CREDIT TRANSACTIONS

LOAN

1. BPI INVESTMENT CORPORATION, petitioner, vs. HON. COURT OF APPEALS and ALS MANAGEMENT &
DEVELOPMENT CORPORATION, respondents. [G.R. No. 133632. February 15, 2002]

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 theP500,000 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 on September 13, 1982.
Private respondents further maintain that even granting, arguendo, that the loan contract was perfected on March 31,
1981, and their payment did not start a month thereafter, still no default took place. According to private respondents, a
perfected loan agreement imposes reciprocal obligations, where the obligation or promise of each party is the consideration of
the other party. In this case, the consideration for BPIIC in entering into the loan contract is the promise of private
respondents to pay the monthly amortization. For the latter, it is the promise of BPIIC to deliver the money. In reciprocal
obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what
is incumbent upon him. Therefore, private respondents conclude, they did not incur in delay when they did not commence
paying the monthly amortization on May 1, 1981, as it was only on September 13, 1982 when petitioner fully complied with its
obligation under the loan contract.
We agree with private respondents. A loan contract is not a consensual contract but a real contract. It is perfected only
upon the delivery of the object of the contract.[5] Petitioner misapplied Bonnevie. The contract in Bonnevie declared by this
Court as a perfected consensual contract falls under the first clause of Article 1934, Civil Code. It is an accepted promise to
deliver something by way of simple loan.
In Saura Import and Export Co. Inc. vs. Development Bank of the Philippines, 44 SCRA 445, petitioner applied for a loan
of P500,000 with respondent bank. The latter approved the application through a board resolution. Thereafter, the
corresponding mortgage was executed and registered. However, because of acts attributable to petitioner, the loan was not
released. Later, petitioner instituted an action for damages. We recognized in this case, a perfected consensual contract which
under normal circumstances could have made the bank liable for not releasing the loan. However, since the fault was
attributable to petitioner therein, the court did not award it damages.
A perfected consensual contract, as shown above, can give rise to an action for damages. However, said contract does not
constitute the real contract of loan which requires the delivery of the object of the contract for its perfection and which gives
rise to obligations only on the part of the borrower.[6]
In the present case, the loan contract between BPI, on the one hand, and ALS and Litonjua, on the other, was perfected
only on September 13, 1982, the date of the second release of the loan. Following the intentions of the parties on the
commencement of the monthly amortization, as found by the Court of Appeals, private respondents obligation to pay
commenced only on October 13, 1982, a month after the perfection of the contract. [7]
We also agree with private respondents that a contract of loan involves a reciprocal obligation, wherein the obligation or
promise of each party is the consideration for that of the other. [8] As averred by private respondents, the promise of BPIIC to
extend and deliver the loan is upon the consideration that ALS and Litonjua shall pay the monthly amortization commencing
on May 1, 1981, one month after the supposed release of the loan. It is a basic principle in reciprocal obligations that neither
party incurs in delay, if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon
him.[9] Only when a party has performed his part of the contract can he demand that the other party also fulfills his own
obligation and if the latter fails, default sets in. Consequently, petitioner could only demand for the payment of the monthly
amortization after September 13, 1982 for it was only then when it complied with its obligation under the loan
contract. Therefore, in computing the amount due as of the date when BPIIC extrajudicially caused the foreclosure of the
mortgage, the starting date is October 13, 1982 and not May 1, 1981.
Other points raised by petitioner in connection with the first issue, such as the date of actual release of the loan and
whether private respondents were the cause of the delay in the release of the loan, are factual. Since petitioner has not shown
that the instant case is one of the exceptions to the basic rule that only questions of law can be raised in a petition for review
under Rule 45 of the Rules of Court,[10] factual matters need not tarry us now. On these points we are bound by the findings of
the appellate and trial courts.
On the second issue, petitioner claims that it should not be held liable for moral and exemplary damages for it did not act
maliciously when it initiated the foreclosure proceedings. It merely exercised its right under the mortgage contract because
private respondents were irregular in their monthly amortization. It invoked our ruling in Social Security System vs. Court of
Appeals, 120 SCRA 707, where we said:

Nor can the SSS be held liable for moral and temperate damages. As concluded by the Court of Appeals the negligence of the
appellant is not so gross as to warrant moral and temperate damages, except that, said Court reduced those damages by only
P5,000.00 instead of eliminating them. Neither can we agree with the findings of both the Trial Court and respondent Court
that the SSS had acted maliciously or in bad faith. The SSS was of the belief that it was acting in the legitimate exercise of its
right under the mortgage contract in the face of irregular payments made by private respondents and placed reliance on the
automatic acceleration clause in the contract. The filing alone of the foreclosure application should not be a ground for an
award of moral damages in the same way that a clearly unfounded civil action is not among the grounds for moral damages.
 Private respondents counter that BPIIC was guilty of bad faith and should be liable for said damages because it insisted
on the payment of amortization on the loan even before it was released. Further, it did not make the corresponding deduction
in the monthly amortization to conform to the actual amount of loan released, and it immediately initiated foreclosure
proceedings when private respondents failed to make timely payment.
But as admitted by private respondents themselves, they were irregular in their payment of monthly
amortization. Conformably with our ruling inSSS, 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.
 2. POLO S. PANTALEON (petitioner) v AMERICAN EXPRESS INTERNATIONAL, INC., (respondent) G.R. No. 174269
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, 2003 embodies 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.
III. COMMODATUM

OBJECT OF COMMODATUM

PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK), petitioner, vs. HON. COURT OF APPEALS
AND FRANKLIN VIVES, respondents.
G.R. No. 115324. February 19, 2003

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

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

Commodatum is essentially gratuitous.

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

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

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

Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the object, as
when it is merely for exhibition.

Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of the parties is to lend
consumable goods and to have the very same goods returned at the end of the period agreed upon, the loan is
a 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.
 PRECARIUM

COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE GUEVARRA, respondents.
G.R. No. 146364. June 3, 2004

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 of commodatum.[68]
The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not essentially gratuitous. While
the Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the property in good condition. The
imposition of this obligation makes the Kasunduan a contract different from a commodatum. The effects of the Kasunduan are
also different from that of a commodatum. Case law on ejectment has treated relationship based on tolerance as one that is
akin to a landlord-tenant relationship where the withdrawal of permission would result in the termination of the lease.[69] The
tenants withholding of the property would then be unlawful. This is settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum, Guevarra as bailee would still
have the duty to turn over possession of the property to Pajuyo, the bailor. The obligation to deliver or to return the thing
received attaches to contracts for safekeeping, or contracts of commission, administration and commodatum.[70] These
contracts certainly involve the obligation to deliver or return the thing received.[71]
Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also a squatter. Squatters,
Guevarra pointed out, cannot enter into a contract involving the land they illegally occupy. Guevarra insists that the contract is
void.
Guevarra should know that there must be honor even between squatters. Guevarra freely entered into
the Kasunduan. Guevarra cannot now impugn the Kasunduan after he had benefited from it. The Kasunduan binds Guevarra.
The Kasunduan is not void for purposes of determining who between Pajuyo and Guevarra has a right to physical
possession of the contested property. The Kasunduan is the undeniable evidence of Guevarras recognition of Pajuyos better
right of physical possession. Guevarra is clearly a possessor in bad faith. The absence of a contract would not yield a different
result, as there would still be an implied promise to vacate.
 Guevarra contends that there is a pernicious evil that is sought to be avoided, and that is allowing an absentee squatter
who (sic) makes (sic) a profit out of his illegal act. [72] Guevarra bases his argument on the preferential right given to the actual
occupant or caretaker under Proclamation No. 137 on socialized housing.
We are not convinced.
Pajuyo did not profit from his arrangement with Guevarra because Guevarra stayed in the property without paying any
rent. There is also no proof that Pajuyo is a professional squatter who rents out usurped properties to other
squatters. Moreover, it is for the proper government agency to decide who between Pajuyo and Guevarra qualifies for
socialized housing. The only issue that we are addressing is physical possession.
Prior possession is not always a condition sine qua non in ejectment.[73] This is one of the distinctions between forcible
entry and unlawful detainer.[74] In forcible entry, the plaintiff is deprived of physical possession of his land or building by
means of force, intimidation, threat, strategy or stealth. Thus, he must allege and prove prior possession.[75] But in unlawful
detainer, the defendant unlawfully withholds possession after the expiration or termination of his right to possess under any
contract, express or implied. In such a case, prior physical possession is not required. [76]
Pajuyos withdrawal of his permission to Guevarra terminated the Kasunduan. Guevarras transient right to possess the
property ended as well.Moreover, it was Pajuyo who was in actual possession of the property because Guevarra had to seek
Pajuyos permission to temporarily hold the property and Guevarra had to follow the conditions set by Pajuyo in
the Kasunduan. Control over the property still rested with Pajuyo and this is evidence of actual possession.
Pajuyos absence did not affect his actual possession of the disputed property. Possession in the eyes of the law does not
mean that a man has to have his feet on every square meter of the ground before he is deemed in possession. [77] One may
acquire possession not only by physical occupation, but also by the fact that a thing is subject to the action of ones
will.[78] Actual or physical occupation is not always necessary.[79]

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

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

Attorneys Fees and Rentals

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

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

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.
 OBLIGATIONS OF THE BAILOR

MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-appellants, vs. BECK, defendant-appellee.

G.R. No. L-46240 November 3, 1939

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.
III MUTUUM/SIMPLE LOAN

1. SPOUSES ALBERTO AND SUSAN CASTRO, Petitioners, v. AMPARO PALENZUELA, FOR HERSELF AND AS AUTHORIZED
REPRESENTATIVE OF VIRGINIA ABELLO, GERARDO ANTONIO ABELLO, ALBERTO DEL ROSARIO, INGEBORG REGINA
DEL ROSARIO, HANS DEL ROSARIO, MARGARET DEL ROSARIO ISLETA, ENRIQUE PALENZUELA AND CARLOS MIGUEL
PALENZUELA, Respondents.
G.R. No. 184698, January 21, 2013

DECISION

DEL CASTILLO, J.:

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

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

Factual Antecedents

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

1. For the entire duration of the lease, the Castro spouses shall pay a total consideration of P14,126,600.00,7 via postdated
checks8 and according to the following schedule:

a. Upon signing of the lease agreement, petitioners shall pay P842,300.00 for the lease period March 1, 1994 to June 30,
1994;9

b. On or before June 1, 1994, petitioners shall pay P2,520,000.00 for the one-year lease period July 1, 1994 to June 30,
1995;10

c. On or before June 1, 1995, petitioners shall pay P2,520,000.00 for the one-year lease period July 1, 1995 to June 30,
1996;11

d. On or before June 1, 1996, petitioners shall pay P2,520,000.00 for the one-year lease period July 1, 1996 to June 30,
1997;12

e. On or before June 1, 1997, petitioners shall pay P2,796,000.00 for the one-year lease period July 1, 1997 to June 30,
1998;13 and

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

2. Petitioners committed to pay respondents the amount of P500,000.00 in five yearly installments from June 1, 1994. The
amount represents arrears of the previous lessee, which petitioners agreed to assume;15

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

4. Necessary repairs,17 licenses, permits, and other fees18 necessary and incidental to the operation of the fishpond shall be for
petitioners account;
5. Petitioners shall not sublease the premises to third parties;19 and,

6. Should respondents be constrained to file suit against petitioners on account of the lease, the latter agrees to pay liquidated
damages in the amount of P1,000,000.00, 25% as attorneys fees, and costs of the suit. 20

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

Previously, or on July 22, 1999, respondents sent a letter 21 to petitioners declaring the latter as trespassers and demanding the
settlement of the latters outstanding obligations, including rent for petitioners continued stay within the premises, in the
amount of P378,451.00, broken down as follows:

Unpaid balance as of May 31, 1999 for the fifth year of the lease P111,082.00
Accrued interest from May 31, 1999 to July 31, 1999 at 16% 23,344.00
Trespassing fee for the whole month of July 1999 244,025.0022
Total owed to the Lessors P378,451.00
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 P570,101.0025 for unpaid rent, P275,430.0026 for unpaid additional rent for petitioners one-month
extended stay beyond the contract date, and P2,000,000.0027 for expenses incurred in restoring and repairing their damaged
warehouses. In addition, respondents prayed to be awarded moral and exemplary damages, attorneys fees, and costs of
litigation.28

For failure to file their Answer, petitioners were declared in default, 29 and on August 16, 2000, during the presentation of
evidence for the plaintiffs, respondent Amparo Palenzuela testified, detailing petitioners several violations of the lease
contract; petitioners failure to maintain the warehouses in good condition; their unauthorized subleasing of the premises to
one Cynthia Reyes; their failure to pay the license fees, permits and other fees; their extended stay for 41 days, or until August
11, 1999 despite expiration of the lease on June 30, 1999; and petitioners unpaid rents in the aggregate amount of
P863,796.00, interest included.30

During said proceedings, respondents presented in evidence a statement of account31detailing 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 Order 40 of even date, decreed that petitioner
Alberto Castros testimony be stricken off the record and declared the case submitted for decision. Petitioners moved for
reconsideration;41respondents opposed,42 noting that for more than two years and in spite of several opportunities afforded
them, petitioners have been unable to participate in the proceedings and present their evidence. The trial court did not
reconsider.43

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

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

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

Ruling of the Regional Trial Court

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

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

1. Eight Hundred Sixty-three Thousand Seven Hundred Ninety Six Pesos (P863,796.00), by way of actual or
compensatory damages;

2. Fifty Thousand Pesos (P50,000.00), by way of moral damages;

3. Fifty Thousand Pesos (P50,000.00), by way of exemplary damages;

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

5. Costs of suit.

SO ORDERED.50

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

With respect to petitioners, the trial court said that although they claim to have paid all their obligations in full, no evidence to
such effect has been presented,57 for the precise reason that they failed to participate in the proceedings on their own account.

Both parties moved for reconsideration. Respondents prayed that petitioners be made additionally liable for liquidated
damages and P2,000,000.00 as compensation for the restoration of the damaged warehouses.58

Petitioners, in their Verified Motion for Reconsideration, 59 argued that the evidence is not sufficient to warrant a finding of
liability on their part, and the award is excessive. They claimed that they should not be made to pay additional rent for their
unauthorized stay beyond the lease expiration date, or from July 1 to August 11, 1999, because the lease agreement did not
provide for such. Likewise, they claimed that, as represented by respondents themselves in their July 22, 1999 demand
letter,60 which they annexed to their Verified Motion for Reconsideration and was presented to the court for the first time,
petitioners outstanding obligation, including back rentals, interest, and the supposed one-month additional rent, was pegged
at a mere P378,451.00; thus, the judgment award of P863,796.00 is excessive and illegal. Petitioners added that there is no
factual basis for the award of moral and exemplary damages. Thus, they prayed that the Decision be reconsidered and that the
Complaint be dismissed.

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

Ruling of the Court of Appeals

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

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

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

SECTION 16. TERMINATION OR CANCELLATION OF THE LEASE. Any delay in or violation, failure or refusal of the LESSEE to
perform and comply with any of the obligations stipulated hereunder shall automatically give an absolute right to the LESSORS
to cancel, terminate or otherwise rescind this Contract of Lease. x x x.

xxxx

The above provisions shall, however, be without prejudice to any right of claim by the LESSORS against the LESSEE for
whatever damages which may be incurred or assessed under this Contract of Lease. 67 (Emphasis supplied)

The CA found no error in the award of moral and exemplary damages, noting that petitioners violations of the lease
agreement compelled respondents to litigate and endure unreasonable delays, sleepless nights, mental anguish, and serious
anxiety.68 As for attorneys fees, the CA sustained the trial courts award of 25%, saying that such stipulation may be justified
under Article 2208 of the Civil Code.69 Since respondents were compelled to incur expenses to protect their interests as a
result of petitioners acts and omissions, they should be allowed to collect the stipulated attorneys fees.70

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

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

Issues

The instant Petition thus raises the following issues:

A

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT CALLING THE TRIAL COURT TO TASK FOR REFUSING TO
RECEIVE EVIDENCE IN SUPPORT OF THE VERIFIED MOTION FOR RECONSIDERATION OF PETITIONERS ON THE GROUND
THAT THE AWARD OF DAMAGES IS EXCESSIVE.
B

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT DISCERNING THE INTERNAL FACTUAL
INCONSISTENCIES OF THE FINDINGS OF THE TRIAL COURT AS WELL AS THE LACK OF LEGAL BASIS THEREOF, VIS--
VIS THE CLAIM OF UNPAID RENT AND INTEREST, IN CLEAR DISREGARD OF THE PRONOUNCEMENTS OF THIS HONORABLE
COURT IN MARTIN V. COURT OF APPEALS.
C

THERE IS SIMILARLY NO BASIS FOR THE AWARD OF MORAL AND EXEMPLARY DAMAGES, AND THE HONORABLE COURT OF
APPEALS WAS IN GRIEVOUS ERROR IN SUSTAINING THE TRIAL COURT IN CLEAR DISREGARD OF THIS HONORABLE
COURTS PRONOUNCEMENTS 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 courts Decision, invoking Section 1, Rule 37 of the Rules of Court76 which
allows them to question the trial courts Decision on the ground that the damages awarded are excessive or that the evidence
is insufficient to justify the Decision.77

Petitioners direct the Courts attention to respondents July 22, 1999 demand letter78indicating that their outstanding
obligation was only P378,451.00, which thus renders excessive the award of P863,796.00.

Petitioners next insist that the lease agreement did not authorize respondents to charge additional rents for their July 1 to
August 11, 1999 extended stay,79 which thus renders without legal or factual basis and excessive the award of
P863,796.00.80 If at all, the basis for computation thereof should be the immediately preceding monthly rental of
P244,025.00.81 Nor is the imposition of interest allowed under the agreement. Petitioners concede that in the absence of
stipulation as to interest, respondents are entitled only to 6% annual interest as indemnity for damages, 82 pursuant to Article
2209 of the Civil Code.83

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

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

Respondents Arguments

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

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

Respondents maintain that in the event of expiration of the lease period and the lessee maintains himself within the premises,
the law authorizes the collection of rentals on a month-to-month or year-to-year basis,94 citing Articles 1670 and 1687 of the
Civil Code.95 Thus, even if the lease agreement with petitioners failed to provide for a stipulation covering lease extension, the
obligation to pay rent is not extinguished by the expiration of the lease on June 30, 1999. 96

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

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

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

Both courts erred in finding that there are outstanding rents owing to the respondents in the amount of P863,796.00.
Attention must be called to respondents July 22, 1999 demand letter. 98 The letter, which appears to have been handwritten
and signed by Amparo Palenzuela herself, makes a demand upon petitioners to pay the total amount of P378,451.00 which
respondents claim constitutes what is owing to them as of July 31, 1999 by way of unpaid rentals (P111,082.00); additional
rent for the whole duration of petitioners stay on the premises beyond the contract date, or for the whole of July 1999
(P244,025.00); and interest from May 31, 1999 up to July 31, 1999 (P23,344.00). This letter belies the claim that petitioners
owed respondents a greater amount by way of unpaid rents. Even though it is not newly-discovered evidence, it is material;
indeed, petitioners could not have presented it during trial because they were declared in default.

Of this amount P378,451.00 petitioners admit to paying nothing. Thus, for petitioners, this is their admitted liability.

The Court notes further that respondents do not even dispute petitioners argument that the amount of P863,796.00 actually
represented rentals being claimed for their one-month extended stay on the premises, which to them is excessive. This
argument of the petitioners finds support in the direct testimony of respondents witness, Amparo Palenzuela, thus

Q 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. Castros obligation is P863,796.00.
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 P863,796.00 this is the total as of July?
A July 31.
Q 2000?101
A Thats right.
Q And this pertains to unpaid rent and interest thereof?
A Thats right.
Q The stipulated interest thereof?
A Thats 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 P863,796.00 is what they are actually charging petitioners for one
months extended use of their fishponds. If this is so, then it is truly excessive, considering that for the immediately preceding
month the whole of June 1999 it costs only P244,025.00103 for the petitioners to rent the same property. The trial court
may have been impelled to accept respondents own computation104 of what they believed was due from petitioners on
account of the fact that at that time, petitioners were declared in default and could not cross-examine the respondents
witness. But the fact remains that the July 22, 1999 demand letter105 clearly sets forth in detail what appears to be the true,
accurate and reasonable amount of petitioners outstanding obligation. If this document were a forgery, respondents would
have vehemently objected to its presentation at the very first opportunity. Yet they did not. Such document could thus be
considered and given weight. [T]he omission x x x to rebut that which would have naturally invited an immediate, pervasive
and stiff opposition x x x create[s] an adverse inference that either the controverting [evidence] x x x presented x x x will only
prejudice its case, or that the uncontroverted evidence indeed speaks of the truth. 106

As for petitioners submission that respondents were not authorized to charge additional rent for their extended stay, this
issue should be deemed settled by their very reliance on the July 22, 1999 demand letter, 107 where a charge for additional rent
for their extended stay in the amount of P244,025.00 is included. By adopting the letter as their own evidence in seeking a
reduction in the award of unpaid rent, petitioners are considered to have admitted liability for additional rent as stated
therein, in the amount of P244,025.00. Petitioners may not simultaneously accept and reject the demand letter; this would go
against the rules of fair play. Besides, respondents are correct in saying that when the lease expired on June 30, 1999 and
petitioners continued enjoying the premises without objection from the respondents, an implied new lease was created
pursuant to Article 1670 of the Civil Code, which placed upon petitioners the obligation to pay additional rent.

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

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

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

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

WHEREFORE, premises considered, the Petition is DENIED. The January 29, 2008 Decision of the Court of Appeals in CA-G.R.
CV No. 86925 which affirmed in toto the January 31, 2005 Decision of the Regional Trial Court of Quezon City, Branch 85 in
Civil Case No. Q-00-41011 is AFFIRMED with the MODIFICATION that the actual and compensatory damages are reduced to
P378,451.00, the same to earn legal interest at the rate of twelve percent (12%) per annum from July 22, 1999 until fully paid.

SO ORDERED.
2. THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK), petitioner, vs. THE COURT OF APPEALS,
CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM and SPOUSE, respondents.
G.R. No. 114286. April 19, 2001

DECISION
YNARES-SANTIAGO, J.:

The instant petition for review seeks to partially set aside the July 26, 1993 Decision [1] of respondent Court of Appeals in
CA-G.R. CV No. 29950, insofar as it orders petitioner to reimburse respondent Continental Cement Corporation the amount of
P490,228.90 with interest thereon at the legal rate from July 26, 1988 until fully paid. The petition also seeks to set aside the
March 8, 1994 Resolution[2] of respondent Court of Appeals denying its Motion for Reconsideration.
The facts are as follows:
On July 13, 1982, respondents Continental Cement Corporation (hereinafter, respondent Corporation) and Gregory T. Lim
(hereinafter, respondent Lim) obtained from petitioner Consolidated Bank and Trust Corporation Letter of Credit No. DOM-
23277 in the amount of P1,068,150.00 On the same date, respondent Corporation paid a marginal deposit of P320,445.00 to
petitioner. The letter of credit was used to purchase around five hundred thousand liters of bunker fuel oil from Petrophil
Corporation, which the latter delivered directly to respondent Corporation in its Bulacan plant. In relation to the same
transaction, a trust receipt for the amount of P1,001,520.93 was executed by respondent Corporation, with respondent Lim as
signatory.
Claiming that respondents failed to turn over the goods covered by the trust receipt or the proceeds thereof, petitioner
filed a complaint for sum of money with application for preliminary attachment [3] before the Regional Trial Court of Manila. In
answer to the complaint, respondents averred that the transaction between them was a simple loan and not a trust receipt
transaction, and that the amount claimed by petitioner did not take into account payments already made by them.Respondent
Lim also denied any personal liability in the subject transactions. In a Supplemental Answer, respondents prayed for
reimbursement of alleged overpayment to petitioner of the amount of P490,228.90.
At the pre-trial conference, the parties agreed on the following issues:

1) Whether or not the transaction involved is a loan transaction or a trust receipt transaction;

2) Whether or not the interest rates charged against the defendants by the plaintiff are proper under the letter of credit, trust
receipt and under existing rules or regulations of the Central Bank;

3) Whether or not the plaintiff properly applied the previous payment of P300,456.27 by the defendant corporation on July 13,
1982 as payment for the latters account; and

4) Whether or not the defendants are personally liable under the transaction sued for in this case. [4]

On September 17, 1990, the trial court rendered its Decision, [5] dismissing the Complaint and ordering petitioner to pay
respondents the following amounts under their counterclaim: P490,228.90 representing overpayment of respondent
Corporation, with interest thereon at the legal rate from July 26, 1988 until fully paid; P10,000.00 as attorneys fees; and costs.
Both parties appealed to the Court of Appeals, which partially modified the Decision by deleting the award of attorneys
fees in favor of respondents and, instead, ordering respondent Corporation to pay petitioner P37,469.22 as and for attorneys
fees and litigation expenses.
Hence, the instant petition raising the following issues:

1. WHETHER OR NOT THE RESPONDENT APPELLATE COURT ACTED INCORRECTLY OR COMMITTED REVERSIBLE ERROR IN
HOLDING THAT THERE WAS OVERPAYMENT BY PRIVATE RESPONDENTS TO THE PETITIONER IN THE AMOUNT OF
P490,228.90 DESPITE THE ABSENCE OF ANY COMPUTATION MADE IN THE DECISION AND THE ERRONEOUS APPLICATION
OF PAYMENTS WHICH IS IN VIOLATION OF THE NEW CIVIL CODE.
2. WHETHER OR NOT THE MANNER OF COMPUTATION OF THE MARGINAL DEPOSIT BY THE RESPONDENT APPELLATE
COURT IS IN ACCORDANCE WITH BANKING PRACTICE.

3. WHETHER OR NOT THE AGREEMENT AMONG THE PARTIES AS TO THE FLOATING OF INTEREST RATE IS VALID UNDER
APPLICABLE JURISPRUDENCE AND THE RULES AND REGULATIONS OF THE CENTRAL BANK.

4. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN NOT CONSIDERING THE
TRANSACTION AT BAR AS A TRUST RECEIPT TRANSACTION ON THE BASIS OF THE JUDICIAL ADMISSIONS OF THE PRIVATE
RESPONDENTS AND FOR WHICH RESPONDENTS ARE LIABLE THEREFOR.

5. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN NOT HOLDING PRIVATE RESPONDENT
SPOUSES LIABLE UNDER THE TRUST RECEIPT TRANSACTION.[6]

The petition must be denied.

On the first issue respecting the fact of overpayment found by both the lower court and respondent Court of Appeals, we
stress the time-honored rule that findings of fact by the Court of Appeals especially if they affirm factual findings of the trial
court will not be disturbed by this Court, unless these findings are not supported by evidence.[7]
Petitioner decries the lack of computation by the lower court as basis for its ruling that there was an overpayment
made. While such a computation may not have appeared in the Decision itself, we note that the trial courts finding of
overpayment is supported by evidence presented before it. At any rate, we painstakingly reviewed and computed the
payments together with the interest and penalty charges due thereon and found that the amount of overpayment made by
respondent Bank to petitioner, i.e., P563,070.13, was more than what was ordered reimbursed by the lower court. However,
since respondents did not file an appeal in this case, the amount ordered reimbursed by the lower court should stand.
Moreover, petitioners contention that the marginal deposit made by respondent Corporation should not be deducted
outright from the amount of the letter of credit is untenable. Petitioner argues that the marginal deposit should be considered
only after computing the principal plus accrued interests and other charges.However, to sustain petitioner on this score would
be to countenance a clear case of unjust enrichment, for while a marginal deposit earns no interest in favor of the debtor-
depositor, the bank is not only able to use the same for its own purposes, interest-free, but is also able to earn interest on the
money loaned to respondent Corporation. Indeed, it would be onerous to compute interest and other charges on the face value
of the letter of credit which the petitioner issued, without first crediting or setting off the marginal deposit which the
respondent Corporation paid to it. Compensation is proper and should take effect by operation of law because the requisites in
Article 1279 of the Civil Code are present and should extinguish both debts to the concurrent amount. [8]
Hence, the interests and other charges on the subject letter of credit should be computed only on the balance of
P681,075.93, which was the portion actually loaned by the bank to respondent Corporation.
Neither do we find error when the lower court and the Court of Appeals set aside as invalid the floating rate of interest
exhorted by petitioner to be applicable.The pertinent provision in the trust receipt agreement of the parties fixing the interest
rate states:

I, WE jointly and severally agree to any increase or decrease in the interest rate which may occur after July 1, 1981, when the
Central Bank floated the interest rate, and to pay additionally the penalty of 1% per month until the amount/s or installment/s
due and unpaid under the trust receipt on the reverse side hereof is/are fully paid.[9]

We agree with respondent Court of Appeals that the foregoing stipulation is invalid, there being no reference rate set
either by it or by the Central Bank, leaving the determination thereof at the sole will and control of petitioner.
While it may be acceptable, for practical reasons given the fluctuating economic conditions, for banks to stipulate that
interest rates on a loan not be fixed and instead be made dependent upon prevailing market conditions, there should always
be a reference rate upon which to peg such variable interest rates. An example of such a valid variable interest rate was found
in Polotan, Sr. v. Court of Appeals.[10] In that case, the contractual provision stating that if there occurs any change in the
prevailing market rates, the new interest rate shall be the guiding rate in computing the interest due on the outstanding
obligation without need of serving notice to the Cardholder other than the required posting on the monthly statement served
to the Cardholder[11] was considered valid. The aforequoted provision was upheld notwithstanding that it may partake of the
nature of an escalation clause, because at the same time it provides for the decrease in the interest rate in case the prevailing
market rates dictate its reduction. In other words, unlike the stipulation subject of the instant case, the interest rate involved
in the Polotan case is designed to be based on the prevailing market rate. On the other hand, a stipulation ostensibly signifying
an agreement to any increase or decrease in the interest rate, without more, cannot be accepted by this Court as valid for it
leaves solely to the creditor the determination of what interest rate to charge against an outstanding loan.
 Petitioner has also failed to convince us that its transaction with respondent Corporation is really a trust receipt
transaction instead of merely a simple loan, as found by the lower court and the Court of Appeals.
The recent case of Colinares v. Court of Appeals[12] appears to be foursquare with the facts obtaining in the case at
bar. There, we found that inasmuch as the debtor received the goods subject of the trust receipt before the trust receipt itself
was entered into, the transaction in question was a simple loan and not a trust receipt agreement. Prior to the date of
execution of the trust receipt, ownership over the goods was already transferred to the debtor. This situation is inconsistent
with what normally obtains in a pure trust receipt transaction, wherein the goods belong in ownership to the bank and are
only released to the importer in trust after the loan is granted.
In the case at bar, as in Colinares, the delivery to respondent Corporation of the goods subject of the trust receipt
occurred long before the trust receipt itself was executed. More specifically, delivery of the bunker fuel oil to respondent
Corporations Bulacan plant commenced on July 7, 1982 and was completed by July 19, 1982.[13] Further, the oil was used up by
respondent Corporation in its normal operations by August, 1982.[14] On the other hand, the subject trust receipt was only
executed nearly two months after full delivery of the oil was made to respondent Corporation, or on September 2, 1982.
The danger in characterizing a simple loan as a trust receipt transaction was explained in Colinares, to wit:

The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the dishonesty and abuse of
confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner. Here, it
is crystal clear that on the part of Petitioners there was neither dishonesty nor abuse of confidence in the handling of money to
the prejudice of PBC. Petitioners continually endeavored to meet their obligations, as shown by several receipts issued by PBC
acknowledging payment of the loan.

The Information charges Petitioners with intent to defraud and misappropriating the money for their personal use. The mala
prohibita nature of the alleged offense notwithstanding, intent as a state of mind was not proved to be present in Petitioners
situation. Petitioners employed no artifice in dealing with PBC and never did they evade payment of their obligation nor
attempt to abscond. Instead, Petitioners sought favorable terms precisely to meet their obligation.

Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale, contrary to the express provision
embodied in the trust receipt. They are contractors who obtained the fungible goods for their construction project. At no time
did title over the construction materials pass to the bank, but directly to the Petitioners from CM Builders Centre. This
impresses upon the trust receipt in question vagueness and ambiguity, which should not be the basis for criminal prosecution
in the event of violation of its provisions.

The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and place them under the threats
of criminal prosecution should they be unable to pay it may be unjust and inequitable, if not reprehensible. Such agreements
are contracts of adhesion which borrowers have no option but to sign lest their loan be disapproved. The resort to this scheme
leaves poor and hapless borrowers at the mercy of banks, and is prone to misinterpretation, as had happened in this
case. Eventually, PBC showed its true colors and admitted that it was only after collection of the money, as manifested by its
Affidavit of Desistance.

Similarly, respondent Corporation cannot be said to have been dishonest in its dealings with petitioner. Neither has it
been shown that it has evaded payment of its obligations. Indeed, it continually endeavored to meet the same, as shown by the
various receipts issued by petitioner acknowledging payment on the loan.Certainly, the payment of the sum of P1,832,158.38
on a loan with a principal amount of only P681,075.93 negates any badge of dishonesty, abuse of confidence or mishandling of
funds on the part of respondent Corporation, which are the gravamen of a trust receipt violation. Furthermore, respondent
Corporation is not an importer which acquired the bunker fuel oil for re-sale; it needed the oil for its own operations. More
importantly, at no time did title over the oil pass to petitioner, but directly to respondent Corporation to which the oil was
directly delivered long before the trust receipt was executed. The fact that ownership of the oil belonged to respondent
Corporation, through its President, Gregory Lim, was acknowledged by petitioners own account officer on the witness stand,
to wit:
Q - After the bank opened a letter of credit in favor of Petrophil Corp. for the account of the defendants thereby paying the
value of the bunker fuel oil what transpired next after that?
A - Upon purchase of the bunker fuel oil and upon the requests of the defendant possession of the bunker fuel oil were
transferred to them.
Q - You mentioned them to whom are you referring to?
A - To the Continental Cement Corp. upon the execution of the trust receipt acknowledging the ownership of the bunker
fuel oil this should be acceptable for whatever disposition he may make.
 Q - You mentioned about acknowledging ownership of the bunker fuel oil to whom by whom?
A - By the Continental Cement Corp.
Q - So by your statement who really owns the bunker fuel oil?
ATTY. RACHON:
Objection already answered.
COURT:
Give time to the other counsel to object.
ATTY. RACHON:
He has testified that ownership was acknowledged in favor of Continental Cement Corp. so that question has already been
answered.
ATTY. BAAGA:
That is why I made a follow up question asking ownership of the bunker fuel oil.
COURT:
Proceed.
ATTY. BAAGA:
Q - Who owns the bunker fuel oil after purchase from Petrophil Corp.?
A - Gregory Lim.[15]
By all indications, then, it is apparent that there was really no trust receipt transaction that took place. Evidently,
respondent Corporation was required to sign the trust receipt simply to facilitate collection by petitioner of the loan it had
extended to the former.
Finally, we are not convinced that respondent Gregory T. Lim and his spouse should be personally liable under the
subject trust receipt. Petitioners argument that respondent Corporation and respondent Lim and his spouse are one and the
same cannot be sustained. The transactions sued upon were clearly entered into by respondent Lim in his capacity as
Executive Vice President of respondent Corporation. We stress the hornbook law that corporate personality is a shield against
personal liability of its officers. Thus, we agree that respondents Gregory T. Lim and his spouse cannot be made personally
liable since respondent Lim entered into and signed the contract clearly in his official capacity as Executive Vice President. The
personality of the corporation is separate and distinct from the persons composing it. [16]
WHEREFORE, in view of all the foregoing, the instant Petition for Review is DENIED. The Decision of the Court of Appeals
dated July 26, 1993 in CA-G.R. CV No. 29950 is AFFIRMED.
SO ORDERED.
 3. CITIBANK, N.A. (Formerly First National City Bank) and INVESTORS FINANCE CORPORATION, doing business
under the name and style of FNCB Finance, Petitioners, v MODESTA R. SABENIANO,G.R. No. 156132

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 Date of Date of Release

PN No. Issuance Maturity Principal (mm/dd/yyyy) MC No.
(mm/dd/yyyy) (mm/dd/yyyy) 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 7 th floor of the office building
of petitioner Citibank. There is no showing that the fire was intentionally set. The fire destroyed relevant documents, not just
of the present case, but also of other cases, since the 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. 15934were 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.