BPI INVESTMENT CORPORATION, petitioner, vs. HON.

COURT OF
APPEALS and ALS MANAGEMENT & DEVELOPMENT
CORPORATION, respondents.

DECISION
QUISUMBING, J.:

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

WHEREFORE, judgment is hereby rendered in favor of ALS Management

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

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

a) P300,000.00 for and as moral damages;

b) P50,000.00 as and for exemplary damages;

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

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

Costs against BPI.

SO ORDERED.[2]

Both parties appealed to the Court of Appeals. However, private

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

WHEREFORE, finding no error in the appealed decision the same is

hereby AFFIRMED in toto.

SO ORDERED.[3]

In its decision, the Court of Appeals reasoned that a simple loan is

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

Nor can the SSS be held liable for moral and temperate damages. As
concluded by the Court of Appeals the negligence of the appellant is not so
gross as to warrant moral and temperate damages, except that, said Court
reduced those damages by only P5,000.00 instead of eliminating them.
Neither can we agree with the findings of both the Trial Court and
respondent Court that the SSS had acted maliciously or in bad faith. The
SSS was of the belief that it was acting in the legitimate exercise of its right
under the mortgage contract in the face of irregular payments made by
private respondents and placed reliance on the automatic acceleration
clause in the contract. The filing alone of the foreclosure application should
not be a ground for an award of moral damages in the same way that a
clearly unfounded civil action is not among the grounds for moral damages.

Private respondents counter that BPIIC was guilty of bad faith and
should be liable for said damages because it insisted on the payment of
amortization on the loan even before it was released. Further, it did not
make the corresponding deduction in the monthly amortization to conform
to the actual amount of loan released, and it immediately initiated
foreclosure proceedings when private respondents failed to make timely
payment.
But as admitted by private respondents themselves, they were irregular
in their payment of monthly amortization. Conformably with our ruling
in SSS, we can not properly declare BPIIC in bad faith. Consequently, we
should rule out the award of moral and exemplary damages.[11]
However, in our view, BPIIC was negligent in relying merely on the
entries found in the deed of mortgage, without checking and
correspondingly adjusting its records on the amount actually released to
private respondents and the date when it was released. Such negligence
resulted in damage to private respondents, for which an award of nominal
damages should be given in recognition of their rights which were violated
by BPIIC.[12] For this purpose, the amount of P25,000 is sufficient.
Lastly, as in SSS where we awarded attorneys fees because private
respondents were compelled to litigate, we sustain the award of P50,000 in
favor of private respondents as attorneys fees.
WHEREFORE, the decision dated February 28, 1997, of the Court of
Appeals and its resolution dated April 21, 1998, are AFFIRMED WITH
MODIFICATION as to the award of damages. The award of moral and
exemplary damages in favor of private respondents is DELETED, but the
award to them of attorneys fees in the amount of P50,000 is UPHELD.
Additionally, petitioner is ORDERED to pay private respondents P25,000
as nominal damages. Costs against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.
POLO S. PANTALEON, G.R. No. 174269
Petitioner,
Present:

- versus - CARPIO MORALES, J.,

Acting Chairperson,
VELASCO, JR.,
AMERICAN EXPRESS LEONARDO-DE CASTRO,
INTERNATIONAL, INC., BRION, and
*
Respondent. BERSAMIN, JJ.
Promulgated:
August 25, 2010
x----------------------------------------------------------------------------------------x

RESOLUTION

BRION, J.:

We resolve the motion for reconsideration filed by respondent American

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

FACTUAL ANTECEDENTS

The established antecedents of the case are narrated below.

AMEX is a resident foreign corporation engaged in the business of

providing credit services through the operation of a charge card system.
Pantaleon has been an AMEX cardholder since 1980.[3]

In October 1991, Pantaleon, together with his wife (Julialinda),

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

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

While at Coster, Mrs. Pantaleon decided to purchase some diamond

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

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

At around 10 a.m., or 45 minutes after Pantaleon presented his credit card,

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

When the Pantaleons finally returned to the tour bus, they found their
travel companions visibly irritated. This irritation intensified when the tour
guide announced that they would have to cancel the tour because of lack of
time as they all had to be in Calais, Belgium by 3 p.m. to catch the ferry
to London.[6]
From the records, it appears that after Pantaleons purchase was
transmitted for approval to AMEXs Amsterdam office at 9:20 a.m.; was
referred to AMEXs Manila office at 9:33 a.m.; and was approved by
the Manila office at 10:19 a.m. At 10:38 a.m., AMEXs Manila office finally
transmitted the Approval Code to AMEXs Amsterdam office. In all, it took
AMEX a total of 78 minutes to approve Pantaleons purchase and to
transmit the approval to the jewelry store.[7]
After the trip to Europe, the Pantaleon family proceeded to the United
States. Again, Pantaleon experienced delay in securing approval for
purchases using his American Express credit card on two separate
occasions. He experienced the first delay when he wanted to purchase golf
equipment in the amount of US$1,475.00 at the Richard Metz Golf Studio
in New York on October 30, 1991. Another delay occurred when he wanted
to purchase childrens shoes worth US$87.00 at the Quiency Market
in Boston on November 3, 1991.

Upon return to Manila, Pantaleon sent AMEX a letter demanding an

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

On appeal, the CA reversed the awards.[8] While the CA recognized

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

Pantaleon questioned this decision via a petition for review

on certiorari with this Court.

In our May 8, 2009 decision, we reversed the appellate courts

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

Based on the testimony of AMEXs credit authorizer Edgardo

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

THE MOTION FOR RECONSIDERATION

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

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

AMEX further points out that the proximate cause of Pantaleons

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

In his Comment dated February 24, 2010, Pantaleon maintains that

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

In response to AMEXs assertion that the delay was in keeping with its
duty to perform its obligation with extraordinary diligence, Pantaleon claims
that this duty includes the timely or prompt performance of its obligation.
 As to AMEXs contention that moral or exemplary damages cannot be
awarded absent a finding of malice, Pantaleon argues that evil motive or
design is not always necessary to support a finding of bad faith; gross
negligence or wanton disregard of contractual obligations is sufficient basis
for the award of moral and exemplary damages.

OUR RULING

We GRANT the motion for reconsideration.

Brief historical background

A credit card is defined as any card, plate, coupon book, or other

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

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

Nature of Credit Card Transactions

To better understand the dynamics involved in credit card

transactions, we turn to the United States case of Harris Trust & Savings
Bank v. McCray[14] which explains:

The bank credit card system involves a tripartite

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

The merchants participating in the system agree to honor

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

These slips are forwarded to the member bank which

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

We adopted a similar view in CIR v. American Express International,

Inc. (Philippine branch),[15] where we also recognized that credit card
issuers are not limited to banks. We said:

Under RA 8484, the credit card that is issued by banks in

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

Business establishments may extend credit sales through the

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

The credit card company, in turn, sends checks as

payment to these business establishments, but it does not
redeem the drafts at full price. The agreement between them
usually provides for discounts to be taken by the company upon
its redemption of the drafts. At the end of each month, it then
bills its credit card holders for their respective drafts redeemed
during the previous month. If the holders fail to pay the
amounts owed, the company sustains the loss.

Simply put, every credit card transaction involves three contracts,

namely: (a) the sales contract between the credit card holder and the
merchant or the business establishment which accepted the credit card; (b)
the loan agreement between the credit card issuer and the credit card
holder; and lastly, (c) the promise to pay between the credit card issuer
and the merchant or business establishment.[16]
Credit card issuer cardholder
relationship

When a credit card company gives the holder the privilege of

charging items at establishments associated with the issuer,[17] a necessary
question in a legal analysis is when does this relationship begin? There are
two diverging views on the matter. In City Stores Co. v.
Henderson,[18] another U.S. decision, held that:
 The issuance of a credit card is but an offer to extend a
line of open account credit. It is unilateral and supported by no
consideration. The offer may be withdrawn at any time, without
prior notice, for any reason or, indeed, for no reason at all, and
its withdrawal breaches no duty for there is no duty to
continue it and violates no rights.

Thus, under this view, each credit card transaction is considered a

separate offer and acceptance.

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

On the other end of the spectrum is Gray v. American Express

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

In our jurisdiction, we generally adhere to the Gray ruling, recognizing the

relationship between the credit card issuer and the credit card holder as a
contractual one that is governed by the terms and conditions found in the
card membership agreement.[21] This contract provides the rights and
liabilities of a credit card company to its cardholders and vice versa.

We note that a card membership agreement is a contract of

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

We begin by identifying the two privileges that Pantaleon assumes he is

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

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

Although we recognize the existence of a relationship between the

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

From the loan agreement perspective, the contractual relationship

begins to exist only upon the meeting of the offer[25] and acceptance of the
parties involved. In more concrete terms, when cardholders use their credit
cards to pay for their purchases, they merely offer to enter into loan
agreements with the credit card company. Only after the latter approves the
purchase requests that the parties enter into binding loan contracts, in
keeping with Article 1319 of the Civil Code, which provides:
 Article 1319. Consent is manifested by the meeting of the
offer and the acceptance upon the thing and the cause which
are to constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a
counter-offer.

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

ii. AMEX not guilty of culpable delay

Since AMEX has no obligation to approve the purchase requests of

its credit cardholders, Pantaleon cannot claim that AMEX defaulted in its
obligation. Article 1169 of the Civil Code, which provides the requisites to
hold a debtor guilty of culpable delay, states:

Article 1169. Those obliged to deliver or to do something

incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their
obligation. x x x.

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

Based on the above, the first requisite is no longer met because

AMEX, by the express terms of the credit card agreement, is not obligated
to approve Pantaleons purchase request. Without a demandable obligation,
there can be no finding of default.
 Apart from the lack of any demandable obligation, we also find that
Pantaleon failed to make the demand required by Article 1169 of the Civil
Code.

As previously established, the use of a credit card to pay for a

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

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

For failing to comply with the requisites of Article 1169, Pantaleons

charge that AMEX is guilty of culpable delay in approving his purchase
requests must fail.

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

of time

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

Pantaleons assertions fail to convince us.

We originally held that AMEX was in culpable delay when it acted on

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

AMEXs credit authorizer, Edgardo Jaurigue, explained that having no

pre-set spending limit in a credit card simply means that the charges made
by the cardholder are approved based on his ability to pay, as
demonstrated by his past spending, payment patterns, and personal
resources.[29] Nevertheless, every time Pantaleon charges a purchase
on his credit card, the credit card company still has to determine
whether it will allow this charge, based on his past credit history. This
right to review a card holders credit history, although not specifically set out
in the card membership agreement, is a necessary implication of AMEXs
right to deny authorization for any requested charge.

As for Pantaleons previous experiences with AMEX (i.e., that in the

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

We next examine the credit card membership agreement, the

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

Nor can Pantaleon look to the law or government issuances as the

source of AMEXs alleged obligation to act upon his credit card purchases
within a matter of seconds. As the following survey of Philippine law on
credit card transactions demonstrates, the State does not require credit
card companies to act upon its cardholders purchase requests within a
specific period of time.

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

As financial institutions engaged in the business of providing credit,

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

Based on this Circular, x x x [b]efore issuing credit cards, banks

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

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

In light of the foregoing, we find and so hold that AMEX is neither

contractually bound nor legally obligated to act on its cardholders purchase
requests within any specific period of time, much less a period of a matter
of seconds that Pantaleon uses as his standard. The standard therefore is
implicit and, as in all contracts, must be based on fairness and
reasonableness, read in relation to the Civil Code provisions on human
relations, as will be discussed below.

AMEX acted with good faith

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

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

Article 21. Any person who willfully causes loss or injury to

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

While Article 19 enumerates the standards of conduct, Article 21

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

[Article 19], known to contain what is commonly referred

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

In the context of a credit card relationship, although there is neither a

contractual stipulation nor a specific law requiring the credit card issuer to
act on the credit card holders offer within a definite period of time, these
principles provide the standard by which to judge AMEXs actions.

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

It is an elementary rule in our jurisdiction that good faith is presumed

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

Pantaleon countered that this review procedure is primarily intended

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

We also cannot turn a blind eye to the circumstances surrounding the

Coster transaction which, in our opinion, justified the wait. In Edgardo
Jaurigues own words:

Q 21: With reference to the transaction at the Coster Diamond

House covered by Exhibit H, also Exhibit 4 for the defendant,
the approval came at 2:19 a.m. after the request was relayed
at 1:33 a.m., can you explain why the approval came after
about 46 minutes, more or less?

A21: Because we have to make certain considerations and

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

xxxx

Q: Why did it take so long?

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

As Edgardo Jaurigue clarified, the reason why Pantaleon had to wait

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

Finally, we said in Garciano v. Court of Appeals that the right to

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

Pantaleons action was the proximate

cause for his injury

Pantaleon mainly anchors his claim for moral and exemplary

damages on the embarrassment and humiliation that he felt when the
European tour group had to wait for him and his wife for approximately 35
minutes, and eventually had to cancel the Amsterdam city tour. After
thoroughly reviewing the records of this case, we have come to the
conclusion that Pantaleon is the proximate cause for this embarrassment
and humiliation.
 As borne by the records, Pantaleon knew even before entering
Coster that the tour group would have to leave the store by 9:30 a.m. to
have enough time to take the city tour of Amsterdam before they left the
country. After 9:30 a.m., Pantaleons son, who had boarded the bus ahead
of his family, returned to the store to inform his family that they were the
only ones not on the bus and that the entire tour group was waiting for
them. Significantly, Pantaleon tried to cancel the sale at 9:40
a.m. because he did not want to cause any inconvenience to the tour
group. However, when Costers sale manager asked him to wait a few
more minutes for the credit card approval, he agreed, despite the
knowledge that he had already caused a 10-minute delay and that the city
tour could not start without him.

In Nikko Hotel Manila Garden v. Reyes,[45] we ruled that a person who

knowingly and voluntarily exposes himself to danger cannot claim damages
for the resulting injury:

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

This doctrine, in our view, is wholly applicable to this case. Pantaleon

himself testified that the most basic rule when travelling in a tour group is
that you must never be a cause of any delay because the schedule is very
strict.[46] When Pantaleon made up his mind to push through with his
purchase, he must have known that the group would become annoyed and
irritated with him. This was the natural, foreseeable consequence of his
decision to make them all wait.

We do not discount the fact that Pantaleon and his family did feel
humiliated and embarrassed when they had to wait for AMEX to approve
the Coster purchase in Amsterdam. We have to acknowledge, however,
that Pantaleon was not a helpless victim in this scenario at any time, he
could have cancelled the sale so that the group could go on with the city
tour. But he did not.

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

Pantaleon is not entitled to damages

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

Similarly, we find no basis to award exemplary damages. In contracts,

exemplary damages can only be awarded if a defendant acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner.[49] The plaintiff must
also show that he is entitled to moral, temperate, or compensatory
damages before the court may consider the question of whether or not
exemplary damages should be awarded.[50]

As previously discussed, it took AMEX some time to approve

Pantaleons purchase requests because it had legitimate concerns on the
amount being charged; no malicious intent was ever established here. In
the absence of any other damages, the award of exemplary damages
clearly lacks legal basis.

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

Lastly, although we affirm the result of the CA decision, we do so for the

reasons stated in this Resolution and not for those found in the CA
decision.

WHEREFORE, premises considered, we SET ASIDE our May 8,

2009 Decision and GRANT the present motion for reconsideration. The
Court of Appeals Decision dated August 18, 2006 is
hereby AFFIRMED. No costs.

SO ORDERED.
 ARTURO D. BRION
Associate Justice

PRODUCERS BANK OF THE PHILIPPINES (now FIRST

INTERNATIONAL BANK), petitioner, vs. HON. COURT OF
APPEALS AND FRANKLIN VIVES, respondents.

DECISION
CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision[1] of the Court of

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

IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing

defendants Arturo J. Doronila, Estrella Dumagpi and Producers Bank of the
Philippines to pay plaintiff Franklin Vives jointly and severally

(a) the amount of P200,000.00, representing the money deposited, with

interest at the legal rate from the filing of the complaint until the same is
fully paid;

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

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

(d) the costs of the suit.

SO ORDERED.[8]

Petitioner appealed the trial courts decision to the Court of Appeals. In

its Decision dated June 25, 1991, the appellate court affirmed in toto the
decision of the RTC.[9] It likewise denied with finality petitioners motion for
reconsideration in its Resolution dated May 5, 1994.[10]
On June 30, 1994, petitioner filed the present petition, arguing that
I.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT

THE TRANSACTION BETWEEN THE DEFENDANT DORONILLA AND
RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT
ACCOMMODATION;

II.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT

PETITIONERS BANK MANAGER, MR. RUFO ATIENZA, CONNIVED
WITH THE OTHER DEFENDANTS IN DEFRAUDING PETITIONER (Sic.
Should be PRIVATE RESPONDENT) AND AS A CONSEQUENCE, THE
PETITIONER SHOULD BE HELD LIABLE UNDER THE PRINCIPLE OF
NATURAL JUSTICE;

III.

THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE

ENTIRE RECORDS OF THE REGIONAL TRIAL COURT AND
AFFIRMING THE JUDGMENT APPEALED FROM, AS THE FINDINGS OF
THE REGIONAL TRIAL COURT WERE BASED ON A
MISAPPREHENSION OF FACTS;

IV.

THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT

THE CITED DECISION IN SALUDARES VS. MARTINEZ, 29 SCRA 745,
UPHOLDING THE LIABILITY OF AN EMPLOYER FOR ACTS
COMMITTED BY AN EMPLOYEE IS APPLICABLE;

V.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE

DECISION OF THE LOWER COURT THAT HEREIN PETITIONER BANK
IS JOINTLY AND SEVERALLY LIABLE WITH THE OTHER
DEFENDANTS FOR THE AMOUNT OF P200,000.00 REPRESENTING
THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR MORAL
DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES, P40,000.00 FOR
ATTORNEYS FEES AND THE COSTS OF SUIT.[11]

Private respondent filed his Comment on September 23,

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

By the contract of loan, one of the parties delivers to another, either

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

Commodatum is essentially gratuitous.

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

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

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

Consumable goods may be the subject of commodatum if the purpose of

the contract is not the consumption of the object, as when it is merely for
exhibition.

Thus, if consumable goods are loaned only for purposes of exhibition,

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

2. Deposits and withdrawals must be made by the depositor personally or

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

Said rule notwithstanding, Doronilla was permitted by petitioner, through

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

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

To begin with, the deposit was made in defendants Buendia branch

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

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

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

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

The circumstance surrounding the opening of the current account also

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

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

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

COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE

GUEVARRA, respondents.

DECISION
CARPIO, J.:

The Case

Before us is a petition for review[1] of the 21 June 2000 Decision[2] and

14 December 2000 Resolution of the Court of Appeals in CA-G.R. SP No.
43129. The Court of Appeals set aside the 11 November 1996 decision[3] of
the Regional Trial Court of Quezon City, Branch 81,[4] affirming the 15
December 1995 decision[5] of the Metropolitan Trial Court of Quezon City,
Branch 31.[6]

The Antecedents

In June 1979, petitioner Colito T. Pajuyo (Pajuyo) paid P400 to a certain

Pedro Perez for the rights over a 250-square meter lot in Barrio Payatas,
Quezon City. Pajuyo then constructed a house made of light materials on
the lot.Pajuyo and his family lived in the house from 1979 to 7 December
1985.
On 8 December 1985, Pajuyo and private respondent Eddie Guevarra
(Guevarra) executed a Kasunduan or agreement. Pajuyo, as owner of the
house, allowed Guevarra to live in the house for free provided Guevarra
would maintain the cleanliness and orderliness of the house. Guevarra
promised that he would voluntarily vacate the premises on Pajuyos
demand.
In September 1994, Pajuyo informed Guevarra of his need of the house
and demanded that Guevarra vacate the house. Guevarra refused.
Pajuyo filed an ejectment case against Guevarra with the Metropolitan
Trial Court of Quezon City, Branch 31 (MTC).
In his Answer, Guevarra claimed that Pajuyo had no valid title or right of
possession over the lot where the house stands because the lot is within
the 150 hectares set aside by Proclamation No. 137 for socialized housing.
Guevarra pointed out that from December 1985 to September 1994, Pajuyo
did not show up or communicate with him. Guevarra insisted that neither he
nor Pajuyo has valid title to the lot.
On 15 December 1995, the MTC rendered its decision in favor of
Pajuyo. The dispositive portion of the MTC decision reads:

WHEREFORE, premises considered, judgment is hereby rendered for the

plaintiff and against defendant, ordering the latter to:

A) vacate the house and lot occupied by the defendant or any other
person or persons claiming any right under him;
B) pay unto plaintiff the sum of THREE HUNDRED PESOS
(P300.00) monthly as reasonable compensation for the use of the
premises starting from the last demand;
C) pay plaintiff the sum of P3,000.00 as and by way of attorneys
fees; and
D) pay the cost of suit.

SO ORDERED.[7]

Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon

City, Branch 81 (RTC).
On 11 November 1996, the RTC affirmed the MTC decision. The
dispositive portion of the RTC decision reads:
WHEREFORE, premises considered, the Court finds no reversible error in
the decision appealed from, being in accord with the law and evidence
presented, and the same is hereby affirmed en toto.

SO ORDERED.[8]

Guevarra received the RTC decision on 29 November 1996. Guevarra

had only until 14 December 1996 to file his appeal with the Court of
Appeals. Instead of filing his appeal with the Court of Appeals, Guevarra
filed with the Supreme Court a Motion for Extension of Time to File Appeal
by Certiorari Based on Rule 42 (motion for extension). Guevarra theorized
that his appeal raised pure questions of law. The Receiving Clerk of the
Supreme Court received the motion for extension on 13 December 1996 or
one day before the right to appeal expired.
On 3 January 1997, Guevarra filed his petition for review with the
Supreme Court.
On 8 January 1997, the First Division of the Supreme Court issued a
Resolution[9] referring the motion for extension to the Court of Appeals
which has concurrent jurisdiction over the case. The case presented no
special and important matter for the Supreme Court to take cognizance of
at the first instance.
On 28 January 1997, the Thirteenth Division of the Court of Appeals
issued a Resolution[10] granting the motion for extension conditioned on the
timeliness of the filing of the motion.
On 27 February 1997, the Court of Appeals ordered Pajuyo to comment
on Guevaras petition for review. On 11 April 1997, Pajuyo filed his
Comment.
On 21 June 2000, the Court of Appeals issued its decision reversing the
RTC decision. The dispositive portion of the decision reads:

WHEREFORE, premises considered, the assailed Decision of the court a

quo in Civil Case No. Q-96-26943 is REVERSED and SET ASIDE; and it is
hereby declared that the ejectment case filed against defendant-appellant
is without factual and legal basis.

SO ORDERED.[11]
 Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed
out that the Court of Appeals should have dismissed outright Guevarras
petition for review because it was filed out of time. Moreover, it was
Guevarras counsel and not Guevarra who signed the certification against
forum-shopping.
On 14 December 2000, the Court of Appeals issued a resolution
denying Pajuyos motion for reconsideration. The dispositive portion of the
resolution reads:

WHEREFORE, for lack of merit, the motion for reconsideration is

hereby DENIED. No costs.

SO ORDERED.[12]

The Ruling of the MTC

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

The Ruling of the RTC

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

The Ruling of the Court of Appeals

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

The Issues

Pajuyo raises the following issues for resolution:

WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS

AUTHORITY AND DISCRETION TANTAMOUNT TO LACK OF
JURISDICTION:

1) in GRANTING, instead of denying, Private Respondents

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

The Ruling of the Court

The procedural issues Pajuyo is raising are baseless. However, we find

merit in the substantive issues Pajuyo is submitting for resolution.

Procedural Issues

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

Absence of Title over the Disputed Property will not Divest the Courts
of Jurisdiction to Resolve the Issue of Possession

Settled is the rule that the defendants claim of ownership of the

disputed property will not divest the inferior court of its jurisdiction over the
ejectment case.[32] Even if the pleadings raise the issue of ownership, the
court may pass on such issue to determine only the question of
possession, especially if the ownership is inseparably linked with the
possession.[33] The adjudication on the issue of ownership is only
provisional and will not bar an action between the same parties involving
title to the land.[34] This doctrine is a necessary consequence of the nature
of the two summary actions of ejectment, forcible entry and unlawful
detainer, where the only issue for adjudication is the physical or material
possession over the real property.[35]
In this case, what Guevarra raised before the courts was that he and
Pajuyo are not the owners of the contested property and that they are mere
squatters. Will the defense that the parties to the ejectment case are not
the owners of the disputed lot allow the courts to renounce their jurisdiction
over the case? The Court of Appeals believed so and held that it would just
leave the parties where they are since they are in pari delicto.
We do not agree with the Court of Appeals.
Ownership or the right to possess arising from ownership is not at issue
in an action for recovery of possession. The parties cannot present
evidence to prove ownership or right to legal possession except to prove
the nature of the possession when necessary to resolve the issue of
physical possession.[36] The same is true when the defendant asserts the
absence of title over the property. The absence of title over the contested
lot is not a ground for the courts to withhold relief from the parties in an
ejectment case.
The only question that the courts must resolve in ejectment proceedings
is - who is entitled to the physical possession of the premises, that is, to the
possession de facto and not to the possession de jure.[37] It does not even
matter if a partys title to the property is questionable,[38] or when both
parties intruded into public land and their applications to own the land have
yet to be approved by the proper government agency.[39] Regardless of the
actual condition of the title to the property, the party in peaceable quiet
possession shall not be thrown out by a strong hand, violence or
terror.[40] Neither is the unlawful withholding of property allowed. Courts will
always uphold respect for prior possession.
Thus, a party who can prove prior possession can recover such
possession even against the owner himself.[41] Whatever may be the
character of his possession, if he has in his favor prior possession in time,
he has the security that entitles him to remain on the property until a person
with a better right lawfully ejects him.[42] To repeat, the only issue that the
court has to settle in an ejectment suit is the right to physical possession.
In Pitargue v. Sorilla,[43] the government owned the land in
dispute. The government did not authorize either the plaintiff or the
defendant in the case of forcible entry case to occupy the land. The plaintiff
had prior possession and had already introduced improvements on the
public land. The plaintiff had a pending application for the land with the
Bureau of Lands when the defendant ousted him from possession. The
plaintiff filed the action of forcible entry against the defendant. The
government was not a party in the case of forcible entry.
The defendant questioned the jurisdiction of the courts to settle the
issue of possession because while the application of the plaintiff was still
pending, title remained with the government, and the Bureau of Public
Lands had jurisdiction over the case. We disagreed with the defendant. We
ruled that courts have jurisdiction to entertain ejectment suits even before
the resolution of the application. The plaintiff, by priority of his application
and of his entry, acquired prior physical possession over the public land
applied for as against other private claimants. That prior physical
possession enjoys legal protection against other private claimants because
only a court can take away such physical possession in an ejectment case.
While the Court did not brand the plaintiff and the defendant
in Pitargue[44] as squatters, strictly speaking, their entry into the disputed
land was illegal. Both the plaintiff and defendant entered the public land
without the owners permission. Title to the land remained with the
government because it had not awarded to anyone ownership of the
contested public land. Both the plaintiff and the defendant were in effect
squatting on government property. Yet, we upheld the courts jurisdiction to
resolve the issue of possession even if the plaintiff and the defendant in the
ejectment case did not have any title over the contested land.
Courts must not abdicate their jurisdiction to resolve the issue of
physical possession because of the public need to preserve the basic
policy behind the summary actions of forcible entry and unlawful
detainer. The underlying philosophy behind ejectment suits is to prevent
breach of the peace and criminal disorder and to compel the party out of
possession to respect and resort to the law alone to obtain what he claims
is his.[45] The party deprived of possession must not take the law into his
own hands.[46] Ejectment proceedings are summary in nature so the
authorities can settle speedily actions to recover possession because of the
overriding need to quell social disturbances.[47]
We further explained in Pitargue the greater interest that is at stake in
actions for recovery of possession. We made the following
pronouncements in Pitargue:
The question that is before this Court is: Are courts without jurisdiction to
take cognizance of possessory actions involving these public lands before
final award is made by the Lands Department, and before title is given any
of the conflicting claimants? It is one of utmost importance, as there are
public lands everywhere and there are thousands of settlers, especially in
newly opened regions. It also involves a matter of policy, as it requires the
determination of the respective authorities and functions of two coordinate
branches of the Government in connection with public land conflicts.

Our problem is made simple by the fact that under the Civil Code, either in
the old, which was in force in this country before the American occupation,
or in the new, we have a possessory action, the aim and purpose of which
is the recovery of the physical possession of real property, irrespective of
the question as to who has the title thereto. Under the Spanish Civil Code
we had the accion interdictal, a summary proceeding which could be
brought within one year from dispossession (Roman Catholic Bishop of
Cebu vs. Mangaron, 6 Phil. 286, 291); and as early as October 1, 1901,
upon the enactment of the Code of Civil Procedure (Act No. 190 of the
Philippine Commission) we implanted the common law action of forcible
entry (section 80 of Act No. 190), the object of which has been stated by
this Court to be to prevent breaches of the peace and criminal disorder
which would ensue from the withdrawal of the remedy, and the
reasonable hope such withdrawal would create that some advantage
must accrue to those persons who, believing themselves entitled to
the possession of property, resort to force to gain possession rather
than to some appropriate action in the court to assert their claims.
(Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) So before
the enactment of the first Public Land Act (Act No. 926) the action of
forcible entry was already available in the courts of the country. So the
question to be resolved is, Did the Legislature intend, when it vested the
power and authority to alienate and dispose of the public lands in the Lands
Department, to exclude the courts from entertaining the possessory action
of forcible entry between rival claimants or occupants of any land before
award thereof to any of the parties? Did Congress intend that the lands
applied for, or all public lands for that matter, be removed from the
jurisdiction of the judicial Branch of the Government, so that any troubles
arising therefrom, or any breaches of the peace or disorders caused by
rival claimants, could be inquired into only by the Lands Department to the
exclusion of the courts? The answer to this question seems to us evident.
The Lands Department does not have the means to police public lands;
neither does it have the means to prevent disorders arising therefrom, or
contain breaches of the peace among settlers; or to pass promptly upon
conflicts of possession. Then its power is clearly limited to disposition
and alienation, and while it may decide conflicts of possession in
order to make proper award, the settlement of conflicts of possession
which is recognized in the court herein has another ultimate purpose,
i.e., the protection of actual possessors and occupants with a view to
the prevention of breaches of the peace. The power to dispose and
alienate could not have been intended to include the power to prevent
or settle disorders or breaches of the peace among rival settlers or
claimants prior to the final award. As to this, therefore, the
corresponding branches of the Government must continue to exercise
power and jurisdiction within the limits of their respective functions. The
vesting of the Lands Department with authority to administer,
dispose, and alienate public lands, therefore, must not be understood
as depriving the other branches of the Government of the exercise of
the respective functions or powers thereon, such as the authority to
stop disorders and quell breaches of the peace by the police, the
authority on the part of the courts to take jurisdiction over
possessory actions arising therefrom not involving, directly or
indirectly, alienation and disposition.

Our attention has been called to a principle enunciated in American courts

to the effect that courts have no jurisdiction to determine the rights of
claimants to public lands, and that until the disposition of the land has
passed from the control of the Federal Government, the courts will not
interfere with the administration of matters concerning the same. (50 C. J.
1093-1094.) We have no quarrel with this principle. The determination of
the respective rights of rival claimants to public lands is different from the
determination of who has the actual physical possession or occupation with
a view to protecting the same and preventing disorder and breaches of the
peace. A judgment of the court ordering restitution of the possession of a
parcel of land to the actual occupant, who has been deprived thereof by
another through the use of force or in any other illegal manner, can never
be prejudicial interference with the disposition or alienation of public
lands. On the other hand, if courts were deprived of jurisdiction of
cases involving conflicts of possession, that threat of judicial action
against breaches of the peace committed on public lands would be
eliminated, and a state of lawlessness would probably be produced
between applicants, occupants or squatters, where force or might, not
right or justice, would rule.

It must be borne in mind that the action that would be used to solve
conflicts of possession between rivals or conflicting applicants or claimants
would be no other than that of forcible entry. This action, both in England
and the United States and in our jurisdiction, is a summary and expeditious
remedy whereby one in peaceful and quiet possession may recover the
possession of which he has been deprived by a stronger hand, by violence
or terror; its ultimate object being to prevent breach of the peace and
criminal disorder. (Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312,
314.) The basis of the remedy is mere possession as a fact, of physical
possession, not a legal possession. (Mediran vs. Villanueva, 37 Phil. 752.)
The title or right to possession is never in issue in an action of forcible
entry; as a matter of fact, evidence thereof is expressly banned, except to
prove the nature of the possession. (Second 4, Rule 72, Rules of Court.)
With this nature of the action in mind, by no stretch of the imagination can
conclusion be arrived at that the use of the remedy in the courts of justice
would constitute an interference with the alienation, disposition, and control
of public lands. To limit ourselves to the case at bar can it be pretended at
all that its result would in any way interfere with the manner of the
alienation or disposition of the land contested? On the contrary, it would
facilitate adjudication, for the question of priority of possession having been
decided in a final manner by the courts, said question need no longer
waste the time of the land officers making the adjudication or
award. (Emphasis ours)

The Principle of Pari Delicto is not Applicable to Ejectment Cases

The Court of Appeals erroneously applied the principle of pari delicto to

this case.
Articles 1411 and 1412 of the Civil Code[48] embody the principle of pari
delicto. We explained the principle of pari delicto in these words:

The rule of pari delicto is expressed in the maxims ex dolo malo non eritur
actio and in pari delicto potior est conditio defedentis. The law will not aid
either party to an illegal agreement. It leaves the parties where it finds
them.[49]
 The application of the pari delicto principle is not absolute, as there are
exceptions to its application. One of these exceptions is where the
application of the pari delicto rule would violate well-established public
policy.[50]
In Drilon v. Gaurana,[51] we reiterated the basic policy behind the
summary actions of forcible entry and unlawful detainer. We held that:

It must be stated that the purpose of an action of forcible entry and detainer
is that, regardless of the actual condition of the title to the property, the
party in peaceable quiet possession shall not be turned out by strong hand,
violence or terror. In affording this remedy of restitution the object of the
statute is to prevent breaches of the peace and criminal disorder which
would ensue from the withdrawal of the remedy, and the reasonable hope
such withdrawal would create that some advantage must accrue to those
persons who, believing themselves entitled to the possession of property,
resort to force to gain possession rather than to some appropriate action in
the courts to assert their claims. This is the philosophy at the foundation of
all these actions of forcible entry and detainer which are designed to
compel the party out of possession to respect and resort to the law alone to
obtain what he claims is his.[52]

Clearly, the application of the principle of pari delicto to a case of

ejectment between squatters is fraught with danger. To shut out relief to
squatters on the ground of pari delicto would openly invite mayhem and
lawlessness. A squatter would oust another squatter from possession of
the lot that the latter had illegally occupied, emboldened by the knowledge
that the courts would leave them where they are. Nothing would then stand
in the way of the ousted squatter from re-claiming his prior possession at all
cost.
Petty warfare over possession of properties is precisely what ejectment
cases or actions for recovery of possession seek to prevent.[53] Even the
owner who has title over the disputed property cannot take the law into his
own hands to regain possession of his property. The owner must go to
court.
Courts must resolve the issue of possession even if the parties to the
ejectment suit are squatters. The determination of priority and superiority of
possession is a serious and urgent matter that cannot be left to the
squatters to decide. To do so would make squatters receive better
treatment under the law. The law restrains property owners from taking the
law into their own hands. However, the principle of pari delicto as applied
by the Court of Appeals would give squatters free rein to dispossess fellow
squatters or violently retake possession of properties usurped from them.
Courts should not leave squatters to their own devices in cases involving
recovery of possession.

Possession is the only Issue for Resolution in an Ejectment Case

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

Pajuyo is Entitled to Physical Possession of the Disputed Property

Guevarra does not dispute Pajuyos prior possession of the lot and
ownership of the house built on it. Guevarra expressly admitted the
existence and due execution of the Kasunduan. The Kasunduan reads:

Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas,

Quezon City, ay nagbibigay pahintulot kay G. Eddie Guevarra, na
pansamantalang manirahan sa nasabing bahay at lote ng walang
bayad. Kaugnay nito, kailangang panatilihin nila ang kalinisan at kaayusan
ng bahay at lote.
Sa sandaling kailangan na namin ang bahay at lote, silay kusang aalis ng
walang reklamo.

Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the

house and lot free of rent, but Guevarra was under obligation to maintain
the premises in good condition. Guevarra promised to vacate the premises
on Pajuyos demand but Guevarra broke his promise and refused to heed
Pajuyos demand to vacate.
These facts make out a case for unlawful detainer. Unlawful detainer
involves the withholding by a person from another of the possession of real
property to which the latter is entitled after the expiration or termination of
the formers right to hold possession under a contract, express or
implied.[59]
Where the plaintiff allows the defendant to use his property by tolerance
without any contract, the defendant is necessarily bound by an implied
promise that he will vacate on demand, failing which, an action for unlawful
detainer will lie.[60] The defendants refusal to comply with the demand
makes his continued possession of the property unlawful.[61] The status of
the defendant in such a case is similar to that of a lessee or tenant whose
term of lease has expired but whose occupancy continues by tolerance of
the owner.[62]
This principle should apply with greater force in cases where a contract
embodies the permission or tolerance to use the
property. The Kasunduan expressly articulated Pajuyos forbearance.
Pajuyo did not require Guevarra to pay any rent but only to maintain the
house and lot in good condition. Guevarra expressly vowed in
the Kasunduan that he would vacate the property on demand. Guevarras
refusal to comply with Pajuyos demand to vacate made Guevarras
continued possession of the property unlawful.
We do not subscribe to the Court of Appeals theory that
the Kasunduan is one of commodatum.
In a contract of commodatum, one of the parties delivers to another
something not consumable so that the latter may use the same for a certain
time and return it.[63] An essential feature of commodatum is that it is
gratuitous. Another feature of commodatum is that the use of the thing
belonging to another is for a certain period.[64] Thus, the bailor cannot
demand the return of the thing loaned until after expiration of the period
stipulated, or after accomplishment of the use for which
the commodatum is constituted.[65] If the bailor should have urgent need of
the thing, he may demand its return for temporary use.[66] If the use of the
thing is merely tolerated by the bailor, he can demand the return of the
thing at will, in which case the contractual relation is called
a precarium.[67] Under the Civil Code, precarium is a kind
[68]
of commodatum.
The Kasunduan reveals that the accommodation accorded by Pajuyo to
Guevarra was not essentially gratuitous. While the Kasunduan did not
require Guevarra to pay rent, it obligated him to maintain the property in
good condition. The imposition of this obligation makes the Kasunduan a
contract different from a commodatum. The effects of the Kasunduan are
also different from that of a commodatum. Case law on ejectment has
treated relationship based on tolerance as one that is akin to a landlord-
tenant relationship where the withdrawal of permission would result in the
termination of the lease.[69] The tenants withholding of the property would
then be unlawful. This is settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is
one of commodatum, Guevarra as bailee would still have the duty to turn
over possession of the property to Pajuyo, the bailor. The obligation to
deliver or to return the thing received attaches to contracts for safekeeping,
or contracts of commission, administration and commodatum.[70] These
contracts certainly involve the obligation to deliver or return the thing
received.[71]
Guevarra turned his back on the Kasunduan on the sole ground that
like him, Pajuyo is also a squatter. Squatters, Guevarra pointed out, cannot
enter into a contract involving the land they illegally occupy. Guevarra
insists that the contract is void.
Guevarra should know that there must be honor even between
squatters. Guevarra freely entered into the Kasunduan. Guevarra cannot
now impugn the Kasunduan after he had benefited from
it. The Kasunduan binds Guevarra.
The Kasunduan is not void for purposes of determining who between
Pajuyo and Guevarra has a right to physical possession of the contested
property. The Kasunduan is the undeniable evidence of Guevarras
recognition of Pajuyos better right of physical possession. Guevarra is
clearly a possessor in bad faith. The absence of a contract would not yield
a different result, as there would still be an implied promise to vacate.
 Guevarra contends that there is a pernicious evil that is sought to be
avoided, and that is allowing an absentee squatter who (sic) makes (sic) a
profit out of his illegal act.[72] Guevarra bases his argument on the
preferential right given to the actual occupant or caretaker under
Proclamation No. 137 on socialized housing.
We are not convinced.
Pajuyo did not profit from his arrangement with Guevarra because
Guevarra stayed in the property without paying any rent. There is also no
proof that Pajuyo is a professional squatter who rents out usurped
properties to other squatters. Moreover, it is for the proper government
agency to decide who between Pajuyo and Guevarra qualifies for
socialized housing. The only issue that we are addressing is physical
possession.
Prior possession is not always a condition sine qua non in
ejectment.[73] This is one of the distinctions between forcible entry and
unlawful detainer.[74] In forcible entry, the plaintiff is deprived of physical
possession of his land or building by means of force, intimidation, threat,
strategy or stealth. Thus, he must allege and prove prior possession.[75] But
in unlawful detainer, the defendant unlawfully withholds possession after
the expiration or termination of his right to possess under any contract,
express or implied. In such a case, prior physical possession is not
required.[76]
Pajuyos withdrawal of his permission to Guevarra terminated
the Kasunduan. Guevarras transient right to possess the property ended as
well. Moreover, it was Pajuyo who was in actual possession of the property
because Guevarra had to seek Pajuyos permission to temporarily hold the
property and Guevarra had to follow the conditions set by Pajuyo in
the Kasunduan. Control over the property still rested with Pajuyo and this is
evidence of actual possession.
Pajuyos absence did not affect his actual possession of the disputed
property. Possession in the eyes of the law does not mean that a man has
to have his feet on every square meter of the ground before he is deemed
in possession.[77] One may acquire possession not only by physical
occupation, but also by the fact that a thing is subject to the action of ones
will.[78] Actual or physical occupation is not always necessary.[79]

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

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

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

G.R. No. L-17474 October 25, 1962

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
JOSE V. BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by
the late Jose V. Bagtas, petitioner-appellant.
D. T. Reyes, Liaison and Associates for petitioner-appellant.
Office of the Solicitor General for plaintiff-appellee.

PADILLA, J.:

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

On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the

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

On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and

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

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

. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the

total value of the three bulls plus the breeding fees in the amount of
P626.17 with interest on both sums of (at) the legal rate from the filing
of this complaint and costs.

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

It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by
the late defendant, returned the Sindhi and Bhagnari bulls to Roman
Remorin, Superintendent of the NVB Station, Bureau of Animal Industry,
Bayombong, Nueva Vizcaya, as evidenced by a memorandum receipt
signed by the latter (Exhibit 2). That is why in its objection of 31 January
1959 to the appellant's motion to quash the writ of execution the appellee
prays "that another writ of execution in the sum of P859.53 be issued
against the estate of defendant deceased Jose V. Bagtas." She cannot be
held liable for the two bulls which already had been returned to and
received by the appellee.
The appellant contends that the Sahiniwal bull was accidentally killed
during a raid by the Huk in November 1953 upon the surrounding barrios of
Hacienda Felicidad Intal, Baggao, Cagayan, where the animal was kept,
and that as such death was due to force majeure she is relieved from the
duty of returning the bull or paying its value to the appellee. The contention
is without merit. The loan by the appellee to the late defendant Jose V.
Bagtas of the three bulls for breeding purposes for a period of one year
from 8 May 1948 to 7 May 1949, later on renewed for another year as
regards one bull, was subject to the payment by the borrower of breeding
fee of 10% of the book value of the bulls. The appellant contends that the
contract was commodatum and that, for that reason, as the appellee
retained ownership or title to the bull it should suffer its loss due to force
majeure. A contract of commodatum is essentially gratuitous.1 If the
breeding fee be considered a compensation, then the contract would be a
lease of the bull. Under article 1671 of the Civil Code the lessee would be
subject to the responsibilities of a possessor in bad faith, because she had
continued possession of the bull after the expiry of the contract. And even if
the contract be commodatum, still the appellant is liable, because article
1942 of the Civil Code provides that a bailee in a contract
of commodatum —

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

fortuitous event:

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

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

The original period of the loan was from 8 May 1948 to 7 May 1949. The
loan of one bull was renewed for another period of one year to end on 8
May 1950. But the appellant kept and used the bull until November 1953
when during a Huk raid it was killed by stray bullets. Furthermore, when
lent and delivered to the deceased husband of the appellant the bulls had
each an appraised book value, to with: the Sindhi, at P1,176.46, the
Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not stipulated
that in case of loss of the bull due to fortuitous event the late husband of
the appellant would be exempt from liability.
The appellant's contention that the demand or prayer by the appellee for
the return of the bull or the payment of its value being a money claim
should be presented or filed in the intestate proceedings of the defendant
who died on 23 October 1951, is not altogether without merit. However, the
claim that his civil personality having ceased to exist the trial court lost
jurisdiction over the case against him, is untenable, because section 17 of
Rule 3 of the Rules of Court provides that —

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

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

Whenever a party to a pending case dies . . . it shall be the duty of his

attorney to inform the court promptly of such death . . . and to give the
name and residence of the executory administrator, guardian, or
other legal representative of the deceased . . . .

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

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

Special proceedings for the administration and settlement of the estate of

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

ACCORDINGLY, the writ of execution appealed from is set aside, without

pronouncement as to costs.

Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L.,

Paredes, Dizon, Regala and Makalintal, JJ., concur.
Barrera, J., concurs in the result.

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

vs.
BECK, defendant-appellee.

Mauricio Carlos for appellants.

Felipe Buencamino, Jr. for appellee.

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

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

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

The contract entered into between the parties is one of commadatum,

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

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

As to the value of the furniture, we do not believe that the plaintiff is entitled
to the payment thereof by the defendant in case of his inability to return
some of the furniture because under paragraph 6 of the stipulation of facts,
the defendant has neither agreed to nor admitted the correctness of the
said value. Should the defendant fail to deliver some of the furniture, the
value thereof should be latter determined by the trial Court through
evidence which the parties may desire to present.
The costs in both instances should be borne by the defendant because the
plaintiff is the prevailing party (section 487 of the Code of Civil Procedure).
The defendant was the one who breached the contract of commodatum,
and without any reason he refused to return and deliver all the furniture
upon the plaintiff's demand. In these circumstances, it is just and equitable
that he pay the legal expenses and other judicial costs which the plaintiff
would not have otherwise defrayed.

The appealed judgment is modified and the defendant is ordered to return

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

Avanceña, C.J., Villa-Real, Laurel, Concepcion and Moran, JJ., concur.

SPOUSES ALBERTO AND SUSAN CASTRO, Petitioners,

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

DECISION

DEL CASTILLO, J.:

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

This Petition for Review on Certiorari1 assails the January 29, 2008 Decision2 of the Court of Appeals
(CA) which dismissed the appeal in CA-G.R. CV No. 86925, and its September 15, 2008
Resolution3 denying petitioners' Motion for Reconsideration.

Factual Antecedents

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

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

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

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

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

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

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

f. On or before June 1, 1998, petitioners shall pay ₱2,928,300.00 for the one-year
lease period July 1, 1998 to June 30, 1999.14

2. Petitioners committed to pay respondents the amount of ₱500,000.00 in five yearly

installments from June 1, 1994. The amount represents arrears of the previous lessee, which
petitioners agreed to assume;15

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

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

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

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

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

Previously, or on July 22, 1999, respondents sent a letter21 to petitioners declaring the latter as
trespassers and demanding the settlement of the latter’s outstanding obligations, including rent for
petitioners’ continued stay within the premises, in the amount of ₱378,451.00, broken down as
follows:
 Unpaid balance as of May 31, 1999 for ₱111,082.0
the fifth year of the lease 0

Accrued interest from May 31, 1999 to

July 31, 1999 at 16% 23,344.00
Trespassing fee for the whole month of
July 1999 244,025.00 22

Total owed to the Lessors ₱378,451.00

Petitioners are in actual receipt of this letter.23

On June 8, 2000,24 respondents instituted Civil Case No. Q-00-41011 for collection of a sum of
money with damages in the Regional Trial Court (RTC) of Quezon City, Branch 215, claiming that
petitioners committed violations of their lease agreement – non-payment of rents as stipulated,
subletting the fishponds, failure to maintain the warehouses, and refusal to vacate the premises on
expiration of the lease – which caused respondents to incur actual and liquidated damages and
other expenses in the respective amounts of ₱570,101.0025 for unpaid rent, ₱275,430.0026 for unpaid
additional rent for petitioners’ one-month extended stay beyond the contract date, and
₱2,000,000.0027 for expenses incurred in restoring and repairing their damaged warehouses. In
addition, respondents prayed to be awarded moral and exemplary damages, attorney’s fees, and
costs of litigation.28

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

During said proceedings, respondents presented in evidence a statement of account31 detailing

petitioners’ outstanding obligations as of July 31, 1999.

In a subsequent Order,32 the trial court, on petitioners’ motion, lifted its previous Order of default, and
the latter were given the opportunity to cross-examine respondents’ witnesses which they failed to
do. Moreover, they also failed to attend subsequent scheduled hearings. The trial court thus
declared the forfeiture, on waiver, of petitioners’ rights to cross-examine and present their evidence,
and considered the case submitted for decision based solely on respondents’ evidence.33 However,
on petitioners’ motion,34 the trial court again reconsidered, and scheduled the presentation of their
evidence on October 5, 2001.35

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

On August 21, 2002, petitioners once more failed to appear; the trial court, in an Order40 of even
date, decreed that petitioner Alberto Castro’s testimony be stricken off the record and declared the
case submitted for decision. Petitioners moved for reconsideration;41 respondents opposed,42 noting
that for more than two years and in spite of several opportunities afforded them, petitioners have
been unable to participate in the proceedings and present their evidence. The trial court did not
reconsider.43

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

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

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

Ruling of the Regional Trial Court

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

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

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

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

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

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

5. Costs of suit.

SO ORDERED.50

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

With respect to petitioners, the trial court said that although they claim to have paid all their
obligations in full, no evidence to such effect has been presented,57 for the precise reason that they
failed to participate in the proceedings on their own account.
Both parties moved for reconsideration. Respondents prayed that petitioners be made additionally
liable for liquidated damages and ₱2,000,000.00 as compensation for the restoration of the
damaged warehouses.58

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

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

Ruling of the Court of Appeals

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

The CA, however, was unconvinced. It held that the preponderance of evidence,62 which remained
uncontroverted by petitioners, points to the fact that petitioners indeed failed to pay rent in full,
considering that their postdated checks bounced upon presentment,63 and their unauthorized
extended stay from July 1 until August 11, 1999.64 It added that petitioners were undeniably guilty of
violating several provisions of the lease agreement, as it has also been shown that they failed to pay
rent on time and illegally subleased the property to one Cynthia Reyes, who even made direct
payments of rentals to respondents on several occasions.65

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

SECTION 16. TERMINATION OR CANCELLATION OF THE LEASE. Any delay in or violation,

failure or refusal of the LESSEE to perform and comply with any of the obligations stipulated
hereunder shall automatically give an absolute right to the LESSORS to cancel, terminate or
otherwise rescind this Contract of Lease. x x x.

xxxx

The above provisions shall, however, be without prejudice to any right of claim by the LESSORS
against the LESSEE for whatever damages which may be incurred or assessed under this Contract
of Lease.67 (Emphasis supplied)
The CA found no error in the award of moral and exemplary damages, noting that petitioners’
violations of the lease agreement compelled respondents to litigate and endure unreasonable
delays, sleepless nights, mental anguish, and serious anxiety.68 As for attorney’s fees, the CA
sustained the trial court’s award of 25%, saying that such stipulation may be justified under Article
2208 of the Civil Code.69 Since respondents were compelled to incur expenses to protect their
interests as a result of petitioners’ acts and omissions, they should be allowed to collect the
stipulated attorney’s fees.70

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

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

Issues

The instant Petition thus raises the following issues:

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT CALLING THE

TRIAL COURT TO TASK FOR REFUSING TO RECEIVE EVIDENCE IN SUPPORT OF THE
VERIFIED MOTION FOR RECONSIDERATION OF PETITIONERS ON THE GROUND
THAT THE AWARD OF DAMAGES IS EXCESSIVE.

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT DISCERNING

THE INTERNAL FACTUAL INCONSISTENCIES OF THE FINDINGS OF THE TRIAL
COURT AS WELL AS THE LACK OF LEGAL BASIS THEREOF, VIS-À-VIS THE CLAIM OF
UNPAID RENT AND INTEREST, IN CLEAR DISREGARD OF THE PRONOUNCEMENTS
OF THIS HONORABLE COURT IN MARTIN V. COURT OF APPEALS.

THERE IS SIMILARLY NO BASIS FOR THE AWARD OF MORAL AND EXEMPLARY

DAMAGES, AND THE HONORABLE COURT OF APPEALS WAS IN GRIEVOUS ERROR
IN SUSTAINING THE TRIAL COURT IN CLEAR DISREGARD OF THIS HONORABLE
COURT’S PRONOUNCEMENTS IN ABS-CBN BROADCASTING CORPORATION V.
COURT OF APPEALS.75

Petitioners’ Arguments

Petitioners pray for the setting aside of the questioned Decision and Resolution of the CA, as well as
the dismissal of respondents’ Complaint, claiming that they have in fact settled all their obligations to
respondents.
Petitioners first claim that they should have been given the opportunity to present evidence during
proceedings covering their Verified Motion for Reconsideration of the trial court’s Decision, invoking
Section 1, Rule 37 of the Rules of Court76 which allows them to question the trial court’s Decision on
the ground that the damages awarded are excessive or that the evidence is insufficient to justify the
Decision.77

Petitioners direct the Court’s attention to respondents’ July 22, 1999 demand letter78 indicating that
their outstanding obligation was only ₱378,451.00, which thus renders excessive the award of
₱863,796.00.

Petitioners next insist that the lease agreement did not authorize respondents to charge additional
rents for their July 1 to August 11, 1999 extended stay,79 which thus renders without legal or factual
basis and excessive the award of ₱863,796.00.80 If at all, the basis for computation thereof should be
the immediately preceding monthly rental of ₱244,025.00.81 Nor is the imposition of interest allowed
under the agreement. Petitioners concede that in the absence of stipulation as to interest,
respondents are entitled only to 6% annual interest as indemnity for damages,82 pursuant to Article
2209 of the Civil Code.83

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

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

Respondents’ Arguments

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

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

Respondents maintain that in the event of expiration of the lease period and the lessee maintains
himself within the premises, the law authorizes the collection of rentals on a month-to-month or year-
to-year basis,94 citing Articles 1670 and 1687 of the Civil Code.95 Thus, even if the lease agreement
with petitioners failed to provide for a stipulation covering lease extension, the obligation to pay rent
is not extinguished by the expiration of the lease on June 30, 1999.96

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

Our Ruling

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

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

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

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

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

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

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

Q Can you briefly explain to the Court how you came about this figure?
A Actually this is what he owes for back lease that he has not paid including interest. This one is
supposedly for overstaying of one month. We did not charge him 41 days, we are only charging him
one month and that is the total.100

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

A July 31.

Q 2000?101

A That’s right.

Q And this pertains to unpaid rent and interest thereof?

A That’s right.

Q The stipulated interest thereof?

A That’s right.

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

A Yes.

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

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

Indeed, respondents do not deny that this amount of ₱863,796.00 is what they are actually charging
petitioners for one month’s extended use of their fishponds. If this is so, then it is truly excessive,
considering that for the immediately preceding month – the whole of June 1999 – it costs only
₱244,025.00103 for the petitioners to rent the same property. The trial court may have been impelled
to accept respondents’ own computation104 of what they believed was due from petitioners on
account of the fact that at that time, petitioners were declared in default and could not cross-examine
the respondents’ witness. But the fact remains that the July 22, 1999 demand letter105clearly sets
forth in detail what appears to be the true, accurate and reasonable amount of petitioners’
outstanding obligation. If this document were a forgery, respondents would have vehemently
objected to its presentation at the very first opportunity.

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

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

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

On the issue of moral and exemplary damages, the Court finds no reason to disturb the trial and
appellate courts’ award in this regard. Petitioners have not been exactly above-board in dealing with
respondents. They have been found guilty of several violations of the agreement, and not just one.
They incurred delay in their payments, and their check payments bounced, for one; for another, they
subleased the premises to Reyes, in blatant disregard of the express prohibition in the lease
agreement; thirdly, they refused to honor their obligation, as stipulated under the lease agreement,
to pay the fishpond license and other permit fees and; finally, they refused to vacate the premises
after the expiration of the lease.
1âwphi1

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

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

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

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

JOSE PORTUGAL PEREZ ESTELA M. PERLAS-BERNABE

Associate Justice Associate Justice
 MARVIC MARIO VICTOR F. LEONEN*
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the w1iter of the opinion of the Court's Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson

THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner,

vs. COURT OF APPEALS and L.C. DIAZ and COMPANY,
CPAs, respondents.

DECISION
CARPIO, J.:

The Case

Before us is a petition for review of the Decision of the Court of Appeals

[1]

dated 27 October 1998 and its Resolution dated 11 May 1999. The assailed
decision reversed the Decision of the Regional Trial Court of Manila, Branch
[2]

8, absolving petitioner Consolidated Bank and Trust Corporation, now known

as Solidbank Corporation (Solidbank), of any liability. The questioned
resolution of the appellate court denied the motion for reconsideration of
Solidbank but modified the decision by deleting the award of exemplary
damages, attorneys fees, expenses of litigation and cost of suit.
 The Facts

Solidbank is a domestic banking corporation organized and existing under

Philippine laws. Private respondent L.C. Diaz and Company, CPAs (L.C.
Diaz), is a professional partnership engaged in the practice of accounting.
Sometime in March 1976, L.C. Diaz opened a savings account with
Solidbank, designated as Savings Account No. S/A 200-16872-6.
On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya
(Macaraya), filled up a savings (cash) deposit slip for P990 and a savings
(checks) deposit slip for P50. Macaraya instructed the messenger of L.C.
Diaz, Ismael Calapre (Calapre), to deposit the money with Solidbank.
Macaraya also gave Calapre the Solidbank passbook.
Calapre went to Solidbank and presented to Teller No. 6 the two deposit
slips and the passbook. The teller acknowledged receipt of the deposit by
returning to Calapre the duplicate copies of the two deposit slips. Teller No. 6
stamped the deposit slips with the words DUPLICATE and SAVING TELLER
6 SOLIDBANK HEAD OFFICE. Since the transaction took time and Calapre
had to make another deposit for L.C. Diaz with Allied Bank, he left the
passbook with Solidbank. Calapre then went to Allied Bank. When Calapre
returned to Solidbank to retrieve the passbook, Teller No. 6 informed him that
somebody got the passbook. Calapre went back to L.C. Diaz and reported
[3]

the incident to Macaraya.

Macaraya immediately prepared a deposit slip in duplicate copies with a
check of P200,000. Macaraya, together with Calapre, went to Solidbank and
presented to Teller No. 6 the deposit slip and check. The teller stamped the
words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE on
the duplicate copy of the deposit slip. When Macaraya asked for the
passbook, Teller No. 6 told Macaraya that someone got the passbook but she
could not remember to whom she gave the passbook. When Macaraya asked
Teller No. 6 if Calapre got the passbook, Teller No. 6 answered that someone
shorter than Calapre got the passbook. Calapre was then standing beside
Macaraya.
Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for
the deposit of a check for P90,000 drawn on Philippine Banking Corporation
(PBC). This PBC check of L.C. Diaz was a check that it had long
closed. PBC subsequently dishonored the check because of insufficient
[4]

funds and because the signature in the check differed from PBCs specimen
signature. Failing to get back the passbook, Macaraya went back to her office
and reported the matter to the Personnel Manager of L.C. Diaz, Emmanuel
Alvarez.
The following day, 15 August 1991, L.C. Diaz through its Chief Executive
Officer, Luis C. Diaz (Diaz), called up Solidbank to stop any transaction using
the same passbook until L.C. Diaz could open a new account. On the same
[5]

day, Diaz formally wrote Solidbank to make the same request. It was also on
the same day that L.C. Diaz learned of the unauthorized withdrawal the day
before, 14 August 1991, of P300,000 from its savings account. The withdrawal
slip for the P300,000 bore the signatures of the authorized signatories of L.C.
Diaz, namely Diaz and Rustico L. Murillo. The signatories, however, denied
signing the withdrawal slip. A certain Noel Tamayo received the P300,000.
In an Information dated 5 September 1991, L.C. Diaz charged its
[6]

messenger, Emerano Ilagan (Ilagan) and one Roscon Verdazola with Estafa
through Falsification of Commercial Document. The Regional Trial Court of
Manila dismissed the criminal case after the City Prosecutor filed a Motion to
Dismiss on 4 August 1992.
On 24 August 1992, L.C. Diaz through its counsel demanded from
Solidbank the return of its money. Solidbank refused.
On 25 August 1992, L.C. Diaz filed a Complaint for Recovery of a Sum of
[7]

Money against Solidbank with the Regional Trial Court of Manila, Branch
8. After trial, the trial court rendered on 28 December 1994 a decision
absolving Solidbank and dismissing the complaint.
L.C. Diaz then appealed to the Court of Appeals. On 27 October 1998,
[8]

the Court of Appeals issued its Decision reversing the decision of the trial
court.
On 11 May 1999, the Court of Appeals issued its Resolution denying the
motion for reconsideration of Solidbank. The appellate court, however,
modified its decision by deleting the award of exemplary damages and
attorneys fees.

The Ruling of the Trial Court

In absolving Solidbank, the trial court applied the rules on savings account
written on the passbook. The rules state that possession of this book shall
raise the presumption of ownership and any payment or payments made by
the bank upon the production of the said book and entry therein of the
withdrawal shall have the same effect as if made to the depositor personally. [9]
 At the time of the withdrawal, a certain Noel Tamayo was not only in
possession of the passbook, he also presented a withdrawal slip with the
signatures of the authorized signatories of L.C. Diaz. The specimen
signatures of these persons were in the signature cards. The teller stamped
the withdrawal slip with the words Saving Teller No. 5. The teller then passed
on the withdrawal slip to Genere Manuel (Manuel) for authentication. Manuel
verified the signatures on the withdrawal slip. The withdrawal slip was then
given to another officer who compared the signatures on the withdrawal slip
with the specimen on the signature cards. The trial court concluded that
Solidbank acted with care and observed the rules on savings account when it
allowed the withdrawal of P300,000 from the savings account of L.C. Diaz.
The trial court pointed out that the burden of proof now shifted to L.C. Diaz
to prove that the signatures on the withdrawal slip were forged. The trial court
admonished L.C. Diaz for not offering in evidence the National Bureau of
Investigation (NBI) report on the authenticity of the signatures on the
withdrawal slip for P300,000. The trial court believed that L.C. Diaz did not
offer this evidence because it is derogatory to its action.
Another provision of the rules on savings account states that the depositor
must keep the passbook under lock and key. When another person presents
[10]

the passbook for withdrawal prior to Solidbanks receipt of the notice of loss of
the passbook, that person is considered as the owner of the passbook. The
trial court ruled that the passbook presented during the questioned transaction
was now out of the lock and key and presumptively ready for a business
transaction.[11]

Solidbank did not have any participation in the custody and care of the
passbook. The trial court believed that Solidbanks act of allowing the
withdrawal of P300,000 was not the direct and proximate cause of the loss.
The trial court held that L.C. Diazs negligence caused the unauthorized
withdrawal. Three facts establish L.C. Diazs negligence: (1) the possession of
the passbook by a person other than the depositor L.C. Diaz; (2) the
presentation of a signed withdrawal receipt by an unauthorized person; and
(3) the possession by an unauthorized person of a PBC check long closed by
L.C. Diaz, which check was deposited on the day of the fraudulent withdrawal.
The trial court debunked L.C. Diazs contention that Solidbank did not
follow the precautionary procedures observed by the two parties whenever
L.C. Diaz withdrew significant amounts from its account. L.C. Diaz claimed
that a letter must accompany withdrawals of more than P20,000. The letter
must request Solidbank to allow the withdrawal and convert the amount to a
managers check. The bearer must also have a letter authorizing him to
withdraw the same amount. Another person driving a car must accompany the
bearer so that he would not walk from Solidbank to the office in making the
withdrawal. The trial court pointed out that L.C. Diaz disregarded these
precautions in its past withdrawal. On 16 July 1991, L.C. Diaz
withdrew P82,554 without any separate letter of authorization or any
communication with Solidbank that the money be converted into a managers
check.
The trial court further justified the dismissal of the complaint by holding
that the case was a last ditch effort of L.C. Diaz to recover P300,000 after the
dismissal of the criminal case against Ilagan.
The dispositive portion of the decision of the trial court reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the

complaint.

The Court further renders judgment in favor of defendant bank pursuant to its
counterclaim the amount of Thirty Thousand Pesos (P30,000.00) as attorneys fees.

With costs against plaintiff.

SO ORDERED. [12]

The Ruling of the Court of Appeals

The Court of Appeals ruled that Solidbanks negligence was the proximate
cause of the unauthorized withdrawal of P300,000 from the savings account
of L.C. Diaz. The appellate court reached this conclusion after applying the
provision of the Civil Code on quasi-delict, to wit:

Article 2176. Whoever by act or omission causes damage to another, there being fault
or negligence, is obliged to pay for the damage done. Such fault or negligence, if there
is no pre-existing contractual relation between the parties, is called a quasi-delict and
is governed by the provisions of this chapter.

The appellate court held that the three elements of a quasi-delict are present
in this case, namely: (a) damages suffered by the plaintiff; (b) fault or
negligence of the defendant, or some other person for whose acts he must
respond; and (c) the connection of cause and effect between the fault or
negligence of the defendant and the damage incurred by the plaintiff.
 The Court of Appeals pointed out that the teller of Solidbank who received
the withdrawal slip for P300,000 allowed the withdrawal without making the
necessary inquiry. The appellate court stated that the teller, who was not
presented by Solidbank during trial, should have called up the depositor
because the money to be withdrawn was a significant amount. Had the teller
called up L.C. Diaz, Solidbank would have known that the withdrawal was
unauthorized. The teller did not even verify the identity of the impostor who
made the withdrawal. Thus, the appellate court found Solidbank liable for its
negligence in the selection and supervision of its employees.
The appellate court ruled that while L.C. Diaz was also negligent in
entrusting its deposits to its messenger and its messenger in leaving the
passbook with the teller, Solidbank could not escape liability because of the
doctrine of last clear chance. Solidbank could have averted the injury suffered
by L.C. Diaz had it called up L.C. Diaz to verify the withdrawal.
The appellate court ruled that the degree of diligence required from
Solidbank is more than that of a good father of a family. The business and
functions of banks are affected with public interest. Banks are obligated to
treat the accounts of their depositors with meticulous care, always having in
mind the fiduciary nature of their relationship with their clients. The Court of
Appeals found Solidbank remiss in its duty, violating its fiduciary relationship
with L.C. Diaz.
The dispositive portion of the decision of the Court of Appeals reads:

WHEREFORE, premises considered, the decision appealed from is hereby

REVERSED and a new one entered.

1. Ordering defendant-appellee Consolidated Bank and Trust Corporation to

pay plaintiff-appellant the sum of Three Hundred Thousand Pesos
(P300,000.00), with interest thereon at the rate of 12% per annum from
the date of filing of the complaint until paid, the sum of P20,000.00 as
exemplary damages, and P20,000.00 as attorneys fees and expenses of
litigation as well as the cost of suit; and

2. Ordering the dismissal of defendant-appellees counterclaim in the amount

of P30,000.00 as attorneys fees.

SO ORDERED. [13]

Acting on the motion for reconsideration of Solidbank, the appellate court

affirmed its decision but modified the award of damages. The appellate court
deleted the award of exemplary damages and attorneys fees. Invoking Article
2231 of the Civil Code, the appellate court ruled that exemplary damages
[14]

could be granted if the defendant acted with gross negligence. Since

Solidbank was guilty of simple negligence only, the award of exemplary
damages was not justified. Consequently, the award of attorneys fees was
also disallowed pursuant to Article 2208 of the Civil Code. The expenses of
litigation and cost of suit were also not imposed on Solidbank.
The dispositive portion of the Resolution reads as follows:

WHEREFORE, foregoing considered, our decision dated October 27, 1998 is

affirmed with modification by deleting the award of exemplary damages and attorneys
fees, expenses of litigation and cost of suit.

SO ORDERED. [15]

Hence, this petition.

The Issues

Solidbank seeks the review of the decision and resolution of the Court of
Appeals on these grounds:

I. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER

BANK SHOULD SUFFER THE LOSS BECAUSE ITS TELLER
SHOULD HAVE FIRST CALLED PRIVATE RESPONDENT BY
TELEPHONE BEFORE IT ALLOWED THE WITHDRAWAL
OF P300,000.00 TO RESPONDENTS MESSENGER EMERANO
ILAGAN, SINCE THERE IS NO AGREEMENT BETWEEN THE
PARTIES IN THE OPERATION OF THE SAVINGS ACCOUNT,
NOR IS THERE ANY BANKING LAW, WHICH MANDATES THAT
A BANK TELLER SHOULD FIRST CALL UP THE DEPOSITOR
BEFORE ALLOWING A WITHDRAWAL OF A BIG AMOUNT IN A
SAVINGS ACCOUNT.

II. THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE

OF LAST CLEAR CHANCE AND IN HOLDING THAT
PETITIONER BANKS TELLER HAD THE LAST OPPORTUNITY
TO WITHHOLD THE WITHDRAWAL WHEN IT IS UNDISPUTED
THAT THE TWO SIGNATURES OF RESPONDENT ON THE
WITHDRAWAL SLIP ARE GENUINE AND PRIVATE
 RESPONDENTS PASSBOOK WAS DULY PRESENTED, AND
CONTRARIWISE RESPONDENT WAS NEGLIGENT IN THE
SELECTION AND SUPERVISION OF ITS MESSENGER EMERANO
ILAGAN, AND IN THE SAFEKEEPING OF ITS CHECKS AND
OTHER FINANCIAL DOCUMENTS.

III. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE

INSTANT CASE IS A LAST DITCH EFFORT OF PRIVATE
RESPONDENT TO RECOVER ITS P300,000.00 AFTER FAILING IN
ITS EFFORTS TO RECOVER THE SAME FROM ITS EMPLOYEE
EMERANO ILAGAN.

IV. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE

DAMAGES AWARDED AGAINST PETITIONER UNDER ARTICLE
2197 OF THE CIVIL CODE, NOTWITHSTANDING ITS FINDING
THAT PETITIONER BANKS NEGLIGENCE WAS ONLY
CONTRIBUTORY. [16]

The Ruling of the Court

The petition is partly meritorious.

Solidbanks Fiduciary Duty under the Law

The rulings of the trial court and the Court of Appeals conflict on the
application of the law. The trial court pinned the liability on L.C. Diaz based on
the provisions of the rules on savings account, a recognition of the contractual
relationship between Solidbank and L.C. Diaz, the latter being a depositor of
the former. On the other hand, the Court of Appeals applied the law on quasi-
delict to determine who between the two parties was ultimately negligent. The
law on quasi-delict or culpa aquiliana is generally applicable when there is no
pre-existing contractual relationship between the parties.
We hold that Solidbank is liable for breach of contract due to negligence,
or culpa contractual.
The contract between the bank and its depositor is governed by the
provisions of the Civil Code on simple loan. Article 1980 of the Civil Code
[17]

expressly provides that x x x savings x x x deposits of money in banks and

similar institutions shall be governed by the provisions concerning simple
loan. There is a debtor-creditor relationship between the bank and its
depositor. The bank is the debtor and the depositor is the creditor. The
depositor lends the bank money and the bank agrees to pay the depositor on
demand. The savings deposit agreement between the bank and the depositor
is the contract that determines the rights and obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature of
banking. Section 2 of Republic Act No. 8791 (RA 8791), which took effect on
[18]

13 June 2000, declares that the State recognizes the fiduciary nature of
banking that requires high standards of integrity and performance. This new
[19]

provision in the general banking law, introduced in 2000, is a statutory

affirmation of Supreme Court decisions, starting with the 1990 case of Simex
International v. Court of Appeals, holding that the bank is under obligation
[20]

to treat the accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship.
[21]

This fiduciary relationship means that the banks obligation to observe high
standards of integrity and performance is deemed written into every deposit
agreement between a bank and its depositor. The fiduciary nature of banking
requires banks to assume a degree of diligence higher than that of a good
father of a family. Article 1172 of the Civil Code states that the degree of
diligence required of an obligor is that prescribed by law or contract, and
absent such stipulation then the diligence of a good father of a
family. Section 2 of RA 8791 prescribes the statutory diligence required from
[22]

banks that banks must observe high standards of integrity and performance in
servicing their depositors.Although RA 8791 took effect almost nine years
after the unauthorized withdrawal of the P300,000 from L.C. Diazs savings
account, jurisprudence at the time of the withdrawal already imposed on
[23]

banks the same high standard of diligence required under RA No. 8791.
However, the fiduciary nature of a bank-depositor relationship does not
convert the contract between the bank and its depositors from a simple loan to
a trust agreement, whether express or implied. Failure by the bank to pay the
depositor is failure to pay a simple loan, and not a breach of trust. The law
[24]

simply imposes on the bank a higher standard of integrity and performance

in complying with its obligations under the contract of simple loan, beyond
those required of non-bank debtors under a similar contract of simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust
agreement because banks do not accept deposits to enrich depositors but to
earn money for themselves. The law allows banks to offer the lowest possible
interest rate to depositors while charging the highest possible interest rate on
their own borrowers. The interest spread or differential belongs to the bank
and not to the depositors who are not cestui que trust of banks. If depositors
are cestui que trust of banks, then the interest spread or income belongs to
the depositors, a situation that Congress certainly did not intend in enacting
Section 2 of RA 8791.

Solidbanks Breach of its Contractual Obligation

Article 1172 of the Civil Code provides that responsibility arising from
negligence in the performance of every kind of obligation is demandable. For
breach of the savings deposit agreement due to negligence, or culpa
contractual, the bank is liable to its depositor.
Calapre left the passbook with Solidbank because the transaction took
time and he had to go to Allied Bank for another transaction. The passbook
was still in the hands of the employees of Solidbank for the processing of the
deposit when Calapre left Solidbank. Solidbanks rules on savings account
require that the deposit book should be carefully guarded by the depositor and
kept under lock and key, if possible. When the passbook is in the possession
of Solidbanks tellers during withdrawals, the law imposes on Solidbank and its
tellers an even higher degree of diligence in safeguarding the passbook.
Likewise, Solidbanks tellers must exercise a high degree of diligence in
insuring that they return the passbook only to the depositor or his authorized
representative. The tellers know, or should know, that the rules on savings
account provide that any person in possession of the passbook is
presumptively its owner. If the tellers give the passbook to the wrong person,
they would be clothing that person presumptive ownership of the passbook,
facilitating unauthorized withdrawals by that person. For failing to return the
passbook to Calapre, the authorized representative of L.C. Diaz, Solidbank
and Teller No. 6 presumptively failed to observe such high degree of diligence
in safeguarding the passbook, and in insuring its return to the party authorized
to receive the same.
In culpa contractual, once the plaintiff proves a breach of contract, there is
a presumption that the defendant was at fault or negligent. The burden is on
the defendant to prove that he was not at fault or negligent. In contrast,
in culpa aquiliana the plaintiff has the burden of proving that the defendant
was negligent. In the present case, L.C. Diaz has established that Solidbank
breached its contractual obligation to return the passbook only to the
authorized representative of L.C. Diaz. There is thus a presumption that
Solidbank was at fault and its teller was negligent in not returning the
passbook to Calapre. The burden was on Solidbank to prove that there was
no negligence on its part or its employees.
Solidbank failed to discharge its burden. Solidbank did not present to the
trial court Teller No. 6, the teller with whom Calapre left the passbook and who
was supposed to return the passbook to him. The record does not indicate
that Teller No. 6 verified the identity of the person who retrieved the
passbook. Solidbank also failed to adduce in evidence its standard procedure
in verifying the identity of the person retrieving the passbook, if there is such a
procedure, and that Teller No. 6 implemented this procedure in the present
case.
Solidbank is bound by the negligence of its employees under the principle
of respondeat superior or command responsibility. The defense of exercising
the required diligence in the selection and supervision of employees is not a
complete defense in culpa contractual, unlike in culpa aquiliana. [25]

The bank must not only exercise high standards of integrity and
performance, it must also insure that its employees do likewise because this is
the only way to insure that the bank will comply with its fiduciary
duty. Solidbank failed to present the teller who had the duty to return to
Calapre the passbook, and thus failed to prove that this teller exercised the
high standards of integrity and performance required of Solidbanks
employees.

Proximate Cause of the Unauthorized Withdrawal

Another point of disagreement between the trial and appellate courts is the
proximate cause of the unauthorized withdrawal. The trial court believed that
L.C. Diazs negligence in not securing its passbook under lock and key was
the proximate cause that allowed the impostor to withdraw the P300,000. For
the appellate court, the proximate cause was the tellers negligence in
processing the withdrawal without first verifying with L.C. Diaz. We do not
agree with either court.
Proximate cause is that cause which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury and without
which the result would not have occurred. Proximate cause is determined by
[26]

the facts of each case upon mixed considerations of logic, common sense,
policy and precedent. [27]

L.C. Diaz was not at fault that the passbook landed in the hands of the
impostor. Solidbank was in possession of the passbook while it was
processing the deposit. After completion of the transaction, Solidbank had the
contractual obligation to return the passbook only to Calapre, the authorized
representative of L.C. Diaz. Solidbank failed to fulfill its contractual obligation
because it gave the passbook to another person.
Solidbanks failure to return the passbook to Calapre made possible the
withdrawal of the P300,000 by the impostor who took possession of the
passbook. Under Solidbanks rules on savings account, mere possession of
the passbook raises the presumption of ownership. It was the negligent act of
Solidbanks Teller No. 6 that gave the impostor presumptive ownership of the
passbook. Had the passbook not fallen into the hands of the impostor, the
loss of P300,000 would not have happened. Thus, the proximate cause of the
unauthorized withdrawal was Solidbanks negligence in not returning the
passbook to Calapre.
We do not subscribe to the appellate courts theory that the proximate
cause of the unauthorized withdrawal was the tellers failure to call up L.C.
Diaz to verify the withdrawal. Solidbank did not have the duty to call up L.C.
Diaz to confirm the withdrawal. There is no arrangement between Solidbank
and L.C. Diaz to this effect. Even the agreement between Solidbank and L.C.
Diaz pertaining to measures that the parties must observe whenever
withdrawals of large amounts are made does not direct Solidbank to call up
L.C. Diaz.
There is no law mandating banks to call up their clients whenever their
representatives withdraw significant amounts from their accounts. L.C. Diaz
therefore had the burden to prove that it is the usual practice of Solidbank to
call up its clients to verify a withdrawal of a large amount of money. L.C. Diaz
failed to do so.
Teller No. 5 who processed the withdrawal could not have been put on
guard to verify the withdrawal. Prior to the withdrawal of P300,000, the
impostor deposited with Teller No. 6 the P90,000 PBC check, which later
bounced. The impostor apparently deposited a large amount of money to
deflect suspicion from the withdrawal of a much bigger amount of money. The
appellate court thus erred when it imposed on Solidbank the duty to call up
L.C. Diaz to confirm the withdrawal when no law requires this from banks and
when the teller had no reason to be suspicious of the transaction.
Solidbank continues to foist the defense that Ilagan made the
withdrawal. Solidbank claims that since Ilagan was also a messenger of L.C.
Diaz, he was familiar with its teller so that there was no more need for the
teller to verify the withdrawal. Solidbank relies on the following statements in
the Booking and Information Sheet of Emerano Ilagan:
xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and
indicated the amount of P90,000 which he deposited in favor of L.C. Diaz and
Company. After successfully withdrawing this large sum of money, accused Ilagan
gave alias Rey (Noel Tamayo) his share of the loot. Ilagan then hired a taxicab in the
amount of P1,000 to transport him (Ilagan) to his home province at Bauan,
Batangas. Ilagan extravagantly and lavishly spent his money but a big part of his loot
was wasted in cockfight and horse racing. Ilagan was apprehended and meekly
admitted his guilt. (Emphasis supplied.)
[28]

L.C. Diaz refutes Solidbanks contention by pointing out that the person
who withdrew the P300,000 was a certain Noel Tamayo. Both the trial and
appellate courts stated that this Noel Tamayo presented the passbook with
the withdrawal slip.
We uphold the finding of the trial and appellate courts that a certain Noel
Tamayo withdrew the P300,000. The Court is not a trier of facts. We find no
justifiable reason to reverse the factual finding of the trial court and the Court
of Appeals. The tellers who processed the deposit of the P90,000 check and
the withdrawal of the P300,000 were not presented during trial to substantiate
Solidbanks claim that Ilagan deposited the check and made the questioned
withdrawal. Moreover, the entry quoted by Solidbank does not categorically
state that Ilagan presented the withdrawal slip and the passbook.

Doctrine of Last Clear Chance

The doctrine of last clear chance states that where both parties are
negligent but the negligent act of one is appreciably later than that of the
other, or where it is impossible to determine whose fault or negligence caused
the loss, the one who had the last clear opportunity to avoid the loss but failed
to do so, is chargeable with the loss. Stated differently, the antecedent
[29]

negligence of the plaintiff does not preclude him from recovering damages
caused by the supervening negligence of the defendant, who had the last fair
chance to prevent the impending harm by the exercise of due diligence. [30]

We do not apply the doctrine of last clear chance to the present

case. Solidbank is liable for breach of contract due to negligence in the
performance of its contractual obligation to L.C. Diaz. This is a case of culpa
contractual, where neither the contributory negligence of the plaintiff nor his
last clear chance to avoid the loss, would exonerate the defendant from
liability. Such contributory negligence or last clear chance by the plaintiff
[31]
merely serves to reduce the recovery of damages by the plaintiff but does not
exculpate the defendant from his breach of contract. [32]

Mitigated Damages

Under Article 1172, liability (for culpa contractual) may be regulated by the
courts, according to the circumstances. This means that if the defendant
exercised the proper diligence in the selection and supervision of its
employee, or if the plaintiff was guilty of contributory negligence, then the
courts may reduce the award of damages. In this case, L.C. Diaz was guilty of
contributory negligence in allowing a withdrawal slip signed by its authorized
signatories to fall into the hands of an impostor. Thus, the liability of Solidbank
should be reduced.
In Philippine Bank of Commerce v. Court of Appeals, where the Court
[33]

held the depositor guilty of contributory negligence, we allocated the damages

between the depositor and the bank on a 40-60 ratio. Applying the same
ruling to this case, we hold that L.C. Diaz must shoulder 40% of the actual
damages awarded by the appellate court. Solidbank must pay the other 60%
of the actual damages.
WHEREFORE, the decision of the Court of Appeals
is AFFIRMED with MODIFICATION. Petitioner Solidbank Corporation shall
pay private respondent L.C. Diaz and Company, CPAs only 60% of the actual
damages awarded by the Court of Appeals. The remaining 40% of the actual
damages shall be borne by private respondent L.C. Diaz and Company,
CPAs. Proportionate costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, and Ynares-Santiago, JJ., concur.
Azcuna, J., on official leave.

CITIBANK, N.A. (Formerly G.R. No. 156132

First National City Bank) and
INVESTORS FINANCE
CORPORATION, doing business
under the name and style of FNCB Present:
Finance,
Petitioners, PANGANIBAN, C.J.
Chairperson,
YNARES-SANTIAGO,

AUSTRIA-MARTINEZ,
- versus-
CALLEJO, SR., and

CHICO-NAZARIO, JJ.

MODESTA R. SABENIANO,
Promulgated:
Respondent.

October 16, 2006

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari,[1] under Rule 45 of

the Revised Rules of Court, of the Decision[2] of the Court of Appeals in CA-G.R. CV
No. 51930, dated 26 March 2002, and the Resolution,[3] dated 20 November 2002,
of the same court which, although modifying its earlier Decision, still denied for
the most part the Motion for Reconsideration of herein petitioners.
Petitioner Citibank, N.A. (formerly known as the First National City Bank) is a
banking corporation duly authorized and existing under the laws of the United
States of America and licensed to do commercial banking activities and perform
trust functions in the Philippines.

Petitioner Investors Finance Corporation, which did business under the

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

Respondent Modesta R. Sabeniano was a client of both petitioners Citibank

and FNCB Finance. Regrettably, the business relations among the parties
subsequently went awry.

On 8 August 1985, respondent filed a Complaint[5] against petitioners,

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

In their joint Answer[7] and Answer to Amended Complaint,[8] filed on 12

September 1985 and 6 November 1985, respectively, petitioners admitted that
respondent had deposits and money market placements with them, including
dollar accounts in the Citibank branch in Geneva, Switzerland (Citibank-
Geneva). Petitioners further alleged that the respondent later obtained several
loans from petitioner Citibank, for which she executed Promissory Notes (PNs),
and secured by (a) a Declaration of Pledge of her dollar accounts in Citibank-
Geneva, and (b) Deeds of Assignment of her money market placements with
petitioner FNCB Finance. When respondent failed to pay her loans despite
repeated demands by petitioner Citibank, the latter exercised its right to off-set
or compensate respondents outstanding loans with her deposits and money
market placements, pursuant to the Declaration of Pledge and the Deeds of
Assignment executed by respondent in its favor. Petitioner Citibank supposedly
informed respondent Sabeniano of the foregoing compensation through letters,
dated 28 September 1979 and 31 October 1979. Petitioners were therefore
surprised when six years later, in 1985, respondent and her counsel made
repeated requests for the withdrawal of respondents deposits and money market
placements with petitioner Citibank, including her dollar accounts with Citibank-
Geneva and her money market placements with petitioner FNCB Finance. Thus,
petitioners prayed for the dismissal of the Complaint and for the award of actual,
moral, and exemplary damages, and attorneys fees.

When the parties failed to reach a compromise during the pre-trial

hearing,[9] trial proper ensued and the parties proceeded with the presentation of
their respective evidence. Ten years after the filing of the Complaint on 8 August
1985, a Decision[10] was finally rendered in Civil Case No. 11336 on 24 August 1995
by the fourth Judge[11] who handled the said case, Judge Manuel D. Victorio, the
dispositive portion of which reads

WHEREFORE, in view of all the foregoing, decision is hereby

rendered as follows:

(1) Declaring as illegal, null and void the setoff effected by the
defendant Bank [petitioner Citibank] of plaintiffs [respondent Sabeniano]
dollar deposit with Citibank, Switzerland, in the amount of US$149,632.99,
and ordering the said defendant [petitioner Citibank] to refund the said
amount to the plaintiff with legal interest at the rate of twelve percent
(12%) per annum, compounded yearly, from 31 October 1979 until fully
paid, or its peso equivalent at the time of payment;

(2) Declaring the plaintiff [respondent Sabeniano] indebted to the

defendant Bank [petitioner Citibank] in the amount of P1,069,847.40 as of
5 September 1979 and ordering the plaintiff [respondent Sabeniano] to
pay said amount, however, there shall be no interest and penalty charges
from the time the illegal setoff was effected on 31 October 1979;

(3) Dismissing all other claims and counterclaims interposed by the

parties against each other.

Costs against the defendant Bank.

All the parties appealed the foregoing Decision of the RTC to the Court of Appeals,
docketed as CA-G.R. CV No. 51930. Respondent questioned the findings of the
RTC that she was still indebted to petitioner Citibank, as well as the failure of the
RTC to order petitioners to render an accounting of respondents deposits and
money market placements with them. On the other hand, petitioners argued that
petitioner Citibank validly compensated respondents outstanding loans with her
dollar accounts with Citibank-Geneva, in accordance with the Declaration of
Pledge she executed in its favor. Petitioners also alleged that the RTC erred in not
declaring respondent liable for damages and interest.
On 26 March 2002, the Court of Appeals rendered its Decision[12] affirming with
modification the RTC Decision in Civil Case No. 11336, dated 24 August 1995, and
ruling entirely in favor of respondent in this wise

Wherefore, premises considered, the assailed 24 August

1995 Decision of the court a quo is hereby AFFIRMED with
MODIFICATION, as follows:

1. Declaring as illegal, null and void the set-off effected by the

defendant-appellant Bank of the plaintiff-appellants dollar deposit with
Citibank, Switzerland, in the amount of US$149,632.99, and ordering
defendant-appellant Citibank to refund the said amount to the plaintiff-
appellant with legal interest at the rate of twelve percent (12%) per
annum, compounded yearly, from 31 October 1979 until fully paid, or its
peso equivalent at the time of payment;

2. As defendant-appellant Citibank failed to establish by competent

evidence the alleged indebtedness of plaintiff-appellant, the set-off
of P1,069,847.40 in the account of Ms. Sabeniano is hereby declared as
without legal and factual basis;

3. As defendants-appellants failed to account the following plaintiff-

appellants money market placements, savings account and current
accounts, the former is hereby ordered to return the same, in accordance
with the terms and conditions agreed upon by the contending parties as
evidenced by the certificates of investments, to wit:
 (i) Citibank NNPN Serial No. 023356 (Cancels and
Supersedes NNPN No. 22526) issued on 17 March
1977, P318,897.34 with 14.50% interest p.a.;

(ii) Citibank NNPN Serial No. 23357 (Cancels and

Supersedes NNPN No. 22528) issued on 17 March
1977, P203,150.00 with 14.50 interest p.a.;

(iii) FNCB NNPN Serial No. 05757 (Cancels and

Supersedes NNPN No. 04952), issued on 02 June
1977, P500,000.00 with 17% interest p.a.;

(iv) FNCB NNPN Serial No. 05758 (Cancels and

Supersedes NNPN No. 04962), issued on 02 June
1977, P500,000.00 with 17% interest per annum;

(v) The Two Million (P2,000,000.00) money market

placements of Ms. Sabeniano with the Ayala Investment &
Development Corporation (AIDC) with legal interest at the
rate of twelve percent (12%) per annum compounded yearly,
from 30 September 1976 until fully paid;

4. Ordering defendants-appellants to jointly and severally pay the

plaintiff-appellant the sum of FIVE HUNDRED THOUSAND PESOS
(P500,000.00) by way of moral damages, FIVE HUNDRED THOUSAND
PESOS (P500,000.00) as exemplary damages, and ONE HUNDRED
THOUSAND PESOS (P100,000.00) as attorneys fees.
Apparently, the parties to the case, namely, the respondent, on one hand, and
the petitioners, on the other, made separate attempts to bring the
aforementioned Decision of the Court of Appeals, dated 26 March 2002, before
this Court for review.

G.R. No. 152985

Respondent no longer sought a reconsideration of the Decision of the Court of

Appeals in CA-G.R. CV No. 51930, dated 26 March 2002, and instead, filed
immediately with this Court on 3 May 2002 a Motion for Extension of Time to File
a Petition for Review,[13] which, after payment of the docket and other lawful fees,
was assigned the docket number G.R. No. 152985. In the said Motion, respondent
alleged that she received a copy of the assailed Court of Appeals Decision on 18
April 2002 and, thus, had 15 days therefrom or until 3 May 2002 within which to
file her Petition for Review. Since she informed her counsel of her desire to
pursue an appeal of the Court of Appeals Decision only on 29 April 2002, her
counsel neither had enough time to file a motion for reconsideration of the said
Decision with the Court of Appeals, nor a Petition for Certiorari with this
Court. Yet, the Motion failed to state the exact extension period respondent was
requesting for.

Since this Court did not act upon respondents Motion for Extension of Time
to file her Petition for Review, then the period for appeal continued to run and
still expired on 3 May 2002.[14] Respondent failed to file any Petition for Review
within the prescribed period for appeal and, hence, this Court issued a
Resolution,[15] dated 13 November 2002, in which it pronounced that

G.R. No. 152985 (Modesta R. Sabeniano vs. Court of Appeals, et

al.). It appearing that petitioner failed to file the intended petition for
review on certiorari within the period which expired on May 3, 2002, the
Court Resolves to DECLARE THIS CASE TERMINATED and DIRECT the
 Division Clerk of Court to INFORM the parties that the judgment sought to
be reviewed has become final and executory.

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

G.R. No. 156132

Meanwhile, petitioners filed with the Court of Appeals a Motion for

Reconsideration of its Decision in CA-G.R. CV No. 51930, dated 26 March
2002. Acting upon the said Motion, the Court of Appeals issued the
Resolution,[16] dated 20 November 2002, modifying its Decision of 26 March 2002,
as follows

WHEREFORE, premises considered, the instant Motion for

Reconsideration is PARTIALLY GRANTED as Sub-paragraph (V) paragraph 3
of the assailed Decisions dispositive portion is hereby ordered DELETED.

The challenged 26 March 2002 Decision of the Court

is AFFIRMED with MODIFICATION.

Assailing the Decision and Resolution of the Court of Appeals in CA-G.R. CV

No. 51930, dated 26 March 2002 and 20 November 2002, respectively, petitioners
filed the present Petition, docketed as G.R. No. 156132. The Petition was initially
denied[17] by this Court for failure of the petitioners to attach thereto a
Certification against Forum Shopping. However, upon petitioners Motion and
compliance with the requirements, this Court resolved[18] to reinstate the Petition.
 The Petition presented fourteen (14) assignments of errors allegedly
committed by the Court of Appeals in its Decision, dated 26 March 2002, involving
both questions of fact and questions of law which this Court, for the sake of
expediency, discusses jointly, whenever possible, in the succeeding paragraphs.

The Resolution of this Court, dated 13

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

Before proceeding to a discussion of the merits of the instant Petition, this

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

This Court already explained the matter to respondent when it issued a

Resolution[20] in G.R. No. 156132, dated 2 February 2004, which addressed her
Urgent Motion for the Release of the Decision with the Implementation of the
Entry of Judgment in the following manner
[A]cting on Citibanks and FNCB Finances Motion for Reconsideration, we
resolved to grant the motion, reinstate the petition and require Sabeniano
to file a comment thereto in our Resolution of June 23, 2003. Sabeniano
filed a Comment dated July 17, 2003 to which Citibank and FNCB Finance
filed a Reply dated August 20, 2003.

From the foregoing, it is clear that Sabeniano had knowledge of, and in
fact participated in, the proceedings in G.R. No. 156132. She cannot feign
ignorance of the proceedings therein and claim that the Decision of the
Court of Appeals has become final and executory. More precisely,
the Decision became final and executory only with regard to Sabeniano in
view of her failure to file a petition for review within the extended period
granted by the Court, and not to Citibank and FNCB Finance
whose Petition for Review was duly reinstated and is now submitted for
decision.

Accordingly, the instant Urgent Motion is hereby DENIED. (Emphasis

supplied.)
To sustain the argument of respondent would result in an unjust and incongruous
situation wherein one party may frustrate the efforts of the opposing party to
appeal the case by merely filing with this Court a Motion for Extension of Time to
File a Petition for Review, ahead of the opposing party, then not actually filing the
intended Petition.[21] The party who fails to file its intended Petition within the
reglementary or extended period should solely bear the consequences of such
failure.

Respondent Sabeniano did not commit

forum shopping.

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

Petitioners contend that respondent committed forum shopping on the basis of

the following facts:

While petitioners Motion for Reconsideration of the Decision in CA-G.R. CV

No. 51930, dated 26 March 2002, was still pending before the Court of Appeals,
respondent already filed with this Court on 3 May 2002 her Motion for Extension
of Time to File a Petition for Review of the same Court of Appeals Decision,
docketed as G.R. No. 152985. Thereafter, respondent continued to participate in
the proceedings before the Court of Appeals in CA-G.R. CV No. 51930 by filing her
Comment, dated 17 July 2002, to petitioners Motion for Reconsideration; and a
Rejoinder, dated 23 September 2002, to petitioners Reply. Thus, petitioners argue
that by seeking relief concurrently from this Court and the Court of Appeals,
respondent is undeniably guilty of forum shopping, if not indirect contempt.
This Court, however, finds no sufficient basis to hold respondent liable for forum
shopping.
Forum shopping has been defined as the filing of two or more suits involving the
same parties for the same cause of action, either simultaneously or successively,
for the purpose of obtaining a favorable judgment.[22] The test for determining
forum shopping is whether in the two (or more) cases pending, there is an
identity of parties, rights or causes of action, and relief sought.[23] To guard against
this deplorable practice, Rule 7, Section 5 of the revised Rules of Court imposes
the following requirement

SEC. 5. Certification against forum shopping. The plaintiff or principal party shall certify under oath in the
complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto and
simultaneously filed therewith: (a) that he has not theretofore commenced any action or filed any claim involving the
same issues in any court, tribunal or quasi-judicial agency and, to the best of his knowledge, no such other action or claim
is pending therein; (b) if there is such other pending action or claim, a complete statement of the present status thereof;
and (c) if he should thereafter learn that the same or similar action or claim has been filed or is pending, he shall report
that fact within five (5) days therefrom to the court wherein his aforesaid complaint or initiatory pleading has been filed.

Failure to comply with the foregoing requirements shall not be curable by mere amendment of the complaint
or other initiatory pleading but shall be cause for the dismissal of the case without prejudice, unless otherwise provided,
upon motion and after hearing. The submission of a false certification or non-compliance with any of the undertakings
therein shall constitute indirect contempt of court, without prejudice to the corresponding administrative and criminal
actions. If the acts of the party or his counsel clearly constitute willful and deliberate forum shopping, the same shall be
ground for summary dismissal with prejudice and shall constitute direct contempt, as well as cause for administrative
sanctions.

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

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

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

Without any particular idea as to the assignments of error or the relief

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

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

II

As an exception to the general rule, this

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

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

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

The fact that the trial judge who rendered

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

The Decision in Civil Case No. 11336 was rendered more than 10 years from the
institution of the said case. In the course of its trial, the case was presided over by
four (4) different RTC judges.[26] It was Judge Victorio, the fourth judge assigned to
the case, who wrote the RTC Decision, dated 24 August 1995. In his
Decision,[27] Judge Victorio made the following findings
 After carefully evaluating the mass of evidence adduced by the parties, this Court is not inclined to believe the
plaintiffs assertion that the promissory notes as well as the deeds of assignments of her FNCB Finance money market
placements were simulated. The evidence is overwhelming that the plaintiff received the proceeds of the loans
evidenced by the various promissory notes she had signed. What is more, there was not an iota of proof save the
plaintiffs bare testimony that she had indeed applied for loan with the Development Bank of the Philippines.

More importantly, the two deeds of assignment were notarized, hence they partake the nature of a public
document. It makes more than preponderant proof to overturn the effect of a notarial attestation. Copies of the deeds of
assignments were actually filed with the Records Management and Archives Office.

Finally, there were sufficient evidence wherein the plaintiff had admitted the existence of her loans with the
defendant Bank in the total amount of P1,920,000.00 exclusive of interests and penalty charges (Exhibits 28, 31, 32, and
33).

In fine, this Court hereby finds that the defendants had established the genuineness and due execution of the
various promissory notes heretofore identified as well as the two deeds of assignments of the plaintiffs money market
placements with defendant FNCB Finance, on the strength of which the said money market placements were applied to
partially pay the plaintiffs past due obligation with the defendant Bank. Thus, the total sum of P1,053,995.80 of the
plaintiffs past due obligation was partially offset by the said money market placement leaving a balance of P1,069,847.40
as of 5 September 1979 (Exhibit 34).

Disagreeing in the foregoing findings, the Court of Appeals stressed, in its Decision
in CA-G.R. CV No. 51930, dated 26 March 2002, that the ponente of the herein
assailed Decision is not the Presiding Judge who heard and tried the case.[28] This
brings us to the question of whether the fact alone that the RTC Decision was
rendered by a judge other than the judge who actually heard and tried the case is
sufficient justification for the appellate court to disregard or set aside the findings
in the Decision of the court a quo?

This Court rules in the negative.

What deserves stressing is that, in this jurisdiction, there exists a disputable

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

In People v. Gazmen,[30] this Court already elucidated its position on such an issue

Accused-appellant makes an issue of the fact that the judge who penned the decision was not the judge who
heard and tried the case and concludes therefrom that the findings of the former are erroneous. Accused-appellants
argument does not merit a lengthy discussion. It is well-settled that the decision of a judge who did not try the case is not
by that reason alone erroneous.

It is true that the judge who ultimately decided the case had not heard the controversy at all, the trial having
been conducted by then Judge Emilio L. Polig, who was indefinitely suspended by this Court. Nonetheless, the transcripts
of stenographic notes taken during the trial were complete and were presumably examined and studied by Judge
Baguilat before he rendered his decision. It is not unusual for a judge who did not try a case to decide it on the basis of
the record. The fact that he did not have the opportunity to observe the demeanor of the witnesses during the trial but
merely relied on the transcript of their testimonies does not for that reason alone render the judgment erroneous.

(People vs. Jaymalin, 214 SCRA 685, 692 [1992])

Although it is true that the judge who heard the witnesses testify is in a better position to observe the
witnesses on the stand and determine by their demeanor whether they are telling the truth or mouthing falsehood, it
does not necessarily follow that a judge who was not present during the trial cannot render a valid decision since he can
rely on the transcript of stenographic notes taken during the trial as basis of his decision.

Accused-appellants contention that the trial judge did not have the opportunity to observe the conduct and
demeanor of the witnesses since he was not the same judge who conducted the hearing is also untenable. While it is true
that the trial judge who conducted the hearing would be in a better position to ascertain the truth and falsity of the
testimonies of the witnesses, it does not necessarily follow that a judge who was not present during the trial cannot
render a valid and just decision since the latter can also rely on the transcribed stenographic notes taken during the trial
as the basis of his decision.

(People vs. De Paz, 212 SCRA 56, 63 [1992])

At any rate, the test to determine the value of the testimony of the witness is whether or not such is in
conformity with knowledge and consistent with the experience of mankind (People vs. Morre, 217 SCRA 219
[1993]). Further, the credibility of witnesses can also be assessed on the basis of the substance of their testimony and the
surrounding circumstances (People v. Gonzales, 210 SCRA 44 [1992]). A critical evaluation of the testimony of the
prosecution witnesses reveals that their testimony accords with the aforementioned tests, and carries with it the ring of
truth end perforce, must be given full weight and credit.

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

This Court proceeds to making its own

findings of fact.

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

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

Deposit/Placement Amount
Dollar deposit with Citibank-Geneva $ 149,632.99
Money market placement with Citibank, evidenced by Promissory Note (PN) No. 23356
(which cancels and supersedes PN No. 22526), earning 14.5% interest per annum (p.a.)

P 318,897.34
Money market placement with Citibank, evidenced by PN No. 23357 (which cancels and
supersedes PN No. 22528), earning 14.5% interest p.a.
P 203,150.00
Money market placement with FNCB Finance, evidenced by PN No. 5757 (which cancels
and supersedes PN No. 4952), earning 17% interest p.a.
P 500,000.00
Money market placement with FNCB Finance, evidenced by PN No. 5758 (which cancels
and supersedes PN No. 2962), earning 17% interest p.a.
P 500,000.00

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

Money market placements with petitioner Citibank

The history of respondents money market placements with petitioner

Citibank began on 6 December 1976, when she made a placement of P500,000.00
as principal amount, which was supposed to earn an interest of 16% p.a. and for
which PN No. 20773 was issued. Respondent did not yet claim the proceeds of her
placement and, instead, rolled-over or re-invested the principal and proceeds
several times in the succeeding years for which new PNs were issued by petitioner
Citibank to replace the ones which matured. Petitioner Citibank accounted for
respondents original placement and the subsequent roll-overs thereof, as follows

Maturity Date
Date
PN No. Cancels PN (mm/dd/yyyy) Amount Interest
(mm/dd/yyyy)
No.
(P) (p.a.)

12/06/1976 20773 None 01/13/1977 500,000.00 16%

01/14/1977 21686 20773 02/08/1977 508,444.44 15%

02/09/1977 22526 21686 03/16/1977 313,952.59 15-3/4%

22528 21686 03/16/1977 200,000.00 15-3/4%

03/17/1977 23356 22526 04/20/1977 318,897.34 14-1/2%

 23357 22528 04/20/1977 203,150.00 14-1/2%

Petitioner Citibank alleged that it had already paid to respondent the

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

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

The effect of the admission is such that in the case of a promissory note a prima facie case is made for the
plaintiff which dispenses with the necessity of evidence on his part and entitles him to a judgment on the pleadings
unless a special defense of new matter, such as payment, is interposed by the defendant (Papa vs. Martinez, 12 Phil.
Rep., 613; Chinese Chamber of Commerce vs. Pua To Ching, 14 Phil. Rep., 222; Banco Espaol-Filipino vs. McKay & Zoeller,
27 Phil. Rep., 183). x x x
Since the genuineness and due execution of PNs No. 23356 and 23357 are
uncontested, respondent was able to establish prima facie that petitioner
Citibank is liable to her for the amounts stated therein. The assertion of petitioner
Citibank of payment of the said PNs is an affirmative allegation of a new matter,
the burden of proof as to such resting on petitioner Citibank. Respondent having
proved the existence of the obligation, the burden of proof was upon petitioner
Citibank to show that it had been discharged.[33] It has already been established
by this Court that

As a general rule, one who pleads payment has the burden of proving it. Even where the plaintiff must allege
non-payment, the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to
prove non-payment. The debtor has the burden of showing with legal certainty that the obligation has been discharged
by payment.

When the existence of a debt is fully established by the evidence contained in the record, the burden of
proving that it has been extinguished by payment devolves upon the debtor who offers such defense to the claim of the
creditor. Where the debtor introduces some evidence of payment, the burden of going forward with the evidence as
distinct from the general burden of proof shifts to the creditor, who is then under the duty of producing some evidence
of non-payment.[34]

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

Petitioner Citibank presented the testimonies of two witnesses to support

its contention of payment: (1) That of Mr. Herminio Pujeda,[35] the officer-in-
charge of loans and placements at the time when the questioned transactions
took place; and (2) that of Mr. Francisco Tan,[36] the former Assistant Vice-
President of Citibank, who directly dealt with respondent with regard to her
deposits and loans.
 The relevant portion[37] of Mr. Pujedas testimony as to PNs No. 23356 and
23357 (referred to therein as Exhibits No. 47 and 48, respectively) is reproduced
below

Atty. Mabasa:

Okey [sic]. Now Mr. Witness, you were asked to testify in this case and this case is [sic] consist [sic] of several documents
involving transactions between the plaintiff and the defendant. Now, were you able to make your own
memorandum regarding all these transactions?

A Yes, based on my recollection of these facts, I did come up of [sic] the outline of the chronological sequence of events.

Court:

Are you trying to say that you have personal knowledge or participation to these transactions?

A Yes, your Honor, I was the officer-in charge of the unit that was processing these transactions. Some of the documents
bear my signature.

Court:

And this resume or summary that you have prepared is based on purely your recollection or documents?

A Based on documents, your Honor.

Court:

Are these documents still available now?

A Yes, your honor.

Court:

Better present the documents.

Atty. Mabasa:

Yes, your Honor, that is why your Honor.

Atty. Mabasa:

Q Now, basing on the notes that you prepared, Mr. Witness, and according to you basing also on your personal
recollection about all the transactions involved between Modesta Sabeniano and defendant City Bank [sic] in
this case. Now, would you tell us what happened to the money market placements of Modesta Sabeniano that
you have earlier identified in Exhs. 47 and 48?

A The transactions which I said earlier were terminated and booked to time deposits.

Q And you are saying time deposits with what bank?

A With First National Citibank.

Q Is it the same bank as Citibank, N.A.?

 A Yes, sir.

Q And how much was the amount booked as time deposit with defendant Citibank?

A In the amount of P500,000.00.

Q And outside this P500,000.00 which you said was booked out of the proceeds of Exhs. 47 and 48, were there other time
deposits opened by Mrs. Modesta Sabeniano at that time.

A Yes, she also opened another time deposit for P600,000.00.

Q So all in all Mr. Witness, sometime in April of 1978 Mrs. Modesta Sabeneano [sic] had time deposit placements with
Citibank in the amount of P500,000.00 which is the proceeds of Exh. 47 and 48 and another P600,000.00, is it
not?

A Yes, sir.

Q And would you know where did the other P600,000 placed by Mrs. Sabeneano [sic] in a time deposit with Citibank, N.A.
came [sic] from?

A She funded it directly.

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

A That is right.

In his deposition in Hong Kong, Mr. Tan recounted what happened to PNs
No. 23356 and 23357 (referred to therein as Exhibits E and F, respectively), as
follows

Atty. Mabasa : Now from the Exhibits that you have identified Mr. Tan from Exhibits A to F, which are Exhibits of the
plaintiff. Now, do I understand from you that the original amount is Five Hundred Thousand
and thereafter renewed in the succeeding exhibits?

Mr. Tan : Yes, Sir.

Atty. Mabasa : Alright, after these Exhibits E and F matured, what happened thereafter?

Mr. Tan : Split into two time deposits.

Atty. Mabasa : Exhibits E and F?

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

Moreover, while there are documentary evidences to support and trace

respondents money market placements with petitioner Citibank, from the original
PN No. 20773, rolled-over several times to, finally, PNs No. 23356 and 23357,
there is an evident absence of any documentary evidence on the payment of
these last two PNs and the use of the proceeds thereof by respondent for opening
TD accounts. The paper trail seems to have ended with the copies of PNs No.
23356 and 23357. Although both Mr. Pujeda and Mr. Tan said that they based
their testimonies, not just on their memories but also on the documents on file,
the supposed documents on which they based those portions of their testimony
on the payment of PNs No. 23356 and 23357 and the opening of the TD accounts
from the proceeds thereof, were never presented before the courts nor made
part of the records of the case. Respondents money market placements were of
substantial amounts consisting of the principal amount of P500,000.00, plus the
interest it should have earned during the years of placement and it is difficult for
this Court to believe that petitioner Citibank would not have had documented the
payment thereof.
When Mr. Pujeda testified before the RTC on 6 February
1990,[39] petitioners counsel attempted to present in evidence a document that
would supposedly support the claim of petitioner Citibank that the proceeds of
PNs No. 23356 and 23357 were used by respondent to open one of her two TD
accounts in the amount of P500,000.00. Respondents counsel objected to the
presentation of the document since it was a mere xerox" copy, and was blurred
and hardly readable. Petitioners counsel then asked for a continuance of the
hearing so that they can have time to produce a better document, which was
granted by the court. However, during the next hearing and continuance of Mr.
Pujedas testimony on 12 March 1990, petitioners counsel no longer referred to
the said document.
As respondent had established a prima facie case that petitioner Citibank is
obligated to her for the amounts stated in PNs No. 23356 and 23357, and as
petitioner Citibank failed to present sufficient proof of payment of the said PNs
and the use by the respondent of the proceeds thereof to open her TD accounts,
this Court finds that PNs No. 23356 and 23357 are still outstanding and
petitioner Citibank is still liable to respondent for the amounts stated therein.

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

Money market placements with petitioner FNCB Finance

According to petitioners, respondents TD Accounts No. 17783 and 17784, in the

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

Maturity Date
Date
PN No. Cancels PN (mm/dd/yyyy) Amount Interest
(mm/dd/yyyy)
No.
(P) (p.a.)

04/29/1977 4952 None 06/01/1977 500,000.00 17%

4962 None 06/01/1977 600,000.00 17%

06/02/1977 5757 4952 08/31/1977 500,000.00 17%

5758 4962 08/31/1977 500,000.00 17%

08/31/1977 8167 5757 08/25/1978 500,000.00 14%

8169 5752 08/25/1978 500,000.00 14%

As presented by the petitioner FNCB Finance, respondent rolled-over only the

principal amounts of her money market placements as she chose to receive the
interest income therefrom. Petitioner FNCB Finance also pointed out that when
PN No. 4962, with principal amount of P600,000.00, matured on 1 June 1977,
respondent received a partial payment of the principal which, together with the
interest, amounted to P102,633.33;[44] thus, only the amount of P500,000.00 from
PN No. 4962 was rolled-over to PN No. 5758.

Based on the foregoing records, the principal amounts of PNs No. 5757 and 5758,
upon their maturity, were rolled over to PNs No. 8167 and 8169, respectively. PN
No. 8167[45] expressly canceled and superseded PN No. 5757, while PN No.
8169[46] also explicitly canceled and superseded PN No. 5758. Thus, it is patently
erroneous for the Court of Appeals to still award to respondent the principal
amounts and interests covered by PNs No. 5757 and 5758 when these were
already canceled and superseded. It is now incumbent upon this Court to
determine what subsequently happened to PNs No. 8167 and 8169.

Petitioner FNCB Finance presented four checks as proof of payment of the

principal amounts and interests of PNs No. 8167 and 8169 upon their maturity. All
the checks were payable to respondents savings account with petitioner Citibank,
with the following details

Date of Issuance Amount

(mm/dd/yyyy) Check No. (P) Notation
09/01/1978 76962 12,833.34 Interest payment on PN#08167

09/01/1978 76961 12,833.34 Interest payment on PN#08169

09/05/1978 77035 500,000.00 Full payment of principal on PN#08167 which is hereby

cancelled
09/05/ 1978 77034 500,000.00 Full payment of principal on PN#08169 which is hereby
cancelled

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

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

Savings and current accounts with petitioner Citibank

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

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

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

Dollar accounts with Citibank-Geneva

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

MODESTA SABENIANO &/OR

==================

US$ 30000.-- Principal Fid. Placement

+ US$ 339.06 Interest at 3,875% p.a. from 12.07. 25.10.79
- US$ 95.-- Commission (minimum)

US$ 30244.06 Total proceeds on 25.10.1979

US$ 114000.-- Principal Fid. Placement

+ US$ 1358.50 Interest at 4,125% p.a. from 12.07. 25.10.79
- US$ 41.17 Commission

US$ 115317.33 Total proceeds on 25.10.1979

US$ 145561.39 Total proceeds of both placements on 25.10.1979

+ US$ 11381.31 total of both current accounts
 US$ 156942.70 Total funds available

- US$ 149632.99 Transfer to Citibank Manila on 26.10.1979

(counter value of Pesos 1102944.78)

US$ 7309.71 Balance in current accounts

- US$ 6998.84 Transfer to Citibank Zuerich ac no. 121359 on March

13, 1980

US$ 310.87 various charges including closing charges

According to the foregoing computation, by 25 October 1979, respondent had a

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

III

Petitioner Citibank was able to establish by

preponderance of evidence the existence of
respondents loans.
Petitioners version of events

In sum, the following amounts were used by petitioner Citibank to liquidate

respondents purported outstanding loans

Description Amount
Principal and interests of PNs No. 20138 and 20139
(money market placements with petitioner FNCB Finance) P 1,022,916.66
Savings account with petitioner Citibank 31,079.14
Dollar remittance from Citibank-Geneva (peso equivalent
Of US$149,632.99) 1,102,944.78

Total P 2,156,940.58

According to petitioner Citibank, respondent incurred her loans under the

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

Date of Issuance Date of Maturity Date of Release

PN No. (mm/dd/yyyy) (mm/dd/yyyy) Principal (mm/dd/yyyy) MC No.
Amount
32935 07/20/1978 09/18/1978 P 400,000.00 07/20/1978 220701
33751 10/13/1978 12/12/1978 100,000.00 Unrecovered
33798 10/19/1978 11/03/1978 100,000.00 10/19/1978 226285
34025 11/15/1978 01/15/1979 150,000.00 11/16/1978 226439
34079 11/21/1978 01/19/1979 250,000.00 11/21/1978 226467
34192 12/04/1978 01/18/1979 100,000.00 12/05/1978 228057
34402 12/26/1978 02/23/1979 300,000.00 12/26/1978 228203
34534 01/09/1979 03/09/1979 150,000.00 01/09/1979 228270
34609 01/17/1979 03/19/1979 150,000.00 01/17/1979 228357
34740 01/30/1979 03/30/1979 220,000.00 01/30/1979 228400
Total P1,920,000.00

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

Date of Issuance Date of Maturity

PN No. (mm/dd/yyyy) (mm/dd/yyyy) Principal Amount
34510 01/01/1979 03/02/1979 P 400,000.00
34509 01/02/1979 03/02/1979 100,000.00
34534 01/09/1979 03/09/1979 150,000.00
34612 01/19/1979 03/16/1979 150,000.00
34741 01/26/1979 03/12/1979 100,000.00
35689 02/23/1979 05/29/1979 300,000.00
35694 03/19/1979 05/29/1979 150,000.00
35695 03/19/1979 05/29/1979 100,000.00
356946 03/20/1979 05/29/1979 250,000.00
35697 03/30/1979 05/29/1979 220,000.00

Total P 1,920,000.00

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

Respondent secured her foregoing loans with petitioner Citibank by

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

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

The first letter[62] was dated 5 April 1979, addressed to respondent and signed by
Mr. Tan, as the manager of petitioner Citibank, which stated, in part, that
Despite our repeated requests and follow-up, we regret you have not granted us with any response or payment.

We, therefore, have no alternative but to call your loan of P1,920,000.00 plus interests and other charges due and
demandable. If you still fail to settle this obligation by 4/27/79, we shall have no other alternative but to refer your
account to our lawyers for legal action to protect the interest of the bank.

Respondent sent a reply letter[63] dated 26 April 1979, printed on paper bearing
the letterhead of respondents company, MC Adore International Palace, the body
of which reads
 This is in reply to your letter dated April 5, 1979 inviting my attention to my loan which has become due. Pursuant to our
representation with you over the telephone through Mr. F. A. Tan, you allow us to pay the interests due for the
meantime.

Please accept our Comtrust Check in the amount of P62,683.33.

Please bear with us for a little while, at most ninety days. As you know, we have a pending loan with the Development
Bank of the Philippines in the amount of P11-M. This loan has already been recommended for approval and would be
submitted to the Board of Governors. In fact, to further facilitate the early release of this loan, we have presented and
furnished Gov. J. Tengco a xerox copy of your letter.

You will be doing our corporation a very viable service, should you grant us our request for a little more time.

A week later or on 3 May 1979, a certain C. N. Pugeda, designated as

Executive Secretary, sent a letter[64] to petitioner Citibank, on behalf of
respondent. The letter was again printed on paper bearing the letterhead of MC
Adore International Palace. The pertinent paragraphs of the said letter are
reproduced below
Per instructions of Mrs. Modesta R. Sabeniano, we would like to request for a re-computation of the interest and penalty
charges on her loan in the aggregate amount of P1,920,000.00 with maturity date of all promissory notes at June 30,
1979.As she has personally discussed with you yesterday, this date will more or less assure you of early settlement.

In this regard, please entrust to bearer, our Comtrust check for P62,683.33 to be replaced by another check with amount
resulting from the new computation. Also, to facilitate the processing of the same, may we request for another set of
promissory notes for the signature of Mrs. Sabeniano and to cancel the previous ones she has signed and forwarded to
you.

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

The next letter,[66] dated 21 June 1979, was signed by respondent herself
and addressed to Mr. Bobby Mendoza, a Manager of petitioner FNCB
Finance. Respondent wrote therein
 Re: PN No. 20138 for P500,000.00 & PN No. 20139 for P500,000.00 totalling P1 Million,
both PNs will mature on 9/3/1979.

This is to authorize you to release the accrued quarterly interests payment from my captioned placements and
forward directly to Citibank, Manila Attention: Mr. F. A. Tan, Manager, to apply to my interest payable on my outstanding
loan with Citibank.

Please note that the captioned two placements are continuously pledged/hypothecated to Citibank, Manila to
support my personal outstanding loan. Therefore, please do not release the captioned placements upon maturity until
you have received the instruction from Citibank, Manila.

On even date, respondent sent another letter[67] to Mr. Tan of petitioner

Citibank, stating that
Re: S/A No. 25-225928
and C/A No. 484-946

This letter serves as an authority to debit whatever the outstanding balance from my captioned accounts and
credit the amount to my loan outstanding account with you.

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

By 5 September 1979, respondents outstanding and past due obligations to

petitioner Citibank totaled P2,123,843.20, representing the principal amounts
plus interests. Relying on respondents Deeds of Assignment, petitioner Citibank
applied the proceeds of respondents money market placements with petitioner
FNCB Finance, as well as her deposit account with petitioner Citibank, to partly
liquidate respondents outstanding loan balance,[68] as follows

Respondents outstanding obligation (principal and interest) P 2,123,843.20

Less: Proceeds from respondents money market placements
with petitioner FNCB Finance (principal and interest) (1,022,916.66)
Deposits in respondents bank accounts with petitioner
Citibank (31,079.14)

Balance of respondents obligation P 1,069,847.40

Mr. Tan of petitioner Citibank subsequently sent a letter,[69] dated 28 September

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

On 5 October 1979, respondent wrote Mr. Tan of petitioner Citibank, on paper

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

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

Eventually, Atty. Antonio Agcaoili of Agcaoili & Associates, as counsel of petitioner

Citibank, sent a letter to respondent, dated 31 October 1979, informing her that
petitioner Citibank had effected an off-set using her account with Citibank-
Geneva, in the amount of US$149,632.99, against her outstanding, overdue,
demandable and unpaid obligation to petitioner Citibank. Atty. Agcaoili claimed
therein that the compensation or off-set was made pursuant to and in accordance
with the provisions of Articles 1278 through 1290 of the Civil Code. He further
declared that respondents obligation to petitioner Citibank was now fully paid
and liquidated.
Unfortunately, on 7 October 1987, a fire gutted the 7th floor of petitioner
Citibanks building at Paseo de Roxas St., Makati, Metro Manila. Petitioners
submitted a Certification[70] to this effect, dated 17 January 1991, issued by the
Chief of the Arson Investigation Section, Fire District III, Makati Fire Station,
Metropolitan Police Force. The 7th floor of petitioner Citibanks building housed its
Control Division, which was in charge of keeping the necessary documents for
cases in which it was involved. After compiling the documentary evidence for the
present case, Atty. Renato J. Fernandez, internal legal counsel of petitioner
Citibank, forwarded them to the Control Division. The original copies of the MCs,
which supposedly represent the proceeds of the first set of PNs, as well as that of
other documentary evidence related to the case, were among those burned in the
said fire.[71]

Respondents version of events

Respondent disputed petitioners narration of the circumstances surrounding her

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

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

She borrowed another P150,000.00 from petitioner Citibank for personal

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

Respondent likewise questioned the MCs presented by petitioners, except for one
(MC No. 228270 in particular), as proof that she received the proceeds of the
loans covered by the first set of PNs. As recounted in the preceding paragraph,
respondent admitted to obtaining a loan of P150,000.00, covered by PN No.
34534, and receiving MC No. 228270 representing the proceeds thereof, but
claimed that she already paid the same. She denied ever receiving MCs No.
220701 (for the loan of P400,000.00, covered by PN No. 33935) and No. 226467
(for the loan of P250,000.00, covered by PN No. 34079), and pointed out that the
checks did not bear her indorsements. She did not deny receiving all other checks
but she interposed that she received these checks, not as proceeds of loans, but
as payment of the principal amounts and/or interests from her money market
placements with petitioner Citibank. She also raised doubts as to the notation on
each of the checks that reads RE: Proceeds of PN#[corresponding PN No.], saying
that such notation did not appear on the MCs when she originally received them
and that the notation appears to have been written by a typewriter different from
that used in writing all other information on the checks (i.e., date, payee, and
amount).[76] She even testified that MCs were not supposed to bear notations
indicating the purpose for which they were issued.
As to the second set of PNs, respondent acknowledged having signed them
all. However, she asserted that she only executed these PNs as part of the
simulated loans she and Mr. Tan of petitioner Citibank concocted.Respondent
explained that she had a pending loan application for a big amount with the
Development Bank of the Philippines (DBP), and when Mr. Tan found out about
this, he suggested that they could make it appear that the respondent had
outstanding loans with petitioner Citibank and the latter was already demanding
payment thereof; this might persuade DBP to approve respondents loan
application. Mr. Tan made the respondent sign the second set of PNs, so that he
may have something to show the DBP investigator who might inquire with
petitioner Citibank as to respondents loans with the latter. On her own copies of
the said PNs, respondent wrote by hand the notation, This isa (sic) simulated non-
negotiable note, signed copy given to Mr. Tan., (sic) per agreement to be shown
to DBP representative. itwill (sic) be returned to me if the P11=M (sic) loan for MC
Adore Palace Hotel is approved by DBP.[77]

Findings of this Court as to the existence of the loans

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

Respondents outstanding obligation for P1,920,000.00 had been sufficiently

documented by petitioner Citibank.

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

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

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

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

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

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

Respondent admitted receiving MC No. 228270 representing the proceeds of her

loan covered by PN No. 34534. Although the principal amount of the loan
is P150,000.00, respondent only received P146,312.50, because the interest and
handling fee on the loan transaction were already deducted therefrom. [86] Stamps
and notations at the back of MC No. 228270 reveal that it was deposited at the
Bank of the Philippine Islands (BPI), Cubao Branch, in Account No. 0123-0572-
28.[87] The check also bore the signature of respondent at the back.[88] And,
although respondent would later admit that she did sign PN No. 34534 and
received MC No. 228270 as proceeds of the loan extended to her by petitioner
Citibank, she contradicted herself when, in an earlier testimony, she claimed that
PN No. 34534 was among the PNs she executed as simulated loans with petitioner
Citibank.[89]

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

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

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

Furthermore, respondents bare and unsubstantiated denial of receipt of the MCs

in question and their deposit in her account is rendered suspect when MC No.
220701 was actually deposited in Account No. 0123-0572-28 of BPI Cubao Branch,
the very same account in which MC No. 228270 (which respondent admitted to
receiving as proceeds of her loan from petitioner Citibank), and MCs No. 228203,
228357, and 228400 (which respondent admitted to receiving as proceeds from
her money market placements) were deposited. Likewise, MC No. 226467 was
deposited in Account No. 0121-002-43 of BPI Cubao Branch, to which MCs No.
226285 and 226439 (which respondent admitted to receiving as proceeds from
her money market placements) were deposited. It is an apparent contradiction
for respondent to claim having received the proceeds of checks deposited in an
account, and then deny receiving the proceeds of another check deposited in the
very same account.

Another inconsistency in respondents denial of receipt of MC No. 226467 and her

deposit of the same in her account, is her presentation of Exhibit HHH, a
provisional receipt which was supposed to prove that respondent turned
over P500,000.00 to Mr. Tan of petitioner Citibank, that the said amount was split
into three money market placements, and that MC No. 226467 represented the
return on her investment from one of these placements.[94] Because of her Exhibit
HHH, respondent effectively admitted receipt of MC No. 226467, although for
reasons other than as proceeds of a loan.

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

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

Respondent presented several more pieces of evidence to substantiate her claim

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

Respondent further submitted handwritten notes that purportedly

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

Exhibits III and III-1, the front and bank pages of a handwritten note of Mr.
Bobby Mendoza of petitioner FNCB Finance,[98] also did not deserve much
evidentiary weight, and this Court cannot rely on the truth and accuracy of the
computations presented therein. Mr. Mendoza was not presented as a witness
during the trial before the RTC, so that the document was not properly
authenticated nor its contents sufficiently explained. No one was able to
competently identify whether the initials as appearing on the note were actually
Mr. Mendozas.

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

As a last point on this matter, if respondent truly had money market

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

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

Mr. Tan, in his deposition, further explained that provisional receipts were
issued when payment to the bank was made using checks, since the checks would
still be subject to clearing. The purpose for the provisional receipts was merely to
acknowledge the delivery of the checks to the possession of the bank, but not yet
of payment.[99] This bank practice finds legitimacy in the pronouncement of this
Court that a check, whether an MC or an ordinary check, is not legal tender and,
therefore, cannot constitute valid tender of payment. In Philippine Airlines, Inc. v.
Court of Appeals, [100] this Court elucidated that:

Since a negotiable instrument is only a substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment (Sec. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan Landon
Co. v. American Bank, 7 Phil. 255; Tan Sunco, v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check, whether a manager's check
or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and
may be refused receipt by the obligee or creditor. Mere delivery of checks does not discharge the obligation under a
judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is
actually realized (Art. 1249, Civil Code, par. 3).
In the case at bar, the issuance of an official receipt by petitioner Citibank would
have been dependent on whether the checks delivered by respondent were
actually cleared and paid for by the drawee banks.

As for PN No. 34534, respondent asserted payment thereof at two separate

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

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

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

In contrast, petitioner Citibank, as supported by the testimonies of its officers and

available documentation, consistently treated the said PNs as regular loans
accepted, approved, and paid in the ordinary course of its business.

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

Mr. Tan, then an account officer with the Marketing Department of

petitioner Citibank, testified that he dealt directly with respondent; he facilitated
the loans; and the PNs, at least in the second set, were signed by respondent in
his presence.[105]
 Mr. Pujeda, the officer who was previously in charge of loans and
placements, confirmed that the signatures on the PNs were verified against
respondents specimen signature with the bank.[106]

Ms. Cristina Dondoyano, who worked at petitioner Citibank as a loan

processor, was responsible for booking respondents loans. Booking the loans
means recording it in the General Ledger. She explained the procedure for
booking loans, as follows: The account officer, in the Marketing Department,
deals directly with the clients who wish to borrow money from petitioner
Citibank. The Marketing Department will forward a loan booking checklist,
together with the borrowing clients PNs and other supporting documents, to the
loan pre-processor, who will check whether the details in the loan booking
checklist are the same as those in the PNs. The documents are then sent to
Signature Control for verification of the clients signature in the PNs, after which,
they are returned to the loan pre-processor, to be forwarded finally to the loan
processor. The loan processor shall book the loan in the General Ledger,
indicating therein the client name, loan amount, interest rate, maturity date, and
the corresponding PN number. Since she booked respondents loans personally,
Ms. Dondoyano testified that she saw the original PNs. In 1986, Atty. Fernandez
of petitioner Citibank requested her to prepare an accounting of respondents
loans, which she did, and which was presented as Exhibit 120 for the
petitioners. The figures from the said exhibit were culled from the bookings in the
General Ledger, a fact which respondents counsel was even willing to
stipulate.[107]

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

Ms. Renee Rubio worked for petitioner Citibank for 20 years. She rose from the
ranks, initially working as a secretary in the Personnel Group; then as a secretary
to the Personnel Group Head; a Service Assistant with the Marketing Group, in
1972 to 1974, dealing directly with corporate and individual clients who, among
other things, secured loans from petitioner Citibank; the Head of the Collection
Group of the Foreign Department in 1974 to 1976; the Head of the Money
Transfer Unit in 1976 to 1978; the Head of the Loans and Placements Unit up to
the early 1980s; and, thereafter, she established operations training for petitioner
Citibank in the Asia-Pacific Region responsible for the training of the officers of
the bank. She testified on the standard loan application process at petitioner
Citibank. According to Ms. Rubio, the account officer or marketing person submits
a proposal to grant a loan to an individual or corporation. Petitioner Citibank has
a worldwide policy that requires a credit committee, composed of a minimum of
three people, which would approve the loan and amount thereof. There can be
no instance when only one officer has the power to approve the loan
application. When the loan is approved, the account officer in charge will obtain
the corresponding PNs from the client. The PNs are sent to the signature verifier
who would validate the signatures therein against those appearing in the
signature cards previously submitted by the client to the bank. The Operations
Unit will check and review the documents, including the PNs, if it is a clean loan,
and securities and deposits, if it is collateralized. The loan is then recorded in the
General Ledger. The Loans and Placements Department will not book the loans
without the PNs.When the PNs are liquidated, whether they are paid or rolled-
over, they are returned to the client.[109] Ms. Rubio further explained that she was
familiar with respondents accounts since, while she was still the Head of the Loan
and Placements Unit, she was asked by Mr. Tan to prepare a list of respondents
outstanding obligations.[110] She thus calculated respondents outstanding loans,
which was sent as an attachment to Mr. Tans letter to respondent, dated 28
September 1979, and presented before the RTC as Exhibits 34-B and 34-C.[111]
Lastly, the exchange of letters between petitioner Citibank and respondent, as
well as the letters sent by other people working for respondent, had consistently
recognized that respondent owed petitioner Citibank money.

In consideration of the foregoing discussion, this Court finds that the

preponderance of evidence supports the existence of the respondents loans, in
the principal sum of P1,920,000.00, as of 5 September 1979. While it is well-
settled that the term preponderance of evidence should not be wholly dependent
on the number of witnesses, there are certain instances when the number of
witnesses become the determining factor

The preponderance of evidence may be determined, under certain conditions, by the number of witnesses
testifying to a particular fact or state of facts. For instance, one or two witnesses may testify to a given state of facts, and
six or seven witnesses of equal candor, fairness, intelligence, and truthfulness, and equally well corroborated by all the
remaining evidence, who have no greater interest in the result of the suit, testify against such state of facts. Then the
preponderance of evidence is determined by the number of witnesses. (Wilcox vs. Hines, 100 Tenn. 524, 66 Am. St. Rep.,
761.)[112]

Best evidence rule

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

The best evidence rule has been made part of the revised Rules of Court,
Rule 130, Section 3, which reads

SEC. 3. Original document must be produced; exceptions. When the subject of inquiry is the contents of a
document, no evidence shall be admissible other than the original document itself, except in the following cases:
(a) When the original has been lost or destroyed, or cannot be produced in court, without bad faith on the
part of the offeror;
(b) When the original is in the custody or under the control of the party against whom the evidence is offered,
and the latter fails to produce it after reasonable notice;
(c) When the original consists of numerous accounts or other documents which cannot be examined in court
without great loss of time and the fact sought to be established from them is only the general result of the whole; and
(d) When the original is a public record in the custody of a public officer or is recorded in a public office.

As the afore-quoted provision states, the best evidence rule applies only when
the subject of the inquiry is the contents of the document. The scope of the rule is
more extensively explained thus

But even with respect to documentary evidence, the best evidence rule applies only when the content of such
document is the subject of the inquiry. Where the issue is only as to whether such document was actually executed, or
exists, or on the circumstances relevant to or surrounding its execution, the best evidence rule does not apply and
testimonial evidence is admissible (5 Moran, op. cit., pp. 76-66; 4 Martin, op. cit., p. 78). Any other substitutionary
evidence is likewise admissible without need for accounting for the original.

Thus, when a document is presented to prove its existence or condition it is offered not as documentary, but
as real, evidence. Parol evidence of the fact of execution of the documents is allowed (Hernaez, et al. vs. McGrath, etc., et
al., 91 Phil 565). x x x [115]

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

It is true that the Court relied not upon the original but only copy of the Angara Diary as published in the
Philippine Daily Inquirer on February 4-6, 2001. In doing so, the Court, did not, however, violate the best evidence rule.
Wigmore,in his book on evidence, states that:
 Production of the original may be dispensed with, in the trial courts discretion, whenever in the case in
hand the opponent does not bona fide dispute the contents of the document and no other useful purpose will be served
by requiring production.24

xxxx

In several Canadian provinces, the principle of unavailability has been abandoned, for certain documents in
which ordinarily no real dispute arised. This measure is a sensible and progressive one and deserves universal adoption
(post, sec. 1233). Its essential feature is that a copy may be used unconditionally, if the opponent has been given an
opportunity to inspect it. (Emphasis supplied.)

This Court did not violate the best evidence rule when it considered and
weighed in evidence the photocopies and microfilm copies of the PNs, MCs, and
letters submitted by the petitioners to establish the existence of respondents
loans. The terms or contents of these documents were never the point of
contention in the Petition at bar. It was respondents position that the PNs in the
first set (with the exception of PN No. 34534) never existed, while the PNs in the
second set (again, excluding PN No. 34534) were merely executed to cover
simulated loan transactions. As for the MCs representing the proceeds of the
loans, the respondent either denied receipt of certain MCs or admitted receipt of
the other MCs but for another purpose. Respondent further admitted the letters
she wrote personally or through her representatives to Mr. Tan of petitioner
Citibank acknowledging the loans, except that she claimed that these letters were
just meant to keep up the ruse of the simulated loans. Thus, respondent
questioned the documents as to their existence or execution, or when the former
is admitted, as to the purpose for which the documents were executed, matters
which are, undoubtedly, external to the documents, and which had nothing to do
with the contents thereof.
Alternatively, even if it is granted that the best evidence rule should apply
to the evidence presented by petitioners regarding the existence of respondents
loans, it should be borne in mind that the rule admits of the following exceptions
under Rule 130, Section 5 of the revised Rules of Court

SEC. 5. When the original document is unavailable. When the original document has been lost or destroyed, or
cannot be produced in court, the offeror, upon proof of its execution or existence and the cause of its unavailability
without bad faith on his part, may prove its contents by a copy, or by a recital of its contents in some authentic
document, or by the testimony of witnesses in the order stated.
 The execution or existence of the original copies of the documents was
established through the testimonies of witnesses, such as Mr. Tan, before whom
most of the documents were personally executed by respondent.The original PNs
also went through the whole loan booking system of petitioner Citibank from the
account officer in its Marketing Department, to the pre-processor, to the
signature verifier, back to the pre-processor, then to the processor for
booking.[117] The original PNs were seen by Ms. Dondoyano, the processor, who
recorded them in the General Ledger. Mr. Pujeda personally saw the original MCs,
proving respondents receipt of the proceeds of her loans from petitioner Citibank,
when he helped Attys. Cleofe and Fernandez, the banks legal counsels, to
reconstruct the records of respondents loans. The original MCs were presented to
Atty. Cleofe who used the same during the preliminary investigation of the case,
sometime in years 1986-1987. The original MCs were subsequently turned over to
the Control and Investigation Division of petitioner Citibank.[118]

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

The impact of the Decision of the Court of Appeals in the Dy case

In its assailed Decision, the Court of Appeals made the following pronouncement

Besides, We find the declaration and conclusions of this Court in CA-G.R. CV No. 15934 entitled Sps. Dr.
Ricardo L. Dy and Rosalind O. Dy vs. City Bank, N.A., et al, promulgated on 15 January 1990, as disturbing taking into
consideration the similarities of the fraud, machinations, and deceits employed by the defendant-appellant Citibank and
its Account Manager Francisco Tan.

Worthy of note is the fact that Our declarations and conclusions against Citibank and the person of Francisco
Tan in CA-G.R. CV No. 15934 were affirmed in toto by the Highest Magistrate in a Minute Resolution dated 22 August
1990 entitled Citibank, N.A., vs. Court of Appeals, G.R. 93350.

As the factual milieu of the present appeal created reasonable doubts as to whether the nine (9) Promissory
Notes were indeed executed with considerations, the doubts, coupled by the findings and conclusions of this Court in CA-
G.R. CV No. 15934 and the Supreme Court in G.R. No. 93350. should be construed against herein defendants-appellants
Citibank and FNCB Finance.

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

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

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

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

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

It is apparent that the Court of Appeals took judicial notice of the Dy case not as a
legal precedent for the present case, but rather as evidence of similar acts
committed by petitioner Citibank and Mr. Tan. A basic rule of evidence, however,
states that, Evidence that one did or did not do a certain thing at one time is not
admissible to prove that he did or did not do the same or similar thing at another
time; but it may be received to prove a specific intent or knowledge, identity,
plan, system, scheme, habit, custom or usage, and the like.[120] The rationale for
the rule is explained thus

The rule is founded upon reason, public policy, justice and judicial convenience. The fact that a person has
committed the same or similar acts at some prior time affords, as a general rule, no logical guaranty that he committed
the act in question. This is so because, subjectively, a mans mind and even his modes of life may change; and, objectively,
the conditions under which he may find himself at a given time may likewise change and thus induce him to act in a
different way.Besides, if evidence of similar acts are to be invariably admitted, they will give rise to a multiplicity of
collateral issues and will subject the defendant to surprise as well as confuse the court and prolong the trial.[121]

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

IV

The liquidation of respondents outstanding

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

Compensation is a recognized mode of extinguishing obligations. Relevant

provisions of the Civil Code provides

Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of
each other.

Art. 1279. In order that compensation may be proper, it is necessary;

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of
the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind,
and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.

There is little controversy when it comes to the right of petitioner Citibank

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

Things though are not as simple and as straightforward as regards to the

money market placements and bank account used by petitioner Citibank to
complete the compensation or off-set of respondents outstanding loans, which
came from persons other than petitioner Citibank.

Respondents money market placements were with petitioner FNCB

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

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

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

Moreover, the Deeds of Assignment of the money market placements with

petitioner FNCB Finance were notarized documents, thus, admissible in
evidence. Rule 132, Section 30 of the Rules of Court provides that

SEC. 30. Proof of notarial documents. Every instrument duly acknowledged or proved and certified as provided
by law, may be presented in evidence without further proof, the certificate of acknowledgement being prima
facie evidence of the execution of the instrument or document involved.

Significant herein is this Courts elucidation in De Jesus v. Court of

Appeals,[124] which reads
On the evidentiary value of these documents, it should be recalled that the notarization of a private document
converts it into a public one and renders it admissible in court without further proof of its authenticity (Joson vs. Baltazar,
194 SCRA 114 [1991]). This is so because a public document duly executed and entered in the proper registry is presumed
to be valid and genuine until the contrary is shown by clear and convincing proof (Asido vs. Guzman, 57 Phil. 652
[1918]; U.S. vs. Enriquez, 1 Phil 241 [1902]; Favor vs. Court of Appeals, 194 SCRA 308 [1991]). As such, the party
challenging the recital of the document must prove his claim with clear and convincing evidence (Diaz vs. Court of
Appeals, 145 SCRA 346 [1986]).

The rule on the evidentiary weight that must be accorded a notarized

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

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

Accordingly, this Court gives the Deeds of Assignment grave importance in

establishing the authority given by the respondent to petitioner Citibank to use as
security for her loans her money her market placements with petitioner FNCB
Finance, represented by PNs No. 8167 and 8169, later to be rolled-over as PNs
No. 20138 and 20139. These Deeds of Assignment constitute the law between the
parties, and the obligations arising therefrom shall have the force of law between
the parties and should be complied with in good faith.[129] Standard clauses in all
of the Deeds provide that
The ASSIGNOR and the ASSIGNEE hereby further agree as follows:
 xxxx

2. In the event the OBLIGATIONS are not paid at maturity or upon demand, as the case may be, the ASSIGNEE
is fully authorized and empowered to collect and receive the PLACEMENT (or so much thereof as may be necessary) and
apply the same in payment of the OBLIGATIONS. Furthermore, the ASSIGNOR agrees that at any time, and from time to
time, upon request by the ASSIGNEE, the ASSIGNOR will promptly execute and deliver any and all such further
instruments and documents as may be necessary to effectuate this Assignment.

xxxx

5. This Assignment shall be considered as sufficient authority to FNCB Finance to pay and deliver the
PLACEMENT or so much thereof as may be necessary to liquidate the OBLIGATIONS, to the ASSIGNEE in accordance with
terms and provisions hereof.[130]

Petitioner Citibank was only acting upon the authority granted to it under the
foregoing Deeds when it finally used the proceeds of PNs No. 20138 and 20139,
paid by petitioner FNCB Finance, to partly pay for respondents outstanding loans.
Strictly speaking, it did not effect a legal compensation or off-set under Article
1278 of the Civil Code, but rather, it partly extinguished respondents obligations
through the application of the security given by the respondent for her
loans. Although the pertinent documents were entitled Deeds of Assignment,
they were, in reality, more of a pledge by respondent to petitioner Citibank of her
credit due from petitioner FNCB Finance by virtue of her money market
placements with the latter. According to Article 2118 of the Civil Code

ART. 2118. If a credit has been pledged becomes due before it is redeemed, the pledgee may collect and
receive the amount due. He shall apply the same to the payment of his claim, and deliver the surplus, should there be
any, to the pledgor.

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

Dollar accounts with Citibank-Geneva

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

Certain principles of private international law should be considered herein

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

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

First of all, it escapes this Court why petitioner Citibank took care to have the
Deeds of Assignment of the PNs notarized, yet left the Declaration of Pledge
unnotarized. This Court would think that petitioner Citibank would take greater
cautionary measures with the preparation and execution of the Declaration of
Pledge because it involved respondents all present and future fiduciary
placements with a Citibank branch in another country, specifically, in Geneva,
Switzerland. While there is no express legal requirement that the Declaration of
Pledge had to be notarized to be effective, even so, it could not enjoy the
same prima facie presumption of due execution that is extended to notarized
documents, and petitioner Citibank must discharge the burden of proving due
execution and authenticity of the Declaration of Pledge.
Second, petitioner Citibank was unable to establish the date when the Declaration
of Pledge was actually executed. The photocopy of the Declaration of Pledge
submitted by petitioner Citibank before the RTC was undated.[132] It presented
only a photocopy of the pledge because it already forwarded the original copy
thereof to Citibank-Geneva when it requested for the remittance of respondents
dollar accounts pursuant thereto. Respondent, on the other hand, was able to
secure a copy of the Declaration of Pledge, certified by an officer of Citibank-
Geneva, which bore the date 24 September 1979.[133] Respondent, however,
presented her passport and plane tickets to prove that she was out of the country
on the said date and could not have signed the pledge. Petitioner Citibank insisted
that the pledge was signed before 24 September 1979, but could not provide an
explanation as to how and why the said date was written on the pledge. Although
Mr. Tan testified that the Declaration of Pledge was signed by respondent
personally before him, he could not give the exact date when the said signing
took place. It is important to note that the copy of the Declaration of Pledge
submitted by the respondent to the RTC was certified by an officer of Citibank-
Geneva, which had possession of the original copy of the pledge. It is dated 24
September 1979, and this Court shall abide by the presumption that the written
document is truly dated.[134] Since it is undeniable that respondent was out of the
country on 24 September 1979, then she could not have executed the pledge on
the said date.

Third, the Declaration of Pledge was irregularly filled-out. The pledge was in a
standard printed form. It was constituted in favor of Citibank, N.A., otherwise
referred to therein as the Bank. It should be noted, however, that in the space
which should have named the pledgor, the name of petitioner Citibank was
typewritten, to wit
The pledge right herewith constituted shall secure all claims which the Bank now has or in the future acquires
against Citibank, N.A., Manila (full name and address of the Debtor), regardless of the legal cause or the transaction (for
example current account, securities transactions, collections, credits, payments, documentary credits and collections)
which gives rise thereto, and including principal, all contractual and penalty interest, commissions, charges, and costs.
The pledge, therefore, made no sense, the pledgor and pledgee being the same
entity. Was a mistake made by whoever filled-out the form? Yes, it could be a
possibility. Nonetheless, considering the value of such a document, the mistake as
to a significant detail in the pledge could only be committed with gross
carelessness on the part of petitioner Citibank, and raised serious doubts as to the
authenticity and due execution of the same.The Declaration of Pledge had passed
through the hands of several bank officers in the country and abroad, yet,
surprisingly and implausibly, no one noticed such a glaring mistake.

Lastly, respondent denied that it was her signature on the Declaration of

Pledge. She claimed that the signature was a forgery. When a document is
assailed on the basis of forgery, the best evidence rule applies
Basic is the rule of evidence that when the subject of inquiry is the contents of a document, no evidence is
admissible other than the original document itself except in the instances mentioned in Section 3, Rule 130 of the Revised
Rules of Court. Mere photocopies of documents are inadmissible pursuant to the best evidence rule. This is especially
true when the issue is that of forgery.

As a rule, forgery cannot be presumed and must be proved by clear, positive and convincing evidence and the
burden of proof lies on the party alleging forgery. The best evidence of a forged signature in an instrument is the
instrument itself reflecting the alleged forged signature. The fact of forgery can only be established by a comparison
between the alleged forged signature and the authentic and genuine signature of the person whose signature is
theorized upon to have been forged. Without the original document containing the alleged forged signature, one cannot
make a definitive comparison which would establish forgery. A comparison based on a mere xerox copy or reproduction
of the document under controversy cannot produce reliable results.[135]

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

Without the Declaration of Pledge, petitioner Citibank had no authority to

demand the remittance of respondents dollar accounts with Citibank-Geneva and
to apply them to her outstanding loans. It cannot effect legal compensation under
Article 1278 of the Civil Code since, petitioner Citibank itself admitted that
Citibank-Geneva is a distinct and separate entity. As for the dollar accounts,
respondent was the creditor and Citibank-Geneva is the debtor; and as for the
outstanding loans, petitioner Citibank was the creditor and respondent was the
debtor. The parties in these transactions were evidently not the principal creditor
of each other.

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

In summary, petitioner Citibank is ordered by this Court to pay respondent

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

Petitioner Citibank is also ordered to refund to respondent the amount of

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

As for respondent, she is ordered to pay petitioner Citibank the balance of

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

VI

Petitioner Citibank shall be liable for

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

While it is true that the general rule is that only errors which have been stated in
the assignment of errors and properly argued in the brief shall be considered, this
Court has also recognized exceptions to the general rule, wherein it authorized
the review of matters, even those not assigned as errors in the appeal, if the
consideration thereof is necessary in arriving at a just decision of the case, and
there is a close inter-relation between the omitted assignment of error and those
actually assigned and discussed by the appellant.[140] Thus, the Court of Appeals
did not err in awarding the damages when it already made findings that would
justify and support the said award.
Although this Court appreciates the right of petitioner Citibank to effect legal
compensation of respondents local deposits, as well as its right to the proceeds of
PNs No. 20138 and 20139 by virtue of the notarized Deeds of Assignment, to
partly extinguish respondents outstanding loans, it finds that petitioner Citibank
did commit wrong when it failed to pay and properly account for the proceeds of
respondents money market placements, evidenced by PNs No. 23356 and 23357,
and when it sought the remittance of respondents dollar accounts from Citibank-
Geneva by virtue of a highly-suspect Declaration of Pledge to be applied to the
remaining balance of respondents outstanding loans. It bears to emphasize that
banking is impressed with public interest and its fiduciary character requires high
standards of integrity and performance.[141] A bank is under the obligation to treat
the accounts of its depositors with meticulous care whether such accounts consist
only of a few hundred pesos or of millions of pesos.[142] The bank must record
every single transaction accurately, down to the last centavo, and as promptly as
possible.[143] Petitioner Citibank evidently failed to exercise the required degree of
care and transparency in its transactions with respondent, thus, resulting in the
wrongful deprivation of her property.

Respondent had been deprived of substantial amounts of her investments

and deposits for more than two decades. During this span of years, respondent
had found herself in desperate need of the amounts wrongfully withheld from
her. In her testimony[144] before the RTC, respondent narrated

Q By the way Mrs. Witness will you kindly tell us again, you said before that you are a businesswoman, will you tell us
again what are the businesses you are engaged into [sic]?

A I am engaged in real estate. I am the owner of the Modesta Village 1 and 2 in San Mateo, Rizal. I am also the President
and Chairman of the Board of Macador [sic] Co. and Business Inc. which operates the Macador [sic]
International Palace Hotel. I am also the President of the Macador [sic] International Palace Hotel, and also the
Treasures Home Industries, Inc. which I am the Chairman and president of the Board and also operating
affiliated company in the name of Treasures Motor Sales engaged in car dealers [sic] like Delta Motors, we are
the dealers of the whole Northern Luzon and I am the president of the Disto Company, Ltd., based in
Hongkong licensed in Honkong [sic] and now operating in Los Angeles, California.

Q What is the business of that Disto Company Ltd.?

A Disto Company, Ltd., is engaged in real estate and construction.

Q Aside from those businesses are you a member of any national or community organization for social and civil activities?

A Yes sir.

Q What are those?

A I am the Vice-President of thes [sic] Subdivision Association of the Philippines in 1976, I am also an officer of the
Chamber of Real Estate Business Association; I am also an officer of the Chatholic [sic] Womens League and I
am also a member of the CMLI, I forgot the definition.

Q How about any political affiliation or government position held if any?

A I was also a candidate for Mayo last January 30, 1980.

Q Where?

A In Dagupan City, Pangasinan.

Q What else?

A I also ran as an Assemblywoman last May, 1984, Independent party in Regional I, Pangasinan.

Q What happened to your businesses you mentioned as a result of your failure to recover you [sic] investments and bank
deposits from the defendants?

A They are not all operating, in short, I was hampered to push through the businesses that I have.
 A [sic] Of all the businesses and enterprises that you mentioned what are those that are paralyzed and what remain
inactive?

A Of all the company [sic] that I have, only the Disto Company that is now operating in California.

Q How about your candidacy as Mayor of Dagupan, [sic] City, and later as Assemblywoman of Region I, what happened to
this?

A I won by voting but when election comes on [sic] the counting I lost and I protested this, it is still pending and because I
dont have financial resources I was not able to push through the case. I just have it pending in the Comelec.

Q Now, do these things also affect your social and civic activities?

A Yes sir, definitely.

Q How?

A I was embarrassed because being a businesswoman I would like to inform the Honorable Court that I was awarded as
the most outstanding businesswoman of the year in 1976 but when this money was not given back to me I
was not able to comply with the commitments that I have promised to these associations that I am engaged
into [sic], sir.

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

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

With the award of exemplary damages, then respondent shall also be entitled to
an award of attorneys fees.[148] Additionally, attorney's fees may be awarded
when a party is compelled to litigate or to incur expenses to protect his interest
by reason of an unjustified act of the other party.[149] In this case, an award
of P200,000.00 attorneys fees shall be satisfactory.
In contrast, this Court finds no sufficient basis to award damages to
petitioners. Respondent was compelled to institute the present case in the
exercise of her rights and in the protection of her interests. In fact, although her
Complaint before the RTC was not sustained in its entirety, it did raise meritorious
points and on which this Court rules in her favor. Any injury resulting from the
exercise of ones rights is damnum absque injuria.[150]

IN VIEW OF THE FOREGOING, the instant Petition is PARTLY GRANTED. The

assailed Decision of the Court of Appeals in CA-G.R. No. 51930, dated 26 March
2002, as already modified by its Resolution, dated 20 November 2002, is
hereby AFFIRMED WITH MODIFICATION, as follows

1. PNs No. 23356 and 23357 are DECLARED subsisting and

outstanding. Petitioner Citibank is ORDERED to return to respondent the principal
amounts of the said PNs, amounting to Three Hundred Eighteen Thousand Eight
Hundred Ninety-Seven Pesos and Thirty-Four Centavos (P318,897.34) and Two
Hundred Three Thousand One Hundred Fifty Pesos (P203,150.00), respectively,
plus the stipulated interest of Fourteen and a half percent (14.5%) per annum,
beginning 17 March 1977;

2. The remittance of One Hundred Forty-Nine Thousand Six Hundred Thirty

Two US Dollars and Ninety-Nine Cents (US$149,632.99) from respondents
Citibank-Geneva accounts to petitioner Citibank in Manila, and the application of
the same against respondents outstanding loans with the latter,
is DECLARED illegal, null and void. Petitioner Citibank is ORDERED to refund to
respondent the said amount, or its equivalent in Philippine currency using the
exchange rate at the time of payment, plus the stipulated interest for each of the
fiduciary placements and current accounts involved, beginning 26 October 1979;
 3. Petitioner Citibank is ORDERED to pay respondent moral damages in the
amount of Three Hundred Thousand Pesos (P300,000.00); exemplary damages in
the amount of Two Hundred Fifty Thousand Pesos (P250,000.00); and attorneys
fees in the amount of Two Hundred Thousand Pesos (P200,000.00); and

4. Respondent is ORDERED to pay petitioner Citibank the balance of her

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

MINITA V. CHICO-NAZARIO
Associate Justice