from a third person) by the debtor to the creditor is accepted as the
equivalent of the performance of the obligation.14
The terms of the compromise judgment, however, did not convey an intent to equate the assignment
of Magdalenas retirement benefits (the credit) as the equivalent of the payment of the debt due the
spouses Serfino (the obligation). There was actually no assignment of credit; if at all, the
compromise judgment merely identified the fund from which payment for the judgment debt
would be sourced:
(c) That before the plaintiffs file a motion for execution of the decision or order based [on this]
Compromise Agreement, the defendant, Magdalena Cortez undertake[s] and bind[s] herself to
pay in full the judgment debt out of her retirement benefits as Local [T]reasury Operation Officer
in the City of Bacolod, Philippines, upon which full payment, the plaintiffs waive, abandon and
relinquish absolutely any of their claims for attorneys fees stipulated in the Promissory Note (Annex
"A" to the Complaint).15 [emphasis ours]
Only when Magdalena has received and turned over to the spouses Serfino the portion of her
retirement benefits corresponding to the debt due would the debt be deemed paid.
In Aquitey v. Tibong,16 the issue raised was whether the obligation to pay the loan was extinguished
by the execution of the deeds of assignment. The Court ruled in the affirmative, given that, in the
deeds involved, the respondent (the debtor) assigned to the petitioner (the creditor) her credits "to
make good" the balance of her obligation; the parties agreed to relieve the respondent of her
obligation to pay the balance of her account, and for the petitioner to collect the same from the
respondents debtors.17 The Court concluded that the respondents obligation to pay the balance of
her accounts with the petitioner was extinguished, pro tanto, by the deeds of assignment of credit
executed by the respondent in favor of the petitioner.18
In the present case, the judgment debt was not extinguished by the mere designation in the
compromise judgment of Magdalenas retirement benefits as the fund from which payment shall be
sourced. That the compromise agreement authorizes recourse in case of default on other executable
properties of the spouses Cortez, to satisfy the judgment debt, further supports our conclusion that
there was no assignment of Magdalenas credit with the GSIS that would have extinguished the
obligation.
The compromise judgment in this case also did not give the supposed assignees, the spouses
Serfino, the power to enforce Magdalenas credit against the GSIS. In fact, the spouses Serfino are
prohibited from enforcing their claim until after the lapse of one (1) week from Magdalenas receipt of
her retirement benefits:

(d) That the plaintiffs shall refrain from having the judgment based upon this Compromise Agreement
executed until after one (1) week from receipt by the defendant, Magdalena Cortez of her retirement
benefits from the [GSIS] but fails to pay within the said period the defendants judgment debt in this
case, in which case [this] Compromise Agreement [may be] executed upon any property of the
defendants that are subject to execution upon motion by the plaintiffs.19
An assignment of credit not only entitles the assignee to the credit itself, but also gives him the
power to enforce it as against the debtor of the assignor.
Since no valid assignment of credit took place, the spouses Serfino cannot validly claim ownership
of the retirement benefits that were deposited with FEBTC. Without ownership rights over the
amount, they suffered no pecuniary loss that has to be compensated by actual damages. The
grant of actual damages presupposes that the claimant suffered a duly proven pecuniary loss. 20
Claim for moral damages not
meritorious because no duty exists
on the part of the bank to protect
interest of third person claiming
deposit in the name of another
Under Article 2219 of the Civil Code, moral damages are recoverable for acts referred to in Article 21
of the Civil Code.21 Article 21 of the Civil Code, in conjunction with Article 19 of the Civil Code, is part
of the cause of action known in this jurisdiction as "abuse of rights." The elements of abuse of rights
are: (a) there is a legal right or duty; (b) exercised in bad faith; and (c) for the sole intent of
prejudicing or injuring another.
1wphi1

The spouses Serfino invoke American common law that imposes a duty upon a bank receiving a
notice of adverse claim to the fund in a depositors account to freeze the account for a
reasonable length of time, sufficient to allow the adverse claimant to institute legal
proceedings to enforce his right to the fund.22 In other words, the bank has a duty not to release
the deposits unreasonably early after a third party makes known his adverse claim to the bank
deposit. Acknowledging that no such duty is imposed by law in this jurisdiction, the spouses Serfino
ask the Court to adopt this foreign rule.23
To adopt the foreign rule, however, goes beyond the power of this Court to promulgate rules
governing pleading, practice and procedure in all courts.24 The rule reflects a matter of policy that
is better addressed by the other branches of government, particularly, the Bangko Sentral ng
Pilipinas, which is the agency that supervises the operations and activities of banks, and which has
the power to issue "rules of conduct or the establishment of standards of operation for uniform
application to all institutions or functions covered[.]" 25 To adopt this rule will have significant
implications on the banking industry and practices, as the American experience has shown.
Recognizing that the rule imposing duty on banks to freeze the deposit upon notice of adverse claim
adopts a policy adverse to the bank and its functions, and opens it to liability to both the depositor
and the adverse claimant,26 many American states have since adopted adverse claim statutes that
shifted or, at least, equalized the burden. Essentially, these statutes do not impose a duty on banks
to freeze the deposit upon a mere notice of adverse claim; they first require either a court order or an
indemnity bond.27

In the absence of a law or a rule binding on the Court, it has no option but to uphold the existing
policy that recognizes the fiduciary nature of banking. It likewise rejects the adoption of a judiciallyimposed rule giving third parties with unverified claims against the deposit of another a better right
over the deposit. As current laws provide, the banks contractual relations are with its depositor, not
with the third party;28 "a bank is under obligation to treat the accounts of its depositors with
meticulous care and always to have in mind the fiduciary nature of its relationship with them." 29 In the
absence of any positive duty of the bank to an adverse claimant, there could be no breach that
entitles the latter to moral damages.
WHEREFORE, in view of the foregoing, the petition for review on certiorari is DENIED, and the
decision dated February 23, 2006 of the Regional Trial Court of Bacolod City, Branch 41, in Civil
Case No. 95-9344 is AFFIRMED. Costs against the petitioners.
SO ORDERED.
SPOUSES ROBERTO and ADELAIDA PEN, Petitioners,
vs.
SPOUSES SANTOS and LINDA JULIAN, Respondents.
DECISION
BERSAMIN, J.:
The petitioners who were the buyers of the mortgaged property of the respondents seek the reversal
of the decision promulgated on October 20, 2003, whereby the Court of Appeals (CA) affirmed with
modification the adverse judgment rendered on August 30, 1999 by the Regional Trial Court (RTC),
Branch 77, in Quezon City. In their respective rulings, the CA and the RTC both declared the deed
of sale respecting the respondents' property as void and inexistent, albeit premised upon different
reasons.
1

Antecedents
The CA summarized the antecedent facts and procedural matters in its assailed decision as follows:
On April 9, 1986, the appellees (the Julians) obtained a P60,000.00 loan from appellant Adelaida
Pen. On May 23, 1986 and on the (sic) May 27, 1986, they were again extended loans in the
amounts of P50,000.00 and P10,000.00, respectively by appellant Adelaida. The initial interests
were deducted by appellant Adelaida, (1) P3,600.00 from the P60,000.00 loan; (2) P2,400.00 from
the P50,000.00 loan; and (3) P600.00 from the P10,000.00 loan. Two (2) promissory notes were
executed by the appellees in favor of appellant Adelaida to evidence the foregoing loans, one dated
April 9, 1986 and payable on June 15, 1986 for the P60,000.00 loan and another dated May 22,
1986 payable on July 22, 1986 for the P50,000.00 loan. Both Joans were charged interest at 6% per
month. As security, on May 23, 1986, the appellees executed a Real Estate Mortgage over their
property covered by TCT No. 327733 registered under the name of appellee Santos Julian, Jr. The
owner's duplicate of TCT No. 327733 was delivered to the appellants.
Appellant's version of the subsequent events run as follows: When the loans became due and
demandable, appellees failed to pay despite several demands. As such, appellant Adelaida decided
to institute foreclosure proceedings. However, she was prevailed upon by appellee Linda not to

foreclose the property because of the cost of litigation and since it would cause her embarrassment
as the proceedings will be announced in public places at the City Hall, where she has many friends.
Instead, appellee Linda offered their mortgaged property as payment in kind. After the ocular
inspection, the parties agreed to have the property valued at P70,000.00. Thereafter, on October 22,
1986 appellee executed a two (2) page Deed of Sale duly signed by her on the left margin and over
her printed name. After the execution of the Deed of Sale, appellant Pen paid the capital gains tax
and the required real property tax. Title to the property was transferred to the appellants by the
issuance of TCT No. 364880 on July 17, 1987. A reconstituted title was also issued to the appellants
on July 09, 1994 when the Quezon City Register of Deeds was burned (sic).
On July 1989, appellants allege that appellee Linda offered to repurchase the property to which the
former agreed at the repurchase price of P436,l 15.00 payable in cash on July 31, 1989. The
appellees failed to repurchase on the agreed date. On February 1990, appellees again offered to
repurchase the property for the same amount, but they still failed to repurchase. On June 28, 1990,
another offer was made to repurchase the property for the same amount. Appellee Linda offered to
pay P100,000.00 in cash as sign of good faith. The offer was rejected by appellant Adelaida. The
latter held the money only for safekeeping upon the pleading of appellee Linda. Upon the agreement
of the parties, the amount of P100,000.00 was deducted from the balance of the appellees'
indebtedness, so that as of October 15, 1997, their unpaid balance amounted to P319,065.00.
Appellants allege that instead of paying lthe] said balance, the appellees instituted on September 8,
1994 the civil complaint and filed an adverse claim and lis pendens which were annotated at the
back of the title to the property.
On the other hand, the appellees aver the following: At the time the mortgage was executed, they
were likewise required by the appellant Adelaida to sign a one (1) page document purportedly an
"Absolute Deed of Sale". Said document did not contain any consideration, and was "undated,
unfilled and unnotarized". They allege that their total payments amounted to P115,400.00 and that
their last payment was on June 28, 1990 in the amount of P100,000.00.
In December 1992, appellee Linda Julian offered to pay appellant Adelaida the amount of
P150,000.00. The latter refused to accept the offer and demanded that she be paid the amount of
P250,000.00. Unable to meet the demand, appellee Linda desisted from the offer and requested that
she be shown the land title which she conveyed to the appellee Adelaida, but the latter refused.
Upon verification with the Registry of Deeds of Quezon City, she was informed that the title to the
mortgaged property had already been registered in the name of appellee Adelaida under TCT No.
364880, and that the transfer was entered on July 17, 1987. A reconstituted title, TCT No. RT-45272
(364880), also appeared on file in the Registry of Deeds replacing TCT No. 364880.
By reason of the foregoing discoveries, appellee filed an Affidavit of Adverse Claim on January
1993. Counsel for the appellees, on August 12, 1994, formally demanded the reconveyance of the
title and/or the property to them, but the appellants refused. In the process of obtaining other
documents; the appellees also discovered that the appellants have obtained several Declarations of
Real Property, and a Deed of Sale consisting of two (2) pages which was notarized by one Atty.
Cesar Ching. Said document indicates a consideration of P70,000.00 for the lot, and was made to
appear as having been executed on October 22, 1986. On September 8, 1994, appellees filed a suit
for the Cancellation of Sale, Cancellation of Title issued to the appellants; Recovery of Possession;
Damages with Prayer for Preliminary Injunction. The complaint alleged that appellant Adelaida,
through obvious bad faith, maliciously typed, unilaterally filled up, and caused to be notarized the
1avvphi1

Deed of Sale earlier signed by appellee Julian, and used this spurious deed of sale as the vehicle for
her fraudulent transfer unto herself the parcel of land covered by TCT No. 327733.
3

Judgment of the RTC

In its judgment rendered on August 30, 1999, the RTC ruled in favor of the respondents. According
greater credence to the version of the respondents on the true nature of their transaction, the trial
court concluded that they had not agreed on the consideration for the sale at the time they signed
the deed of sale; that in the absence of the consideration, the sale lacked one of the essential
requisites of a valid contract; that the defense of prescription was rejected because the action to
impugn the void contract was imprescriptible; and that the promissory notes and the real estate
mortgage in favor of the petitioners were nonetheless valid, rendering the respondents liable to still
pay their outstanding obligation with interest.
4

The RTC disposed thusly:

WHEREFORE, judgment is hereby rendered:
1. Declaring the Deed of Sale, dated October 22, 1986, void or inexistent;
2. Cancelling TCT No. RT-45272 (364480) and declaring it to be of no further legal force and
effect;
3. Ordering the defendants to reconvey the subject property to the plaintiffs and to deliver to
them the possession thereof; and
4. Ordering the plaintiffs to pay to the defendants the unpaid balance of their indebtedness
plus accrued interest totaling P,319,065.00 as of October 15, 1997, plus interests at the legal
rate counted from the date of filing of the complaint and until the full payment thereof, without
prejudice to the right of the defendants to foreclose the mortgage in the event that plaintiffs
will fail to pay their obligation.
No pronouncement as to cost.
SO ORDERED.

Decision of the CA
On appeal by the petitioners, the CA affirmed the RTC with modification under its assailed decision
of October 20, 2003, decreeing:
6

WHEREFORE, premises considered, the Decision of the Regional Trial Court of Quezon City is
AFFIRMED WITH modification. Judgement is hereby rendered:
1. Declaring the Deed of Sale, dated October 22, 1986, void or inexistent;
2. Cancelling TCT No. RT-45272 (364880) and declaring it to be of no further legal force and
effect;

3. Ordering the appellants-defendants to reconvey the subject property to the plaintiffsappellees and to deliver to them the possession thereof; and
4. Ordering the plaintiffs-appellces to pay to the defendants the unpaid balance of their
indebtedness, P43,492.15 as of June 28, 1990, plus interests at the legal rate of 12% per
annum from said date and until the full payment thereof, without prejudice to the right of the
defendants to foreclose the mortgage in the event that plaintiffs-appellees will fail to pay their
obligation.
SO ORDERED.

The CA pronounced the deed of sale as void but not because of the supposed lack of consideration
as the R TC had indicated, but because of the deed of sale having been executed at the same time
as the real estate mortgage, which rendered the sale as a prohibited pactum commissorium in light
of the fact that the deed of sale was blank as to the consideration and the date, which details would
be filled out upon the default by the respondents; that the promissory notes contained no stipulation
on the payment of interest on the obligation, for which reason no monetary interest could be
imposed for the use of money; and that compensatory interest should instead be imposed as a form
of damages arising from Linda's failure to pay the outstanding obligation.
Issues
In this appeal, the petitioners posit the following issues, namely: (1) whether or not the CA erred in
ruling against the validity of the deed of sale; and (2) whether or not the CA erred in ruling that no
monetary interest was due for Linda's use of Adelaida's money.
Ruling of the Court
The appeal is partly meritorious.
That the petitioners are raising factual issues about the true nature of their transaction with the
respondent is already of itself, sufficient reason to forthwith deny due course to the petition for
review on certiorari. They cannot ignore that any appeal to the Court is limited to questions of law
because the Court is not a trier of facts. As such, the factual findings of the CA should be respected
and accorded great weight, and even finality when supported by the substantial evidence on
record. Moreover, in view of the unanimity between the RTC and the CA on the deed of sale being
void, varying only in their justifications, the Court affirms the CA, and adopts its conclusions on the
invalidity of the deed of sale.
8

Nonetheless, We will take the occasion to explain why we concur with the CA's justification in
discrediting the deed of sale between the parties as pactum commissorium.
Article 2088 of the Civil Code prohibits the creditor from appropriating the things given by way of
pledge or mortgage, or from disposing of them; any stipulation to the contrary is null and void. The
elements for pactum commissorium to exist are as follows, to wit: (a) that there should be a pledge
or mortgage wherein property is pledged or mortgaged by way of security for the payment of the
principal obligation; and (b) that there should be a stipulation for an automatic appropriation by the
creditor of the thing pledged or mortgaged in the event of non-payment of the principal obligation
within the stipulated period. The first element was present considering that the property of the
9

respondents was mortgaged by Linda in favor of Adelaida as security for the farmer's indebtedness.
As to the second, the authorization for Adelaida to appropriate the property subject of the mortgage
upon Linda's default was implied from Linda's having signed the blank deed of sale simultaneously
with her signing of the real estate mortgage. The haste with which the transfer of property was made
upon the default by Linda on her obligation, and the eventual transfer of the property in a manner not
in the form of a valid dacion en pago ultimately confirmed the nature of the transaction as a pactum
commissorium.
It is notable that in reaching its conclusion that Linda's deed of sale had been executed
simultaneously with the real estate mortgage, the CA first compared the unfilled deed of sale
presented by Linda with the notarized deed of sale adduced by Adelaida. The CA justly deduced that
the completion and execution of the deed of sale had been conditioned on the non-payment of the
debt by Linda, and reasonably pronounced that such circumstances rendered the
transaction pactum commissorium. The Court should not disturb or undo the CA's conclusion in the
absence of the clear showing of abuse, arbitrariness or capriciousness on the part of the CA.
10

The petitioners have theorized that their transaction with the respondents was a valid dacion en
pago by highlighting that it was Linda who had offered to sell her property upon her default. Their
theory cannot stand scrutiny. Dacion en pago is in the nature of a sale because property is alienated
in favor of the creditor in satisfaction of a debt in money. For a valid dacion en pago to transpire,
however, the attendance of the following elements must be established, namely: (a) the existence of
a money obligation; (b) the alienation to the creditor of a property by the debtor with the consent of
the former; and (c) the satisfaction of the money obligation of the debtor. To have a valid dacion en
pago, therefore, the alienation of the property must fully extinguish the debt. Yet, the debt of the
respondents subsisted despite the transfer of the property in favor of Adelaida.
11

12

The petitioners insist that the parties agreed that the deed of sale would not yet contain the date and
the consideration because they had still to agree on the price. Their insistence is not supported by
the established circumstances. It appears that two days after the loan fell due on October 15,
1986, Linda offered to sell the mortgaged property; hence, the parties made the ocular inspection
of the premises on October 18, 1986. By that time, Adelaida had already become aware that the
appraiser had valued the property at P70,000.00. If that was so, there was no plausible reason for
still leaving the consideration on the deed of sale blank if the deed was drafted by Adelaida on
October 20, 1986, especially considering that they could have conveniently communicated with each
other in the meanwhile on this significant aspect of their transaction. It was also improbable for
Adelaida to still hand the unfilled deed of sale to Linda as her copy if, after all, the deed of sale would
be eventually notarized on October 22, 1986.
13

14

15

According to Article 1318 of the Civil Code, the requisites for any contract to be valid are,
namely: (a) the consent of the contracting parties; (b) the object; and (c) the consideration. There is
a perfection of a contract when there is a meeting of the minds of the parties on each of these
requisites. The following passage has fittingly discussed the process of perfection in Moreno, Jr. v.
Private Management Office:
16

17

To reach that moment of perfection, the parties must agree on the same thing in the same sense, so
that their minds meet as to all the terms. They must have a distinct intention common to both and
without doubt or difference; until all understand alike, there can be no assent, and therefore no
contract. The minds of parties must meet at every point; nothing can be left open for further
arrangement. So long as there is any uncertainty or indefiniteness, or future negotiations or

considerations to be had between the parties, there is not a completed contract, and in fact, there is
no contract at all.
18

In a sale, the contract is perfected at the moment when the seller obligates herself to deliver and to
transfer ownership of a thing or right to the buyer for a price certain, as to which the latter
agrees. The absence of the consideration from Linda's copy of the deed of sale was credible proof
of the lack of an essential requisite for the sale. In other words, the meeting of the minds of the
parties so vital in the perfection of the contract of sale did not transpire. And, even assuming that
Linda's leaving the consideration blank implied the authority of Adelaida to fill in that essential detail
in the deed of sale upon Linda's default on the loan, the conclusion of the CA that the deed of sale
was a pactum commisorium still holds, for, as earlier mentioned, all the elements of pactum
commisorium were present.
19

Anent interest, the CA deleted the imposition of monetary interest but decreed compensatory interest
of 12% per annum.
Interest that is the compensation fixed by the parties for the use or forbearance of money is referred
to as monetary interest. On the other hand, interest that may be imposed by law or by the courts as
penalty or indemnity for damages is called compensatory interest. In other words, the right to
recover interest arises only either by vi11ue of a contract or as damages for delay or failure to pay
the principal loan on which the interest is demanded.
1wphi1

20

The CA correctly deleted the monetary interest from the judgment. Pursuant to Article 1956 of
the Civil Code, no interest shall be due unless it has been expressly stipulated in writing. In order for
monetary interest to be imposed, therefore, two requirements must be present, specifically: (a) that
there has been an express stipulation for the payment of interest; and (b) that the agreement for the
payment of interest has been reduced in writing. Considering that the promissory notes contained
no stipulation on the payment of monetary interest, monetary interest cannot be validly imposed.
21

The CA properly imposed compensatory interest to offset the delay in the respondents' performance
of their obligation. Nonetheless, the imposition of the legal rate of interest should be modified to
conform to the prevailing jurisprudence. The rate of 12% per annum imposed by the CA was the rate
set in accordance with Eastern Shipping Lines, Inc., v. Court of Appeals. In the meanwhile, Bangko
Sentral ng Pilipinas Monetary Board Resolution No. 796 dated May 16, 2013, amending Section 2 of
Circular No. 905, Series of 1982, and Circular No. 799, Series of 2013, has lowered to 6% per
annum the legal rate of interest for a loan or forbearance of money, goods or credit starting July 1,
2013. This revision is expressly recognized in Nacar v. Gallery Frames. It should be noted,
however, that imposition of the legal rate of interest at 6% per annum is prospective in application.
22

23

Accordingly, the legal rate of interest on the outstanding obligation of P43,492.15 as of June 28,
1990, as the CA found, should be as follows: (a) from the time of demand on October 13, 1994 until
June 30, 2013, the legal rate of interest was 12% per annum conformably with Eastern Shipping
lines; and (b) following Nacar, from July 1, 2013 until full payment, the legal interest is 6% per
annum.
WHEREFORE, the Court AFFIRMS the decision promulgated on October 20, 2003 subject to
the MODIFICATION that the amount of P43,492.l5 due from the respondents shall earn legal interest
of 12% per annum reckoned from October 13, 1994 until June 30, 2013, and 6% per annum from
July 1, 2013 until full payment.

Without pronouncement on costs of suit.

SO ORDERED.

ART 1250