1
Republic of the Philippines has caused petitioner, the respondent bank is liable for
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 90169. April 7, 1993.
PILAR PAGSIBIGAN, petitioner,
vs.
COURT OF APPEALS and PLANTERS
DEVELOPMENT BANK, respondents.
Juanito Cruz for petitioner.
Raymundo S. Senga for private respondent.
SYLLABUS
1. CIVIL LAW; CONTRACT OF LOAN; SUBSTANTIAL
PERFORMANCE BY OBLIGOR, RECOGNIZED; CASE
AT BAR. From the conduct of the respondent bank it
is clear that it neither enforced its right under the
acceleration clause nor its right to foreclose under the
mortgage contract, For more than four years, the
respondent bank made petitioner believe that it was
applying her payment on the loan and interest just like
before when the respondent bank accepted such
payment and issued a receipt therefor. It is bound by
estoppel to apply the same as payment for petitioner's
obligation as it did when it received previous payments
on three occasions. Its act of applying said payments to
accounts payable is clearly prejudicial to petitioner. We
cannot countenance this act of the bank. We hold that
the payment amounting to P8,650.00 for the balance of
P3,558.20 as of August 26, 1978 plus the P1,000.00 it
was asked to pay on April 24, 1984 would at the very
least constitute substantial performance. Article 1234 of
the Civil Code, provides: "Article 1234. If the obligation
has been substantially performed in good faith, the
obligor may recover as though there had been a strict
and complete fulfillment, less damages suffered by the
obligee." Petitioner in this case has the right to move for
the cancellation of the mortgage and the release of the
mortgaged property, upon payment of the balance of the
loan. Thus, aside from the fact that the respondent bank
was estopped from enforcing its right to foreclose by
virtue of its acceptance of the delayed payments for a
period of more than six years, the application of such
payment to the interest and the principal during the first
three payments constitutes a virtual waiver of the
acceleration clause provided in the contract. We cannot
sustain the legality of the foreclosure under the peculiar
facts of this case, because there is substantial
performance of the obligation on the part of petitioner.
Under Article 1235 of the Civil Code, when the creditor
accepts performance, knowing its incompleteness and
irregularity without protest or objection, the obligation is
deemed complied with.
2. ID.; MORAL DAMAGES, WHEN AVAILABLE; CASE
AT BAR. This Court cannot ignore the fact that the
respondent bank succeeded in taking advantage of the
ignorance of petitioner in transactions such as the one
involved in the case at bar by lodging the bulk of
petitioner's payment to account payable based on the
flimsy reason that she had been in default, and then
considering the entire debt pursuant to an acceleration
clause as earning interest and penalty charges at an
exorbitant rate of 19% each from the date of first default
up to the date of foreclosure, thus bringing the obligation
to an astronomical amount of P29,554.81. This indicates
bad faith on the part of the respondent bank. For the
mental anguish, sleepless nights and serious anxiety this
moral damages which this Court fixes at P50,000.00.
3. ID.; EXEMPLARY DAMAGES; ATTORNEY'S FEES;
IMPOSED UPON THE BANK TO DETER REPEATING
SIMILAR ACT; CASE AT BAR. To serve as a deterrent
for the respondent bank from repeating similar acts and
to set an example and correction for the public good, this
Court likewise awards exemplary damages. In view of its
nature, it should be imposed in such amount as to
sufficiently and effectively deter similar acts in the future
by the respondent bank and other banks, which amount
this court fixes at P20,000.00 on top of the forfeiture of
whatever balance on the loan which the respondent may
actually have in its favor. Attorney's fees by way of
damages is likewise awarded for the same reason that
exemplary damages is awarded and this is fixed at
P10,000.00.
DECISION
CAMPOS, JR., J p:
This is a petition for review on certiorari of the decision **
of the Court of Appeals in CA-G.R. CV No. 18385
entitled "Pilar Pagsibigan, Plaintiff-appellee vs. Planters
Development Bank, Defendant-appellant," the decretal
portion of which reads:
"WHEREFORE, the decision appealed from is hereby
reversed and another one entered ordering plaintiff-
appellee Norma Manalili, to pay the deficiency of
P21,391.81. No pronouncement is made as to costs.
"SO ORDERED." 1
The undisputed facts are summarized by the respondent
court as follows:
"Stripped of non-essentials, it appears that on August 4,
1974, plaintiff-appellee, [petitioner, herein] through her
daughter as attorney-in-fact, obtained an agricultural
loan from the Planters Development Bank (formerly
Bulacan Development Bank), in the sum of P4,500.00
secured by a mortgage over a parcel of land covered by
Transfer Certificate of Title No. T-129603 (Exhibit "A"; "A-
1"), which loan was later fully paid (Exhibits "B"; "B-1" to
"B-3". Another loan for the same amount was obtained
from the bank on November 3, 1977 [year 1977 should
read 1976 instead] secured by the same parcel of land.
The Promissory Note for the second loan (Exhibit "1")
stipulated that for a first payment to be made on May 3,
1977 and payments every six months thereafter at
P1,018.14 with 19% interest for unpaid amortizations.
The said Promissory Note, containing an acceleration
clause (Exhibit "1-A"), was not denied by plaintiff-
appellee [petitioner] (TSN, December 10, 1986, pp. 9-
10).
Initial payment was made on July 6, 1978 [year 1978
should read 1977 instead] followed by several payments
in the total amount of P11,900.00 (Exhibits "D"; "D-1" to
"D-7"). However, only four of these payments were
applied to the loan (TSN, March 16, 1987, pp. 14-16),
while the rest were "temporarily lodged to accounts
payable since the account was already past due" (TSN,
June 1, 1987, pp. 15-16). On the basis of a Petition for
Extrajudicial Foreclosure of Mortgage (Exhibit "6") and
the statement of Account (Exhibit "12"), the property was

foreclosed extrajudicially on May 7, 1984 for failure to
pay an outstanding balance of P29,554.81 (Exhibit "13").
This resulted in the property being sold to the bank for
P8,163.00, and the bank thereafter claimed a deficiency
of P21,391.81.
In the action for annulment of sale with damages and
writ of preliminary injunction instituted by plaintiff-
appellee, the lower court sustained appellee's [petitioner]
theory of overpayment (Decision, p. 3), as against the
propriety of the foreclosure." 2 [Bracketed words Ours].
Petitioner submits the following Issues for resolution:
"1. Whether or not the foreclosure and auction sale of
the property is valid and justified under the
circumstances; and
2. Whether or not petitioner is entitled to recover
damages as well as attorney's fees as a result of the
foreclosure and auction sale." 3
It is petitioner's contention that the bank has no right to
foreclose the mortgage, there having been full payment
of the principal obligation. As per their computation 4 the
payment which they have made totalling P11,900.00
more than sufficiently covered their total obligation with
respect to their loan, there having been, in fact, an
overpayment of either P4,642.38 or P6,106.75 based on
the interest rate used in the computation. Thus, the
principal obligation having been extinguished by
payment, the accessory obligation of mortgage is
necessarily extinguished, and the foreclosure thereof is
improper and not valid.
The respondent bank on the other hand countered that
the computation relied upon by petitioner is not in
consonance with the Promissory Note 5 which she
signed because the Promissory Note contains an
acceleration clause. Respondent bank also averred that
upon petitioner's failure to pay her first installment, the
entire obligation became due and demandable and its
right to foreclose the mortgage has accrued. Thus, when
it foreclosed the mortgage in 1984, with the outstanding
obligation at P29,554.81, it was acting well within its
rights.
We note at this point that the respondent bank does not
dispute the fact that petitioner had made several
payments in an amount totalling to P11,900.00. It
likewise admits that only part of the amount tendered
was applied to the loan and the bulk of such payment
was "temporarily lodged to accounts payable since the
account was already past due" 6 [Emphasis Ours].
Petitioner assails the respondent bank for not applying
her payment to the loan. Because of said act, the loan
remained outstanding when it should have been
extinguished and should have also extinguished the
accessory contract of real estate mortgage.
Petitioner wants Us to rule not only on the regularity or
legality of the foreclosure but also on its propriety in the
light of the attending circumstances.
There is no question that the respondent bank has the
right to foreclose the mortgage upon the first default of
petitioner on May 3, 1977, but the records show that it
did not. When it received payment of petitioner on July 6,
1977, which had been 2 months and 3 days delayed, it
applied P154.80 to the principal, P210.00 to interest, and
2
only P25.20 to penalty. From this act of receiving
delayed payment, it is clear that the respondent bank
had waived its right under the acceleration clause so that
instead of claiming penalty charges on the entire amount
of P4,500.00, it only computed the penalty based on the
defaulted amortization payment which is P1,018.14. If it
computed the penalty charge at 19% of the entire
amount of P4,500.00 which would have been due and
demandable by virtue of the acceleration clause, the
penalty charges would be much more than P25.20.
This is similarly observed in payments which the
respondent bank received on June 6, 1978 and August
26, 1978. We also noticed that in Exhibit "D-3", the
receipt which the respondent bank issued to petitioner
for the August 26, 1978 partial payment, it waived its
right under Article 1253 7 of the Civil Code on Application
of Payments when it applied the payment to the principal
instead of the interest. Thus, on that date the
outstanding obligation of petitioner was already reduced
to P3,558.21 after she had paid a total of P2,200.00 over
a period of nine months from the time the loan was
obtained.
From this conduct of the respondent bank it is clear that
it neither enforced its right under the acceleration clause
nor its right to foreclose under the mortgage contract,
For more than four years, the respondent bank made
petitioner believe that it was applying her payment on the
loan and interest just like before when the respondent
bank accepted such payment and issued a receipt
therefor. It is bound by estoppel to apply the same as
payment for petitioner's obligation as it did when it
received previous payments on three occasions. Its act
of applying said payments to accounts payable is clearly
prejudicial to petitioner. We cannot countenance this act
of the bank.
We hold that the payment amounting to P8,650.00 for
the balance of P3,558.20 as of August 26, 1978 8 plus
the P1,000.00 it was asked to pay on April 24, 1984
would at the very least constitute substantial
performance.
Article 1234 of the Civil Code, provides:
"Article 1234. If the obligation has been substantially
performed in good faith, the obligor may recover as
though there had been a strict and complete fulfillment,
less damages suffered by the obligee."
Petitioner in this case has the right to move for the
cancellation of the mortgage and the release of the
mortgaged property, upon payment of the balance of the
loan. Definitely, it would not be in the amount demanded
by the respondent bank, which the trial court held to be
P29,554.81.
This Court, in Angeles vs. Calasanz 9 held that:
"The breach of the contract adverted to by the
defendants-appellants is so slight and casual when we
consider that apart from the initial downpayment of
P392.00 the plaintiffs-appellees had already paid the
monthly installments for a period of almost nine (9)
years. In other words, in only a short time, the entire
obligation would have been paid. Furthermore, although
the principal obligation was only P3,920.00 excluding the
7 percent interests, the plaintiffs-appellees had already
paid an aggregate amount of P4,533.38. To sanction the
rescission made by the defendants-appellants will work
 3

injustice to the plaintiffs-appellees. It would unjustly

enrich the defendants-appellants.

Article 1234 of the Civil Code which provides that:

xxx xxx xxx

also militates against the unilateral act of the defendants-

appellants in cancelling the contract."

Thus, aside from the fact that the respondent bank was
estopped from enforcing its right to foreclose by virtue of
its acceptance of the delayed payments for a period of
more than six years, the application of such payment to
the interest and the principal during the first three
payments constitutes a virtual waiver of the acceleration
clause provided in the contract. We cannot sustain the
legality of the foreclosure under the peculiar facts of this
case, because there is substantial performance of the
obligation on the part of petitioner. Under Article 1235 of
the Civil Code, when the creditor accepts performance,
knowing its incompleteness and irregularity without
protest or objection, the obligation is deemed complied
with.

This Court cannot ignore the fact that the respondent

bank succeeded in taking advantage of the ignorance of
petitioner in transactions such as the one involved in the
case at bar by lodging the bulk of petitioner's payment to
account payable based on the flimsy reason that she
had been in default, and then considering the entire debt
pursuant to an acceleration clause as earning interest
and penalty charges at an exorbitant rate of 19% each
from the date of first default up to the date of foreclosure,
thus bringing the obligation to an astronomical amount of
P29,554.81. This indicates bad faith on the part of the
respondent bank. For the mental anguish, sleepless
nights and serious anxiety this has caused petitioner, the
respondent bank is liable for moral damages which this
Court fixes at P50,000.00.

To serve as a deterrent for the respondent bank from

repeating similar acts and to set an example and
correction for the public good, this Court likewise awards
exemplary damages. In view of its nature, it should be
imposed in such amount as to sufficiently and effectively
deter similar acts in the future 10 by the respondent bank
and other banks, which amount this court fixes at
P20,000.00 on top of the forfeiture of whatever balance
on the loan which the respondent may actually have in
its favor.

This Court likewise orders the annulment of the

foreclosure sale and the reconveyance of the property
subject of the real estate mortgage pursuant to the
annotation of lis pendens in the certificate of title of the
subject property.

Attorney's fees by way of damages is likewise awarded

for the same reason that exemplary damages is awarded
and this is fixed at P10,000.00.

WHEREFORE, the appealed decision is hereby SET

ASIDE and a new one entered ordering the
reconveyance of the foreclosed property and the
payment of moral damages, exemplary damages and
attorney's fees as above specified, with costs against
private respondent Planters Development Bank.

SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 115838 July 18, 2002
CONSTANTE AMOR DE CASTRO and CORAZON
AMOR DE CASTRO, petitioners,
vs.
COURT OF APPEALS and FRANCISCO ARTIGO,
respondents.
CARPIO, J.:
The Case
Before us is a Petition for Review on Certiorari1 seeking
to annul the Decision of the Court of Appeals2 dated May
4, 1994 in CA-G.R. CV No. 37996, which affirmed in toto
the decision3 of the Regional Trial Court of Quezon City,
Branch 80, in Civil Case No. Q-89-2631. The trial court
disposed as follows:
"WHEREFORE, the Court finds defendants
Constante and Corazon Amor de Castro jointly
and solidarily liable to plaintiff the sum of:
a) P303,606.24 representing unpaid
commission;
b) P25,000.00 for and by way of moral damages;
c) P45,000.00 for and by way of attorney's fees;
d) To pay the cost of this suit.
Quezon City, Metro Manila, December 20,
1991."
The Antecedent Facts
On May 29, 1989, private respondent Francisco Artigo
("Artigo" for brevity) sued petitioners Constante A. De
Castro ("Constante" for brevity) and Corazon A. De
Castro ("Corazon" for brevity) to collect the unpaid
balance of his broker's commission from the De
Castros.4 The Court of Appeals summarized the facts in
this wise:
"x x x. Appellants5 were co-owners of four (4)
lots located at EDSA corner New York and
Denver Streets in Cubao, Quezon City. In a
letter dated January 24, 1984 (Exhibit "A-1, p.
144, Records), appellee6 was authorized by
appellants to act as real estate broker in the sale
of these properties for the amount of
P23,000,000.00, five percent (5%) of which will
be given to the agent as commission. It was
appellee who first found Times Transit
Corporation, represented by its president Mr.
Rondaris, as prospective buyer which desired to
buy two (2) lots only, specifically lots 14 and 15.
Eventually, sometime in May of 1985, the sale of
lots 14 and 15 was consummated. Appellee
received from appellants P48,893.76 as
commission.
4
It was then that the rift between the contending
parties soon emerged. Appellee apparently felt
short changed because according to him, his
total commission should be P352,500.00 which
is five percent (5%) of the agreed price of
P7,050,000.00 paid by Times Transit
Corporation to appellants for the two (2) lots,
and that it was he who introduced the buyer to
appellants and unceasingly facilitated the
negotiation which ultimately led to the
consummation of the sale. Hence, he sued
below to collect the balance of P303,606.24 after
having received P48,893.76 in
advance.1wphi1.nt
On the other hand, appellants completely
traverse appellee's claims and essentially argue
that appellee is selfishly asking for more than
what he truly deserved as commission to the
prejudice of other agents who were more
instrumental in the consummation of the sale.
Although appellants readily concede that it was
appellee who first introduced Times Transit
Corp. to them, appellee was not designated by
them as their exclusive real estate agent but that
in fact there were more or less eighteen (18)
others whose collective efforts in the long run
dwarfed those of appellee's, considering that the
first negotiation for the sale where appellee took
active participation failed and it was these other
agents who successfully brokered in the second
negotiation. But despite this and out of
appellants' "pure liberality, beneficence and
magnanimity", appellee nevertheless was given
the largest cut in the commission (P48,893.76),
although on the principle of quantum meruit he
would have certainly been entitled to less. So
appellee should not have been heard to
complain of getting only a pittance when he
actually got the lion's share of the commission
and worse, he should not have been allowed to
get the entire commission. Furthermore, the
purchase price for the two lots was only P3.6
million as appearing in the deed of sale and not
P7.05 million as alleged by appellee. Thus, even
assuming that appellee is entitled to the entire
commission, he would only be getting 5% of the
P3.6 million, or P180,000.00."
Ruling of the Court of Appeals
The Court of Appeals affirmed in toto the decision of the
trial court.
First. The Court of Appeals found that Constante
authorized Artigo to act as agent in the sale of two lots in
Cubao, Quezon City. The handwritten authorization letter
signed by Constante clearly established a contract of
agency between Constante and Artigo. Thus, Artigo
sought prospective buyers and found Times Transit
Corporation ("Times Transit" for brevity). Artigo facilitated
the negotiations which eventually led to the sale of the
two lots. Therefore, the Court of Appeals decided that
Artigo is entitled to the 5% commission on the purchase
price as provided in the contract of agency.

Second. The Court of Appeals ruled that Artigo's
complaint is not dismissible for failure to implead as
indispensable parties the other co-owners of the two lots.
The Court of Appeals explained that it is not necessary
to implead the other co-owners since the action is
exclusively based on a contract of agency between
Artigo and Constante.
Third. The Court of Appeals likewise declared that the
trial court did not err in admitting parol evidence to prove
the true amount paid by Times Transit to the De Castros
for the two lots. The Court of Appeals ruled that evidence
aliunde could be presented to prove that the actual
purchase price was P7.05 million and not P3.6 million as
appearing in the deed of sale. Evidence aliunde is
admissible considering that Artigo is not a party, but a
mere witness in the deed of sale between the De
Castros and Times Transit. The Court of Appeals
explained that, "the rule that oral evidence is
inadmissible to vary the terms of written instruments is
generally applied only in suits between parties to the
instrument and strangers to the contract are not bound
by it." Besides, Artigo was not suing under the deed of
sale, but solely under the contract of agency. Thus, the
Court of Appeals upheld the trial court's finding that the
purchase price was P7.05 million and not P3.6 million.
Hence, the instant petition.
The Issues
According to petitioners, the Court of Appeals erred in -
I. NOT ORDERING THE DISMISSAL OF THE
COMPLAINT FOR FAILURE TO IMPLEAD
INDISPENSABLE PARTIES-IN-INTEREST;
II. NOT ORDERING THE DISMISSAL OF THE
COMPLAINT ON THE GROUND THAT
ARTIGO'S CLAIM HAS BEEN EXTINGUISHED
BY FULL PAYMENT, WAIVER, OR
ABANDONMENT;
III. CONSIDERING INCOMPETENT
EVIDENCE;
IV. GIVING CREDENCE TO PATENTLY
PERJURED TESTIMONY;
V. SANCTIONING AN AWARD OF MORAL
DAMAGES AND ATTORNEY'S FEES;
VI. NOT AWARDING THE DE CASTRO'S
MORAL AND EXEMPLARY DAMAGES, AND
ATTORNEY'S FEES.
The Court's Ruling
The petition is bereft of merit.
First Issue: whether the complaint merits dismissal
for failure to implead other co-owners as
indispensable parties
The De Castros argue that Artigo's complaint should
have been dismissed for failure to implead all the co-
owners of the two lots. The De Castros claim that Artigo
always knew that the two lots were co-owned by
Constante and Corazon with their other siblings Jose
5
and Carmela whom Constante merely represented. The
De Castros contend that failure to implead such
indispensable parties is fatal to the complaint since
Artigo, as agent of all the four co-owners, would be paid
with funds co-owned by the four co-owners.
The De Castros' contentions are devoid of legal basis.
An indispensable party is one whose interest will be
affected by the court's action in the litigation, and without
whom no final determination of the case can be had. 7
The joinder of indispensable parties is mandatory and
courts cannot proceed without their presence.8
Whenever it appears to the court in the course of a
proceeding that an indispensable party has not been
joined, it is the duty of the court to stop the trial and order
the inclusion of such party.9
However, the rule on mandatory joinder of indispensable
parties is not applicable to the instant case.
There is no dispute that Constante appointed Artigo in a
handwritten note dated January 24, 1984 to sell the
properties of the De Castros for P23 million at a 5
percent commission. The authority was on a first come,
first serve basis. The authority reads in full:
"24 Jan. 84
To Whom It May Concern:
This is to state that Mr. Francisco Artigo is
authorized as our real estate broker in
connection with the sale of our property located
at Edsa Corner New York & Denver, Cubao,
Quezon City.
Asking price P 23,000,000.00 with 5%
commission as agent's fee.
C.C. de Castro
owner & representing
co-owners
This authority is on a first-come
First serve basis CAC"
Constante signed the note as owner and as
representative of the other co-owners. Under this note, a
contract of agency was clearly constituted between
Constante and Artigo. Whether Constante appointed
Artigo as agent, in Constante's individual or
representative capacity, or both, the De Castros cannot
seek the dismissal of the case for failure to implead the
other co-owners as indispensable parties. The De
Castros admit that the other co-owners are solidarily
liable under the contract of agency,10 citing Article
1915 of the Civil Code, which reads:
Art. 1915. If two or more persons have
appointed an agent for a common transaction or

undertaking, they shall be solidarily liable to the
agent for all the consequences of the agency.
The solidary liability of the four co-owners, however,
militates against the De Castros' theory that the other co-
owners should be impleaded as indispensable parties. A
noted commentator explained Article 1915 thus
"The rule in this article applies even when the
appointments were made by the principals in
separate acts, provided that they are for the
same transaction. The solidarity arises from
the common interest of the principals, and
not from the act of constituting the agency.
By virtue of this solidarity, the agent can
recover from any principal the whole
compensation and indemnity owing to him
by the others. The parties, however, may, by
express agreement, negate this solidary
responsibility. The solidarity does not disappear
by the mere partition effected by the principals
after the accomplishment of the agency.
If the undertaking is one in which several are
interested, but only some create the agency,
only the latter are solidarily liable, without
prejudice to the effects of negotiorum gestio with
respect to the others. And if the power granted
includes various transactions some of which are
common and others are not, only those
interested in each transaction shall be liable for
it."11
When the law expressly provides for solidarity of the
obligation, as in the liability of co-principals in a contract
of agency, each obligor may be compelled to pay the
entire obligation.12 The agent may recover the whole
compensation from any one of the co-principals, as in
this case.
Indeed, Article 1216 of the Civil Code provides that a
creditor may sue any of the solidary debtors. This article
reads:
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.
Thus, the Court has ruled in Operators Incorporated vs.
American Biscuit Co., Inc.13 that
"x x x solidarity does not make a solidary
obligor an indispensable party in a suit filed
by the creditor. Article 1216 of the Civil Code
says that the creditor `may proceed against
anyone of the solidary debtors or some or all of
them simultaneously'." (Emphasis supplied)
Second Issue: whether Artigo's claim has been
extinguished by full payment, waiver or
abandonment
The De Castros claim that Artigo was fully paid on June
14, 1985, that is, Artigo was given "his proportionate
share and no longer entitled to any balance." According
to them, Artigo was just one of the agents involved in the
6
sale and entitled to a "proportionate share" in the
commission. They assert that Artigo did absolutely
nothing during the second negotiation but to sign as a
witness in the deed of sale. He did not even prepare the
documents for the transaction as an active real estate
broker usually does.
The De Castros' arguments are flimsy.
A contract of agency which is not contrary to law, public
order, public policy, morals or good custom is a valid
contract, and constitutes the law between the parties. 14
The contract of agency entered into by Constante with
Artigo is the law between them and both are bound to
comply with its terms and conditions in good faith.
The mere fact that "other agents" intervened in the
consummation of the sale and were paid their respective
commissions cannot vary the terms of the contract of
agency granting Artigo a 5 percent commission based on
the selling price. These "other agents" turned out to be
employees of Times Transit, the buyer Artigo introduced
to the De Castros. This prompted the trial court to
observe:
"The alleged `second group' of agents came into
the picture only during the so-called `second
negotiation' and it is amusing to note that these
(sic) second group, prominent among whom are
Atty. Del Castillo and Ms. Prudencio, happened
to be employees of Times Transit, the buyer of
the properties. And their efforts were limited to
convincing Constante to 'part away' with the
properties because the redemption period of the
foreclosed properties is around the corner, so to
speak. (tsn. June 6, 1991).
xxx
To accept Constante's version of the story is to
open the floodgates of fraud and deceit. A seller
could always pretend rejection of the offer and
wait for sometime for others to renew it who are
much willing to accept a commission far less
than the original broker. The immorality in the
instant case easily presents itself if one has
to consider that the alleged `second group'
are the employees of the buyer, Times
Transit and they have not bettered the offer
secured by Mr. Artigo for P7 million.
It is to be noted also that while Constante was
too particular about the unrenewed real estate
broker's license of Mr. Artigo, he did not bother
at all to inquire as to the licenses of Prudencio
and Castillo. (tsn, April 11, 1991, pp. 39-40)." 15
(Emphasis supplied)
In any event, we find that the 5 percent real estate
broker's commission is reasonable and within the
standard practice in the real estate industry for
transactions of this nature.
The De Castros also contend that Artigo's inaction as
well as failure to protest estops him from recovering
more than what was actually paid him. The De Castros
cite Article 1235 of the Civil Code which reads:
Art. 1235. When the obligee accepts the
performance, knowing its incompleteness and

irregularity, and without expressing any protest
or objection, the obligation is deemed fully
complied with.
The De Castros' reliance on Article 1235 of the Civil
Code is misplaced. Artigo's acceptance of partial
payment of his commission neither amounts to a waiver
of the balance nor puts him in estoppel. This is the
import of Article 1235 which was explained in this wise:
"The word accept, as used in Article 1235 of the
Civil Code, means to take as satisfactory or
sufficient, or agree to an incomplete or irregular
performance. Hence, the mere receipt of a
partial payment is not equivalent to the
required acceptance of performance as
would extinguish the whole obligation."16
(Emphasis supplied)
There is thus a clear distinction between acceptance and
mere receipt. In this case, it is evident that Artigo merely
received the partial payment without waiving the
balance. Thus, there is no estoppel to speak of.
The De Castros further argue that laches should apply
because Artigo did not file his complaint in court until
May 29, 1989, or almost four years later. Hence, Artigo's
claim for the balance of his commission is barred by
laches.
Laches means the failure or neglect, for an
unreasonable and unexplained length of time, to do that
which by exercising due diligence could or should have
been done earlier. It is negligence or omission to assert
a right within a reasonable time, warranting a
presumption that the party entitled to assert it either has
abandoned it or declined to assert it.17
Artigo disputes the claim that he neglected to assert his
rights. He was appointed as agent on January 24, 1984.
The two lots were finally sold in June 1985. As found by
the trial court, Artigo demanded in April and July of 1985
the payment of his commission by Constante on the
basis of the selling price of P7.05 million but there was
no response from Constante.18 After it became clear that
his demands for payment have fallen on deaf ears,
Artigo decided to sue on May 29, 1989.
Actions upon a written contract, such as a contract of
agency, must be brought within ten years from the time
the right of action accrues.19 The right of action accrues
from the moment the breach of right or duty occurs.
From this moment, the creditor can institute the action
even as the ten-year prescriptive period begins to run. 20
The De Castros admit that Artigo's claim was filed within
the ten-year prescriptive period. The De Castros,
however, still maintain that Artigo's cause of action is
barred by laches. Laches does not apply because only
four years had lapsed from the time of the sale in June
1985. Artigo made a demand in July 1985 and filed the
action in court on May 29, 1989, well within the ten-year
prescriptive period. This does not constitute an
unreasonable delay in asserting one's right. The Court
has ruled, "a delay within the prescriptive period is
sanctioned by law and is not considered to be a
delay that would bar relief."21 In explaining that laches
applies only in the absence of a statutory prescriptive
period, the Court has stated -
7
"Laches is recourse in equity. Equity, however,
is applied only in the absence, never in
contravention, of statutory law. Thus, laches,
cannot, as a rule, be used to abate a
collection suit filed within the prescriptive
period mandated by the Civil Code."22
Clearly, the De Castros' defense of laches finds no
support in law, equity or jurisprudence.
Third issue: whether the determination of the
purchase price was made in violation of the Rules
on Evidence
The De Castros want the Court to re-examine the
probative value of the evidence adduced in the trial court
to determine whether the actual selling price of the two
lots was P7.05 million and not P3.6 million. The De
Castros contend that it is erroneous to base the 5
percent commission on a purchase price of P7.05 million
as ordered by the trial court and the appellate court. The
De Castros insist that the purchase price is P3.6 million
as expressly stated in the deed of sale, the due
execution and authenticity of which was admitted during
the trial.
The De Castros believe that the trial and appellate courts
committed a mistake in considering incompetent
evidence and disregarding the best evidence and parole
evidence rules. They claim that the Court of Appeals
erroneously affirmed sub silentio the trial court's reliance
on the various correspondences between Constante and
Times Transit which were mere photocopies that do not
satisfy the best evidence rule. Further, these letters
covered only the first negotiations between Constante
and Times Transit which failed; hence, these are
immaterial in determining the final purchase price.
The De Castros further argue that if there was an
undervaluation, Artigo who signed as witness benefited
therefrom, and being equally guilty, should be left where
he presently stands. They likewise claim that the Court
of Appeals erred in relying on evidence which were not
offered for the purpose considered by the trial court.
Specifically, Exhibits "B", "C", "D" and "E" were not
offered to prove that the purchase price was P7.05
Million. Finally, they argue that the courts a quo erred in
giving credence to the perjured testimony of Artigo. They
want the entire testimony of Artigo rejected as a
falsehood because he was lying when he claimed at the
outset that he was a licensed real estate broker when he
was not.
Whether the actual purchase price was P7.05 Million as
found by the trial court and affirmed by the Court of
Appeals, or P3.6 Million as claimed by the De Castros, is
a question of fact and not of law. Inevitably, this calls for
an inquiry into the facts and evidence on record. This we
can not do.
It is not the function of this Court to re-examine the
evidence submitted by the parties, or analyze or weigh
the evidence again.23 This Court is not the proper venue
to consider a factual issue as it is not a trier of facts. In
petitions for review on certiorari as a mode of appeal
under Rule 45, a petitioner can only raise questions of
law. Our pronouncement in the case of Cormero vs.
Court of Appeals24 bears reiteration:
"At the outset, it is evident from the errors
assigned that the petition is anchored on a plea
 8

to review the factual conclusion reached by the commission based on the actual purchase price of the
respondent court. Such task however is two lots.
foreclosed by the rule that in petitions for
certiorari as a mode of appeal, like this one, only WHEREFORE, the petition is denied for lack of merit.
questions of law distinctly set forth may be The Decision of the Court of Appeals dated May 4, 1994
raised. These questions have been defined as in CA-G.R. CV No. 37996 is AFFIRMED in toto.
those that do not call for any examination of the
probative value of the evidence presented by the SO ORDERED.
parties. (Uniland Resources vs. Development
Bank of the Philippines, 200 SCRA 751 [1991]
citing Goduco vs. Court of appeals, et al., 119
Phil. 531; Hernandez vs. Court of Appeals, 149
SCRA 67). And when this court is asked to go
over the proof presented by the parties, and
analyze, assess and weigh them to ascertain if
the trial court and the appellate court were
correct in according superior credit to this or that
piece of evidence and eventually, to the totality
of the evidence of one party or the other, the
court cannot and will not do the same. (Elayda
vs. Court of Appeals, 199 SCRA 349 [1991]).
Thus, in the absence of any showing that the
findings complained of are totally devoid of
support in the record, or that they are so
glaringly erroneous as to constitute serious
abuse of discretion, such findings must stand,
for this court is not expected or required to
examine or contrast the oral and documentary
evidence submitted by the parties. (Morales vs.
Court of Appeals, 197 SCRA 391 [1991] citing
Santa Ana vs. Hernandez, 18 SCRA 973
[1966])."

We find no reason to depart from this principle. The trial

and appellate courts are in a much better position to
evaluate properly the evidence. Hence, we find no other
recourse but to affirm their finding on the actual
purchase price.1wphi1.nt

Fourth Issue: whether award of moral damages and

attorney's fees is proper

The De Castros claim that Artigo failed to prove that he

is entitled to moral damages and attorney's fees. The De
Castros, however, cite no concrete reason except to say
that they are the ones entitled to damages since the
case was filed to harass and extort money from them.

Law and jurisprudence support the award of moral

damages and attorney's fees in favor of Artigo. The
award of damages and attorney's fees is left to the
sound discretion of the court, and if such discretion is
well exercised, as in this case, it will not be disturbed on
appeal.25 Moral damages may be awarded when in a
breach of contract the defendant acted in bad faith, or in
wanton disregard of his contractual obligation.26 On the
other hand, attorney's fees are awarded in instances
where "the defendant acted in gross and evident bad
faith in refusing to satisfy the plaintiff's plainly valid, just
and demandable claim."27 There is no reason to disturb
the trial court's finding that "the defendants' lack of good
faith and unkind treatment of the plaintiff in refusing to
give his due commission deserve censure." This
warrants the award of P25,000.00 in moral damages and
P 45,000.00 in attorney's fees. The amounts are, in our
view, fair and reasonable. Having found a buyer for the
two lots, Artigo had already performed his part of the
bargain under the contract of agency. The De Castros
should have exercised fairness and good judgment in
dealing with Artigo by fulfilling their own part of the
bargain - paying Artigo his 5 percent broker's

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-49188 January 30, 1990
PHILIPPINE AIRLINES, INC., petitioner,
vs.
HON. COURT OF APPEALS, HON. JUDGE RICARDO
D. GALANO, Court of First Instance of Manila,
Branch XIII, JAIME K. DEL ROSARIO, Deputy Sheriff,
Court of First Instance, Manila, and AMELIA TAN,
respondents.
GUTIERREZ, JR., J.:
Behind the simple issue of validity of an alias writ of
execution in this case is a more fundamental question.
Should the Court allow a too literal interpretation of the
Rules with an open invitation to knavery to prevail over a
more discerning and just approach? Should we not apply
the ancient rule of statutory construction that laws are to
be interpreted by the spirit which vivifies and not by the
letter which killeth?
This is a petition to review on certiorari the decision of
the Court of Appeals in CA-G.R. No. 07695 entitled
"Philippine Airlines, Inc. v. Hon. Judge Ricardo D.
Galano, et al.", dismissing the petition for certiorari
against the order of the Court of First Instance of Manila
which issued an alias writ of execution against the
petitioner.
The petition involving the alias writ of execution had its
beginnings on November 8, 1967, when respondent
Amelia Tan, under the name and style of Able Printing
Press commenced a complaint for damages before the
Court of First Instance of Manila. The case was docketed
as Civil Case No. 71307, entitled Amelia Tan, et al. v.
Philippine Airlines, Inc.
After trial, the Court of First Instance of Manila, Branch
13, then presided over by the late Judge Jesus P. Morfe
rendered judgment on June 29, 1972, in favor of private
respondent Amelia Tan and against petitioner Philippine
Airlines, Inc. (PAL) as follows:
WHEREFORE, judgment is hereby
rendered, ordering the defendant
Philippine Air Lines:
1. On the first cause of action, to pay to
the plaintiff the amount of P75,000.00 as
actual damages, with legal interest
9
thereon from plaintiffs extra-judicial
demand made by the letter of July 20,
1967;
2. On the third cause of action, to pay to
the plaintiff the amount of P18,200.00,
representing the unrealized profit of 10%
included in the contract price of
P200,000.00 plus legal interest thereon
from July 20,1967;
3. On the fourth cause of action, to pay
to the plaintiff the amount of P20,000.00
as and for moral damages, with legal
interest thereon from July 20, 1 967;
4. On the sixth cause of action, to pay to
the plaintiff the amount of P5,000.00
damages as and for attorney's fee.
Plaintiffs second and fifth causes of
action, and defendant's counterclaim,
are dismissed.
With costs against the defendant. (CA
Rollo, p. 18)
On July 28, 1972, the petitioner filed its appeal with the
Court of Appeals. The case was docketed as CA-G.R.
No. 51079-R.
On February 3, 1977, the appellate court rendered its
decision, the dispositive portion of which reads:
IN VIEW WHEREOF, with the
modification that PAL is condemned to
pay plaintiff the sum of P25,000.00 as
damages and P5,000.00 as attorney's
fee, judgment is affirmed, with costs.
(CA Rollo, p. 29)
Notice of judgment was sent by the Court of Appeals to
the trial court and on dates subsequent thereto, a motion
for reconsideration was filed by respondent Amelia Tan,
duly opposed by petitioner PAL.
On May 23,1977, the Court of Appeals rendered its
resolution denying the respondent's motion for
reconsideration for lack of merit.
No further appeal having been taken by the parties, the
judgment became final and executory and on May 31,
1977, judgment was correspondingly entered in the
case.
The case was remanded to the trial court for execution
and on September 2,1977, respondent Amelia Tan filed a
motion praying for the issuance of a writ of execution of
the judgment rendered by the Court of Appeals. On
October 11, 1977, the trial court, presided over by Judge
Galano, issued its order of execution with the
corresponding writ in favor of the respondent. The writ
was duly referred to Deputy Sheriff Emilio Z. Reyes of
Branch 13 of the Court of First Instance of Manila for
enforcement.

Four months later, on February 11, 1978, respondent
Amelia Tan moved for the issuance of an alias writ of
execution stating that the judgment rendered by the
lower court, and affirmed with modification by the Court
of Appeals, remained unsatisfied.
On March 1, 1978, the petitioner filed an opposition to
the motion for the issuance of an alias writ of execution
stating that it had already fully paid its obligation to
plaintiff through the deputy sheriff of the respondent
court, Emilio Z. Reyes, as evidenced by cash vouchers
properly signed and receipted by said Emilio Z. Reyes.
On March 3,1978, the Court of Appeals denied the
issuance of the alias writ for being premature, ordering
the executing sheriff Emilio Z. Reyes to appear with his
return and explain the reason for his failure to surrender
the amounts paid to him by petitioner PAL. However, the
order could not be served upon Deputy Sheriff Reyes
who had absconded or disappeared.
On March 28, 1978, motion for the issuance of a partial
alias writ of execution was filed by respondent Amelia
Tan.
On April 19, 1978, respondent Amelia Tan filed a motion
to withdraw "Motion for Partial Alias Writ of Execution"
with Substitute Motion for Alias Writ of Execution. On
May 1, 1978, the respondent Judge issued an order
which reads:
As prayed for by counsel for the plaintiff,
the Motion to Withdraw 'Motion for
Partial Alias Writ of Execution with
Substitute Motion for Alias Writ of
Execution is hereby granted, and the
motion for partial alias writ of execution
is considered withdrawn.
Let an Alias Writ of Execution issue
against the defendant for the fall
satisfaction of the judgment rendered.
Deputy Sheriff Jaime K. del Rosario is
hereby appointed Special Sheriff for the
enforcement thereof. (CA Rollo, p. 34)
On May 18, 1978, the petitioner received a copy of the
first alias writ of execution issued on the same day
directing Special Sheriff Jaime K. del Rosario to levy on
execution in the sum of P25,000.00 with legal interest
thereon from July 20,1967 when respondent Amelia Tan
made an extra-judicial demand through a letter. Levy
was also ordered for the further sum of P5,000.00
awarded as attorney's fees.
On May 23, 1978, the petitioner filed an urgent motion to
quash the alias writ of execution stating that no return of
the writ had as yet been made by Deputy Sheriff Emilio
Z. Reyes and that the judgment debt had already been
fully satisfied by the petitioner as evidenced by the cash
vouchers signed and receipted by the server of the writ
of execution, Deputy Sheriff Emilio Z. Reyes.
On May 26,1978, the respondent Jaime K. del Rosario
served a notice of garnishment on the depository bank of
petitioner, Far East Bank and Trust Company, Rosario
10
Branch, Binondo, Manila, through its manager and
garnished the petitioner's deposit in the said bank in the
total amount of P64,408.00 as of May 16, 1978. Hence,
this petition for certiorari filed by the Philippine Airlines,
Inc., on the grounds that:
I
AN ALIAS WRIT OF EXECUTION CANNOT BE ISSUED
WITHOUT PRIOR RETURN OF THE ORIGINAL WRIT
BY THE IMPLEMENTING OFFICER.
II
PAYMENT OF JUDGMENT TO THE IMPLEMENTING
OFFICER AS DIRECTED IN THE WRIT OF
EXECUTION CONSTITUTES SATISFACTION OF
JUDGMENT.
III
INTEREST IS NOT PAYABLE WHEN THE DECISION IS
SILENT AS TO THE PAYMENT THEREOF.
IV
SECTION 5, RULE 39, PARTICULARLY REFERS TO
LEVY OF PROPERTY OF JUDGMENT DEBTOR AND
DISPOSAL OR SALE THEREOF TO SATISFY
JUDGMENT.
Can an alias writ of execution be issued without a prior
return of the original writ by the implementing officer?
We rule in the affirmative and we quote the respondent
court's decision with approval:
The issuance of the questioned alias writ of execution
under the circumstances here obtaining is justified
because even with the absence of a Sheriffs return on
the original writ, the unalterable fact remains that such a
return is incapable of being obtained (sic) because the
officer who is to make the said return has absconded
and cannot be brought to the Court despite the earlier
order of the court for him to appear for this purpose.
(Order of Feb. 21, 1978, Annex C, Petition). Obviously,
taking cognizance of this circumstance, the order of May
11, 1978 directing the issuance of an alias writ was
therefore issued. (Annex D. Petition). The need for such
a return as a condition precedent for the issuance of an
alias writ was justifiably dispensed with by the court
below and its action in this regard meets with our
concurrence. A contrary view will produce an abhorent
situation whereby the mischief of an erring officer of the
court could be utilized to impede indefinitely the
undisputed and awarded rights which a prevailing party
rightfully deserves to obtain and with dispatch. The final
judgment in this case should not indeed be permitted to
become illusory or incapable of execution for an
indefinite and over extended period, as had already
transpired. (Rollo, pp. 35-36)
Judicium non debet esse illusorium; suum effectum
habere debet (A judgment ought not to be illusory it
ought to have its proper effect).

Indeed, technicality cannot be countenanced to defeat
the execution of a judgment for execution is the fruit and
end of the suit and is very aptly called the life of the law
(Ipekdjian Merchandising Co. v. Court of Tax Appeals, 8
SCRA 59 [1963]; Commissioner of Internal Revenue v.
Visayan Electric Co., 19 SCRA 697, 698 [1967]). A
judgment cannot be rendered nugatory by the
unreasonable application of a strict rule of procedure.
Vested rights were never intended to rest on the
requirement of a return, the office of which is merely to
inform the court and the parties, of any and all actions
taken under the writ of execution. Where such
information can be established in some other manner,
the absence of an executing officer's return will not
preclude a judgment from being treated as discharged or
being executed through an alias writ of execution as the
case may be. More so, as in the case at bar. Where the
return cannot be expected to be forthcoming, to require
the same would be to compel the enforcement of rights
under a judgment to rest on an impossibility, thereby
allowing the total avoidance of judgment debts. So long
as a judgment is not satisfied, a plaintiff is entitled to
other writs of execution (Government of the Philippines
v. Echaus and Gonzales, 71 Phil. 318). It is a well known
legal maxim that he who cannot prosecute his judgment
with effect, sues his case vainly.
More important in the determination of the propriety of
the trial court's issuance of an alias writ of execution is
the issue of satisfaction of judgment.
Under the peculiar circumstances surrounding this case,
did the payment made to the absconding sheriff by
check in his name operate to satisfy the judgment debt?
The Court rules that the plaintiff who has won her case
should not be adjudged as having sued in vain. To
decide otherwise would not only give her an empty but a
pyrrhic victory.
It should be emphasized that under the initial judgment,
Amelia Tan was found to have been wronged by PAL.
She filed her complaint in 1967.
After ten (10) years of protracted litigation in the Court of
First Instance and the Court of Appeals, Ms. Tan won her
case.
It is now 1990.
Almost twenty-two (22) years later, Ms. Tan has not seen
a centavo of what the courts have solemnly declared as
rightfully hers. Through absolutely no fault of her own,
Ms. Tan has been deprived of what, technically, she
should have been paid from the start, before 1967,
without need of her going to court to enforce her rights.
And all because PAL did not issue the checks intended
for her, in her name.
Under the peculiar circumstances of this case, the
payment to the absconding sheriff by check in his name
did not operate as a satisfaction of the judgment debt.
In general, a payment, in order to be effective to
discharge an obligation, must be made to the proper
person. Article 1240 of the Civil Code provides:
11
Payment shall be made to the person in whose favor
the obligation has been constituted, or his successor in
interest, or any person authorized to receive it.
(Emphasis supplied)
Thus, payment must be made to the obligee himself or to
an agent having authority, express or implied, to receive
the particular payment (Ulen v. Knecttle 50 Wyo 94, 58
[2d] 446, 111 ALR 65). Payment made to one having
apparent authority to receive the money will, as a rule,
be treated as though actual authority had been given for
its receipt. Likewise, if payment is made to one who by
law is authorized to act for the creditor, it will work a
discharge (Hendry v. Benlisa 37 Fla. 609, 20 SO 800,34
LRA 283). The receipt of money due on ajudgment by an
officer authorized by law to accept it will, therefore,
satisfy the debt (See 40 Am Jm 729, 25; Hendry v.
Benlisa supra; Seattle v. Stirrat 55 Wash. 104 p. 834,24
LRA [NS] 1275).
The theory is where payment is made to a person
authorized and recognized by the creditor, the payment
to such a person so authorized is deemed payment to
the creditor. Under ordinary circumstances, payment by
the judgment debtor in the case at bar, to the sheriff
should be valid payment to extinguish the judgment debt.
There are circumstances in this case, however, which
compel a different conclusion.
The payment made by the petitioner to the absconding
sheriff was not in cash or legal tender but in checks. The
checks were not payable to Amelia Tan or Able Printing
Press but to the absconding sheriff.
Did such payments extinguish the judgment debt?
Article 1249 of the Civil Code provides:
The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver
such currency, then in the currency which is legal tender
in the Philippines.
The delivery of promissory notes payable to order, or
bills of exchange or other mercantile documents shall
produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they
have been impaired.
In the meantime, the action derived from the original
obligation shall be held in abeyance.

In the absence of an agreement, either express or
implied, payment means the discharge of a debt or
obligation in money (US v. Robertson, 5 Pet. [US] 641, 8
L. ed. 257) and unless the parties so agree, a debtor has
no rights, except at his own peril, to substitute something
in lieu of cash as medium of payment of his debt
(Anderson v. Gill, 79 Md.. 312, 29 A 527, 25 LRA 200,47
Am. St. Rep. 402). Consequently, unless authorized to
do so by law or by consent of the obligee a public officer
has no authority to accept anything other than money in
payment of an obligation under a judgment being
executed. Strictly speaking, the acceptance by the sheriff
of the petitioner's checks, in the case at bar, does not,
per se, operate as a discharge of the judgment debt.
Since a negotiable instrument is only a substitute for
money and not money, the delivery of such an
instrument does not, by itself, operate as payment (See.
189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code;
Bryan Landon Co. v. American Bank, 7 Phil. 255; Tan
Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check,
whether a manager's check or ordinary cheek, is not
legal tender, and an offer of a check in payment of a debt
is not a valid tender of payment and may be refused
receipt by the obligee or creditor. Mere delivery of
checks does not discharge the obligation under a
judgment. The obligation is not extinguished and
remains suspended until the payment by commercial
document is actually realized (Art. 1249, Civil Code, par.
3).
If bouncing checks had been issued in the name of
Amelia Tan and not the Sheriff's, there would have been
no payment. After dishonor of the checks, Ms. Tan could
have run after other properties of PAL. The theory is that
she has received no value for what had been awarded
her. Because the checks were drawn in the name of
Emilio Z. Reyes, neither has she received anything. The
same rule should apply.
It is argued that if PAL had paid in cash to Sheriff Reyes,
there would have been payment in full legal
contemplation. The reasoning is logical but is it valid and
proper? Logic has its limits in decision making. We
should not follow rulings to their logical extremes if in
doing so we arrive at unjust or absurd results.
In the first place, PAL did not pay in cash. It paid in
cheeks.
And second, payment in cash always carries with it
certain cautions. Nobody hands over big amounts of
cash in a careless and inane manner. Mature thought is
given to the possibility of the cash being lost, of the
bearer being waylaid or running off with what he is
carrying for another. Payment in checks is precisely
intended to avoid the possibility of the money going to
the wrong party. The situation is entirely different where
a Sheriff seizes a car, a tractor, or a piece of land. Logic
often has to give way to experience and to reality.
Having paid with checks, PAL should have done so
properly.
Payment in money or cash to the implementing officer
may be deemed absolute payment of the judgment debt
but the Court has never, in the least bit, suggested that
12
judgment debtors should settle their obligations by
turning over huge amounts of cash or legal tender to
sheriffs and other executing officers. Payment in cash
would result in damage or interminable litigations each
time a sheriff with huge amounts of cash in his hands
decides to abscond.
As a protective measure, therefore, the courts
encourage the practice of payments by cheek provided
adequate controls are instituted to prevent wrongful
payment and illegal withdrawal or disbursement of funds.
If particularly big amounts are involved, escrow
arrangements with a bank and carefully supervised by
the court would be the safer procedure. Actual transfer of
funds takes place within the safety of bank premises.
These practices are perfectly legal. The object is always
the safe and incorrupt execution of the judgment.
It is, indeed, out of the ordinary that checks intended for
a particular payee are made out in the name of another.
Making the checks payable to the judgment creditor
would have prevented the encashment or the taking of
undue advantage by the sheriff, or any person into
whose hands the checks may have fallen, whether
wrongfully or in behalf of the creditor. The issuance of
the checks in the name of the sheriff clearly made
possible the misappropriation of the funds that were
withdrawn.
As explained and held by the respondent court:
... [K]nowing as it does that the intended payment was
for the private party respondent Amelia Tan, the
petitioner corporation, utilizing the services of its
personnel who are or should be knowledgeable about
the accepted procedures and resulting consequences of
the checks drawn, nevertheless, in this instance, without
prudence, departed from what is generally observed and
done, and placed as payee in the checks the name of
the errant Sheriff and not the name of the rightful payee.
Petitioner thereby created a situation which permitted the
said Sheriff to personally encash said checks and
misappropriate the proceeds thereof to his exclusive
personal benefit. For the prejudice that resulted, the
petitioner himself must bear the fault. The judicial
guideline which we take note of states as follows:
As between two innocent persons, one of whom must
suffer the consequence of a breach of trust, the one who
made it possible by his act of confidence must bear the
loss. (Blondeau, et al. v. Nano, et al., L-41377, July 26,
1935, 61 Phil. 625)
Having failed to employ the proper safeguards to protect
itself, the judgment debtor whose act made possible the
loss had but itself to blame.
The attention of this Court has been called to the bad
practice of a number of executing officers, of requiring
checks in satisfaction of judgment debts to be made out
in their own names. If a sheriff directs a judgment debtor
to issue the checks in the sheriff's name, claiming he
must get his commission or fees, the debtor must report
the sheriff immediately to the court which ordered the
execution or to the Supreme Court for appropriate
disciplinary action. Fees, commissions, and salaries are

paid through regular channels. This improper procedure
also allows such officers, who have sixty (60) days within
which to make a return, to treat the moneys as their
personal finds and to deposit the same in their private
accounts to earn sixty (60) days interest, before said
finds are turned over to the court or judgment creditor
(See Balgos v. Velasco, 108 SCRA 525 [1981]). Quite as
easily, such officers could put up the defense that said
checks had been issued to them in their private or
personal capacity. Without a receipt evidencing payment
of the judgment debt, the misappropriation of finds by
such officers becomes clean and complete. The practice
is ingenious but evil as it unjustly enriches court
personnel at the expense of litigants and the proper
administration of justice. The temptation could be far
greater, as proved to be in this case of the absconding
sheriff. The correct and prudent thing for the petitioner
was to have issued the checks in the intended payee's
name.
The pernicious effects of issuing checks in the name of a
person other than the intended payee, without the latter's
agreement or consent, are as many as the ways that an
artful mind could concoct to get around the safeguards
provided by the law on negotiable instruments. An angry
litigant who loses a case, as a rule, would not want the
winning party to get what he won in the judgment. He
would think of ways to delay the winning party's getting
what has been adjudged in his favor. We cannot
condone that practice especially in cases where the
courts and their officers are involved. We rule against the
petitioner.
Anent the applicability of Section 15, Rule 39, as follows:
Section 15. Execution of money judgments. The
officer must enforce an execution of a money judgment
by levying on all the property, real and personal of every
name and nature whatsoever, and which may be
disposed of for value, of the judgment debtor not exempt
from execution, or on a sufficient amount of such
property, if they be sufficient, and selling the same, and
paying to the judgment creditor, or his attorney, so much
of the proceeds as will satisfy the judgment. ...
the respondent court held:
We are obliged to rule that the judgment debt cannot be
considered satisfied and therefore the orders of the
respondent judge granting the alias writ of execution
may not be pronounced as a nullity.
xxx xxx xxx
It is clear and manifest that after levy or garnishment, for
a judgment to be executed there is the requisite of
payment by the officer to the judgment creditor, or his
attorney, so much of the proceeds as will satisfy the
judgment and none such payment had been concededly
made yet by the absconding Sheriff to the private
respondent Amelia Tan. The ultimate and essential step
to complete the execution of the judgment not having
been performed by the City Sheriff, the judgment debt
legally and factually remains unsatisfied.
13
Strictly speaking execution cannot be equated with
satisfaction of a judgment. Under unusual circumstances
as those obtaining in this petition, the distinction comes
out clearly.
Execution is the process which carries into effect a
decree or judgment (Painter v. Berglund, 31 Cal. App.
2d. 63, 87 P 2d 360, 363; Miller v. London, 294 Mass
300, 1 NE 2d 198, 200; Black's Law Dictionary), whereas
the satisfaction of a judgment is the payment of the
amount of the writ, or a lawful tender thereof, or the
conversion by sale of the debtor's property into an
amount equal to that due, and, it may be done otherwise
than upon an execution (Section 47, Rule 39). Levy and
delivery by an execution officer are not prerequisites to
the satisfaction of a judgment when the same has
already been realized in fact (Section 47, Rule 39).
Execution is for the sheriff to accomplish while
satisfaction of the judgment is for the creditor to achieve.
Section 15, Rule 39 merely provides the sheriff with his
duties as executing officer including delivery of the
proceeds of his levy on the debtor's property to satisfy
the judgment debt. It is but to stress that the
implementing officer's duty should not stop at his receipt
of payments but must continue until payment is delivered
to the obligor or creditor.
Finally, we find no error in the respondent court's
pronouncement on the inclusion of interests to be
recovered under the alias writ of execution. This logically
follows from our ruling that PAL is liable for both the lost
checks and interest. The respondent court's decision in
CA-G.R. No. 51079-R does not totally supersede the trial
court's judgment in Civil Case No. 71307. It merely
modified the same as to the principal amount awarded
as actual damages.
WHEREFORE, IN VIEW OF THE FOREGOING, the
petition is hereby DISMISSED. The judgment of the
respondent Court of Appeals is AFFIRMED and the trial
court's issuance of the alias writ of execution against the
petitioner is upheld without prejudice to any action it
should take against the errant sheriff Emilio Z. Reyes.
The Court Administrator is ordered to follow up the
actions taken against Emilio Z. Reyes.
SO ORDERED.

FIRST DIVISION
[G.R. No. 78556. April 25, 1991.]
ALFARO FORTUNADO, EDITH FORTUNADO,
NESTOR FORTUNADO and RAMON A. GONZALES,
Petitioners, v. COURT OF APPEALS, BASILISA
14
CAMPANO, as City Sheriff of Iligan City, REGISTER
OF DEEDS, Iligan City, ANGEL L. BAUTISTA and
NATIONAL STEEL CORPORATION, Respondents.
Ramon A. Gonzales and Manuel B. Imbong, for
Petitioners.
Emilio G. Abrogena and R.C. Domingo Jr. &
Associates for Angel L. Bautista.
Sycip, Salazar, Hernandez & Gatmaitan for National
Steel Corp.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; EXECUTION
OF JUDGMENTS; VALIDITY OF TENDER OF
PAYMENT THROUGH CROSSED CHECK FOR
EXERCISE OF RIGHT OF REDEMPTION. The
central issue in this case is whether or not redemption
has been validly effected by the private respondents.
Petitioners contended that the check issued by NSC, not
being legal tender, could not be considered payment of
the redemption price. Private respondents however
contended that Article 1249 of the New Civil code is
inapplicable as it "deals with a mode of extinction of
debts" while the "right to redeem is not an obligation, nor
is it intended to discharge a pre-existing debt." Tolentino
v. Court of Appeals, besides citing Javellana, stresses
the liberality of the courts in redemption cases. On the
issue of the applicability of Article 1249 of the Civil Code
and the validity of the tender of payment through check,
this Court held: Redemption is not rendered invalid by
the fact that the said officer accepted a check for the
amount necessary to make the redemption instead of
requiring payment in money. It goes without saying that if
he had seen fit to do so, the officer could have required
payment to be made in lawful money, and he
undoubtedly, in accepting a check, placed himself in a
position where he could be liable to the purchaser at the
public auction if any damage had been suffered by the
latter as a result of the medium in which payment was
made. But this cannot affect the validity of the payment.
2. ID.; ID.; ID.; REDEMPTION WITH RESERVATION OF
RIGHT AND REMEDIES, NOT WRONG. We find
nothing wrong with Bautistas letter of March 21, 1985,
where he made his redemption of the lot covered by TCT
No. T-7625 subject to the reservation that "the same
shall not be taken to mean my acknowledgment of the
validity of the aforesaid writ of execution and sale . . . nor
. . . as waiver on my part of any of the legal rights and
remedies available to me under the circumstances." Had
he not done so, estoppel might have operated against
him. As we held in Cometa v. IAC, "redemption is an
implied admission of the regularity of the sale and would
estop the petitioner from later impugning its validity on
that ground" In questioning the writ of execution and sale
and at the same time redeeming his property, Bautista
was exercising alternative reliefs.
3. ID.; ID.; ID.; TENDER OF CHECK SUFFICIENT TO
COMPEL REDEMPTION BUT IS NOT IN ITSELF A
PAYMENT. We are not, by this decision, sanctioning
the use of a check for the payment of obligations over
the objection of the creditor. What we are saying is that a
check may be used for the exercise of the right of
redemption, the same being a right and not an
obligation. The tender of a check is sufficient to compel
redemption but is not in itself a payment that relieves the

redemptioner from his liability to pay the redemption
price. In other words, while we hold that the private
respondents properly exercised their right of redemption,
they remain liable, of course, for the payment of the
redemption price.
DECISION
CRUZ, J.:
The petitioners assail the decision of the Court of
Appeals 1 denying mandamus to compel the sheriff to
execute a final deed of sale in their favor.
On April 21, 1981, the Regional Trial Court of Quezon
City 2 rendered judgment in Civil Case No. Q-22367,
entitled "Alfaro Fortunado v. Angel Bautista," ordering the
defendant to pay damages to the plaintiff. Pursuant to
the said judgment, respondent Basilisa Campano, City
Sheriff of Iligan City, levied upon two parcels of land
registered in the name of Bautista located at Iligan City
and covered by TCT Nos. T-7625 and T-14133. The
latter lot had already been purchased by respondent
National Steel Corporation as of August 17, 1983, but
had not yet been registered in its name.
After due notice, these lots were sold at public auction to
the petitioners as the only bidder on April 23, 1984. They
were issued a certificate of sale which was registered on
April 25, 1984.
On January 10, 1985, NSC gave notice to the sheriff of
its intention to redeem the lot covered by TCT No. T-
14133. The sheriff suggested that as the two lots had
been sold together for the lump sum of P267,013.00,
both of them should be redeemed by NSC.
On February 11, 1985, NSC filed with the trial court an
urgent motion to redeem both lots. This was opposed by
the petitioners on the ground that the movant did not
have the personality to intervene.
As the motion remained unresolved and the period of
redemption would expire on April 18, 1985, NSC issued
to the sheriff on March 20, 1985, PNB Check No.
313551 in the amount of P296,384.43 as the redemption
price for the lot covered by TCT No. T-14133. The sheriff
acknowledged receipt of the check on the same date.
On March 21, 1985, Bautista sent the sheriff a letter
bearing NSCs conformity in which he availed himself of
NSCs check, which was sufficient to cover the full
redemption price for both lots, to redeem the other lot
covered by TCT No. T-7625. His letter contained the
following reservation:chanrob1es virtual 1aw library
This redemption is made solely for the purpose of
effecting the execution and delivery to me of the
necessary certificate of redemption and the same shall
not be taken to mean my acknowledgment of the validity
of the aforesaid writ of execution and sale, both of which
I shall continue to contest, nor shall this be taken to
mean as a waiver on my part of any of the legal rights
and remedies available to me under the
circumstances.chanrobles lawlibrary : rednad
The sheriff acknowledged receipt of the check as
redemption money for the two parcels of land on March
21, 1985, and on March 22, 1985, issued a certificate of
15
redemption in favor of NSC and Bautista.
On March 25, 1985, Bautista wrote the sheriff that he
would no longer effect the redemption because there
was nothing to redeem, the auction sale being null and
void.
In an Urgent Motion dated March 27, 1985, Bautista
prayed that the sum of P296,384.43 covered by the PNB
check be delivered to and kept by the Clerk of Court of
the Regional Trial Court of Quezon City until such time
as all incidents relative to the validity of the auction sale
conducted by the sheriff were finally resolved.
On March 29, 1985, the sheriff wired the petitioners
counsel, notifying him of the deposit of the PNB check.
The said counsel told the sheriff that he was rejecting the
check because it was not legal tender and was not
intended for payment but merely for deposit, as
evidenced by Bautistas Urgent Motion of March 27,
1985.
On April 25, 1985, the petitioner requested the sheriff to
issue a final deed of sale over the two lots and deliver
the same to them on the ground that no valid redemption
had been effected within the 12-month period from the
registration of the sale. When the request was not
granted, the petitioners filed with the respondent court a
petition for mandamus.
According to the petitioners, NSC and Bautista failed to
comply with the provisions of the Rules of Court in
exercising their right of redemption. They invoked Article
1249 of the Civil Code, which provides that "the payment
of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such
currency, then in the currency which is legal tender in the
Philippines." They argued that this provision was
applicable to redemption under Rule 39, Section 30, of
the Rules of Court.
They also contended that the check issued by NSC, not
being legal tender, could not be considered payment of
the redemption price. Moreover, the tender of the
redemption price was not valid as the same was
conditional under Bautistas letter to the sheriff dated
March 21, 1985. And even granting the validity of the
said tender, it was nevertheless withdrawn when on
March 27, 1985, Bautista filed his Urgent Motion to
deposit the redemption money with the clerk of
court.chanrobles virtual lawlibrary
The petitioners added that since there was no delivery to
the creditor of the redemption price, there was no
payment within the meaning of Article 1233 of the Civil
Code. This provides that "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."cralaw virtua1aw library
On November 10, 1986, the respondent court denied
mandamus but granted injunction to restrain the
registration of the certificate of redemption in favor of
NSC and Bautista.
The respondent court rejected the petitioners contention
that Article 1249 was applicable in cases of redemption
and reiterated the settled jurisprudence that "the right of
redemption is not an obligation nor is it intended to
discharge a pre-existing debt, 3 the right of redemption
being in fact a privilege."cralaw virtua1aw library

Citing Javellana v. Mirasol, 4 the respondent court said
that "the redemption was not rendered invalid by the fact
that the officer accepted a check for the amount
necessary to make the redemption instead of requiring
payment in money." On the failure to deliver the
redemption price to the petitioners directly, it said that
the payment of the redemption money to the sheriff was
legally sanctioned under Rule 39, Section 31, of the
Rules of Court which provides that such payment "may
be made to the purchaser . . . or . . . to the officer who
made the sale."cralaw virtua1aw library
The respondent court considered NSC "s redemption as
absolute and unconditional in view of its refusal to join
Bautista in contesting the validity of the sale and in
withdrawing the redemption. But Bautistas reservation in
his letter of March 21, 1980, and his repudiation of the
redemption made by NSC, made his own redemption in
officious.
The respondent court observed, however, that the
validity of redemption was dependent on the validity of
the certificate of sale, which had to be resolved by the
trial court.
On November 22, 1986, the petitioners moved for partial
reconsideration. While their motion was pending, NSC
filed a Manifestation dated March 18, 1987, informing the
respondent court that the certificate of redemption had
already been registered and TCT No. T-27154 had been
issued in its favor on September 12, 1985.
On May 8, 1987, the respondent court denied the
petitioners motion for reconsideration. Hence, this
appeal by certiorari on the grounds that the Court of
Appeals erred in holding inter alia that Article 1249 of the
New Civil Code does not apply to the payment of the
redemption price of property sold at public auction and
that the redemption of NSC is unconditional and without
reservation.
The central issue in this case is whether or not
redemption had been validly effected by the private
respondents.chanrobles law library : red
It is contended by the private respondents that Article
1249 of the New Civil Code is inapplicable as it "deals
with a mode of extinction of debts" 5 while the "right to
redeem is not an obligation, nor is it intended to
discharge a pre-existing debt." 6
They rely on Javellana, where we held that "a
redemption of property sold under execution is not
rendered invalid by reason of the fact that the payment
to the sheriff for the purpose of redemption is effected by
means of a check for the amount due."cralaw virtua1aw
library
The petitioners, on the other hand, invoke Belisario v.
Natividad, 7 where it was held that "even if the check
had been good, the defendant was not legally bound to
accept it because such a check does not satisfy the
requirements of a legal tender." They also cite Villanueva
v. Santos, 8 Legarda v. Miailhe, 9 New Pacific Timber
and Supply Co., Inc. v. Seneris, 10 and Philippine Air
Lines v. Court of Appeals, 11 all of which, they claim,
have overruled Javellana.
The Court does not agree with these conclusions. It
would appear from a study of the jurisprudence invoked
by the parties that the case applicable to the present
controversy is Javellana v. Mirasol.
16
The cases cited by the petitioners do not involve
redemption by check. The check tendered in Belisario,
was in the exercise of an option to repurchase; in
Villanueva in connection with a pacto de retire; in
Legarda and New Pacific as payment of a mortgage
indebtedness; and in the PAL case in satisfaction of a
judgment.
Toleration v. Court of Appeals, 12 besides citing
Javellana, stresses the liberality of the courts in
redemption cases. On the issue of the applicability of
Article 1249 of the Civil Code and the validity of the
tender of payment through a crossed check, this Court
held:chanrob1es virtual 1aw library
. . . the aforequoted Article should not be applied in the
instant case . . .
To start with, the Tolentinos are not indebted to BPI their
mortgage indebtedness having been extinguished with
the foreclosure and sale of the mortgaged properties.
After said foreclosure and sale, what remains is the right
vested by law in favor of the Tolentinos to redeem the
properties within the prescribed period. This right of
redemption is an absolute privilege, the exercise of
which is entirely dependent upon the will and discretion
of the redemptioners. There is, thus, no legal obligation
to exercise the right of redemption. Said right, can in no
sense, be considered an obligation, for the Tolentinos
are under no compulsion to exercise the same. Should
they choose not to exercise it, nobody can compel them
to do so nor will such choice give rise to a cause of
action in favor of the purchaser at the auction sale. In
fact, the relationship between said purchaser and the
redemptioners is not even that of creditor and
debtor.chanrobles.com : virtual law library
On the other hand, if the redemptioners choose to
exercise their right of redemption, it is the policy of the
law to aid rather than to defeat the right of redemption. It
stands to reason therefore, that redemptions should be
looked upon with favor and where no injury is to follow, a
liberal construction will be given to our redemption laws
as well as to the exercise of the right of redemption. In
the instant case, the ends of justice would be better
served by affording the Tolentinos the opportunity to
redeem the properties in question other than the
homestead land, in line with the policy aforesaid. . . .
x x x
. . . And the redemption is not rendered invalid by the
fact that the said officer accepted a check for the amount
necessary to make the redemption instead of requiring
payment in money. It goes without saying that if he had
seen fit to do so, the officer could have required payment
to be made in lawful money, and he undoubtedly, in
accepting a check, placed himself in a position where he
could be liable to the purchaser at the public auction if
any damage had been suffered by the latter as a result
of the medium in which payment was made. But this
cannot affect the validity of the payment. The check as a
medium of payment in commercial transactions is too
firmly established by usage to permit of any doubt upon
this point at the present day. No importance may thus be
attached to the circumstance that a stop-payment order
was issued against check the day following the deposit,
for the same will not militate against the right of the
Tolentinos to redeem, in the same manner that a
withdrawal of the redemption money being, deposited

cannot be deemed to have forfeited the right to redeem,
such redemption being optional and not compulsory.
Withal, it is not clearly shown that said stop-payment
order was made in bad faith. . . .
Although the private respondents in the case at bar did
not file a redemption case against petitioners, it should
not be noted that private respondents NSC filed an
Urgent Motion for Redemption dated February 11, 1985,
and Bautista filed an Urgent Motion (To Deposit
Redemption Money with Quezon City Clerk of Court)
dated March 27, 1985. The motions were well within the
redemption period.
In the United States, it has also been held and
recognized that a payment by check or draft or bank bills
or currency which is not legal tender is effective if the
officer accepts such payment. 13 If in good faith the
redemptioner pays, and the officer receives before the
expiration of the time of redemption, an ordinary
bankers check, the payment is regarded as sufficient. 14
We find nothing wrong with Bautistas letter of March 21,
1985, where he made his redemption of the lot covered
by TCT No. T-7625 subject to the reservation that "the
same shall not be taken to mean my acknowledgment of
the validity of the aforesaid writ of execution and sale . . .
nor . . . as waiver on my part of any of the legal rights
and remedies available to me under the circumstances."
Had he not done so, estoppel might have operated
against him. As we held in Cometa v. IAC, 15
"redemption is an implied admission of the regularity of
the sale and would stop the petitioner from later
impugning its validity on that ground." In questioning the
writ of execution and sale and at the same time
redeeming his property, Bautista was exercising
alternative reliefs.
In Javellana, it was contended that the position of Luis
Mirasol as a litigant in the prior appeal was inconsistent
with his position as litigant in the redemption case and
that he was estopped from now claiming as
redemptioner the property which he had earlier claimed
as owner. The Court held:chanrob1es virtual 1aw library
We are unable to see any force in the suggestions; as
the positions occupied by this litigant are based upon
alternative rather than upon opposed pretension. No one
can question the right of a litigant to claim property as
owner and to seek in the same proceeding alternative
relief founded upon some secondary right. The right of
redemption, for instance, is always considered
compatible with ownership, and one who fails to obtain
relief in the sense of absolute owner may successfully
assert the other right. That which a litigant may do in any
one case can of course be done in two different
proceedings.
We reiterated that same view in Ybaez v. CA, 16
thus:chanrob1es virtual 1aw library
Nor are the causes of action in the two (2) cases
inconsistent with one another. As aptly pointed out by the
respondent Appellate Court, there are issues in the
Reconveyance Case that are set apart from the question
of the validity of the auction sale, which is the subject of
inquiry in the Annulment Suit. The latter case alleged
irregularities in the conduct of the public auction sale. . . .
On the other hand, the issues raised in the
Reconveyance Case call for a separate determination of
17
such questions as whether respondent Go had, in fact
delivered the redemption money to one of the
petitioners; whether or not such delivery, if there had
been one, had been made on time, and whether or not
another money judgment against respondent Go had
already been satisfied. In effect, the Reconveyance
Case presented an alternative cause of
action.chanrobles.com.ph : virtual law library
Although Bautista repudiated his redemption in his letter
of March 25, 1985, to the sheriff on the ground that the
auction sale was illegal, he backtracked in his Urgent
Motion dated March 27, 1985, wherein he prayed that
". . . Sheriff Basilisa Campano of Iligan City be directed
and ordered to immediately transfer and deliver, upon his
encashment of PNB Check No. A-313551, the aforesaid
sum of P296,384.43 deposited to her by the National
Steel Corporation, through the authority of defendant, to
the Clerk of Court, Regional Trial Court of Quezon City,
to remain thereat until the validity of the questioned
orders and or decision in the above entitled case are
resolved with finality or until further orders from the
Honorable Court.
It is further prayed that the aforesaid amount be
considered as sufficient redemption price if it shall finally
be adjudged that plaintiffs are entitled thereto; otherwise,
the said amount shall be returned and delivered back to
herein defendant.
x x x
Finally, the petitioners pray that we rule on the validity of
the certificate of sale assailed by Bautista on the ground
that it covers more than one lot and does not indicate the
price paid for each parcel. They contend that Bautista
has not shown that the parcel of land would have been
sold for a better price had they been offered separately
and that he had not asked that they be sold by parcels.
They also maintain that since we have the main
jurisdiction to determine the validity of the redemption,
we likewise have ancillary jurisdiction to rule on the
validity of the sale.
The facts surrounding the sale are not before us. In
response to a query from this Court regarding the status
of CC No. Q22367, the clerk of the trial court replied that
the records of that court were totally burned during the
fire which razed the Quezon City Hall on June 11, 1988.
Apart from the circumstance that we are not a trier of
facts, the facts we are asked to try are not at hand.
We are not, by this decision, sanctioning the use of a
check for the payment of obligations over the objection
of the creditor. What we are saying is that a check may
be used for the exercise of the right of redemption, the
same being a right and not an obligation. The tender of a
check is sufficient to compel redemption but is not in
itself a payment that relieves the redemptioner from his
liability to pay the redemption price. In other words, while
we hold that the private respondents properly exercised
their right or redemption, they remain liable of course, for
the payment of the redemption price.
WHEREFORE, the appealed decision is AFFIRMED,
with the modification that the redemption made by Angel
L. Bautista was also unconditional like that of the
National Steel Corporation. Accordingly, the petition is
DENIED, with costs against the petitioners.
 18

G.R. No. 105188 January 23, 1998

SO ORDERED
MYRON C. PAPA, Administrator of the Testate Estate
of Angela M. Butte, petitioner,
vs.
A.U. VALENCIA and CO. INC., FELIX PEARROYO,
SPS. ARSENIO B. REYES & AMANDA SANTOS, and
DELFIN JAO, respondents.

KAPUNAN, J.:

In this petition for review on certiorari under Rule 45 of

the Rules of Court, petitioner Myron C. Papa seeks to
reverse and set aside 1) the Decision dated 27 January
1992 of the Court of Appeals which affirmed with
modification the decision of the trial court; and 2) the
Resolution dated 22 April 1992 of the same court, which
denied petitioner's motion for reconsideration of the
above decision.

The antecedent facts of this case are as follows:

Sometime in June 1982, herein private respondents A.U.

Valencia and Co., Inc. (hereinafter referred to as
respondent Valencia, for brevity) and Felix Pearroyo
(hereinafter called respondent Pearroyo), filed with the
Regional Trial Court of Pasig, Branch 151, a complaint
for specific performance against herein petitioner Myron
C. Papa, in his capacity as administrator of the Testate
Estate of one Angela M. Butte.

The complaint alleged that on 15 June 1973, petitioner

Myron C. Papa, acting as attorney-in-fact of Angela M.
Butte, sold to respondent Pearroyo, through respondent
Valencia, a parcel of land, consisting of 286.60 square
meters, located at corner Retiro and Cadiz Streets, La
Loma, Quezon City, and covered by Transfer Certificate
of Title No. 28993 of the Register of Deeds of Quezon
City; that prior to the alleged sale, the said property,
together with several other parcels of land likewise
owned by Angela M. Butte, had been mortgaged by her
to the Associated Banking Corporation (now Associated
Citizens Bank); that after the alleged sale, but before the
title to the subject property had been released, Angela
M. Butte passed away; that despite representations
made by herein respondents to the bank to release the
title to the property sold to respondent Pearroyo, the
bank refused to release it unless and until all the
mortgaged properties of the late Angela M. Butte were
also redeemed; that in order to protect his rights and
interests over the property, respondent Pearroyo
caused the annotation on the title of an adverse claim as
evidenced by Entry No. P.E.-6118/T-28993, inscribed on
18 January 1997.

The complaint further alleged that it was only upon the

release of the title to the property, sometime in April
Republic of the Philippines
1977, that respondents Valencia and Pearroyo
SUPREME COURT
discovered that the mortgage rights of the bank had
Manila
been assigned to one Tomas L. Parpana (now
deceased), as special administrator of the Estate of
FIRST DIVISION
Ramon Papa, Jr., on 12 April 1977; that since then,
herein petitioner had been collecting monthly rentals in
the amount of P800.00 from the tenants of the property,

knowing that said property had already been sold to
private respondents on 15 June 1973; that despite
repeated demands from said respondents, petitioner
refused and failed to deliver the title to the property.
Thereupon, respondents Valencia and Pearroyo filed a
complaint for specific performance, praying that
petitioner be ordered to deliver to respondent Pearroyo
the title to the subject property (TCT 28993); to turn over
to the latter the sum of P72,000.00 as accrued rentals as
of April 1982, and the monthly rental of P800.00 until the
property is delivered to respondent Pearroyo; to pay
respondents the sum of P20,000.00 as attorney's fees;
and to pay the costs of the suit.
In his Answer, petitioner admitted that the lot had been
mortgaged to the Associated Banking Corporation (now
Associated Citizens Bank). He contended, however, that
the complaint did not state a cause of action; that the
real property in interest was the Testate Estate of Angela
M. Butte, which should have been joined as a party
defendant; that the case amounted to a claim against the
Estate of Angela M. Butte and should have been filed in
Special Proceedings No. A-17910 before the Probate
Court in Quezon City; and that, if as alleged in the
complaint, the property had been assigned to Tomas L.
Parpana, as special administrator of the Estate of
Ramon Papa, Jr., said estate should be impleaded.
Petitioner, likewise, claimed that he could not recall in
detail the transaction which allegedly occurred in 1973;
that he did not have TCT No. 28993 in his possession;
that he could not be held personally liable as he signed
the deed merely as attorney-in-fact of said Angela M.
Butte. Finally, petitioner asseverated that as a result of
the filing of the case, he was compelled to hire the
services of counsel for a fee of P20,000.00 for which
respondents should be held liable.
Upon his motion, herein private respondent Delfin Jao
was allowed to intervene in the case. Making common
cause with respondents Valencia and Pearroyo,
respondent Jao alleged that the subject lot which had
been sold to respondent Pearroyo through respondent
Valencia was in turn sold to him on 20 August 1973 for
the sum of P71,500.00, upon his paying earnest money
in the amount of P5,000.00. He, therefore, prayed that
judgment be rendered in favor of respondents, the latter
in turn be ordered to execute in his favor the appropriate
deed of conveyance covering the property in question
and to turn over to him the rentals which aforesaid
respondents sought to collect from petitioner Myron V.
Papa.
Respondent Jao, likewise, averred that as a result of
petitioner's refusal to deliver the title to the property to
respondents Valencia and Pearroyo, who in turn failed
to deliver the said title to him, he suffered mental
anguish and serious anxiety for which he sought
payment of moral damages; and, additionally, the
payment of attorney's fees and costs.
For his part, petitioner, as administrator of the Testate
Estate of Angela M. Butte, filed a third-party complaint
against herein private respondents, spouses Arsenio B.
Reyes and Amanda Santos (respondent Reyes spouses,
for short). He averred, among other's that the late Angela
M. Butte was the owner of the subject property; that due
to non-payment of real estate tax said property was sold
19
at public auction the City Treasurer of Quezon City to the
respondent Reyes spouses on 21 January 1980 for the
sum of P14,000.00; that the one-year period of
redemption had expired; that respondents Valencia and
Pearroyo had sued petitioner Papa as administrator of
the estate of Angela M. Butte, for the delivery of the title
to the property; that the same aforenamed respondents
had acknowledged that the price paid by them was
insufficient, and that they were willing to add a
reasonable amount or a minimum of P55,000.00 to the
price upon delivery of the property, considering that the
same was estimated to be worth P143,000.00; that
petitioner was willing to reimburse respondents Reyes
spouses whatever amount they might have paid for
taxes and other charges, since the subject property was
still registered in the name of the late Angela M. Butte;
that it was inequitable to allow respondent Reyes
spouses to acquire property estimated to be worth
P143,000.00, for a measly sum of P14,000.00. Petitioner
prayed that judgment be rendered canceling the tax sale
to respondent Reyes spouses; restoring the subject
property to him upon payment by him to said respondent
Reyes spouses of the amount of P14,000.00, plus legal
interest; and, ordering respondents Valencia and
Pearroyo to pay him at least P55,000.00 plus
everything they might have to pay the Reyes spouses in
recovering the property.
Respondent Reyes spouses in their Answer raised the
defense of prescription of petitioner's right to redeem the
property.
At the trial, only respondent Pearroyo testified. All the
other parties only submitted documentary proof.
On 29 June 1987, the trial court rendered a decision, the
dispositive portion of which reads:
WHEREUPON, judgment is hereby rendered as follows:
1) Allowing defendant to redeem from third-party defendants and
ordering the latter to allow the former to redeem the property in
question, by paying the sum of P14,000.00 plus legal interest of 12%
thereon from January 21, 1980;
2) Ordering defendant to execute a Deed of Absolute Sale in favor of
plaintiff Felix Pearroyo covering the property in question and to
deliver peaceful possession and enjoyment of the said property to the
said plaintiff, free from any liens and encumbrances;
Should this not be possible, for any reason not attributable to
defendant, said defendant is ordered to pay to plaintiff Felix Pearroyo
the sum of P45,000.00 plus legal interest of 12% from June 15, 1973;
3) Ordering plaintiff Felix Pearroyo to execute and deliver to
intervenor a deed of absolute sale over the same property, upon the
latter's payment to the former of the balance of the purchase price of
P71,500.00;
Should this not be possible, plaintiff Felix Pearroyo is ordered to pay
intervenor the sum of P5,000.00 plus legal interest of 12% from August
23, 1973; and
4) Ordering defendant to pay plaintiffs the amount of P5,000.00 for and
as attorney's fees and litigation expenses.
SO ORDERED. 1
Petitioner appealed the aforesaid decision of the trial
court to the Court of Appeals, alleging among others that

the sale was never "consummated" as he did not encash
the check (in the amount of P40,000.00) given by
respondents Valencia and Pearroyo in payment of the
full purchase price of the subject lot. He maintained that
what said respondent had actually paid was only the
amount of P5,000.00 (in cash) as earnest money.
Respondent Reyes spouses, likewise, appealed the
above decision. However, their appeal was dismissed
because of failure to file their appellant's brief.
On 27 January 1992, the Court of Appeals rendered a
decision, affirming with modification the trial court's
decision, thus:
WHEREFORE, the second paragraph of the dispositive portion of the
appealed decision is MODIFIED, by ordering the defendant-appellant
to deliver to plaintiff-appellees the owner's duplicate of TCT No. 28993
of Angela M. Butte and the peaceful possession and enjoyment of the
lot in question or, if the owner's duplicate certificate cannot be
produced, to authorize the Register of Deeds to cancel it and issue a
certificate of title in the name of Felix Pearroyo. In all other respects,
the decision appealed from is AFFIRMED. Costs against defendant-
appellant Myron C. Papa.
SO ORDERED. 2
In affirming the trial court's decision, respondent court
held that contrary to petitioner's claim that he did not
encash the aforesaid check, and therefore, the sale was
not consummated, there was no evidence at all that
petitioner did not, in fact, encash said check. On the
other hand, respondent Pearroyo testified in court that
petitioner Papa had received the amount of P45,000.00
and issued receipts therefor. According to respondent
court, the presumption is that the check was encashed,
especially since the payment by check was not denied
by defendant-appellant (herein petitioner) who, in his
Answer, merely alleged that he "can no longer recall the
transaction which is supposed to have happened 10
years ago." 3
On petitioner's claim that he cannot be held personally
liable as he had acted merely as attorney-in-fact of the
owner, Angela M. Butte, respondent court held that such
contention is without merit. This action was not brought
against him in his personal capacity, but in his capacity
as the administrator of the Testate Estate of Angela M.
Butte. 4
On petitioner's contention that the estate of Angela M.
Butte should have been joined in the action as the real
party in interest, respondent court held that pursuant to
Rule 3, Section 3 of the Rules of Court, the estate of
Angela M. Butte does not have to be joined in the action.
Likewise, the estate of Ramon Papa, Jr., is not an
indispensable party under Rule 3, Section 7 of the same
Rules. For the fact is that Ramon Papa, Jr., or his estate,
was not a party to the Deed of Absolute Sale, and it is
basic law that contracts bind only those who are parties
thereto. 5
Respondent court observed that the conditions under
which the mortgage rights of the bank were assigned are
not clear. In any case, any obligation which the estate of
Angela M. Butte might have to the estate of Ramon
Papa, Jr. is strictly between them. Respondents Valencia
and Pearroyo are not bound by any such obligation.
20
Petitioner filed a motion for reconsideration of the above
decision, which motion was denied by respondent Court
of Appeals.
Hence, this petition wherein petitioner raises the
following issues:
I. THE CONCLUSION OR FINDING OF THE COURT OF APPEALS
THAT THE SALE IN QUESTION WAS CONSUMMATED IS
GROUNDED ON SPECULATION OR CONJECTURE, AND IS
CONTRARY TO THE APPLICABLE LEGAL PRINCIPLE.
II. THE COURT OF APPEALS, IN MODIFYING THE DECISION OF
THE TRIAL COURT, ERRED BECAUSE IT, IN EFFECT, CANCELLED
OR NULLIFIED AN ASSIGNMENT OF THE SUBJECT PROPERTY IN
FAVOR OF THE ESTATE OF RAMON PAPA, JR. WHICH IS NOT A
PARTY IN THIS CASE.
III. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
ESTATE OF ANGELA M. BUTTE AND THE ESTATE OF RAMON
PAPA, JR. ARE INDISPENSABLE PARTIES IN THIS
CASE. 6
Petitioner argues that respondent Court of Appeals erred
in concluding that alleged sale of the subject property
had been consummated. He contends that such a
conclusion is based on the erroneous presumption that
the check (in the amount of P40,000.00) had been
cashed, citing Art. 1249 of the Civil Code, which
provides, in part, that payment by checks shall produce
the effect of payment only when they have been cashed
or when through the fault of the creditor they have been
impaired. 7 Petitioner insists that he never cashed said
check; and, such being the case, its delivery never
produced the effect of payment. Petitioner, while
admitting that he had issued receipts for the payments,
asserts that said receipts, particularly the receipt of PCIB
Check No. 761025 in the amount of P40,000.00, do not
prove payment. He avers that there must be a showing
that said check had been encashed. If, according to
petitioner, the check had been encashed, respondent
Pearroyo should have presented PCIB Check No.
761025 duly stamped received by the payee, or at least
its microfilm copy.
Petitioner finally avers that, in fact, the consideration for
the sale was still in the hands of respondents Valencia
and Pearroyo, as evidenced by a letter addressed to
him in which said respondents wrote, in part:
. . . Please be informed that I had been
authorized by Dr. Ramon Papa, Jr., heir
of Mrs. Angela M. Butte to pay you the
aforementioned amount of P75,000.00
for the release and cancellation of
subject property's mortgage. The money
is with me and if it is alright with you, I
would like to tender the payment as
soon as possible. . . . 8
We find no merit in petitioner's arguments.
It is an undisputed fact that respondents Valencia and
Pearroyo had given petitioner Myron C. Papa the
amounts of Five Thousand Pesos (P5,000.00) in cash on
24 May 1973, and Forty Thousand Pesos (P40,000.00)
in check on 15 June 1973, in payment of the purchase
price of the subject lot. Petitioner himself admits having
received said amounts, 9 and having issued receipts

therefor. 10 Petitioner's assertion that he never encashed
the aforesaid check is not substantiated and is at odds
with his statement in his answer that "he can no longer
recall the transaction which is supposed to have
happened 10 years ago." After more than ten (10) years
from the payment in party by cash and in part by check,
the presumption is that the check had been encashed.
As already stated, he even waived the presentation of
oral evidence.
Granting that petitioner had never encashed the check,
his failure to do so for more than ten (10) years
undoubtedly resulted in the impairment of the check
through his unreasonable and unexplained delay.
While it is true that the delivery of a check produces the
effect of payment only when it is cashed, pursuant to Art.
1249 of the Civil Code, the rule is otherwise if the debtor
is prejudiced by the creditor's unreasonable delay in
presentment. The acceptance of a check implies an
undertaking of due diligence in presenting it for payment,
and if he from whom it is received sustains loss by want
of such diligence, it will be held to operate as actual
payment of the debt or obligation for which it was given.
11
It has, likewise, been held that if no presentment is
made at all, the drawer cannot be held liable irrespective
of loss or injury 12 unless presentment is otherwise
excused. This is in harmony with Article 1249 of the Civil
Code under which payment by way of check or other
negotiable instrument is conditioned on its being cashed,
except when through the fault of the creditor, the
instrument is impaired. The payee of a check would be a
creditor under this provision and if its no-payment is
caused by his negligence, payment will be deemed
effected and the obligation for which the check was
given as conditional payment will be discharged. 13
Considering that respondents Valencia and Pearroyo
had fulfilled their part of the contract of sale by delivering
the payment of the purchase price, said respondents,
therefore, had the right to compel petitioner to deliver to
them the owner's duplicate of TCT No. 28993 of Angela
M. Butte and the peaceful possession and enjoyment of
the lot in question.
With regard to the alleged assignment of mortgage
rights, respondent Court of Appeals has found that the
conditions under which said mortgage rights of the bank
were assigned are not clear. Indeed, a perusal of the
original records of the case would show that there is
nothing there that could shed light on the transactions
leading to the said assignment of rights; nor is there any
evidence on record of the conditions under which said
mortgage rights were assigned. What is certain is that
despite the said assignment of mortgage rights, the title
to the subject property has remained in the name of the
late Angela M. Butte. 14 This much is admitted by
petitioner himself in his answer to respondent's
complaint as well as in the third-party complaint that
petitioner filed against respondent-spouses Arsenio B.
Reyes and Amanda Santos. 15 Assuming arquendo that
the mortgage rights of the Associated Citizens Bank had
been assigned to the estate of Ramon Papa, Jr., and
granting that the assigned mortgage rights validly exists
and constitute a lien on the property, the estate may file
the appropriate action to enforce such lien. The cause of
action for specific performance which respondents
21
Valencia and Pearroyo have against petitioner is
different from the cause of action which the estate of
Ramon Papa, Jr. may have to enforce whatever rights or
liens it has on the property by reason of its being an
alleged assignee of the bank's rights of mortgage.
Finally, the estate of Angela M. Butte is not an
indispensable party. Under Section 3 of Rule 3 of the
Rules of Court, an executor or administrator may sue or
be sued without joining the party for whose benefit the
action is presented or defended, thus:
Sec. 3. Representative parties. A trustee of an
express trust, a guardian, executor or administrator, or a
party authorized by statute, may sue or be sued without
joining the party for whose benefit the action is
presented or defended; but the court may, at any stage
of the proceedings, order such beneficiary to be made a
party. An agent acting in his own name and for the
benefit of an undisclosed principal may sue or be sued
without joining the principal except when the contract
involves things belonging to the principal. 16
Neither is the estate of Ramon Papa, Jr. an
indispensable party without whom, no final determination
of the action can be had. Whatever prior and subsisting
mortgage rights the estate of Ramon Papa, Jr. has over
the property may still be enforced regardless of the
change in ownership thereof.
WHEREFORE, the petition for review is hereby DENIED
and the Decision of the Court of Appeals, dated 27
January 1992 is AFFIRMED.
SO ORDERED.
Republic of the Philippines
Supreme Court
Manila
FIRST DIVISION
UNION BANK OF THE PHILIPPINES, G.R. Nos
Petitioner,
- versus -
SPOUSES RODOLFO T. TIU AND VICTORIA
N. TIU, Promulga
Respondents.
Septemb
DECISION
LEONARDO-DE CASTRO, J.:
This is a Petition for Review on Certiorari
seeking to reverse the Joint Decision1[1] of the Court of
Appeals dated February 21, 2006 in CA-G.R. CV No.
00190 and CA-G.R. SP No. 00253, as well as the
Resolution2[2] dated June 1, 2006 denying the Motion for
Reconsideration.
1
2
 22

The factual and procedural antecedents of this HUNDRED SIXTY[-]FOUR THOUSAND

case are as follows: EIGHT HUNDRED PESOS (PHP
155,364,800.00) exclusive of interests,
On November 21, 1995, petitioner Union Bank of service and penalty charges (the
the Philippines (Union Bank) and respondent spouses Indebtedness) and further confirms the
Rodolfo T. Tiu and Victoria N. Tiu (the spouses Tiu) correctness, legality, collectability and
entered into a Credit Line Agreement (CLA) whereby enforceability of the Indebtedness. The
Union Bank agreed to make available to the spouses Tiu BORROWER unconditionally waives
credit facilities in such amounts as may be approved. 3[3] any action, demand or claim that they
From September 22, 1997 to March 26, 1998, the may otherwise have to dispute the
spouses Tiu took out various loans pursuant to this CLA amount of the Indebtedness as of the
in the total amount of three million six hundred thirty-two date specified in this Section, or the
thousand dollars (US$3,632,000.00), as evidenced by collectability and enforceability thereof. It
promissory notes: is the understanding of the parties that
the BORROWERs acknowledgment,
PN No. Amount in US$ Date Granted affirmation, and waiver herein are
87/98/111 72,000.00 02/16/98 material considerations for the BANKs
87/98/108 84,000.00 02/13/98 agreeing to restructure the Indebtedness
87/98/152 320,000.00 03/02/98 which would have already become due
87/98/075 150,000.00 01/30/98
and payable as of the above date under
87/98/211 32,000.00 03/26/98
87/98/071 110,000.00 01/29/98 the terms of the Agreement and the
87/98/107 135,000.00 02/13//98 Notes.9[9]
87/98/100 75,000.00 02/12/98
87/98/197 195,000.00 03/19/98
87/97/761 60,000.00 09/26/97 The restructured amount (P155,364,800.00) is
87/97/768 30,000.00 09/29/97
87/97/767 180,000.00 09/29/97the sum of the following figures: (1) P150,364,800.00,
87/97/970 110,000.00 12/29/97which is the value of the US$3,632,000.00 loan as
87/97/747 50,000.00 09/22/97redenominated under the above-mentioned exchange
87/96/944 605,000.00 12/19/97rate of US$1=P41.40; and (2) P5,000,000.00, an
87/98/191 470,000.00 03/16/98additional loan given to the spouses Tiu to update their
87/98/198 505,000.00 03/19/98
87/98/090 449,000.00 02/09/98
interest payments.10[10]
US$3,632,000.004[4]
Under the same Restructuring Agreement, the
parties declared that the loan obligation to be
On June 23, 1998, Union Bank advised the restructured (after deducting the dacion price of
spouses Tiu through a letter 5[5] that, in view of the properties ceded by the Tiu spouses and adding: [1] the
existing currency risks, the loans shall be redenominated taxes, registration fees and other expenses advanced by
to their equivalent Philippine peso amount on July 15, Union Bank in registering the Deeds of Dation in
1998. On July 3, 1998, the spouses Tiu wrote to Union Payment; and [2] other fees and charges incurred by the
Bank authorizing the latter to redenominate the loans at Indebtedness) is one hundred four million six hundred
the rate of US$1=P41.406[6] with interest of 19% for one sixty-eight thousand seven hundred forty-one pesos
year.7[7] (P104,668,741.00) (total restructured amount). 11[11] The
Deeds of Dation in Payment referred to are the following:
On December 21, 1999, Union Bank and the
spouses Tiu entered into a Restructuring Agreement. 8[8] 1. Dation of the Labangon properties Deed
The Restructuring Agreement contains a clause wherein executed by Juanita Tiu, the mother of
the spouses Tiu confirmed their debt and waived any respondent Rodolfo Tiu, involving ten
action on account thereof. To quote said clause: parcels of land with improvements located in
Labangon, Cebu City and with a total land
1. Confirmation of Debt The area of 3,344 square meters, for the amount
BORROWER hereby confirms and of P25,130,000.00. The Deed states that
accepts that as of December 8, 1999, its these properties shall be leased to the Tiu
outstanding principal indebtedness to spouses at a monthly rate of P98,000.00 for
the BANK under the Agreement and the a period of two years.12[12]
Notes amount to ONE HUNDRED
FIFTY[-]FIVE MILLION THREE 2. Dation of the Mandaue property Deed
executed by the spouses Tiu involving one
3 parcel of land with improvements located in
A.S. Fortuna St., Mandaue City, covered by
TCT No. T-31604 and with a land area of
4 2,960 square meters, for the amount of
P36,080,000.00. The Deed states that said

5 9

6 10

7 11

8 12

property shall be leased to the Tiu spouses
at a monthly rate of P150,000.00 for a
period of two years.13[13]
As likewise provided in the Restructuring
Agreement, the spouses Tiu executed a Real Estate
Mortgage in favor of Union Bank over their residential
property inclusive of lot and improvements located at P.
Burgos St., Mandaue City, covered by TCT No. T-11951
with an area of 3,096 square meters.14[14]
The spouses Tiu undertook to pay the total
restructured amount (P104,668,741.00) via three loan
facilities (payment schemes).
The spouses Tiu claim to have made the
following payments: (1) P15,000,000.00 on August 3,
1999; and (2) another P13,197,546.79 as of May 8,
2001. Adding the amounts paid under the Deeds of
Dation in Payment, the spouses Tiu postulate that their
payments added up to P89,407,546.79.15[15]
Asserting that the spouses Tiu failed to comply
with the payment schemes set up in the Restructuring
Agreement, Union Bank initiated extrajudicial foreclosure
proceedings on the residential property of the spouses
Tiu, covered by TCT No. T-11951. The property was to
be sold at public auction on July 18, 2002.
The spouses Tiu, together with Juanita T. Tiu,
Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young and
Rosenda T. Tiu, filed with the Regional Trial Court (RTC)
of Mandaue City a Complaint seeking to have the
Extrajudicial Foreclosure declared null and void. The
case was docketed as Civil Case No. MAN-4363. 16[16]
Named as defendants were Union Bank and Sheriff IV
Veronico C. Ouano (Sheriff Oano) of Branch 55, RTC,
Mandaue City. Complainants therein prayed for the
following: (1) that the spouses Tiu be declared to have
fully paid their obligation to Union Bank; (2) that
defendants be permanently enjoined from proceeding
with the auction sale; (3) that Union Bank be ordered to
return to the spouses Tiu their properties as listed in the
Complaint; (4) that Union Bank be ordered to pay the
plaintiffs the sum of P10,000,000.00 as moral damages,
P2,000,000.00 as exemplary damages, P3,000,000.00
as attorneys fees and P500,000.00 as expenses of
litigation; and (5) a writ of preliminary injunction or
temporary restraining order be issued enjoining the
public auction sale to be held on July 18, 2002.17[17]
The spouses Tiu claim that from the beginning
the loans were in pesos, not in dollars. Their office clerk,
Lilia Gutierrez, testified that the spouses Tiu merely
received the peso equivalent of their US$3,632,000.00
loan at the rate of US$1=P26.00. The spouses Tiu
further claim that they were merely forced to sign the
Restructuring Agreement and take up an additional loan
of P5,000,000.00, the proceeds of which they never saw
13
14
15
16
17
23
because this amount was immediately applied by Union
Bank to interest payments.18[18]
The spouses Tiu allege that the foreclosure sale
of the mortgaged properties was invalid, as the loans
have already been fully paid. They also allege that they
are not the owners of the improvements constructed on
the lot because the real owners thereof are their co-
petitioners, Juanita T. Tiu, Rosalinda T. King, Rufino T.
Tiu, Rosalie T. Young and Rosenda T. Tiu.19[19]
The spouses Tiu further claim that prior to the
signing of the Restructuring Agreement, they entered
into a Memorandum of Agreement with Union Bank
whereby the former deposited with the latter several
certificates of shares of stock of various companies and
four certificates of title of various parcels of land located
in Cebu. The spouses Tiu claim that these properties
have not been subjected to any lien in favor of Union
Bank, yet the latter continues to hold on to these
properties and has not returned the same to the former. 20
[20]
On the other hand, Union Bank claims that the
Restructuring Agreement was voluntarily and validly
entered into by both parties. Presenting as evidence the
Warranties embodied in the Real Estate Mortgage,
Union Bank contends that the foreclosure of the
mortgage on the residential property of the spouses Tiu
was valid and that the improvements thereon were
absolutely owned by them. Union Bank denies receiving
certificates of shares of stock of various companies or
the four certificates of title of various parcels of land from
the spouses Tiu. However, Union Bank also alleges that
even if said certificates were in its possession it is
authorized under the Restructuring Agreement to retain
any and all properties of the debtor as security for the
loan.21[21]
The RTC issued a Temporary Restraining
Order22[22] and, eventually, a Writ of Preliminary
Injunction23[23] preventing the sale of the residential
property of the spouses Tiu. 24[24]
On December 16, 2004, the RTC rendered its
Decision25[25] in Civil Case No. MAN-4363 in favor of
Union Bank. The dispositive portion of the Decision read:
WHEREFORE, premises
considered, judgment is hereby
rendered dismissing the Complaint and
18
19
20
21
22
23
24
25

lifting and setting aside the Writ of
Preliminary Injunction. No
pronouncement as to damages,
attorneys fees and costs of suit.26[26]
In upholding the validity of the Restructuring
Agreement, the RTC held that the spouses Tiu failed to
present any evidence to prove either fraud or intimidation
or any other act vitiating their consent to the same. The
exact obligation of the spouses Tiu to Union Bank is
therefore P104,668,741.00, as agreed upon by the
parties in the Restructuring Agreement. As regards the
contention of the spouses Tiu that they have fully paid
their indebtedness, the RTC noted that they could not
present any detailed accounting as to the total amount
they have paid after the execution of the Restructuring
Agreement.27[27]
On January 4, 2005, Union Bank filed a Motion
for Partial Reconsideration,28[28] protesting the finding in
the body of the December 16, 2004 Decision that the
residential house on Lot No. 639 is not owned by the
spouses Tiu and therefore should be excluded from the
real properties covered by the real estate mortgage. On
January 6, 2005, the spouses Tiu filed their own Motion
for Partial Reconsideration and/or New Trial. 29[29] They
alleged that the trial court failed to rule on their fourth
cause of action wherein they mentioned that they turned
over the following titles to Union Bank: TCT Nos. 30271,
116287 and 116288 and OCT No. 0-3538. They also
prayed for a partial new trial and for a declaration that
they have fully paid their obligation to Union Bank. 30[30]
On January 11, 2005, the spouses Tiu received
from Sheriff Oano a Second Notice of Extra-judicial
Foreclosure Sale of Lot No. 639 to be held on February
3, 2005. To prevent the same, the Tiu spouses filed with
the Court of Appeals a Petition for Prohibition and
Injunction with Application for TRO/Writ of Preliminary
Injunction.31[31] The petition was docketed as CA-G.R.
SP No. 00253. The Court of Appeals issued a Temporary
Restraining Order on January 27, 2005.32[32]
On January 19, 2005, the RTC issued an Order
denying Union Banks Motion for Partial Reconsideration
and the Tiu spouses Motion for Partial Reconsideration
and/or New Trial.33[33]
26
27
28
29
30
31
32
33
24
Both the spouses Tiu and Union Bank appealed
the case to the Court of Appeals. 34[34] The two appeals
were given a single docket number, CA-G.R. CEB-CV
No. 00190. Acting on a motion filed by the spouses Tiu,
the Court of Appeals consolidated CA-G.R. SP No.
00253 with CA-G.R. CEB-CV No. 00190.35[35]
On April 19, 2005, the Court of Appeals issued a
Resolution finding that there was no need for the
issuance of a Writ of Preliminary Injunction as the
judgment of the lower court has been stayed by the
perfection of the appeal therefrom.36[36]
On May 9, 2005, Sheriff Oano proceeded to
conduct the extrajudicial sale. Union Bank submitted the
lone bid of P18,576,000.00.37[37] On June 14, 2005,
Union Bank filed a motion with the Court of Appeals
praying that Sheriff Oano be ordered to issue a definite
and regular Certificate of Sale. 38[38] On July 21, 2005,
the Court of Appeals issued a Resolution denying the
Motion and suspending the auction sale at whatever
stage, pending resolution of the appeal and conditioned
upon the filing of a bond in the amount of
P18,000,000.00 by the Tiu spouses.39[39] The Tiu
spouses failed to file said bond.40[40]
On February 21, 2006, the Court of Appeals
rendered the assailed Joint Decision in CA-G.R. CV No.
00190 and CA-G.R. SP No. 00253. The Court of Appeals
dismissed the Petition for Prohibition, CA-G.R. SP No.
00253, on the ground that the proper venue for the same
is with the RTC.41[41]
On the other hand, the Court of Appeals ruled in
favor of the spouses Tiu in CA-G.R. CV No. 00190. The
Court of Appeals held that the loan transactions were in
pesos, since there was supposedly no stipulation the
loans will be paid in dollars and since no dollars ever
exchanged hands. Considering that the loans were in
pesos from the beginning, the Court of Appeals reasoned
that there is no need to convert the same. By making it
appear that the loans were originally in dollars, Union
Bank overstepped its rights as creditor, and made
unwarranted interpretations of the original loan
agreement. According to the Court of Appeals, the
Restructuring Agreement, which purportedly attempts to
create a novation of the original loan, was not clearly
authorized by the debtors and was not supported by any
cause or consideration. Since the Restructuring
Agreement is void, the original loan of P94,432,000.00
(representing the amount received by the spouses Tiu of
34
35
36
37
38
39
40
41

US$3,632,000.00 using the US$1=P26.00 exchange
rate) should subsist. The Court of Appeals likewise
invalidated (1) the P5,000,000.00 charge for interest in
the Restructuring Agreement, for having been unilaterally
imposed by Union Bank; and (2) the lease of the
properties conveyed in dacion en pago, for being against
public policy. 42[42]
In sum, the Court of Appeals found Union Bank
liable to the spouses Tiu in the amount of P927,546.79.
For convenient reference, we quote relevant portion of
the Court of Appeals Decision here:
To summarize the obligation of
the Tiu spouses, they owe Union Bank
P94,432,000.00. The Tiu spouses had
already paid Union Bank the amount of
P89,407,546.79. On the other hand,
Union Bank must return to the Tiu
spouses the illegally collected rentals in
the amount of P5,952,000.00. Given
these findings, the obligation of the Tiu
spouses has already been fully paid. In
fact, it is the Union Bank that must
return to the Tiu spouses the amount of
NINE HUNDRED TWENTY[-]SEVEN
THOUSAND FIVE HUNDRED
FORTY[-]SIX PESOS AND
SEVENTY[-]NINE CENTAVOS
(P927,546.79).43[43]
With regard to the ownership of the
improvements on the subject mortgaged property, the
Court of Appeals ruled that it belonged to respondent
Rodolfo Tius father, Jose Tiu, since 1981. According to
the Court of Appeals, Union Bank should not have relied
on warranties made by debtors that they are the owners
of the property. The appellate court went on to
permanently enjoin Union Bank from foreclosing the
mortgage not only of the property covered by TCT No. T-
11951, but also any other mortgage over any other
property of the spouses Tiu.44[44]
The Court of Appeals likewise found Union Bank
liable to return the certificates of stocks and titles to real
properties of the spouses Tiu in its possession. The
appellate court held that Union Bank made judicial
admissions of such possession in its Reply to Plaintiffs
Request for Admission.45[45] In the event that Union
Bank can no longer return these certificates and titles, it
was mandated to shoulder the cost for their
replacement.46[46]
Finally, the Court of Appeals took judicial notice
that before or during the financial crisis, banks actively
convinced debtors to make dollar loans in the guise of
benevolence, saddling borrowers with loans that
ballooned twice or thrice their original loans. The Court of
Appeals, noting the cavalier way with which banks
42
43
44
45
46
25
exploited and manipulated the situation,47[47] held Union
Bank liable to the spouses Tiu for P100,000.00 in moral
damages, P100,000.00 in exemplary damages, and
P50,000.00 in attorneys fees.48[48]
The Court of Appeals disposed of the case as
follows:
WHEREFORE, in view of the
foregoing premises, judgment is hereby
rendered by us permanently enjoining
Union Bank from foreclosing the
mortgage of the residential property of
the Tiu spouses which is covered by
Transfer Certificate of Title No. 11951
and from pursuing other foreclosure of
mortgages over any other properties of
the Tiu spouses for the above-litigated
debt that has already been fully paid. If a
foreclosure sale has already been made
over such properties, this Court orders
the cancellation of such foreclosure sale
and the Certificate of Sale thereof if any
has been issued. This Court orders
Union Bank to return to the Tiu spouses
the amount of NINE HUNDRED
TWENTY[-]SEVEN THOUSAND FIVE
HUNDRED FORTY[-]SIX PESOS AND
SEVENTY[-]NINE CENTAVOS
(P927,546.79) representing illegally
collected rentals. This Court also orders
Union Bank to return to the Tiu spouses
all the certificates of shares of stocks
and titles to real properties of the Tiu
spouses that were deposited to it or, in
lieu thereof, to pay the cost for the
replacement and issuance of new
certificates and new titles over the said
properties. This Court finally orders
Union Bank to pay the Tiu spouses ONE
HUNDRED THOUSAND PESOS
(P100,000.00) in moral damages, ONE
HUNDRED THOUSAND PESOS
(P100,000.00) in exemplary damages,
FIFTY THOUSAND PESOS
(P50,000.00) in attorneys fees and cost,
both in the lower court and in this
Court.49[49]
On June 1, 2006, the Court of Appeals rendered
the assailed Resolution denying Union Banks Motion for
Reconsideration.
Hence, this Petition for Review on Certiorari,
wherein Union Bank submits the following issues for the
consideration of this Court:
1. WHETHER OR NOT THE COURT OF
APPEALS COMMITTED GRAVE AND
REVERSIBLE ERROR WHEN IT
CONCLUDED THAT THERE WERE NO
DOLLAR LOANS OBTAINED BY [THE]
TIU SPOUSES FROM UNION BANK
47
48
49

DESPITE [THE] CLEAR ADMISSION
OF INDEBTEDNESS BY THE
BORROWER-MORTGAGOR TIU
SPOUSES.
2. WHETHER OR NOT THE COURT OF
APPEALS COMMITTED GRAVE AND
REVERSIBLE ERROR WHEN IT
NULLIFIED THE RESTRUCTURING
AGREEMENT BETWEEN TIU
SPOUSES AND UNION BANK FOR
LACK OF CAUSE OR
CONSIDERATION DESPITE THE
ADMISSION OF THE BORROWER-
MORTGAGOR TIU SPOUSES OF THE
DUE AND VOLUNTARY EXECUTION
OF SAID RESTRUCTURING
AGREEMENT.
3. WHETHER OR NOT THE COURT OF
APPEALS COMMITTED GRAVE AND
REVERSIBLE ERROR WHEN IT
PERMANENTLY ENJOINED UNION
BANK FROM FORECLOSING THE
MORTGAGE ON THE RESIDENTIAL
PROPERTY OF THE TIU SPOUSES
DESPITE THE ADMISSION OF NON-
PAYMENT OF THEIR OUTSTANDING
LOAN TO THE BANK BY THE
BORROWER-MORTGAGOR TIU
SPOUSES;
4. WHETHER OR NOT THE COURT OF
APPEALS COMMITTED GRAVE AND
REVERSIBLE ERROR WHEN IT FIXED
THE AMOUNT OF THE OBLIGATION
OF RESPONDENT SPOUSES
CONTRARY TO THE PROVISIONS OF
THE PROMISSORY NOTES,
RESTRUCTURING AGREEMENT AND
[THE] VOLUNTARY ADMISSIONS BY
BORROWER-MORTGAGOR TIU
SPOUSES;
5. WHETHER OR NOT THE COURT OF
APPEALS COMMITTED GRAVE AND
REVERSIBLE ERROR WHEN IT
RULED ON THE ALLEGED RENTALS
PAID BY RESPONDENT SPOUSES
WITHOUT ANY FACTUAL BASIS;
6. WHETHER OR NOT THE COURT OF
APPEALS COMMITTED GRAVE AND
REVERSIBLE ERROR WHEN IT HELD
WITHOUT ANY FACTUAL BASIS THAT
THE LOAN OBLIGATION OF TIU
SPOUSES HAS BEEN FULLY PAID;
7. WHETHER OR NOT THE COURT OF
APPEALS COMMITTED GRAVE AND
REVERSIBLE ERROR WHEN IT HELD
WITHOUT ANY FACTUAL BASIS THAT
THE HOUSE INCLUDED IN THE REAL
ESTATE MORTGAGE DID NOT
BELONG TO THE TIU SPOUSES.
8. WHETHER OR NOT THE COURT OF
APPEALS COMMITTED GRAVE AND
26
REVERSIBLE ERROR IN ORDERING
UNION BANK TO RETURN THE
CERTIFICATES OF SHARES OF
STOCK AND TITLES TO REAL
PROPERTIES OF TIU SPOUSES
ALLEGEDLY IN THE POSSESSION OF
UNION BANK.
9. WHETHER OR NOT THE COURT OF
APPEALS VIOLATED THE
DOCTRINES AND PRINCIPLES ON
APPELLATE JURISDICTION.
10. WHETHER OR NOT THE COURT OF
APPEALS COMMITTED GRAVE AND
REVERSIBLE ERROR IN AWARDING
DAMAGES AGAINST UNION BANK.50
[50]
Validity of the Restructuring Agreement
As previously discussed, the Court of Appeals
declared that the Restructuring Agreement is void on
account of its being a failed novation of the original loan
agreements. The Court of Appeals explained that since
there was no stipulation that the loans will be paid in
dollars, and since no dollars ever exchanged hands, the
original loan transactions were in pesos.51[51]
Proceeding from this premise, the Court of Appeals held
that the Restructuring Agreement, which was meant to
convert the loans into pesos, was unwarranted. Thus, the
Court of Appeals reasoned that:
Be that as it may, however,
since the loans of the Tiu spouses from
Union Bank were peso loans from the
very beginning, there is no need for
conversion thereof. A Restructuring
Agreement should merely confirm the
loans, not add thereto. By making it
appear in the Restructuring Agreement
that the loans were originally dollar
loans, Union Bank overstepped its rights
as a creditor and made unwarranted
interpretations of the original loan
agreement. This Court is not bound by
such interpretations made by Union
Bank. When one party makes an
interpretation of a contract, he makes it
at his own risk, subject to a subsequent
challenge by the other party and a
modification by the courts. In this case,
that party making the interpretation is
not just any party, but a well entrenched
and highly respected bank. The matter
that was being interpreted was also a
financial matter that is within the
profound expertise of the bank. A normal
person who does not possess the same
financial proficiency or acumen as that
of a bank will most likely defer to the
latters esteemed opinion,
representations and interpretations. It
has been often stated in our
jurisprudence that banks have a
50
51

fiduciary duty to their depositors.
According to the case of Bank of the
Philippine Islands vs. IAC (G.R. No.
69162, February 21, 1992), as a
business affected with public interest
and because of the nature of its
functions, the bank is under obligation to
treat the accounts of its depositors with
meticulous care, always having in mind
the fiduciary nature of their relationship.
Such fiduciary relationship should also
extend to the banks borrowers who,
more often than not, are also depositors
of the bank. Banks are in the business
of lending while most borrowers hardly
know the basics of such business. When
transacting with a bank, most borrowers
concede to the expertise of the bank
and consider their procedures,
pronouncements and representations as
unassailable, whether such be true or
not. Therefore, when there is a doubtful
banking transaction, this Court will tip
the scales in favor of the borrower.
Given the above ruling, the
Restructuring Agreement, therefore,
between the Tiu spouses and Union
Bank does not operate to supersede all
previous loan documents, as claimed by
Union Bank. But the said Restructuring
Agreement, as it was crafted by Union
Bank, does not merely confirm the
original loan of the Tiu spouses but
attempts to create a novation of the said
original loan that is not clearly
authorized by the debtors and that is not
supported by any cause or
consideration. According to Article 1292
of the New Civil Code, in order that an
obligation may by extinguished by
another which substitutes the same, it is
imperative that it be so declared in
unequivocal terms, or that the old and
the new obligations be on every point
incompatible with each other. Such is
not the case in this instance. No valid
novation of the original obligation took
place. Even granting arguendo that
there was a novation, the sudden
change in the original amount of the
loan to the new amount declared in the
Restructuring Agreement is not
supported by any cause or
consideration. Under Article 1352 of the
Civil Code, contracts without cause, or
with unlawful cause, produce no effect
whatever. A contract whose cause did
not exist at the time of the transaction is
void. Accordingly, Article 1297 of the
New Civil Code mandates that, if the
new obligation is void, the original one
shall subsist, unless the parties intended
that the former relation should be
extinguished at any event. Since the
Restructuring Agreement is void and
since there was no intention to
extinguish the original loan, the original
loan shall subsist.52[52]
52
27
Union Bank does not dispute that the spouses
Tiu received the loaned amount of US$3,632,000.00 in
Philippine pesos, not dollars, at the prevailing exchange
rate of US$1=P26.53[53] However, Union Bank claims
that this does not change the true nature of the loan as a
foreign currency loan,54[54] and proceeded to illustrate in
its Memorandum that the spouses Tiu obtained favorable
interest rates by opting to borrow in dollars (but receiving
the equivalent peso amount) as opposed to borrowing in
pesos.55[55]
We agree with Union Bank on this point.
Although indeed, the spouses Tiu received peso
equivalents of the borrowed amounts, the loan
documents presented as evidence, i.e., the promissory
notes,56[56] expressed the amount of the loans in US
dollars and not in any other currency. This clearly
indicates that the spouses Tiu were bound to pay Union
Bank in dollars, the amount stipulated in said loan
documents. Thus, before the Restructuring Agreement,
the spouses Tiu were bound to pay Union Bank the
amount of US$3,632,000.00 plus the interest stipulated
in the promissory notes, without converting the same to
pesos. The spouses Tiu, who are in the construction
business and appear to be dealing primarily in Philippine
currency, should therefore purchase the necessary
amount of dollars to pay Union Bank, who could have
justly refused payment in any currency other than that
which was stipulated in the promissory notes.
We disagree with the finding of the Court of
Appeals that the testimony of Lila Gutierrez, which
merely attests to the fact that the spouses Tiu received
the peso equivalent of their dollar loan, proves the
intention of the parties that such loans should be paid in
pesos. If such had been the intention of the parties, the
promissory notes could have easily indicated the same.
Such stipulation of payment in dollars is not
prohibited by any prevailing law or jurisprudence at the
time the loans were taken. In this regard, Article 1249 of
the Civil Code provides:
Art. 1249. The payment of debts
in money shall be made in the currency
stipulated, and if it is not possible to
deliver such currency, then in the
currency which is legal tender in the
Philippines.
Although the Civil Code took effect on August 30, 1950,
jurisprudence had upheld57[57] the continued effectivity of
Republic Act No. 529, which took effect earlier on June
16, 1950. Pursuant to Section 158[58] of Republic Act No.
529, any agreement to pay an obligation in a currency
53
54
55
56
57
58

other than the Philippine currency is void; the most that
could be demanded is to pay said obligation in Philippine
currency to be measured in the prevailing rate of
exchange at the time the obligation was incurred. 59[59]
On June 19, 1964, Republic Act No. 4100 took effect,
modifying Republic Act No. 529 by providing for several
exceptions to the nullity of agreements to pay in foreign
currency.60[60]
On April 13, 1993, Central Bank Circular No.
138961[61] was issued, lifting foreign exchange
restrictions and liberalizing trade in foreign currency. In
cases of foreign borrowings and foreign currency loans,
however, prior Bangko Sentral approval was required. On
July 5, 1996, Republic Act No. 8183 took effect, 62[62]
expressly repealing Republic Act No. 529 in Section
263[63] thereof. The same statute also explicitly provided
that parties may agree that the obligation or transaction
shall be settled in a currency other than Philippine
currency at the time of payment.64[64]
Although the Credit Line Agreement between the
spouses Tiu and Union Bank was entered into on
November 21, 1995,65[65] when the agreement to pay in
foreign currency was still considered void under Republic
Act No. 529, the actual loans, 66[66] as shown in the
promissory notes, were taken out from September 22,
1997 to March 26, 1998, during which time Republic Act
No. 8183 was already in effect. In United Coconut
Planters Bank v. Beluso,67[67] we held that:
[O]pening a credit line does not create a
credit transaction of loan or mutuum,
since the former is merely a preparatory
contract to the contract of loan or
mutuum. Under such credit line, the
bank is merely obliged, for the
considerations specified therefor, to lend
to the other party amounts not
exceeding the limit provided. The credit
transaction thus occurred not when the
credit line was opened, but rather when
the credit line was availed of. x x x.68[68]
59
60
61
62
63
64
65
66
67
68
28
Having established that Union Bank and the
spouses Tiu validly entered into dollar loans, the
conclusion of the Court of Appeals that there were no
dollar loans to novate into peso loans must necessarily
fail.
Similarly, the Court of Appeals pronouncement
that the novation was not supported by any cause or
consideration is likewise incorrect. This conclusion
suggests that when the parties signed the Restructuring
Agreement, Union Bank got something out of nothing or
that the spouses Tiu received no benefit from the
restructuring of their existing loan and was merely taken
advantage of by the bank. It is important to note at this
point that in the determination of the nullity of a contract
based on the lack of consideration, the debtor has the
burden to prove the same. Article 1354 of the Civil Code
provides that [a]though the cause is not stated in the
contract, it is presumed that it exists and is lawful, unless
the debtor proves the contrary.
In the case at bar, the Restructuring Agreement
was signed at the height of the financial crisis when the
Philippine peso was rapidly depreciating. Since the
spouses Tiu were bound to pay their debt in dollars, the
cost of purchasing the required currency was likewise
swiftly increasing. If the parties did not enter into the
Restructuring Agreement in December 1999 and the
peso continued to deteriorate, the ability of the spouses
Tiu to pay and the ability of Union Bank to collect would
both have immensely suffered. As shown by the
evidence presented by Union Bank, the peso indeed
continued to deteriorate, climbing to US$1=P50.01 on
December 2000.69[69] Hence, in order to ensure the
stability of the loan agreement, Union Bank and the
spouses Tiu agreed in the Restructuring Agreement to
peg the principal loan at P150,364,800.00 and the unpaid
interest at P5,000,000.00.
Before this Court, the spouses Tiu belatedly
argue that their consent to the Restructuring Agreement
was vitiated by fraud and mistake, alleging that (1) the
Restructuring Agreement did not take into consideration
their substantial payment in the amount of
P40,447,185.60 before its execution; and (2) the dollar
loans had already been redenominated in 1997 at the
rate of US$1=P26.34.70[70]
We have painstakingly perused over the records
of this case, but failed to find any documentary evidence
of the alleged payment of P40,447,185.60 before the
execution of the Restructuring Agreement. In paragraph
16 of their Amended Complaint, the spouses Tiu alleged
payment of P40,447,185.60 for interests before the
conversion of the dollar loan. 71[71] This was specifically
denied by Union Bank in paragraph 5 of its Answer with
Counterclaim.72[72] Respondent Rodolfo Tiu testified that
they made 50 million plus in cash payment plus other
monthly interest payments,73[73] and identified a
69
70
71
72
73
 29

computation of payments dated July 17, 2002 signed by difficult to believe that the spouses Tiu, veteran
himself.74[74] Such computation, however, was never businessmen who operate a multi-million peso company,
formally offered in evidence and was in any event, wholly would sign a very important document without fully
self-serving. understanding its contents and consequences.

As regards the alleged redenomination of the
same dollar loans in 1997 at the rate of US$1=P26.34,
the spouses Tiu merely relied on the following direct
testimony of Herbert Hojas, one of the witnesses of
Union Bank:
This Court therefore rules that the Restructuring
Agreement is valid and, as such, a valid and binding
novation of loans of the spouses Tiu entered into from
September 22, 1997 to March 26, 1998 which had a total
amount of US$3,632,000.00.

Q:Could you please describe what kind
of loan was the loan of the
spouses Rodolfo Tiu, the
plaintiffs in this case?
A: It was originally an FCDU,
meaning a dollar loan.
Validity of the Foreclosure of Mortgage
The spouses Tiu challenge the validity of the
foreclosure of the mortgage on two grounds, claiming
that: (1) the debt had already been fully paid; and (2)
they are not the owners of the improvements on the
mortgaged property.

Q: What happened to this FCDU (1) Allegation of full payment of the mortgage
loan or dollar loan? debt

A: The dollar loan was re-
denominated in view of the very
unstable exchange of the dollar
and the peso at that time,
Q: Could you still remember what
year this account was re-
denominated from dollar to
peso?
A: I think it was on the year 1997.
Q: Could [you] still remember what
was then the prevailing
exchange rate between the
dollar and the peso at that year
1997?
A: Yes. I have here the list of the
dollar exchange rate from
January 1987 (sic). It was
P26.34 per dollar.75[75]
Neither party presented any documentary
evidence of the alleged redenomination in 1997.
Respondent Rodolfo Tiu did not even mention it in his
testimony. Furthermore, Hojas was obviously uncertain
in his statement that said redenomination was made in
1997.
As pointed out by the trial court, the
Restructuring Agreement, being notarized, is a public
document enjoying a prima facie presumption of
authenticity and due execution. Clear and convincing
evidence must be presented to overcome such legal
presumption.76[76] The spouses Tiu, who attested before
the notary public that the Restructuring Agreement is
their own free and voluntary act and deed, 77[77] failed to
present sufficient evidence to prove otherwise. It is
74
In the preceding discussion, we have ruled that
the Restructuring Agreement is a valid and binding
novation of loans of the spouses Tiu entered into from
September 22, 1997 to March 26, 1998 in the total
amount of US$3,632,000.00. Thus, in order that the
spouses Tiu can be held to have fully paid their loan
obligation, they should present evidence showing their
payment of the total restructured amount under the
Restructuring Agreement which was P104,668,741.00.
As we have discussed above, however, while respondent
Rodolfo Tiu appeared to have identified during his
testimony a computation dated July 17, 2002 of the
alleged payments made to Union Bank,78[78] the same
was not formally offered in evidence. Applying Section
34, Rule 13279[79] of the Rules of Court, such
computation cannot be considered by this Court. We
have held that a formal offer is necessary because
judges are mandated to rest their findings of facts and
their judgment only and strictly upon the evidence offered
by the parties at the trial. It has several functions: (1) to
enable the trial judge to know the purpose or purposes
for which the proponent is presenting the evidence; (2) to
allow opposing parties to examine the evidence and
object to its admissibility; and (3) to facilitate review by
the appellate court, which will not be required to review
documents not previously scrutinized by the trial court. 80
[80] Moreover, even if such computation were admitted in
evidence, the same is self-serving and cannot be given
probative weight. In the case at bar, the records do not
contain even a single receipt evidencing payment to
Union Bank.
The Court of Appeals, however, held that several
payments made by the spouses Tiu had been admitted
by Union Bank. Indeed, Section 11, Rule 8 of the Rules
of Court provides that an allegation not specifically
denied is deemed admitted. In such a case, no further
evidence would be required to prove the antecedent
facts. We should therefore examine which of the
payments specified by the spouses Tiu in their Amended
Complaint81[81] were not specifically denied by Union
Bank.

75 78

76 79

77 80

The allegations of payment are made in
paragraphs 16 to 21 of the Amended Complaint:
16. Before conversion of the
dollar loan into a peso loan[,] the
spouses Tiu had already paid the
defendant bank the amount of
P40,447,185.60 for interests;
17. On August 3, 1999 and
August 12, 1999, plaintiffs made
payments in the amount of
P15,000,000.00;
18. In order to lessen the
obligation of plaintiffs, the mother of
plaintiff Rodolfo T. Tiu, plaintiff Juanita T.
Tiu, executed a deed of dacion in
payment in favor of defendant involving
her 10 parcels of land located in
Labangon, Cebu City for the amount of
P25,130,000.00. Copy of the deed was
attached to the original complaint as
Annex C;
19. For the same purpose,
plaintiffs spouses Tiu also executed a
deed of dacion in payment of their
property located at A.S. Fortuna St.,
Mandaue City for the amount of
P36,080,000.00. Copy of the deed was
attached to the original complaint as
Annex D;
20. The total amount of the two
dacions in payment made by the
plaintiffs was P61,210,000.00;
21. Plaintiffs spouses Tiu also
made other payment of the amount of
P13,197,546.79 as of May 8, 2001;82[82]
In paragraphs 4 and 5 of their Answer with
Counterclaim,83[83] Union Bank specifically denied the
allegation in paragraph 9 of the Complaint, but admitted
the allegations in paragraphs 17, 18, 19, 20 and 21
thereof. Paragraphs 18, 19 and 20 allege the two deeds
of dacion. However, these instruments were already
incorporated in the computation of the outstanding debt
(i.e., subtracted from the confirmed debt of
P155,364,800.00), as can be gleaned from the following
provisions in the Restructuring Agreement:
a.) The loan obligation to the
BANK to be restructured herein
after deducting from the
Indebtedness of the
BORROWER the dacion price
of the properties subject of the
Deeds of Dacion and adding to
the Indebtedness all the taxes,
registration fees and other
81
82
83
30
expenses advanced by the bank
in registering the Deeds of
Dacion, and also adding to the
Indebtedness the interest, and
other fees and charges incurred
by the Indebtedness, amounts
to ONE HUNDRED FOUR
MILLION SIX HUNDRED
SIXTY-EIGHT THOUSAND
SEVEN HUNDRED FORTY-
ONE PESOS
(PHP104,668,741.00) (the
TOTAL RESTRUCTURED
AMOUNT).84[84]
As regards the allegations of cash payments in
paragraphs 17 and 21 of the Amended Complaint, the
date of the alleged payment is critical as to whether they
were included in the Restructuring Agreement. The
payment of P15,000,000.00 alleged in paragraph 17 of
the Amended Complaint was supposedly made on
August 3 and 12, 1999. This payment was before the
date of execution of the Restructuring Agreement on
December 21, 1999, and is therefore already factored
into the restructured obligation of the spouses. 85[85] On
the other hand, the payment of P13,197,546.79 alleged
in paragraph 21 of the Amended Complaint was dated
May, 8, 2001. Said payment cannot be deemed included
in the computation of the spouses Tius debt in the
Restructuring Agreement, which was assented to more
than a year earlier. This amount (P13,197,546.79) is
even absent86[86] in the computation of Union Bank of
the outstanding debt, in contrast with the P15,000,000.00
payment which is included87[87] therein. Union Bank did
not explain this discrepancy and merely relied on the
spouses Tius failure to formally offer supporting
evidence. Since this payment of P13,197,546.79 on May
8, 2001 was admitted by Union Bank in their Answer with
Counterclaim, there was no need on the part of the
spouses Tiu to present evidence on the same.
Nonetheless, if we subtract this figure from the total
restructured amount (P104,668,741.00) in the
Restructuring Agreement, the result is that the spouses
Tiu still owe Union Bank P91,471,194.21.
(2) Allegation of third party ownership of the
improvements on the mortgaged lot
The Court of Appeals, taking into consideration
its earlier ruling that the loan was already fully paid,
permanently enjoined Union Bank from foreclosing the
mortgage on the property covered by Transfer Certificate
of Title No. 11951 (Lot No. 639) and from pursuing other
foreclosure of mortgages over any other properties of the
spouses Tiu. The Court of Appeals ruled:
The prayer, therefore, of the Tiu
spouses to enjoin the foreclosure of the
real estate mortgage over their
residential property has merit. The loan
has already been fully paid. It should
also be noted that the house
84
85
86
87

constructed on the residential property
of the Tiu spouses is not registered in
the name of the Tiu spouses, but in the
name of Jose Tiu (Records, pp. 127-
132), the father of appellant and
petitioner Rodolfo Tiu, since 1981. It had
been alleged by the Tiu spouses that
Jose Tiu died on December 18, 1983,
and, that consequently upon his death,
Juanita T. Tiu, Rosalinda T. King, Rufino
T. Tiu, Rosalie T. Young and Rosenda T.
Tiu became owners of the house
(Records, p. 116). This allegation has
not been substantially denied by Union
Bank. All that the Union Bank presented
to refute this allegation are a Transfer
Certificate of Title and a couple of Tax
Declarations which do not indicate that a
residential house is titled in the name of
the Tiu spouses. In fact, in one of the
Tax Declarations, the market value of
the improvements is worth only
P3,630.00. Certainly, Union Bank should
have been aware that this Tax
Declaration did not cover the residential
house. Union Bank should also not rely
on warranties made by debtors that they
are the owners of the property. They
should investigate such representations.
The courts have made consistent rulings
that a bank, being in the business of
lending, is obligated to verify the true
ownership of the properties mortgaged
to them. Consequently, this Court
permanently enjoins Union Bank from
foreclosing the mortgage of the
residential property of the Tiu spouses
which is covered by Transfer Certificate
of Title No. 11951 and from pursuing
other foreclosure of mortgages over any
other properties of the Tiu spouses. If a
foreclosure sale has already been made
over such properties, this Court orders
the cancellation of such foreclosure sale
and the Certificate of Sale thereof if any
has been issued, and the return of the
title to the Tiu spouses.88[88]
We disagree. Contrary to the ruling of the Court
of Appeals, the burden to prove the spouses Tius
allegation that they do not own the improvements on Lot
No. 639, despite having such improvements included in
the mortgage is on the spouses Tiu themselves. The
fundamental rule is that he who alleges must prove. 89[89]
The allegations of the spouses Tiu on this matter, which
are found in paragraphs 35 to 3990[90] of their Amended
Complaint, were specifically denied in paragraph 9 of
Union Banks Answer with Counterclaim.91[91]
Upon careful examination of the evidence, we
find that the spouses Tiu failed to prove that the
88
89
90
91
31
improvements on Lot No. 639 were owned by third
persons. In fact, the evidence presented by the spouses
Tiu merely attempt to prove that the improvements on Lot
No. 639 were declared for taxes in the name of
respondent Rodolfo Tius father, Jose Tiu, who allegedly
died on December 18, 1983. There was no effort to show
how their co-plaintiffs in the original complaint, namely
Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T.
Young and Rosenda T. Tiu, became co-owners of the
house. The spouses Tiu did not present evidence as to
(1) who the heirs of Jose Tiu are; (2) if Juanita T. Tiu,
Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young and
Rosenda T. Tiu are indeed included as heirs; and (3) why
petitioner Rodolfo Tiu is not included as an heir despite
being the son of Jose Tiu. No birth certificate of the
alleged heirs, will of the deceased, or any other piece of
evidence showing judicial or extrajudicial settlement of
the estate of Jose Tiu was presented.
In light of the foregoing, this Court therefore sets
aside the ruling of the Court of Appeals permanently
enjoining Union Bank from foreclosing the mortgage on
Lot No. 639, including the improvements thereon.
Validity of Alleged Rental Payments on the Properties
Conveyed to the Bank via Dacion en Pago
The Court of Appeals found the lease contracts
over the properties conveyed to Union Bank via dacion
en pago to be void for being against public policy. The
appellate court held that since the General Banking Law
of 200092[92] mandates banks to immediately dispose of
real estate properties that are not necessary for its own
use in the conduct of its business, banks should not enter
into two-year contracts of lease over properties paid to
them through dacion.93[93] The Court of Appeals thus
ordered Union Bank to return the rentals it collected. To
determine the amount of rentals paid by the spouses Tiu
to Union Bank, the Court of Appeals simply multiplied the
monthly rental stipulated in the Restructuring Agreement
by the stipulated period of the lease agreement:
For the Labangon property, the
Tiu spouses paid rentals in the amount
of P98,000.00 per month for two years,
or a total amount of P2,352,000.00. For
the A.S. Fortuna property, the Tiu
spouses paid rentals in the amount of
P150,000.00 per month for two years, or
a total amount of P3,600,000.00. The
total amount in rentals paid by the Tiu
spouses to Union Bank is FIVE
MILLION NINE HUNDRED FIFTY- TWO
THOUSAND PESOS (P5,952,000.00).
This Court finds that the return of this
amount to the Tiu spouses is called for
since it will better serve public policy.
These properties that were given by the
Tiu spouses to Union Bank as payment
should not be used by the latter to
extract more money from the former.
This situation is analogous to having a
debtor pay interest for a debt already
paid. Instead of leasing the properties,
Union Bank should have instructed the
Tiu spouses to vacate the said
92
93

properties so that it could dispose of
them.94[94]
The Court of Appeals committed a serious error
in this regard. As pointed out by petitioner Union Bank,
the spouses Tiu did not present any proof of the alleged
rental payments. Not a single receipt was formally
offered in evidence. The mere stipulation in a contract of
the monthly rent to be paid by the lessee is certainly not
evidence that the same has been paid. Since the
spouses Tiu failed to prove their payment to Union Bank
of the amount of P5,952,000.00, we are constrained to
reverse the ruling of the Court of Appeals ordering its
return.
Even assuming arguendo that the spouses Tiu
had duly proven that it had paid rent to Union Bank, we
nevertheless disagree with the finding of the Court of
Appeals that it is against public policy for banks to enter
into two-year contracts of lease of properties ceded to
them through dacion en pago. The provisions of law cited
by the Court of Appeals, namely Sections 51 and 52 of
the General Banking Law of 2000, merely provide:
SECTION 51.Ceiling on
Investments in Certain Assets. Any bank
may acquire real estate as shall be
necessary for its own use in the conduct
of its business: Provided, however, That
the total investment in such real estate
and improvements thereof, including
bank equipment, shall not exceed fifty
percent (50%) of combined capital
accounts: Provided, further, That the
equity investment of a bank in another
corporation engaged primarily in real
estate shall be considered as part of the
bank's total investment in real estate,
unless otherwise provided by the
Monetary Board.
SECTION 52. Acquisition of
Real Estate by Way of Satisfaction of
Claims. Notwithstanding the limitations
of the preceding Section, a bank may
acquire, hold or convey real property
under the following circumstances:
52.1. Such as shall be
mortgaged to it in good faith by way of
security for debts;
52.2. Such as shall be
conveyed to it in satisfaction of debts
previously contracted in the course of its
dealings; or
52.3. Such as it shall
purchase at sales under judgments,
decrees, mortgages, or trust deeds held
by it and such as it shall purchase to
secure debts due it.
Any real property acquired or
held under the circumstances
enumerated in the above paragraph
shall be disposed of by the bank within a
period of five (5) years or as may be
prescribed by the Monetary Board:
94
32
Provided, however, That the bank may,
after said period, continue to hold the
property for its own use, subject to the
limitations of the preceding Section.
Section 52.2 contemplates a dacion en pago.
Thus, Section 52 undeniably gives banks five years to
dispose of properties conveyed to them in satisfaction of
debts previously contracted in the course of its dealings,
unless another period is prescribed by the Monetary
Board. Furthermore, there appears to be no legal
impediment for a bank to lease the real properties it has
received in satisfaction of debts, within the five-year
period that such bank is allowed to hold the acquired
realty.
We do not dispute the interpretation of the Court
of Appeals that the purpose of the law is to prevent the
concentration of land holdings in a few hands, and that
banks should not be allowed to hold on to the properties
contemplated in Section 52 beyond the five-year period
unless such bank has exerted its best efforts to dispose
of the property in good faith but failed. However, inquiries
as to whether the banks exerted best efforts to dispose of
the property can only be done if said banks fail to
dispose of the same within the period provided. Such
inquiry is furthermore irrelevant to the issues in the case
at bar.
Order to Return Certificates Allegedly in Union
Banks Possession
In the Amended Complaint, the spouses Tiu
alleged95[95] that they delivered several certificates and
titles to Union Bank pursuant to a Memorandum of
Agreement. These certificates and titles were not
subjected to any lien in favor of Union Bank, but the
latter allegedly continued to hold on to said properties.
The RTC failed to rule on this issue. The Court of
Appeals, tackling this issue for the first time, ruled in
favor of the Tiu spouses and ordered the return of these
certificates and titles. The appellate court added that if
Union Bank can no longer return these certificates or
titles, it should shoulder the cost for their replacement. 96
[96]
Union Bank, asserting that the Memorandum of
Agreement did not, in fact, push through, denies having
received the subject certificates and titles. Union Bank
added that even assuming arguendo that it is in
possession of said documents, the Restructuring
Agreement itself allows such possession.97[97]
The evidence on hand lends credibility to the
allegation of Union Bank that the Memorandum of
Agreement did not push through. The copy of the
Memorandum of Agreement attached by the spouses Tiu
themselves to their original complaint did not bear the
signature of any representative from Union Bank and
was not notarized.98[98]
95
96
97
98

We, however, agree with the finding of the Court
of Appeals that despite the failure of the Memorandum of
Agreement to push through, the certificates and titles
mentioned therein do appear to be in the possession of
Union Bank. As held by the Court of Appeals:
Lastly, this Court will order, as it
hereby orders, Union Bank to return to
the Tiu spouses all the certificates of
shares of stocks and titles to real
properties of the Tiu spouses in its
possession. Union Bank cannot deny
possession of these items since it had
made judicial admissions of such
possession in their document entitled
Reply to Plaintiffs request for Admission
(records, pp. 216-217). While in that
document, Union Bank only admitted to
the possession of four real estate titles,
this Court is convinced that all the
certificates and titles mentioned in the
unconsummated Memorandum of
Agreement (Records, pp. 211-213) were
given by the Tiu spouses to Union Bank
for appraisal. This finding is further
bolstered by the admission of the Union
Bank that it kept the titles for
safekeeping after it rejected the
Memorandum of Agreement. Since
Union Bank rejected these certificates
and titles of property, it should return the
said items to the Tiu spouses. If Union
Bank can no longer return these
certificates and titles or if it has
misplaced them, it shall shoulder the
cost for the replacement and issuance of
new certificates and new titles over the
said properties.99[99]
As regards Union Banks argument that it has the
right to retain said documents pursuant to the
Restructuring Agreement, it is referring to paragraph
11(b), which provides that:
11. Effects of Default When the
BORROWER is in default, such
default shall have the following
effects, alternative, concurrent and
cumulative with each other:
xxxx
(b) The BANK shall be
entitled to all the remedies provided
for and further shall have the right to
effect or apply against the partial or
full payment of any and all
obligations of the BORROWER
under this Restructuring Agreement
any and all moneys or other
properties of the BORROWER
which, for any reason, are or may
hereafter come into the possession
of the Bank or the Banks agent. All
such moneys or properties shall be
deemed in the BANKs possession
as soon as put in transit to the
BANK by mail or carrier.100[100]
99
33
In the first place, notwithstanding the foregoing
provision, there is no clear intention on the part of the
spouses Tiu to deliver the certificates over certain shares
of stock and real properties as security for their debt.
From the terms of the Memorandum of Agreement, these
certificates were surrendered to Union Bank in order that
the said properties described therein be given their
corresponding loan values required for the restructuring
of the spouses Tius outstanding obligations. However, in
the event the parties fail to agree on the valuation of the
subject properties, Union Bank agrees to release the
same.101[101] As Union Bank itself vehemently alleges,
the Memorandum of Agreement was not consummated.
Moreover, despite the fact that the Bank was aware, or in
possession, of these certificates,102[102] at the time of
execution of the Restructuring Agreement, only the
mortgage over the real property covered by TCT No. T-
11951 was expressly mentioned as a security in the
Restructuring Agreement. In fact, in its Reply to Request
for Admission,103[103] Union Bank admitted that (1) the
titles to the real properties were submitted to it for
appraisal but were subsequently rejected, and (2) no real
estate mortgages were executed over the said
properties. There being no agreement that these
properties shall secure respondents obligation, Union
Bank has no right to retain said certificates.
Assuming arguendo that paragraph 11(b) of the
Restructuring Agreement indeed allows the retention of
the certificates (submitted to the Bank ostensibly for
safekeeping and appraisal) as security for spouses Tius
debt, Union Banks position still cannot be upheld. Insofar
as said provision permits Union Bank to apply properties
of the spouses Tiu in its possession to the full or partial
payment of the latters obligations, the same appears to
impliedly allow Union Bank to appropriate these
properties for such purpose. However, said provision
cannot be validly applied to the subject certificates and
titles without violating the prohibition against pactum
commissorium contained in Article 2088 of the Civil
Code, to the effect that [t]he creditor cannot appropriate
the things given by way of pledge or mortgage, or
dispose of them[;] [a]ny stipulation to the contrary is null
and void. Applicable by analogy to the present case is
our ruling in Nakpil v. Intermediate Appellate Court, 104
[104] wherein property held in trust was ceded to the
trustee upon failure of the beneficiary to answer for the
amounts owed to the former, to wit:
For, there was to be automatic
appropriation of the property by Valdes
in the event of failure of petitioner to pay
the value of the advances. Thus,
contrary to respondent's manifestations,
all the elements of a pactum
commissorium were present: there was
a creditor-debtor relationship between
the parties; the property was used as
100
101
102
103
104

security for the loan; and, there was
automatic appropriation by
respondent of Pulong Maulap in case of
default of petitioner.105[105] (Emphases
supplied.)
This Court therefore affirms the order of the
Court of Appeals for Union Bank to return to the spouses
Tiu all the certificates of shares of stock and titles to real
properties that were submitted to it or, in lieu thereof, to
pay the cost for the replacement and issuance of new
certificates and new titles over the said properties.
Validity of the Award of Damages
The Court of Appeals awarded damages in favor
of the spouses Tiu based on its taking judicial notice of
the alleged exploitation by many banks of the Asian
financial crisis, as well as the foreclosure of the mortgage
of the home of the spouses Tiu despite the alleged full
payment by the latter. As regards the alleged
manipulation of the financial crisis, the Court of Appeals
held:
As a final note, this Court
observes the irregularity in the
circumstances [surrounding] dollar loans
granted by banks right before or during
the Asian financial crisis. It is of common
knowledge that many banks, around that
time, actively pursued and convinced
debtors to make dollar loans or to
convert their peso loans to dollar loans
allegedly because of the lower interest
rate of dollar loans. This is a highly
suspect behavior on the part of the
banks because it is irrational for the
banks to voluntarily and actively proffer
a conversion that would give them
substantially less income. In the guise of
benevolence, many banks were able to
convince borrowers to make dollar loans
or to convert their peso loans to dollar
loans. Soon thereafter, the Asian
financial crisis hit, and many borrowers
were saddled with loans that ballooned
to twice or thrice the amount of their
original loans. This court takes judicial
notice of these events or matters which
are of public knowledge. It is
inconceivable that the banks were
unaware of the looming Asian financial
crisis. Being in the forefront of the
financial world and having access to
financial data that were not available to
the average borrower, the banks were in
such a position that they had a higher
vantage point with respect to the
financial landscape over their average
clients. The cavalier way with which
banks exploited and manipulated the
situation is almost too palpable that they
openly and unabashedly struck heavy
blows on the Philippine economy,
industries and businesses. The banks
have a fiduciary duty to their clients and
to the Filipino people to be transparent
in their dealings and to make sure that
the latters interest are not prejudiced by
105
34
the formers interest. Article 1339 of the
New Civil Code provides that the failure
to disclose facts, when there is a duty to
reveal them, as when the parties are
bound by confidential relations,
constitutes fraud. Undoubtedly, the
banks and their clients are bound by
confidential relations. The almost perfect
timing of the banks in convincing their
clients to shift to dollar loans just when
the Asian financial crisis struck indicates
that the banks not only failed to disclose
facts to their clients of the looming crisis,
but also suggests of the insidious design
to take advantage of these undisclosed
facts.106[106]
We have already held that the foreclosure of the
mortgage was warranted under the circumstances. As
regards the alleged exploitation by many banks of the
Asian financial crisis, this Court rules that the
generalization made by the appellate court is unfounded
and cannot be the subject of judicial notice. It is
axiomatic that good faith is always presumed unless
convincing evidence to the contrary is adduced. It is
incumbent upon the party alleging bad faith to sufficiently
prove such allegation. Absent enough proof thereof, the
presumption of good faith prevails. 107[107] The alleged
insidious design of many banks to betray their clients
during the Asian financial crisis is certainly not of public
knowledge. The deletion of the award of moral and
exemplary damages in favor of the spouses Tiu is
therefore in order.
WHEREFORE, the Petition is PARTIALLY
GRANTED. The Joint Decision of the Court of Appeals in
CA-G.R. CV No. 00190 and CA-G.R. SP No. 00253
dated February 21, 2006 is hereby AFFIRMED insofar as
it ordered petitioner Union Bank of the Philippines to
return to the respondent spouses Rodolfo T. Tiu and
Victoria N. Tiu all the certificates of shares of stock and
titles to real properties that were submitted to it or, in lieu
thereof, to pay the cost for the replacement and issuance
of new certificates and new titles over the said properties.
The foregoing Joint Decision is hereby SET ASIDE: (1)
insofar as it permanently enjoined Union Bank of the
Philippines from foreclosing the mortgage of the
residential property of respondent spouses Rodolfo T. Tiu
and Victoria N. Tiu which is covered by Transfer
Certificate of Title No. 11951; (2) insofar as it ordered
Union Bank of the Philippines to return to the respondent
spouses Rodolfo T. Tiu and Victoria N. Tiu the amount of
P927,546.79 representing illegally collected rentals; and
(3) insofar as it ordered Union Bank of the Philippines to
pay the respondent spouses Rodolfo T. Tiu and Victoria
N. Tiu P100,000.00 in moral damages, P100,000.00 in
exemplary damages, P50,000.00 in attorneys fees and
cost, both in the lower court and in this Court.
No further pronouncement as to costs.
SO ORDERED.
106
107

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 98450 July 21, 1993
THE PHILIPPINE MANPOWER SERVICES, INC.,
ADAWLIAH UNIVERSAL ELECTRONICS and AFISCO
INSURANCE CORPORATION, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and
ARTHUR P. PANGAN, respondents.
Agcaoili Law Offices for petitioners.
Melencio D. Fabros, Jr. for private respondent.
ROMERO, J.:
On August 10, 1990, the Philippine Overseas
Employment Administration (POEA) rendered a decision
in POEA Cases No. (L) 88-07-595 entitled Arthur Pangan
v. Philippine Manpower Services, Inc. and Adawliah
Universal Electronics and Afisco Insurance Corporation,
disposing as follows:
WHEREFORE, premises considered, judgment is hereby rendered
ordering respondent Philippine Manpower Services Corporation, jointly
and severally with its principal Adawliah Universal Electronics, to pay
complainant Arthur F. Pangan the following amounts:
1. ELEVEN THOUSAND FIVE HUNDRED FIFTY U.S. DOLLARS
(US$11,550.), representing his salaries for the unexpired portion of his
contract of employment; and
2. FIVE PERCENT (5%) of the total award as and by way of attorney's
fees.
All other claims of complainant as well as respondent's counterclaims
are hereby dismissed for lack of merit.
Payment of the above awards shall be made in Philippine Currency at
the prevailing rate of exchange at the time of payment.
SO ORDERED. 1
Petitioners herein appealed said POEA decision before
public respondent National Labor Relations Commission
(NLRC). The NLRC, in its Resolution of March 4, 1991,
modified the decision of the POEA but only insofar as it
35
corrected the POEA on the proper rate of exchange to
be applied in converting the award of US$11,550.00 to
its equivalent in Philippine currency. It thus held:
However, while we are convinced that because Pangan
was illegally dismissed, he should be paid the salaries
corresponding to the unexpired portion of his contract,
we believe that because of the erratic devaluation of the
Philippine Peso vis-a-vis, the US Dollars, simple fairness
dictates that the payment of the awards in the Philippine
Currency should not be "at the rate of exchange at the
time of payment," as mandated by the POEA, but rather
at the rate of exchange prevailing at the time the
complainant's cause of action accrued or at the time he
was illegally dismissed on 21 July 1988. 2
Consequently, said resolution disposed as follows:
WHEREFORE, subject to the modification abovestated, the decision
appealed from should be, as it is hereby, AFFIRMED.
SO ORDERED. 3
A motion for reconsideration of NLRC's Resolution of
March 4, 1991 was denied in its Resolution of April 24,
1991.
As a final recourse, petitioners filed the instant petition
for annulment of the NLRC's Resolutions of March 4,
1991 and April 24, 1991.
The alleged dismissal without cause of private
respondent Arthur F. Pangan by his employer Adawliah
Union Electronics and Afisco Insurance Corporation
(Adawliah, for short) based in Alkhobar, Saudi Arabia,
spawned the present controversy. Pangan filed with the
POEA, a case for illegal dismissal, underpayment of
overtime pay, separation pay, actual damages
representing his salaries for the unexpired portion of his
contract of employment, and exemplary damages of
US$10,000.00 plus attorney's fees. His complaint
alleged that he entered into a two-year contract of
employment with Adawliah, as a data entry clerk
technician for US$550.00 a month, commencing on April
30, 1988. He complained that he rendered overtime work
of fourteen (14) hours last May 1988 and another twenty-
four (24) hours in June 1988 without having received any
compensation therefor; worse, he has ordered to work
as programmer in addition to his work as data entry clerk
technician without any offer to correspondingly increase
his salary; that Pangan's demand for salary adjustment
irked Mr. Ahmed Yosul, Administrative Manager of
Adawliah, who thus ordered Pangan's termination on
grounds of incompetence. Pangan was consequently
compelled to accept payment of only US389.00 dollars,
covering his services for July 1-21. All other claims were
waived by him after he was threatened to be jailed.
Petitioner Philippine Manpower Services, Inc. (Philman)
denied Pangan's allegations in his complaint. Philman
justified Pangan's termination as a valid exercise by his
employer Adawliah, of its management prerogative to fire
employees who proved to be incompetent while still
under probation. It thus prayed for the dismissal of the
instant case.

The POEA, however, found Pangan's complaint
meritorious. Though it recognized the management
prerogative to select its employees, it nevertheless ruled
that the exercise thereof is not without any qualification.
The POEA explained that probationary employees can
only be dismissed for just cause duly proved. In the case
at bar, it found that there was no justified dismissal of
complainant Pangan for failure of Adawliah to
substantiate its claim of his unsatisfactory performance.
General averments on Pangan's incompetence do not
constitute just cause to warrant his termination.
Philman and Adawliah were thus ordered to pay in
solidum, the equivalent in Philippine currency of
US$11,550.00 representing Pangan's salary for the
unexpired portion of his contract and attorney's fees
amounting to five percent (5%) of said award. The POEA
further ruled that in paying the above award in Philippine
currency, the conversion rate to be used shall be that
prevailing at the time of payment.
Philman and Adawliah sought a reversal of said POEA
ruling by appealing before the National Labor Relations
Commission (NLRC). As aforementioned, the NLRC
affirmed, with modification, the POEA ruling appealed
from, in its Resolution of March 4, 1991.
Philman and Adawliah moved for reconsideration of the
Resolution of March 4, 1991 but were denied by the
NLRC for lack of merit.
Consequently, the instant petition was filed by Philman
and Adawliah claiming that:
I. With grave abuse of discretion, the Honorable
Commission (Second Division) together with POEA
Administrator Jose N. Sarmiento brushed aside
petitioners-appellants submission that complainant-
appellee was lawfully dismissed in accordance with
his contract of employment and in consonance with
previous POEA and NLRC rulings applicable to the
case at bar.
II. With grave abuse of discretion, the Honorable
Commission (Second Division) disregarded
appellant's contention based on Article 281 of the
Labor Code of the Philippines, that workers on
probation or trial acquire only transitional rights to
the fulfillment of their employment contracts and
therefore the complainant-appellee cannot lawfully
be entitled to payment of salary for the period of 21
months after failing to qualify as a regular employee
during his three months' trial period.
III. The Honorable Commission (Second Division) gravely
erred in holding that appellee's dismissal is
sustained by the Supreme Court ruling in Manila
Hotel vs. NLRC, 141 SCRA 169.
IV. With grave abuse of discretion, the Honorable
Commission (Second Division) affirmed the findings
of the POEA Administrator to the effect that the
dismissal of the complainant-appellee was
capricious. 4
36
Philman and Adawliah insist that during the probationary
period, the employer is acting within his rights in
dismissing his employee who failed to meet the
qualification standard for continued employment.
Moreover, they aver that Pangan's inability to satisfy the
standards set by Adawliah amounts to incompetence
which is a just cause for termination of his services
pursuant to the first paragraph of the contract of
employment executed between Adawliah and Pangan, to
wit:
If during the first three (3) months (probation period) of
employment, the EMPLOYER find the EMPLOYEE to be
incompetent or incapable of performing the type of work
for which he was hired, then the EMPLOYER may
discharge the EMPLOYEE for cause with no obligation
on the part of the EMPLOYER except for payment of
accrued pay up to the time of termination. The payment
of economy class air transportation back to the point of
hire shall be for the account of EMPLOYEE. 5
On the basis of the foregoing, they argued that the
determination of whether Pangan is capable of
performing the duties of Data Entry Clerk Technician
rests solely with Adawliah, his employer, who is in the
best position to observe Pangan's performance during
the probationary period. There is thus no necessity,
contrary to the views of the POEA and NLRC, to cite
specific incidents of Pangan's incompetence in order to
prove the legality of the dismissal.
Philman and Adawliah further maintained that as a result
of Pangan's failure to qualify as a regular employee, he
did not acquire any rights whatsoever to work out the full
term of his employment contract. Accordingly, they
concluded that Pangan is not entitled to an award
equivalent to the unexpired portion of his two-year
employment contract.
In his Comment to the petition, the Solicitor General
considers petitioners' arguments as untenable. He
contends that, notwithstanding Pangan's probationary
status, he nonetheless enjoys the constitutional
protection on security of tenure unless just cause exists
to justify his termination. He further stressed that the
prerogative of management to dismiss Pangan must be
exercised without abuse of discretion. The absence of
sufficient evidence to substantiate Pangan's dismissal
and the lack of specific acts or instances to show
Pangan's lackluster performance negates the claim of
Adawliah that the dismissal was a rightful exercise of
such prerogative. Due to the gross violation of Pangan's
security of tenure, the Solicitor General opined that he is
entitled to an award equivalent to his salary for the
unexpired portion of his two-year employment contract.
The petition should be dismissed. Jurisprudence is rich
in cases guaranteeing the security of tenure, limited
though it may be, of probationary employees. 6 Except
for just cause as provided by law or under the
employment contract, a probationary employee cannot
be terminated. 7 Petitioners do not view Pangan's
termination as a violation of these legal precepts. Rather,
they consider his incompetence as a just cause,
sufficient to constitute the basis of his dismissal under
the contract.
 37

At first blush, petitioners' position may seem sound, it probationary period. Accordingly, had not Pangan been
appearing that their contract, which is the law between compelled to return to the Philippines, he could have
them, contains a stipulation that the employer has the demanded enforcement of the employment contract. In
discretion to dismiss its employees for incompetence. the case of Skillword Management and Marketing Corp.,
However, where the dismissed employee, Pangan in this et al. v. NLRC, et al., 12 we similarly unheld a POEA
instance, challenges his dismissal as illegal, predicating ruling awarding private respondents therein $6,900.00 or
his claim on the absence of a just cause, the correct its equivalent in Philippine currency at the time of actual
issue is not so much Adawliah's discretion to terminate payment covering complainant's salary for the unexpired
as the existence of Pangan's alleged incompetence as portion of twenty-three months due to unjust dismissal as
ground for his termination. Hence, the POEA and NLRC a probationary employee.
did not commit grave abuse of discretion in requiring
petitioners to present proof of the alleged incompetence In the case of Republic Resources and Development
of Pangan. Thus, it has been held that: Corporation v. Court of Appeals, 13 reiterating our
decision in Kalalo v. Luz, 14 with regard to obligations
It is a basic principle in the dismissal of employees that the burden of incurred after enactment of RA No. 529 15 on June 16,
proof rests upon the employer to show that the dismissal of the
1950, we also held that the rate of exchange to be
employee is for a just cause, and failure to do so would necessarily
mean that the dismissal is not justified [Polymedic General Hospital v. applied should be that prevailing at the time of payment.
NLRC, G.R. No. 64190, January 31, 1985, 134 SCRA 420; Asphalt and
Cement Pavers, Inc. v. Leogardo, et al., G.R. No. 74563, June 20, As a consequence of our affirmance of the POEA award,
1988.] Should the employer fail in discharging this duty, the dismissal
of the employee cannot be sustained. This is consonant with the we find incorrect the NLRC Resolution of March 4, 1991
constitutional guarantee of security of tenure, as implemented in what to the effect that the proper rate of exchange to be
is now Sec. 279 of the Labor Code, as amended. 8 applied in converting the award of US$11,550.00 to its
equivalent in Philippine currency is that prevailing at the
This same principle applies to probationary employees time complainant's cause of action accrued and not at
allegedly terminated without cause during their limited the time of actual payment as ruled by the POEA.
tenure. Thus in Euro-Linea Philippines Inc. v. NLRC, et
al., 9 this Court dismissed the petition on the ground that: WHEREFORE, finding no grave abuse of discretion on
the part of public respondents, the petition is
Petitioner not only failed to present sufficient evidence to substantiate DISMISSED. The decision of the POEA dated August
the cause of private respondent's dismissal, but likewise failed to cite
10, 1991 is hereby AFFIRMED in toto and the Resolution
particular acts or instances to show the latter's poor performance.
of the NLRC dated March 4, 1991 is MODIFIED, insofar
as the proper rate of exchange to be applied in
Similarly, no convincing proof establishing Pangan's
converting the award of US$11,550.00 in Philippine
alleged incompetence was presented. The POEA and
currency is that prevailing at the time of actual payment.
NLRC, therefore, correctly declared the dismissal to be
illegal. Pangan's dismissal without cause during the
probationary period constitutes a violation of his SO ORDERED.
Constitutional right to security of tenure. The
Constitution, which is built into all contracts entered into
in the Philippines and governed by Philippines law when
it provides in Art. XIII,
Sec 3 10 that "they shall be entitled to security of
tenure . . ." did not distinguish between probationary and
regular employees. Consequently, Pangan deserves the
disputed award of the POEA, entitling him to an amount
representing his salary for the unexpired portion of his
employment contract. It was erroneous for petitioners to
question the award as improper, theorizing that he is not
entitled to sum equivalent to his salary for the unexpired
portion of the contract, he being merely a probationary
employee who has not acquired a vested right to
demand fulfillment of his employment contract.

Apparently, petitioners have misread the statutory grant

of security of tenure to probationary employees. Under
Article 281 of the Labor Code, 11 a probationary
employee may be terminated on two grounds: (a) for just
cause or (b) when he fails to qualify as a regular
employee in accordance with reasonable standards
made known by the employer to the employee at the
time of his engagement. Since as established in the case
at bar, petitioners were unable to prove either ground as
a basis for terminating Pangan's employment, no reason
exists to sever the employment relationship between
Adawliah and Pangan. Otherwise stated, absent the
grounds for termination of a probationary employee, he
is entitled to continued employment even beyond the

[G.R. No. 137798. October 4, 2000]
LUCIA R. SINGSON, petitioner, vs. CALTEX
(PHILIPPINES), INC. respondent.
DECISION
GONZAGA-REYES, J.:
Petitioner seeks a review on certiorari of the decision of
the former Special Second Division of the Court of
Appeals dated November 27, 1998,i[1] affirming the
decision of the Regional Trial Court of Manila, Branch
25ii[2] which dismissed petitioner's action for reformation
of contract and adjustment of rentals.
The facts of the case are undisputed ---
Petitioner and respondent entered into a contract of
lease on July 16, 1968 over a parcel of land in Cubao,
Quezon City. The land, which had an area of 1,400
square meters and was covered by Transfer Certificates
of Title No. 43329 and 81636 issued by the Register of
Deeds of Quezon City, was to be used by respondent as
a gasoline service station.
The contract of lease provides that the lease shall run for
a period of twenty (20) years and shall abide by the
following rental rates:
xxxxxx xxx xxx
Rental. --- The LESSEE agrees to pay the following
rental for said premises:
P2.50/sq.m. per month from the 1st to 10th years and
P3.00/sq.m. per month from the 11th to 20th years,
payable monthly in advance within the 1st 15 days of
each month; provided that the rentals for the 1st 5 years
38
less a discount of eleven (11) percent per annum
computed on a monthly diminishing balance, shall be
paid to LESSOR upon compliance of the three (3)
conditions provided in clause (2) above.
LESSEE also agrees to pay lessor, the sum of Six
Thousand Pesos (P6,000.00) as demolition expenses,
upon effectivity of this lease.
The rental herein provided for is in any event the
maximum rental which LESSOR may collect during the
term of this lease or any renewal or extension thereof.
LESSEE further agrees for thirty (30) days after written
notice of such default has actually been delivered to the
General Manager of Caltex (Philippines), Inc. LESSOR
shall then have the right to terminate this lease on thirty
(30) days written notice to LESSEE. xxx xxx xxx iii[3]
Thus, based on the foregoing provisions of the lease
contract, the monthly rental was fixed at P3,500.00 for
the first ten years, and at P4,200.00 for the succeeding
ten years of the lease.
On June 23, 1983, or five years before the expiration of
the lease contract, petitioner asked respondent to adjust
or increase the amount of rentals citing that the country
was experiencing extraordinary inflation. In a letter dated
August 3, 1983, respondent refused petitioner's request
and declared that the terms of the lease contract are
clear as to the rental amounts therein provided being
"the maximum rental which the lessor may collect during
the term of the lease."iv[4]
On September 21, 1983, petitioner instituted a complaint
before the RTC praying for, among other things, the
payment by respondent of adjusted rentals based on the
value of the Philippine peso at the time the contract of
lease was executed. The complaint invoked Article 1250
of the Civil Code, stating that since the execution of the
contract of lease in 1968 an extraordinary inflation had
supervened resulting from the deterioration of worldwide
economic conditions, a circumstance that was not
foreseen and could not have been reasonably foreseen
by the parties at the time they entered into contract.
To substantiate its allegation of extraordinary inflation,
petitioner presented as witness Mr. Narciso Uy, Assistant
Director of the Supervising and Examining Sector of the
Central Bank, who attested that the inflation rate
increased abruptly during the period 1982 to 1985,
caused mainly by the devaluation of the peso.v[5]
Petitioner also submitted into evidence a certification of
the official inflation rates from 1966 to 1986 prepared by
the National Economic Development Authority ("NEDA")
based on consumer price index, which reflected that at
the time the parties entered into the subject contract, the
inflation rate was only 2.06%; then, it soared to 34.51%
in 1974, and in 1984, reached a high of 50.34%. vi[6]
In a decision rendered on July 15, 1991, the RTC
dismissed the complaint for lack of merit. This judgment
was affirmed by the Court of Appeals. Both courts found
that petitioner was unable to prove the existence of
extraordinary inflation from 1968 to 1983 (or from the
year of the execution of the contract up to the year of the
filing of the complaint before the RTC) as to justify an
adjustment or increase in the rentals based upon the
provisions of Article 1250 of the Civil Code.
The Court of Appeals declared that although, admittedly,
there was an economic inflation during the period in

question, it was not such as to call for the application of
Article 1250 which is made to apply only to "violent and
sudden changes in the price level or uncommon or
unusual decrease of the value of the currency. (It) does
not contemplate of a normal or ordinary decline in the
purchasing power of the peso."vii[7]
The Court of Appeals also found similarly with the trial
court that the terms of rental in the contract of lease
dated July 16, 1968 are clear and unequivocal as to the
specific amount of the rental rates and the fact that the
rentals therein provided shall be the "maximum rental"
which petitioner as lessor may collect. Absent any
showing that such contractual provisions are contrary to
law, morals, good customs, public order or public policy,
the Court of Appeals held that there was no basis for not
acknowledging their binding effect upon the parties. It
also upheld the application by the trial court of the ruling
in Filipino Pipe and Foundry Corporation vs. National
Waterworks and Sewerage Authority, 161 SCRA 32,
where the Court held that although there has been a
decline in the purchasing power of the Philippine peso
during the period 1961 to 1971, such downward fall of
the currency could not be considered "extraordinary" and
was simply a universal trend that has not spared the
Philippines.
Thus, the dispositive portion of the decision of the Court
of Appeals reads:
WHEREFORE, in view of the foregoing, the appeal is
hereby DISMISSED and the decision appealed from is
hereby AFFIRMED.
SO ORDERED.viii[8]
Petitioner's motion for reconsideration of the above
decision was denied by the Court of Appeals in a
resolution dated March 10, 1999.
Aggrieved, petitioner filed this petition for review on
certiorari where she assails as erroneous the decision of
the Court of Appeals, specifically, (1) in ruling that Article
1250 of the Civil Code is inapplicable to the instant case,
(2) in not recognizing the applicability of the principle of
rebus sic stantibus, and (3) in applying the ruling in
Filipino Pipe and Foundry Corporation vs. NAWASA.
Petitioner contends that the monthly rental of P3.00 per
square meter is patently inequitable. Based on the
inflation rates supplied by NEDA, there was an unusual
increase in inflation that could not have been foreseen
by the parties; otherwise, they would not have entered
into a relatively long-term contract of lease. She argued
that the rentals in this case should not be regarded by
their quantitative or nominal value, but as "debts of
value", that is, the rental rates should be adjusted to
reflect the value of the peso at the time the lease was
contracted.ix[9]
Petitioner also insists that the factual milieu of the
present case is distinct from that in Filipino Pipe and
Foundry Corporation vs. NAWASA. She pointed out that
the inflation experienced by the country during the period
1961 to 1971 (the pertinent time period in the Filipino
Pipe case) had a lowest of 1.35% in 1969 and a highest
of 15.03% in 1971, whereas in the instant case, involving
the period 1968 to 1983, there had been highly abnormal
inflation rates like 34.51% in 1974 (triggered by the
OPEC oil price increases in 1973) and 50.34% in 1984
(caused by the assassination of Benigno Aquino, Jr. in
39
1983). Petitioner argues that the placing of the country
under martial rule in 1972, the OPEC oil price increases
in 1973, and the Aquino assassination which triggered
the EDSA revolution, were fortuitous events that
drastically affected the Philippine economy and were
beyond the reasonable contemplation of the parties.
To further bolster her arguments, petitioner invokes by
analogy the principle of rebus sic stantibus in public
international law, under which a vital change of
circumstances justifies a state's unilateral withdrawal
from a treaty. In the herein case, petitioner posits that in
pegging the monthly rental rates of P2.50 and P3.00 per
square meter, respectively, the parties were guided by
the economic conditions prevalent in 1968, when the
Philippines faced robust economic prospects. Petitioner
contends that between her and respondent, a
corporation engaged in high stakes business and
employing economic and business experts, it is the latter
who had the unmistakable advantage to analyze the
feasibility of entering into a 20-year lease contract at
such meager rates.
The only issue crucial to the present appeal is whether
there existed an extraordinary inflation during the period
1968 to 1983 that would call for the application of Article
1250 of the Civil Code and justify an adjustment or
increase of the rentals between the parties.
Article 1250 of the Civil Code states:
In case an extraordinary inflation or deflation of the
currency stipulated should supervene, the value of the
currency at the time of the establishment of the
obligation shall be the basis of payment, unless there is
an agreement to the contrary.
Article 1250 was inserted in the Civil Code of 1950 to
abate the uncertainty and confusion that affected
contracts entered into or payments made during World
War II, and to help provide a just solution to future
cases.x[10] The Court has, in more than one occasion,
been asked to interpret the provisions of Article 1250,
and to expound on the scope and limits of "extraordinary
inflation".
We have held extraordinary inflation to exist when there
is a decrease or increase in the purchasing power of the
Philippine currency which is unusual or beyond the
common fluctuation in the value of said currency, and
such increase or decrease could not have been
reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the
establishment of the obligation.xi[11]
An example of extraordinary inflation, as cited by the
Court in Filipino Pipe and Foundry Corporation vs.
NAWASA, supra, is that which happened to the
deutschmark in 1920. Thus:
"More recently, in the 1920s, Germany experienced a
case of hyperinflation. In early 1921, the value of the
German mark was 4.2 to the U.S. dollar. By May of the
same year, it had stumbled to 62 to the U.S. dollar. And
as prices went up rapidly, so that by October 1923, it had
reached 4.2 trillion to the U.S. dollar!" (Bernardo M.
Villegas & Victor R. Abola, Economics, An Introduction
[Third Edition]).
 40

As reported, "prices were going up every week, then
every day, then every hour. Women were paid several
times a day so that they could rush out and exchange
their money for something of value before what little
purchasing power was left dissolved in their hands.
Some workers tried to beat the constantly rising prices
by throwing their money out of the windows to their
waiting wives, who would rush to unload the nearly
worthless paper. A postage stamp cost millions of marks
and a loaf of bread, billions." (Sidney Rutberg, "The
Money Balloon", New York: Simon and Schuster, 1975,
p. 19, cited in "Economics, An Introduction" by Villegas &
Abola, 3rd Ed.)
The supervening of extraordinary inflation is never
assumed.xii[12] The party alleging it must lay down the
factual basis for the application of Article 1250.
Thus, in the Filipino Pipe case, the Court acknowledged
that the voluminous records and statistics submitted by
plaintiff-appellant proved that there has been a decline in
the purchasing power of the Philippine peso, but this
downward fall cannot be considered "extraordinary" but
was simply a universal trend that has not spared our
country.xiii[13] Similarly, in Huibonhoa vs. Court of
Appeals,xiv[14] the Court dismissed plaintiff-appellant's
unsubstantiated allegation that the Aquino assassination
in 1983 caused building and construction costs to double
during the period July 1983 to February 1984. In Serra
vs. Court of Appeals,xv[15] the Court again did not
consider the decline in the peso's purchasing power from
1983 to 1985 to be so great as to result in an
extraordinary inflation.
"Erosion" is indeed an accurate description of the trend
of decline in the value of the peso in the past three to
four decades. Unfortunate as this trend may be, it is
certainly distinct from the phenomenon contemplated by
Article 1250.
Moreover, this Court has held that the effects of
extraordinary inflation are not to be applied without an
official declaration thereof by competent authorities.xvii
[17]
Lastly, the provisions on rentals in the lease contract
dated July 16, 1968 between petitioner and respondent
are clear and categorical, and we have no reason to
suppose that such lease contract does not reflect or
express their true intention and agreement. The contract
is the law between the parties and if there is indeed
reason to adjust the rent, the parties could have by
themselves negotiated the amendment of the contract. xviii
[18]
WHEREFORE, the petition seeking the reversal of the
decision of the Court of Appeals in CA-G.R. CV No.
54115 is DENIED.
SO ORDERED.

Like the Serra and Huibonhoa cases, the instant case

also raises as basis for the application of Article 1250 the
Philippine economic crisis in the early 1980s --- when,
based on petitioner's evidence, the inflation rate rose to
50.34% in 1984. We hold that there is no legal or factual
basis to support petitioner's allegation of the existence of
extraordinary inflation during this period, or, for that
matter, the entire time frame of 1968 to 1983, to merit
the adjustment of the rentals in the lease contract dated
July 16, 1968. Although by petitioner's evidence there
was a decided decline in the purchasing power of the
Philippine peso throughout this period, we are hard put
to treat this as an "extraordinary inflation" within the
meaning and intent of Article 1250. Rather, we adopt
with approval the following observations of the Court of
Appeals on petitioner's evidence, especially the NEDA
certification of inflation rates based on consumer price
index:

xxx (a) from the period 1966 to 1986, the official inflation
rate never exceeded 100% in any single year; (b) the
highest official inflation rate recorded was in 1984 which
reached only 50.34%; (c) over a twenty one (21) year
period, the Philippines experienced a single-digit inflation
in ten (10) years (i.e., 1966, 1967, 1968, 1969, 1975,
1976, 1977, 1978, 1983 and 1986); (d) in other years
(i.e., 1970, 1971, 1972, 1973, 1974, 1979, 1980, 1981,
1982, 1984 and 1989) when the Philippines experienced
double-digit inflation rates, the average of those rates
was only 20.88%; (e) while there was a decline in the
purchasing power of the Philippine currency from the
period 1966 to 1986, such cannot be considered as
extraordinary; rather, it is a normal erosion of the value
of the Philippine peso which is a characteristic of most
currencies.xvi[16]
 41

"1. P16,484,994.42, the principal obligation

under the two promissory note Nos. 003 and
00037 plus interest and penalties;

"2. P100,000.00 for loss of goodwill and good

reputation;

"3. An amount equivalent to 10% of the

collectible amount, plus P50,000, as acceptance
fee and P500 per appearance, as and for
attorneys fees: and

"4. P100,000 as litigation expenses.

"Costs shall be taxed against defendant-appellees.

"SO ORDERED."3

The Facts

The facts, as found by the Court of Appeals, are as

follows:

"On 7 August 1990 plaintiff Advance Capital Corporation,

a licensed lending investor, extended a loan to defendant
Philippine Lawin Bus Company (hereafter referred to as
LAWIN), in the amount of P8,000,000.00 payable within
a period of one (1) year, as evidenced by a Credit
Agreement (Exhibits "B" to "B-4-B"). The defendant,
through Marciano Tan, its Executive Vice President,
executed Promissory Note No. 003, for the amount of
P8,000,000.00 (Exhs. "C" to "C-1").
Republic of the Philippines
SUPREME COURT "To guarantee payment of the loan, defendant Lawin
Manila executed in favor of plaintiff the following documents: (1)
A Deed of Chattel Mortgage wherein 9 units of buses
FIRST DIVISION were constituted as collaterals (Exhibits "F" to "F-7"): (2)
A joint and several UNDERTAKING of defendant Master
G.R. No. 130972 January 23, 2002 Tours and Travel Corporation dated 07 August 1990,
signed by Isidro Tan and Marciano Tan (Exhs. "H" to "H-
PHILIPPINE LAWIN BUS, CO., MASTER TOURS & 1): and (3) A joint and several UNDERTAKING dated 21
TRAVEL CORP., MARCIANO TAN, ISIDRO TAN, August 1990, executed and signed by Esteban, Isidro,
ESTEBAN TAN and HENRY TAN, petitioners, Marciano and Henry, all surnamed Tan (Exhs. "I" to "I-
vs. 6").
COURT OF APPEALS and ADVANCE CAPITAL
CORPORATION, respondents. "Out of the P8,000,000.00 loan, P1,800,000.00 was
paid. Thus, on 02 November 1990, defendant Bus
DECISION Company was able to avail an additional loan of
P2,000,000.00 for one (1) month under Promissory Note
PARDO, J.: 00028 (Exhs. "J"-"J-1").

The Case "Defendant LAWIN failed to pay the aforementioned

The case is a petition for review via certiorari of the
decision of the Court of Appeals,1 reversing that of the
trial court2 and sentencing petitioners as follows:
"WHEREFORE, the appealed decision should be, as it is
hereby REVERSED and SET ASIDE. In lieu thereof, a
new one is hereby rendered ordering the defendants-
appellees to pay, jointly and solidarily, in favor of plaintiff-
appellant Advance Capital Corporation, the following
amounts:
promissory note and the same was renewed on 03
December 1990 to become due on or before 01
February 1991, under Promissory Note 00037 (Exh. "K").
"On 15 May 1991 for failure to pay the two promissory
notes, defendant LAWIN was granted a loan re-
structuring for two (2) months to mature on 31 July 1991.
"Despite the restructuring, defendant LAWIN failed to
pay. Thus, plaintiff foreclosed the mortgaged buses and
as the sole bidder thereof, the amount of P2,000,000.00
was accepted by the deputy sheriff conducting the sale
and credited to the account of defendant LAWIN.

"Thereafter, on 27 May 1992, identical demand letters
were sent to the defendants to pay their obligation (Exhs.
"X" to "CC"). Despite repeated demands, the defendants
failed to pay their indebtedness which totaled of
P16,484,992.42 as of 31 July 1992 (Exhs. "DD"-"DD-1").
"Thus, the suit for sum of money, wherein the plaintiff
prays that defendants solidarily pay plaintiff as of July
31, 1992 the sum of (a) P16,484,994.12 as principal
obligation under the two promissory notes Nos. 003 and
00037, plus interests and penalties: (b) P300,000.00 for
loss of good will and good business reputation: (c)
attorneys fees amounting to P100,000.00 as acceptance
fee and a sum equivalent to 10% of the collectible
amount, and P500.00 as appearance fee; (d)
P200,000.00 as litigation expenses; (e) exemplary
damages in an amount to be awarded at the courts
discretion; and (f) the costs.
"On 04 September 1993, a writ of preliminary injunction
was issued with respect to movable and immovable
properties of the defendants.
"In answer to the complaint, defendants-appellees assert
by way of special and affirmative defense, that there was
already an arrangement as to the full settlement of the
loan obligation by way of:
"17.A. Sale of the nine (9) units passenger buses the
proceeds of which will be credited against the loan
amount as full payment thereof; or in the alternative.
"17.B. Plaintiff will shoulder and bear the cost of
rehabilitating the buses, with the amount thereof to be
included in the total obligation of defendant Lawin and
the bus operated, with the earnings thereof to be applied
to the loan obligation of defendant Lawin." (p. 4 Answer;
p. 166, rec.)
"Defendants further assert that the foreclosure sale was
in violation of the aforequoted arrangement and prayed
for the nullification of the same and the dismissal of the
complaint."4
On 28 June 1995, the trial court rendered a decision
dismissing the complaint, as follows:
"WHEREFORE, judgment is rendered as follows:
"1. Dismissing the complaint for lack of merit;
"2. Declaring the foreclosure and auction sale
null and void;
"3. Declaring the obligation or indebtedness of
defendants EXTINGUISHED;
"4. Declaring the writ of attachment issued in this
case null and void and, therefore, is hereby
declared dissolved; and
"5. Ordering the Sheriff of this Branch or
whoever is in possession, to return all the
personal properties attached in this case to the
owner/s thereof within one (1) week from the
finality of this decision;
42
"6. Dismissing defendants counterclaim for lack
of sufficient merit.
"No pronouncement as to costs.
"SO ORDERED."5
In time, respondent Advance Capital Corporation
appealed from the decision to the Court of Appeals.6
On 30 September 1997, the Court of Appeals
promulgated a decision reversing that of the trial court,
the dispositive portion of which is set out in the opening
paragraph of this decision.
Hence, this appeal.7
The Issue
The issue raised is whether there was dacion en pago
between the parties upon the surrender or transfer of the
mortgaged buses to the respondent.8
The Courts Ruling
We deny the petition, with modification.
The issue raised is factual. In an appeal via certiorari, we
may not review the factual findings of the Court of
Appeals.9 When supported by substantial evidence, the
findings of fact of the Court of Appeals are conclusive
and binding on the parties and are not reviewable by this
Court,10 unless the case falls under any of the
recognized exceptions to the rule.11
Petitioner failed to prove that the case falls within the
exceptions.12 The Supreme Court is not a trier of facts.13
It is not our function to review, examine and evaluate or
weigh the probative value of the evidence presented. 14 A
question of fact would arise in such event.15
Nonetheless, we agree with the Court of Appeals that
there was no dacion en pago that took place between
the parties.
In dacion en pago, property is alienated to the creditor in
satisfaction of a debt in money.16 It is "the delivery and
transmission of ownership of a thing by the debtor to the
creditor as an accepted equivalent of the performance of
the obligation."17 It "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."18
Article 1245 of the Civil Code provides that the law on
sales shall govern an agreement of dacion en pago. A
contract of sale is perfected at the moment there is a
meeting of the minds of the parties thereto upon the
thing which is the object of the contract and upon the
price.19 In Filinvest Credit Corporation v. Philippine
Acetylene Co., Inc., we said:
 43

"x x x. In dacion en pago, as a special mode of payment, (3) Costs of suit.

the debtor offers another thing to the creditor who
accepts it as equivalent of payment of an outstanding All other monetary awards are deleted.
obligation. The undertaking really partakes in one sense
of the nature of sale, that is, the creditor is really buying SO ORDERED.
the thing or property of the debtor, payment for which is
to be charged against the debtors debt.1wphi1 As
such, the essential elements of a contract of sale,
namely, consent, object certain, and cause or
consideration must be present. In its modern concept,
what actually takes place in dacion en pago is an
objective novation of the obligation where the thing
offered as an accepted equivalent of the performance of
an obligation is considered as the object of the contract
of sale, while the debt is considered as the purchase
price. In any case, common consent is an essential
prerequisite, be it sale or novation, to have the effect of
totally extinguishing the debt or obligation." 20

In this case, there was no meeting of the minds between

the parties on whether the loan of the petitioners would
be extinguished by dacion en pago. The petitioners
anchor their claim solely on the testimony of Marciano
Tan that he proposed to extinguish petitioners obligation
by the surrender of the nine buses to the respondent
acceded to as shown by receipts its representative
made.21 However, the receipts executed by respondents
representative as proof of an agreement of the parties
that delivery of the buses to private respondent would
result in extinguishing petitioners obligation do not in
any way reflect the intention of the parties that ownership
thereof by respondent would be complete and absolute.
The receipts show that the two buses were delivered to
respondent in order that it would take custody for the
purpose of selling the same. The receipts themselves in
fact show that petitioners deemed respondent as their
agent in the sale of the two vehicles whereby the
proceeds thereof would be applied in payment of
petitioners indebtedness to respondent. Such an
agreement negates transfer of absolute ownership over
the property to respondent, as in a sale. Thus, in
Philippine National Bank v. Pineda22 we held that where
machinery and equipment were repossessed to secure
the payment of a loan obligation and not for the purpose
of transferring ownership thereof to the creditor in
satisfaction of said loan, no dacion en pago was ever
accomplished.1wphi1

The Fallo

IN VIEW WHEREOF, the Court DENIES the petition and

AFFIRMS the decision of the Court of Appeals23 with
MODIFICATION as follows:

WHEREFORE, the appealed decision is hereby

REVERSED and SET ASIDE. In lieu thereof, judgment
is hereby rendered ordering defendants-appellees to
pay, jointly and severally, plaintiff-appellant Advance
Capital Corp. the following amounts:

(1) P16,484,994.42, the principal obligation

under the two promissory notes plus 12% per
annum from the finality of this decision until fully
paid;

(2) P50,000.00 as attorneys fees;

 44

of the President (OP) in O.P. Case No. 04D182

(HLURB Case No. REMA0307240186).

Facts of the Case

Some time in July 1994, respondent Teresita Tan Dee

(Dee) bought from respondent Prime East Properties
Inc.5 (PEPI) on an installment basis a residential lot
located in Binangonan, Rizal, with an area of 204 square
meters6 and covered by Transfer Certificate of Title
(TCT) No. 619608. Subsequently, PEPI assigned its
rights over a 213,093sq m property on August 1996 to
respondent Armed Forces of the PhilippinesRetirement
and Separation Benefits System, Inc. (AFPRSBS),
which included the property purchased by Dee.

Thereafter, or on September 10, 1996, PEPI obtained a

P205,000,000.00 loan from petitioner Philippine National
Bank (petitioner), secured by a mortgage over several
properties, including Dees property. The mortgage was
cleared by the Housing and Land Use Regulatory Board
(HLURB) on September 18, 1996.7cralawred

After Dees full payment of the purchase price, a deed of

sale was executed by respondents PEPI and AFP
RSBS on July 1998 in Dees favor. Consequently, Dee
sought from the petitioner the delivery of the owners
duplicate title over the property, to no avail. Thus, she
filed with the HLURB a complaint for specific
performance to compel delivery of TCT No. 619608 by
the petitioner, PEPI and AFPRSBS, among others. In
its Decision8 dated May 21, 2003, the HLURB ruled in
favor of Dee and disposed as
follows:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, judgment is
hereby rendered as follows:chanroblesvirtuallawlibrary

1. Directing [the petitioner] to cancel/release the

mortgage on Lot 12, Block 21A, Village East
Executive Homes covered by Transfer
Certificate of Title No. 619608 (TCT No.
619608), and accordingly, surrender/release
the title thereof to [Dee];

2. Immediately upon receipt by [Dee] of the

owners duplicate of Transfer Certificate of Title
No. 619608 (TCT No. 619608),
respondents PEPI and AFPRSBS are hereby
ordered to deliver the title of the subject lot in the
name of [Dee] free from all liens and
encumbrances;

3. Directing respondents PEPI and AFPRSBS to

FIRST DIVISION
G.R. No. 182128, February 19, 2014
PHILIPPINE NATIONAL BANK, Petitioner, v.
TERESITA TAN DEE, ANTIPOLO PROPERTIES, INC.,
(NOW PRIME EAST PROPERTIES, INC.) AND AFP
RSBS, INC., Respondents.
DECISION
4. In the alternative, in case of legal and physical
REYES, J.:
This is a Petition for Review1 under Rule 45 of the Rules
of Court, assailing the Decision2 dated August 13, 2007
and Resolution3 dated March 13, 2008 rendered by the
Court of Appeals (CA) in CAG.R. SP No. 86033, which
affirmed the Decision4 dated August 4, 2004 of the Office
pay [the petitioner] the redemption value of Lot
12, Block 21A, Village East Executive Homes
covered by Transfer Certificate of Title No.
619608 (TCT No. 619608) as agreed upon
by them in their Real Estate Mortgage within six
(6) months from the time the owners duplicate
of Transfer Certificate of Title No. 619608
(TCT No. 619608) is actually surrendered and
released by [the petitioner] to [Dee];
impossibility on the part of [PEPI, AFPRSBS,
and the petitioner] to comply and perform their
respective obligation/s, as abovementioned,
respondents PEPI and AFPRSBS are hereby
ordered to jointly and severally pay to [Dee] the
amount of FIVE HUNDRED TWENTY
THOUSAND PESOS ([P]520,000.00) plus
twelve percent (12%) interest to be computed

from the filing of complaint on April 24, 2002 until
fully paid; and
5. Ordering [PEPI, AFPRSBS, and the petitioner]
to pay jointly and severally [Dee] the following
sums:
a) The amount of TWENTY FIVE THOUSAND PESOS owner/developer (Section 25) are complied with. The
([P]25,000.00) as attorneys fees;
b) The cost of litigation[;] and
c) An administrative fine of TEN THOUSAND PESOS
([P]10,000.00) payable to this Office fifteen (15) days Respondent AFPRSBS, meanwhile, contends that it
upon receipt of this decision, for violation of Section cannot be compelled to pay or settle the obligation under
18 in relation to Section 38 of PD 957.
9
SO ORDERED. ChanRoblesVirtualawlibrary
The HLURB decision was affirmed by its Board of
Commissioners per Decision dated March 15, 2004, with
modification as to the rate of interest.10
On appeal, the Board of Commissioners decision was
affirmed by the OP in its Decision dated August 4, 2004,
11
with modification as to the monetary award. cralawred
Hence, the petitioner filed a petition for review with the
CA, which, in turn, issued the assailed Decision dated
August 13, 2007, affirming the OP decision. The
dispositive portion of the decision
reads:chanRoblesvirtualLawlibrary
WHEREFORE, in view of the foregoing, the petition is
DENIED. The Decision dated August 4, 2004 rendered
by the Office of the President in O. P. Case No. 04D
182 (HLURB Case No. REMA0307240186) is hereby
AFFIRMED.chanroblesvirtualawlibrary
SO ORDERED. 12ChanRoblesVirtualawlibrary
Its motion for reconsideration having been denied by the
CA in the Resolution dated March 13, 2008, the
petitioner filed the present petition for review on the
following grounds:chanRoblesvirtualLawlibrary
I. THE HONORABLE COURT OF APPEALS
ERRED IN ORDERING OUTRIGHT RELEASE
OF TCT NO. 619608 DESPITE PNBS DULY
REGISTERED AND HLURB[] APPROVED
MORTGAGE ON TCT NO. 619608.
II. THE HONORABLE COURT OF APPEALS
ERRED IN ORDERING CANCELLATION OF
MORTGAGE/RELEASE OF TITLE IN FAVOR
OF RESPONDENT DEE DESPITE THE LACK
OF PAYMENT OR SETTLEMENT BY THE
MORTGAGOR (API/PEPI and AFPRSBS) OF
ITS EXISTING LOAN OBLIGATION TO PNB,
OR THE PRIOR EXERCISE OF RIGHT OF
REDEMPTION BY THE MORTGAGOR AS
MANDATED BY SECTION 25 OF PD 957 OR
DIRECT PAYMENT MADE BY RESPONDENT
DEE TO PNB PURSUANT TO THE DEED OF
UNDERTAKING WHICH WOULD WARRANT
RELEASE OF THE SAME.13
The petitioner claims that it has a valid mortgage over
Dees property, which was part of the property
mortgaged by PEPI to it to secure its loan obligation, and
that Dee and PEPI are bound by such mortgage. The
petitioner also argues that it is not privy to the
transactions between the subdivision project buyers and
PEPI, and has no obligation to perform any of their
respective undertakings under their contract.14
45
The petitioner also maintains that Presidential Decree
(P.D.) No. 95715 cannot nullify the subsisting agreement
between it and PEPI, and that the petitioners rights over
the mortgaged properties are protected by Act 3135 16 . If
at all, the petitioner can be compelled to release or
cancel the mortgage only after the provisions of P.D. No.
957 on redemption of the mortgage by the
petitioner also objects to the denomination by the CA of
the provisions in the Affidavit of Undertaking as
stipulations pour autrui,17 arguing that the release of the
title was conditioned on Dees direct payment to it. 18
the mortgage contract between PEPI and the petitioner
as it is merely an investor in the subdivision project and
is not privy to the mortgage.19
Respondent PEPI, on the other hand, claims that the title
over the subject property is one of the properties due for
release by the petitioner as it has already been the
subject of a Memorandum of Agreement and dacion en
pago entered into between them.20 The agreement was
reached after PEPI filed a petition for rehabilitation, and
contained the stipulation that the petitioner agreed to
release the mortgage lien on fully paid mortgaged
properties upon the issuance of the certificates of title
over the dacioned properties.21
For her part, respondent Dee adopts the arguments of
the CA in support of her prayer for the denial of the
petition for review.22
Ruling of the Court
The petition must be DENIED.
The petitioner is correct in arguing that it is not obliged to
perform any of the undertaking of respondent PEPI and
AFPRSBS in its transactions with Dee because it is not
a privy thereto. The basic principle of relativity of
contracts is that contracts can only bind the parties who
entered into it,23 and cannot favor or prejudice a third
person, even if he is aware of such contract and has
acted with knowledge thereof.24 Where there is no
privity of contract, there is likewise no obligation or
liability to speak about.25cralawred
The petitioner, however, is not being tasked to undertake
the obligations of PEPI and AFPRSBS. In this case,
there are two phases involved in the transactions
between respondents PEPI and Dee the first phase is
the contract to sell, which eventually became the second
phase, the absolute sale, after Dees full payment of the
purchase price. In a contract of sale, the parties
obligations are plain and simple. The law obliges the
vendor to transfer the ownership of and to deliver the
thing that is the object of sale.26 On the other hand, the
principal obligation of a vendee is to pay the full
purchase price at the agreed time.27 Based on the final
contract of sale between them, the obligation of PEPI, as
owners and vendors of Lot 12, Block 21A, Village East
Executive Homes, is to transfer the ownership of and to
deliver Lot 12, Block 21A to Dee, who, in turn, shall pay,
and has in fact paid, the full purchase price of the
property. There is nothing in the decision of the HLURB,
as affirmed by the OP and the CA, which shows that the
petitioner is being ordered to assume the obligation of
any of the respondents. There is also nothing in the
HLURB decision, which validates the petitioners claim
that the mortgage has been nullified. The order of

cancellation/release of the mortgage is simply a
consequence of Dees full payment of the purchase
price, as mandated by Section 25 of P.D. No. 957, to
wit:chanRoblesvirtualLawlibrary
Sec. 25. Issuance of Title. The owner or developer shall
deliver the title of the lot or unit to the buyer upon full
payment of the lot or unit. No fee, except those required
for the registration of the deed of sale in the Registry of
Deeds, shall be collected for the issuance of such title. In
the event a mortgage over the lot or unit is outstanding
at the time of the issuance of the title to the buyer, the
owner or developer shall redeem the mortgage or the
corresponding portion thereof within six months from
such issuance in order that the title over any fully paid lot
or unit may be secured and delivered to the buyer in
accordance herewith.
It must be stressed that the mortgage contract between
PEPI and the petitioner is merely an accessory contract
to the principal threeyear loan takeout from the
petitioner by PEPI for its expansion project. It need not
be belaboured that [a] mortgage is an accessory
undertaking to secure the fulfillment of a principal
obligation,28 and it does not affect the ownership of the
property as it is nothing more than a lien thereon serving
as security for a debt.29
Note that at the time PEPI mortgaged the property to the
petitioner, the prevailing contract between respondents
PEPI and Dee was still the Contract to Sell, as Dee was
yet to fully pay the purchase price of the property. On
this point, PEPI was acting fully well within its right when
it mortgaged the property to the petitioner, for in a
contract to sell, ownership is retained by the seller and is
not to pass until full payment of the purchase price. 30 In
other words, at the time of the mortgage, PEPI was still
the owner of the property. Thus, in China Banking
Corporation v. Spouses Lozada,31 the Court affirmed the
right of the owner/developer to mortgage the property
subject of development, to wit: [P.D.] No. 957 cannot
totally prevent the owner or developer from mortgaging
the subdivision lot or condominium unit when the title
thereto still resides in the owner or developer awaiting
the full payment of the purchase price by the installment
buyer.32 Moreover, the mortgage bore the clearance of
the HLURB, in compliance with Section 18 of P.D. No.
957, which provides that [n]o mortgage on any unit or lot
shall be made by the owner or developer without prior
written approval of the [HLURB].
Nevertheless, despite the apparent validity of the
mortgage between the petitioner and PEPI, the former is
still bound to respect the transactions between
respondents PEPI and Dee. The petitioner was well
aware that the properties mortgaged by PEPI were also
the subject of existing contracts to sell with other buyers.
While it may be that the petitioner is protected by Act No.
3135, as amended, it cannot claim any superior right as
against the installment buyers. This is because the
contract between the respondents is protected by P.D.
No. 957, a social justice measure enacted primarily to
protect innocent lot buyers.33 Thus, in Luzon
Development Bank v. Enriquez,34 the Court reiterated the
rule that a bank dealing with a property that is already
subject of a contract to sell and is protected by the
provisions of P.D. No. 957, is bound by the contract to
sell.35
However, the transferee BANK is bound by the Contract
to Sell and has to respect Enriquezs rights thereunder.
This is because the Contract to Sell, involving a
subdivision lot, is covered and protected by PD 957.
x x x.
46
xxx
x x x Under these circumstances, the BANK knew or
should have known of the possibility and risk that the
assigned properties were already covered by existing
contracts to sell in favor of subdivision lot buyers. As
observed by the Court in another case involving a bank
regarding a subdivision lot that was already subject of a
contract to sell with a third
party:chanRoblesvirtualLawlibrary
[The Bank] should have considered that it was dealing
with a property subject of a real estate development
project. A reasonable person, particularly a financial
institution x x x, should have been aware that, to finance
the project, funds other than those obtained from the
loan could have been used to serve the purpose, albeit
partially. Hence, there was a need to verify whether any
part of the property was already intended to be the
subject of any other contract involving buyers or potential
buyers. In granting the loan, [the Bank] should not have
been content merely with a clean title, considering the
presence of circumstances indicating the need for a
thorough investigation of the existence of buyers x x x.
Wanting in care and prudence, the [Bank] cannot be
deemed to be an innocent mortgagee. x x x 36 (Citation
omitted)chanroblesvirtualawlibrary
More so in this case where the contract to sell has
already ripened into a contract of absolute sale.
Moreover, PEPI brought to the attention of the Court the
subsequent execution of a Memorandum of Agreement
dated November 22, 2006 by PEPI and the petitioner.
Said agreement was executed pursuant to an Order
dated February 23, 2004 by the Regional Trial Court
(RTC) of Makati City, Branch 142, in SP No. 021219, a
petition for Rehabilitation under the Interim Rules of
Procedure on Corporate Rehabilitation filed by PEPI.
The RTC order approved PEPIs modified Rehabilitation
Plan, which included the settlement of the latters unpaid
obligations to its creditors by way of dacion of real
properties. In said order, the RTC also incorporated
certain measures that were not included in PEPIs plan,
one of which is that [t]itles to the lots which have been
fully paid shall be released to the purchasers within 90
days after the dacion to the secured creditors has been
completed.37 Consequently, the agreement stipulated
that as partial settlement of PEPIs obligation with the
petitioner, the former absolutely and irrevocably conveys
by way of dacion en pago the properties listed
therein,38 which included the lot purchased by Dee. The
petitioner also committed to
[R]elease its mortgage lien on fully paid Mortgaged
Properties upon issuance of the certificates of title over
the Dacioned Properties in the name of the [petitioner].
The request for release of a Mortgaged Property shall be
accompanied with: (i) proof of full payment by the buyer,
together with a certificate of full payment issued by the
Borrower x x x. The [petitioner] hereby undertakes to
cause the transfer of the certificates of title over the
Dacioned Properties and the release of the Mortgaged
Properties with reasonable
dispatch.39ChanRoblesVirtualawlibrary
Dacion en pago or dation in payment is the delivery and
transmission of ownership of a thing by the debtor to the
creditor as an accepted equivalent of the performance of
the obligation.40 It is a mode of extinguishing an existing
obligation41 and partakes the nature of sale as the
creditor is really buying the thing or property of the
debtor, the payment for which is to be charged against
the debtors debt.42 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.43
There is nothing on record showing that the
Memorandum of Agreement has been nullified or is the
subject of pending litigation; hence, it carries with it the
presumption of validity.44 Consequently, the execution of
the dation in payment effectively extinguished
respondent PEPIs loan obligation to the petitioner
insofar as it covers the value of the property purchased
by Dee. This negates the petitioners claim that PEPI
must first redeem the property before it can cancel or
release the mortgage. As it now stands, the petitioner
already stepped into the shoes of PEPI and there is no
more reason for the petitioner to refuse the cancellation
or release of the mortgage, for, as stated by the Court in
Luzon Development Bank, in accepting the assigned
properties as payment of the obligation, [the bank] has
assumed the risk that some of the assigned properties
are covered by contracts to sell which must be honored
under PD 957.45 Whatever claims the petitioner has
against PEPI and AFPRSBS, monetary or otherwise,
should not prejudice the rights and interests of Dee over
the property, which she has already fully paid for.
As between these small lot buyers and the gigantic
financial institutions which the developers deal with, it is
47
obvious that the lawas an instrument of social justice
must favor the weak.46 (Emphasis
omitted)chanroblesvirtualawlibrary
Finally, the Court will not dwell on the arguments of
AFPRSBS given the finding of the OP that [b]y its non
payment of the appeal fee, AFPRSBS is deemed to
have abandoned its appeal and accepts the decision of
the HLURB.47 As such, the HLURB decision had long
been final and executory as regards AFPRSBS and can
no longer be altered or modified.48
WHEREFORE, the petition for review is DENIED for lack
of merit. Consequently, the Decision dated August 13,
2007 and Resolution dated March 13, 2008 of the Court
of Appeals in CAG.R. SP No. 86033 are AFFIRMED.
Petitioner Philippine National Bank and respondents
Prime East Properties Inc. and Armed Forces of the
PhilippinesRetirement and Separation Benefits System,
Inc. are hereby ENJOINED to strictly comply with the
Housing and Land Use Regulatory Board Decision dated
May 21, 2003, as modified by its Board of
Commissioners Decision dated March 15, 2004 and
Office of the President Decision dated August 4, 2004.
SO ORDERED.
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