of the Civil Code, which forbids a creditor from appropriating, or disposing of, the thing given as

security for the payment of debt. DBP cannot take refuge in the deed of assignment to justify its
PLEDGE AND MORTGAGE act of appropriating the leasehold rights since the said deed did not provide that the leasehold
rights would automatically pass to DBP upon Cuba's failure to pay the loans on time. It merely
provided for the appointment of DBP as attorney-in-fact with authority, among other things, to
sell or otherwise dispose of the said real rights, in case of default by Cuba, and to apply the
A. PACTUM COMMISSORIUM proceeds to the payment of the loan. The Supreme Court likewise found no merit in the
contention that the assignment novated the promissory notes in that the obligation to pay a sum
of money was substituted by the assignment of the rights over the fishpond. The said assignment
FIRST DIVISION merely complemented or supplemented the promissory notes. The obligation to pay a sum of
money remained, and the assignment merely served as security for the loans covered by the
promissory notes. HcSaAD
[G.R. No. 118342. January 5, 1998.]

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF SYLLABUS

APPEALS and LYDIA CUBA,respondents.
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; MORTGAGE; AN ASSIGNMENT TO
GUARANTEE AN OBLIGATION IS VIRTUALLY A MORTGAGE; CASE AT BAR. — We agree with
[G.R. No. 118367. January 5, 1998.] CUBA that the assignment of leasehold rights was a mortgage contract. Simultaneous with the
execution of the notes was the execution "Assignments of Leasehold Rights" where CUBA
assigned her leasehold rights and interest on a 44-hectare fishpond, together with the
LYDIA P. CUBA, petitioner, vs. COURT OF APPEALS, DEVELOPMENT BANK improvements thereon. As pointed out by CUBA, the deeds of assignment constantly referred to
OF THE PHILIPPINES and AGRIPINA P. CAPERAL, respondents. the assignor (CUBA) as "borrower"; the assigned rights, as mortgaged properties; and the
instrument itself, as mortgage contract. Moreover, under condition No. 22 of the deed, it was
provided that "failure to comply with the terms and condition of any of the loans shall cause all
Office of the Legal Counsel DBP for petitioner. other loans to become due and demandable and all mortgages shall be foreclosed." And, condition
No. 33 provided that if "foreclosure is actually accomplished, the usual 10% attorney's fees and 10%
Virgilio C . Leynes, Agripina Laperal J .C . Calida and Associates for liquidated damages of the total obligation shall be imposed." There is, therefore, no shred of
respondent Lydia Cuba. doubt that a mortgage was intended. In People's Bank & Trust Co. vs. Odom, this Court had the
occasion to rule that an assignment to guarantee an obligation is in effect as mortgage.
2. ID.; ID.; ID.; ASSIGNMENT OF RIGHTS COMPLEMENTED AND DID NOT NOVATE
SYNOPSIS THE PROMISSORY NOTES. — We find no merit in DBP's contention that the assignment novated
the promissory notes in that the obligation to pay a sum of money the loans (under the promissory
notes) was substituted by the assignment of the rights over the fishpond (under the deed of
Lydia P. Cuba (Cuba) obtained from the Development Bank of the Philippines (DBP) assignment). As correctly pointed out by CUBA, the said assignment merely complemented or
three separate loans, each of which was covered by a promissory note. As a security for said loans, supplemented the notes; both could stand together. The former was only an accessory to the
Cuba executed two Deeds of Assignment of her Leasehold Rights over her 44-hectare fishpond. latter. Contrary to DBP's submission, the obligation to pay a sum of money remained, and the
For failure of Cuba to pay her loans, DBP appropriated her Leasehold Rights over the fishpond assignment merely served as security for the loans were granted. Also, the last paragraph of the
without foreclosure proceedings. Subsequently, Cuba offered and agreed to repurchase her assignment stated: "The assignor further reiterates and states all terms, covenants, are conditions
leasehold rights from DBP. For failure to pay the monthly amortizations stipulated in the deed of stipulated in the promissory note or notes covering the proceeds of this loan, making said
conditional sale executed by DBP in favor of Cuba, DBP took possession of the leasehold right and promissory note or notes, to all intent and purposes, an integral part hereof".
subsequently sold the same to Agripina Capera. Cuba filed a complaint with the Regional Trial
Court seeking declaration of nullity DBP's appropriation of her leasehold rights without foreclosure 3. ID.; ID.; PAYMENT BY CESSION ; DOES NOT APPLY WHERE THERE IS ONLY ONE
proceedings which is contrary to Article 2088 of theCivil Code.The trial court resolved the issue in CREDITOR. — Neither did the assignment amount to payment by cession under Article 1255 of
favor of Cuba and declared invalid the deed of assignment for being a clear case of patum the Civil Code for the plain and simple reason that there was only one creditor, the DBP. Article
commissorium. On appeal, the Court of Appeals reverse the decision of the trial court and declared 1255 contemplates the existence of two or more creditors and involves the assignment of all the
that the deed of assignment was an express authority from Cuba for DBP to sell whatever right she debtor's property.
had over the fishpond. The appellate court likewise held that the deed of assignment amounted to 4. ID.; ID.; DATION IN PAYMENT; DOES NOT APPLY WHERE ASSIGNMENT WAS A
a novation of the promissory note. MERE SECURITY AND NOT IN SATISFACTION OF INDEBTEDNESS. — Nor did the assignment
The Supreme Court ruled that the deed of assignment of leasehold rights was a constitute dation in payment under Article 1245 of the Civil Code, which reads: "Dation in payment,
mortgage contract. The assignment, being in its essence a mortgage, was but a security and not a whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed
satisfaction of indebtedness. DBP's act of appropriating Cuba's rights was violative of Article 2088 by the law on sales." It bears stressing that the assignment, being in its essence a mortgage, was
but a security and not a satisfaction of indebtedness.
 5. ID.; ID.; PACTUM COMMISSORIUM ; ELEMENTS. — The elements of pactum 9. CIVIL LAW; DAMAGES; ACTUAL OR COMPENSATORY DAMAGES; MUST BE DULY
commissorium are as follows: (1) there should be a property mortgaged by way of security for the PROVED. — Actual or compensatory damages cannot be presumed, but must be proved with
payment of the principal obligation, and (2) there should be a stipulation for automatic reasonable degree of certainty. A court cannot rely on speculations, conjectures, or guesswork as
appropriation by the creditor of the thing mortgaged in case of non-payment of the principal to the fact and amount of damages, but must depend upon competent proof that they have been
obligation within the stipulated period. suffered by the injured party and on the best obtainable evidence of the actual amount thereof. It
must point out specific facts which could afford a basis for measuring whatever compensatory or
6. ID.; ID.; ID.; NOT PRESENT WHERE THERE IS NO AUTOMATIC APPROPRIATION BY actual damages' are borne.
THE CREDITOR OF THE THING MORTGAGED; CASE AT BAR. — Condition No. 12 did not provide
that the ownership over the leasehold rights would automatically pass to DBP upon CUBA's failure 10. ID.; ID.; ID.; ID.; CASE AT BAR. — In the present case, the trial court awarded in
to pay the loan on time. It merely provided for the appointment of DBP as attorney-in-fact with favor of CUBA P1,067,500 as actual damages consisting of P550,000 which represented the value
authority, among other things, to sell or otherwise dispose of the said real rights, in case of default of the alleged lost articles of CUBA and P517,500 which represented the value of the 230,000
by CUBA, and to apply the proceeds to the payment of the loan. This provision is a standard pieces of bangus allegedly stocked in 1979 when DBP first ejected CUBA from the fishpond and the
condition in mortgage contracts and is in conformity with Article 2087 of the Civil Code, which adjoining house. This award was affirmed by the Court of Appeals. We find that the alleged loss of
authorizes the mortgagee to foreclose the mortgage and alienate the mortgaged property for the personal belongings and equipment was not proved by clear evidence. Other than the testimony
payment of the principal obligation. DBP, however, exceeded the authority vested by condition of CUBA and her caretaker, there was no proof as to the existence of those items before DBP took
No. 12 of the deed of assignment. As admitted by it during the pre-trial, it had "[w]ithout, over the fishpond in question. With regard to the award of P517,000 representing the value of the
foreclosure proceedings, whether judicial or extrajudicial . . . appropriatedthe [l]easehold rights of alleged 230,000 pieces of bangus which died when DBP took possession of the fishpond in March
plaintiff Lydia Cuba over the fishpond in question." Its contention that it limited itself to mere 1979, the same was not called for. Such loss was not duly proved; besides, the claim therefor was
administration by posting caretakers is further belied by the deed of conditional sale it executed in delayed unreasonably. From 1979 until after the filing of her complaint in court in May 1985, CUBA
favor of CUBA. DBP cannot take refuge in condition No. 12 of the deed of assignment to justify its did not bring to the attention of DBP the alleged loss. The award of actual damages should,
act of appropriating the leasehold rights. As stated earlier, condition No. 12 did not provide that therefore, be struck down for lack of sufficient basis.
CUBA's default would operate to vest in DBP ownership of the said rights. Besides, an assignment
to guarantee an obligation, as in the present case, is virtually a mortgage and not an absolute 11. ID.; ID.; MORAL DAMAGES; AWARD PROPER WHERE ASSAILED ACT IS
conveyance of title which confers ownership on the assignee. CONTRARY TO LAW. — In view, however, of DBP's act of appropriating CUBA's leasehold rights
which was contrary to law and public policy, as well as its false representation to the then Ministry
7. ID.; ID.; MORTGAGE; CREDITOR CANNOT APPROPRIATE THE THING GIVEN AS of Agriculture and Natural Resources that it had "foreclosed the mortgage," an award of moral
SECURITY; CASE AT BAR. — At any rate, DBP's act of appropriating CUBA's leasehold rights was damages in the amount of P50,000 is in order conformably with Article 2219(10), in relation to
violative of Article 2088 of the Civil Code, which forbids a creditor from appropriating, or disposing Article 21, of the Civil Code.
of the thing given as security for the payment of a debt. Instead of taking ownership of the
questioned real rights upon default by CUBA, DBP should have foreclosed the mortgage, as has 12. ID.; ID.; EXEMPLARY OR CORRECTIVE DAMAGES; AWARDED IN CASE AT BAR. —
been stipulated in condition no. 22 of the deed of assignment. But, as admitted by DBP, there was Exemplary or corrective damages in the amount of P25,000 should likewise be awarded by way of
no such foreclosure. Yet, in its letter dated 26 October 1997, addressed to the Minister of example or correction for the public good.
Agriculture and Natural Resources and coursed through the Director of the Bureau of Fisheries and 13. ID.; ID.; ATTORNEY'S FEE; RECOVERABLE WHERE THERE IS AWARD OF
Aquatic Resources, DBP declared that it "had foreclosed the mortgage and enforced the EXEMPLARY DAMAGES. — There being an award of exemplary damages, attorney's fees are also
assignment of leasehold rights on March 21, 1979 for failure of said spouses (CUBA spouses) to pay recoverable.
their loan amortizations." This only goes to show that DBP was aware of the necessity of
foreclosure proceedings. In view of the false representation of DBP that it had already foreclosed
the mortgage, the Bureau of Fisheries cancelled CUBA's original lease permit, approved the deed
of conditional sale, and issued a new permit in favor of CUBA. Said acts which were predicated on
DECISION
such false representation, as well as the subsequent acts emanating from DBP's appropriation of
the leasehold rights, should therefore be set aside. To validate these acts would open the
floodgates to circumvention of Article 2088 of the Civil Code.Even in cases where foreclosure
proceedings were had, this Court had not hesitated to nullify the consequent auction sale for
failure to comply with the requirements laid down by law, such as Act No. 3135, as amended. With DAVIDE, JR., J p:
more reason that the sale of property given as security for the payment of a debt be set aside if
there was no prior foreclosure proceeding. These two consolidated cases stemmed from a complaint 1 filed against the
Development Bank of the Philippines (hereafter DBP) and Agripina Caperal filed by Lydia Cuba
8. REMEDIAL LAW; ACTIONS; ESTOPPEL; CANNOT GIVE VALIDITY TO AN ACT (hereafter CUBA) on 21 May 1985 with the Regional Trial Court of Pangasinan, Branch 54. The said
PROHIBITED BY LAW. — The fact that CUBA offered and agreed to purchase her leasehold rights complaint sought (1) the declaration of nullity of DBP's appropriation of CUBA's rights, title, and
from DBP did not estop her from questioning DBP's act of appropriation. Estoppel is unvailing in interests over a 44-hectare fishpond located in Bolinao, Pangasinan, for being violative of Article
this case as held by this Court in some cases estoppel cannot give validity to an act that is 2088 of the Civil Code; (2) the annulment of the Deed of Conditional Sale executed in her favor by
prohibited by law or against public policy. Hence, the appropriation of the leasehold rights, being DBP; (3) the annulment of DBP's sale of the subject fishpond to Caperal; (4) the restoration of her
contrary to Article 2088 of the Civil Code and to public policy, cannot be deemed validated by rights, title, and interests over the fishpond; and (5) the recovery of damages, attorney's fees, and
estoppel. expenses of litigation. LLjur
 After the joinder of issues following the filing by the parties of their respective 14. That the DBP thereafter executed a Deed of Conditional Sale in favor of
pleadings, the trial court conducted a pre-trial where CUBA and DBP agreed on the following facts, defendant Agripina Caperal on August 6, 1984;
which were embodied in the pre-trial order: 2
15. Thereafter, defendant Caperal was awarded Fishpond Lease Agreement
1. Plaintiff Lydia P. Cuba is a grantee of a Fishpond Lease Agreement No. 2083 No. 2083-A on December 28, 1984 by the Ministry of Agriculture and
(new) dated May 13, 1974 from the Government; Food.
2. Plaintiff Lydia P. Cuba obtained loans from the Development Bank of the Defendant Caperal admitted only the facts stated in paragraphs 14 and 15 of the pre-
Philippines in the amounts of P109,000.00; P109,000.00; and trial order. 3
P98,700.00 under the terms stated in the Promissory Notes dated
September 6, 1974; August 11, 1975; and April 4, 1977; Trial was thereafter had on other matters.

3. As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of The principal issue presented was whether the act of DBP in appropriating to itself
Assignment of her Leasehold Rights; CUBA's leasehold rights over the fishpond in question without foreclosure proceedings was
contrary to Article 2088 of the Civil Code and, therefore, invalid. CUBA insisted on an affirmative
4. Plaintiff failed to pay her loan on the scheduled dates thereof in accordance resolution. DBP stressed that it merely exercised its contractual right under the Assignments of
with the terms of the Promissory Notes; Leasehold Rights, which was not a contract of mortgage. Defendant Caperal sided with DBP.

5. Without foreclosure proceedings, whether judicial or extra-judicial, The trial court resolved the issue in favor of CUBA by declaring that DBP's taking
defendant DBP appropriated the leasehold Rights of plaintiff Lydia possession and ownership of the property without foreclosure was plainly violative of Article 2088
Cuba over the fishpond in question; of the Civil Code which provides as follows:
ART. 2088. The creditor cannot appropriate the things given by way of pledge
6. After defendant DBP has appropriated the Leasehold Rights of plaintiff Lydia
or mortgage, or dispose of them. Any stipulation to the contrary is null and
Cuba over the fishpond in question, defendant DBP, in turn,
void.
executed a Deed of Conditional Sale of the Leasehold Rights in favor
of plaintiff Lydia Cuba over the same fishpond in question; It disagreed with DBP's stand that the Assignments of Leasehold Rights were not contracts of
mortgage because (1) they were given as security for loans (2) although the "'fishpond land"' in
7. In the negotiation for repurchase, plaintiff Lydia Cuba addressed two letters
question is still a public land, CUBA's leasehold rights and interest thereon are alienable rights
to the Manager DBP, Dagupan City dated November 6, 1979 and
which can be the proper subject of a mortgage; and (3) the intention of the contracting parties to
December 20, 1979. DBP thereafter accepted the offer to
treat the Assignment of Leasehold Rights as a mortgage was obvious and unmistakable; hence,
repurchase in a letter addressed to plaintiff dated February 1, 1982;
upon CUBA's default, DBP's only right was to foreclose the Assignment in accordance with law.
8. After the Deed of Conditional Sale was executed in favor of plaintiff Lydia The trial court also declared invalid condition no. 12 of the Assignment of Leasehold
Cuba, a new Fishpond Lease Agreement No. 2083-A dated March Rights for being a clear case of pactum commissorium expressly prohibited and declared null and
24, 1980 was issued by the Ministry of Agriculture and Food in favor void by Article 2088 of the Civil Code.It then concluded that since DBP never acquired lawful
of plaintiff Lydia Cuba only, excluding her husband; ownership of CUBA's leasehold rights, all acts of ownership and possession by the said bank were
9. Plaintiff Lydia Cuba failed to pay the amortizations stipulated in the Deed of void. Accordingly, the Deed of Conditional Sale in favor of CUBA, the notarial rescission of such
Conditional Sale; sale, and the Deed of Conditional Sale in favor of defendant Caperal, as well as the Assignment of
Leasehold Rights executed by Caperal in favor of DBP, were also void and ineffective.
10. After plaintiff Lydia Cuba failed to pay the amortization as stated in Deed of
As to damages, the trial court found "ample evidence on record" that in 1984 the
Conditional Sale, she entered with the DBP a temporary
representatives of DBP ejected CUBA and her caretakers not only from the fishpond area but also
arrangement whereby in consideration for the deferment of the
from the adjoining big house; and that when CUBA's son and caretaker went there on 15
Notarial Rescission of Deed of Conditional Sale, plaintiff Lydia Cuba
September 1985, they found the said house unoccupied and destroyed and CUBA's personal
promised to make certain payments as stated in temporary
belongings, machineries, equipment, tools, and other articles used in fishpond operation which
Arrangement dated February 23, 1982;
were kept in the house were missing. The missing items were valued at about P550,000. It further
11. Defendant DBP thereafter sent a Notice of Rescission thru Notarial Act found that when CUBA and her men were ejected by DBP for the first time in 1979, CUBA had
dated March 13, 1984, and which was received by plaintiff Lydia stocked the fishpond with 250,000 pieces of bangus fish (milkfish), all of which died because the
Cuba; DBP representatives prevented CUBA's men from feeding the fish. At the conservative price of
P3.00 per fish, the gross value would have been P690,000, and after deducting 25% of said value as
12. After the Notice of Rescission, defendant DBP took possession of the reasonable allowance for the cost of feeds, CUBA suffered a loss of P517,500. It then set the
Leasehold Rights of the fishpond in question; aggregate of the actual damages sustained by CUBA at P1,067,500.

13. That after defendant DBP took possession of the Leasehold Rights over the The trial court further found that DBP was guilty of gross bad faith in falsely
fishpond in question, DBP advertised in the SUNDAY PUNCH the representing to the Bureau of Fisheries that it had foreclosed its mortgage on CUBA's leasehold
public bidding dated June 24, 1984, to dispose of the property; rights. Such representation induced the said Bureau to terminate CUBA's leasehold rights and to
approve the Deed of Conditional Sale in favor of CUBA. And considering that by reason of her
unlawful ejectment by DBP, CUBA "suffered moral shock, degradation, social humiliation, and 6. And ORDERING defendant Development Bank of the Philippines
serious anxieties for which she became sick and had to be hospitalized" the trial court found her to reimburse and pay to defendant Agripina Caperal the
entitled to moral and exemplary damages. The trial court also held that CUBA was entitled to sum of ONE MILLION FIVE HUNDRED THIRTY-TWO
P100,000 attorney's fees in view of the considerable expenses she incurred for lawyers' fees and in THOUSAND SIX HUNDRED TEN PESOS AND SEVENTY-
view of the finding that she was entitled to exemplary damages. FIVE CENTAVOS (P1,532,610.75) representing the
amounts paid by defendant Agripina Caperal to
In its decision of 31 January 1990, 4 the trial court disposed as follows: defendant Development Bank of the Philippines under
WHEREFORE, judgment is hereby rendered in favor of plaintiff: their Deed of Conditional Sale.

1. DECLARING null and void and without any legal effect the act of CUBA and DBP interposed separate appeals from the decision to the Court of Appeals.
defendant Development Bank of the Philippines in The former sought an increase in the amount of damages, while the latter questioned the findings
appropriating for its own interest, without any judicial or of fact and law of the lower court.
extra-judicial foreclosure, plaintiffs leasehold rights and In its decision 5 of 25 May 1994, the Court of Appeals ruled that (1) the trial court erred
interest over the fishpond land in question under her in declaring that the deed of assignment was null and void and that defendant Caperal could not
Fishpond Lease Agreement No. 2083 (new); validly acquire the leasehold rights from DBP; (2) contrary to the claim of DBP, the assignment was
2. DECLARING the Deed of Conditional Sale dated February 21, not a cession under Article 1255 of the Civil Code because DBP appeared to be the sole creditor to
1980 by and between the defendant Development Bank CUBA — cession presupposes plurality of debts and creditors; (3) the deeds of assignment
of the Philippines and plaintiff (Exh. E and Exh. 1) and the represented the voluntary act of CUBA in assigning her property rights in payment of her debts,
acts of notarial rescission of the Development Bank of which amounted to a novation of the promissory notes executed by CUBA in favor of DBP; (4)
the Philippines relative to said sale (Exhs. 16 and 26) as CUBA was estopped from questioning the assignment of the leasehold rights, since she agreed to
void and ineffective; repurchase the said rights under a deed of conditional sale; and (5) condition no. 12 of the deed of
assignment was an express authority from CUBA for DBP to sell whatever right she had over the
3. DECLARING the Deed of Conditional Sale dated August 16, 1984 fishpond. It also ruled that CUBA was not entitled to loss of profits for lack of evidence, but agreed
by and between the Development Bank of the Philippines with the trial court as to the actual damages of P1,067,500. It, however, deleted the amount of
and defendant Agripina Caperal (Exh. F and Exh. 21), the exemplary damages and reduced the award of moral damages from P100,000 to P50,000 and
Fishpond Lease Agreement No. 2083-A dated December attorney's fees, from P100.00 to P50,000.
28, 1984 of defendant Agripina Caperal (Exh. 23) and the
The Court of Appeals thus declared as valid the following: (1) the act of DBP in
Assignment of Leasehold Rights dated February 12, 1985
appropriating Cuba's leasehold rights and interest under Fishpond Lease Agreement No. 2083; (2)
executed by defendant Agripina Caperal in favor of the
the deeds of assignment executed by Cuba in favor of DBP; (3) the deed of conditional sale
defendant Development Bank of the Philippines (Exh. 24)
between CUBA and DBP; and (4) the deed of conditional sale between DBP and Caperal, the
as void ab initio; cdtai
Fishpond Lease Agreement in favor of Caperal, and the assignment of leasehold rights executed
4. ORDERING defendant Development Bank of the Philippines and by Caperal in favor of DBP. It then ordered DBP to turn over possession of the property to Caperal
defendant Agripina Caperal, jointly and severally, to as lawful holder of the leasehold rights and to pay CUBA the following amounts: (a) P1,067,500 as
restore to plaintiff the latter's leasehold rights and actual damages; P50,000 as moral damages; and P50,000 as attorney's fees.
interests and right of possession over the fishpond land in Since their motions for reconsideration were denied, 6 DBP and CUBA filed separate
question, without prejudice to the right of defendant petitions for review.
Development Bank of the Philippines to foreclose the
securities given by plaintiff; In its petition (G.R. No. 118342), DBP assails the award of actual and moral damages
and attorney's fees in favor of CUBA.
5. ORDERING defendant Development Bank of the Philippines to
pay to plaintiff the following amounts: Upon the other hand, in her petition (G.R. No. 118367), CUBA contends that the Court
of Appeals erred (1) in not holding that the questioned deed of assignment was a pactum
a) The sum of ONE MILLION SIXTY-SEVEN THOUSAND commissorium contrary to Article 2088 of theCivil Code; (b) in holding that the deed of assignment
FIVE HUNDRED PESOS (P1,067,500.00), as effected a novation of the promissory notes; (c) in holding that CUBA was estopped from
and for actual damages; questioning the validity of the deed of assignment when she agreed to repurchase her leasehold
rights under a deed of conditional sale; and (d) in reducing the amounts of moral damages and
b) The sum of ONE HUNDRED THOUSAND attorney's fees, in deleting the award of exemplary damages, and in not increasing the amount of
(P100,000.00) PESOS as moral damages; damages.
c) The sum of FIFTY THOUSAND (P50,000.00) PESOS, as We agree with CUBA that the assignment of leasehold rights was mortgage contract.
and for exemplary damages;
It is undisputed that CUBA obtained from DBP three separate loans totalling P335,000,
d) And the sum of ONE HUNDRED THOUSAND each of which was covered by a promissory note. In all of these notes, there was a provision that:
(P100,000.00) PESOS, as and for attorney's "In the event of foreclosure of the mortgage securing this notes, I/We further bind
fees; myself/ourselves, jointly and severally, to pay the deficiency, if any." 7
 Simultaneous with the execution of the notes was the execution of "Assignments of of said property may be supplied by the Assignee to the payment of repairs,
Leasehold Rights" 8 where CUBA assigned her leasehold rights and interest on a 44-hectare improvements, taxes, assessments and other incidental expenses and
fishpond, together with the improvements thereon. As pointed out by CUBA, the deeds of obligations and the balance, if any, to the payment of interest and then on the
assignment constantly referred to the assignor (CUBA) as "borrower"; the assigned rights, as capital of the indebtedness secured hereby. If after disposal or sale of said
mortgaged properties; and the instrument itself, as mortgage contract. Moreover, under condition property and upon application of total amounts received there shall remain a
no. 22 of the deed, it was provided that "failure to comply with the terms and condition of any of deficiency, said Assignor hereby binds himself to pay the same to the Assignee
the loans shall cause all other loans to become due and demandable and all mortgages shall be upon demand, together with all interest thereon until fully paid. The power
foreclosed." And, condition no. 33 provided that if " foreclosure is actually accomplished, the usual herein granted shall not be revoked as long as the Assignor is indebted to the
10% attorney's fees and 10% liquidated damages of the total obligation shall be imposed." There Assignee and all acts that may be executed by the Assignee by virtue of said
is, therefore, no shred of doubt that a mortgage was intended. power are hereby ratified.
Besides, in their stipulation of facts the parties admitted that the assignment was by The elements of pactum commissorium are as follows: (1) there should be a property
way of security for the payment of the loans; thus: mortgaged by way of security for the payment of the principal obligation, and (2) there should be a
stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-
3. As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of
payment of the principal obligation within the stipulated period. 11
Assignment of her Leasehold Rights. LibLex
Condition no. 12 did not provide that the ownership over the leasehold rights would
In People's Bank & Trust Co. vs. Odom, 9 this Court had the occasion to rule that an automatically pass to DBP upon CUBA's failure to pay the loan on time. It merely provided for the
assignment to guarantee an obligation is in effect a mortgage. appointment of DBP as attorney-in-fact with authority, among other things, to sell or otherwise
We find no merit in DBP's contention that the assignment novated the promissory dispose of the said real rights, in case of default by CUBA, and to apply the proceeds to the
notes in that the obligation to pay a sum of money the loans (under the promissory notes) was payment of the loan. This provision is a standard condition in mortgage contracts and is in
substituted by the assignment of the rights over the fishpond (under the deed of assignment). As conformity with Article 2087 of the Civil Code, which authorizes the mortgagee to foreclose the
correctly pointed out by CUBA, the said assignment merely complemented or supplemented the mortgage and alienate the mortgaged property for the payment of the principal obligation. dctai
notes; both could stand together. The former was only an accessory to the latter. Contrary to DBP, however, exceeded the authority vested by condition no. 12 of the deed of
DBP's submission, the obligation to pay a sum of money remained, and the assignment merely assignment. As admitted by it during the pre-trial, it had "without foreclosure proceedings,
served as security for the loans covered by the promissory notes. Significantly, both the deeds of whether judicial or extrajudicial, . . . appropriated the [l]easehold [r]ights of plaintiff Lydia Cuba
assignment and the promissory notes were executed on the same dates the loans were granted. over the fishpond in question." Its contention that it limited itself to mere administration by
Also, the last paragraph of the assignment stated: "The assignor further reiterates and states all posting caretakers is further belied by the deed of conditional sale it executed in favor of CUBA.
terms, covenants and conditions stipulated in the promissory note or notes covering the proceeds of The deed stated:
this loan, making said promissory note or notes, to all intent and purposes, an integral part hereof."
WHEREAS, the Vendor [DBP] by virtue of a deed of assignment executed in its
Neither did the assignment amount to payment by cession under Article 1255 of favor by the herein vendees [Cuba spouses] the former acquired all the rights
the Civil Code for the plain and simple reason that there was only one creditor, the DBP. Article and interest of the latter over the above-described property;
1255 contemplates the existence of two or more creditors and involves the assignment of all the
debtor's property. xxx xxx xxx
Nor did the assignment constitute dation in payment under Article 1245 of the Civil The title to the real estate property [sic] and all improvements thereon shall
Code, which reads: "Dation in payment, whereby property is alienated to the creditor in remain the name of the Vendor until after the purchase price, advances and
satisfaction of a debt in money, shall be governed by the law on sales." It bears stressing that the interest shall have been fully paid. (Emphasis supplied).
assignment, being in its essence a mortgage, was but a security and not a satisfaction of
indebtedness. 10 It is obvious from the above-quoted paragraphs that DBP had appropriated and taken
ownership of CUBA's leasehold rights merely on the strength of the deed of assignment.
We do not, however, buy CUBA's argument that condition no. 12 of the deed of
assignment constitutedpactum commissorium. Said condition reads: DBP cannot take refuge in condition no. 12 of the deed of assignment to justify its act of
appropriating the leasehold rights. As stated earlier, condition no. 12 did not provide that CUBA's
12. That effective upon the breach of any condition of this assignment, the
default would operate to vest in DBP ownership of the said rights. Besides an assignment to
Assignor hereby appoints the Assignee his Attorney-in-fact with full power and
guarantee an obligation, as in the present case, is virtually a mortgage and not an absolute
authority to take actual possession of the property above-described, together
conveyance of title which confers ownership on the assignee. 12
with all improvements thereon, subject to the approval of the Secretary of
Agriculture and Natural Resources, to lease the same or any portion thereof At any rate, DBP's act of appropriating CUBA's leasehold rights was violative of Article
and collect rentals, to make repairs or improvements thereon and pay the 2088 of the Civil Code, which forbids a creditor from appropriating, or disposing of, the thing given
same, to sell or otherwise dispose of whatever rights the Assignor has or might as security for the payment of a debt.
have over said property and/or its improvements and perform any other act
which the Assignee may deem convenient to protect its interest. All expenses The fact that CUBA offered and agreed to repurchase her leasehold rights from DBP did
advanced by the Assignee in connection with purpose above indicated which not estop her from questioning DBP's act of appropriation. Estoppel is unavailing in this case. As
shall bear the same rate of interest aforementioned are also guaranteed by this held by this Court in some cases, 13estoppel cannot give validity to an act that is prohibited by law
Assignment. Any amount received from rents, administration, sale or disposal
or against public policy. Hence, the appropriation of the leasehold rights, being contrary to Article Curiously, in her complaint dated 17 May 1985, CUBA included "losses of property" as
2088 of the Civil Code and to public policy, cannot be deemed validated by estoppel. among the damages resulting from DBP's take-over of the fishpond. Yet, it was only in September
1985 when her son and a caretaker went to the fishpond and the adjoining house that she came to
Instead of taking ownership of the questioned real rights upon default by CUBA, DBP know of the alleged loss of several articles. Such claim for "losses of property," having been made
should have foreclosed the mortgage, as has been stipulated in condition no. 22 of the deed of before knowledge of the alleged actual loss, was therefore speculative. The alleged loss could have
assignment. But, as admitted by DBP, there was no such foreclosure. Yet in its letter dated 26 been a mere afterthought or subterfuge to justify her claim for actual damages.
October 1979, addressed to the Minister of Agriculture and Natural Resources and coursed
through the Director of the Bureau of Fisheries and Aquatic Resources, DBP declared that it With regard to the award of P517,000 representing the value of the alleged 230,000
"had foreclosed the mortgage and enforced the assignment of leasehold rights on March 21, 1979 pieces of bangus which died when DBP took possession of the fishpond in March 1979, the same
for failure of said spouses [Cuba spouses] to pay their loan amortizations." 14 This only goes to was not called for. Such loss was not duly proved; besides, the claim therefor was delayed
show that DBP was aware of the necessity of foreclosure proceedings. unreasonably. From 1979 until after the filing of her complaint in court in May 1985, CUBA did not
bring to the attention of DBP the alleged loss. In fact, in her letter dated 24 October 1979, 19 she
In view of the false representation of DBP that it had already foreclosed the mortgage, declared:
the Bureau of Fisheries canceled CUBA's original lease permit, approved the deed of conditional
sale, and issued a new permit in favor of CUBA. Said acts which were predicated on such false 1. That from February to May 1978, I was then seriously ill in Manila and within
representation, as well as the subsequent acts emanating from DBP's appropriation of the the same period I neglected the management and supervision of the cultivation
leasehold rights, should therefore be set aside. To validate these acts would open the floodgates and harvest of the produce of the aforesaid fishpond thereby resulting to the
to circumvention of Article 2088 of the Civil Code. irreparable loss in the produce of the same in the amount of about P500,000.00
to my great damage and prejudice due to fraudulent acts of some of my
Even in cases where foreclosure proceedings were had, this Court had not hesitated to fishpond workers.
nullify the consequent auction sale for failure to comply with the requirements laid down by law,
such as Act No. 3135, as amended. 15 With more reason that the sale of property given as security Nowhere in the said letter, which was written seven months after DBP took possession
for the payment of a debt be set aside if there was no prior foreclosure proceeding. of the fishpond, did CUBA intimate that upon DBP's take-over there was a total of 230,000 pieces
of bangus, but all of which died because of DBP's representatives prevented her men from feeding
Hence, DBP should render an accounting of the income derived from the operation of
the fish.
the fishpond in question and apply the said income in accordance with condition no. 12 of the deed
of assignment which provided: "Any amount received from rents, administration, . . . may be The award of actual damages should, therefore, be struck down for lack of sufficient
applied to the payment of repairs, improvements, taxes, assessment, and other incidental basis.
expenses and obligations and the balance, if any, to the payment of interest and then on the
capital of the indebtedness . . ." In view however, of DBP's act of appropriating CUBA's leasehold rights which was
contrary to law and public policy, as well as its false representation to the then Ministry of
We shall now take up the issue of damages. Agriculture and Natural Resources that it had "foreclosed the mortgage," an award of moral
damages in the amount of P50,000 is in order conformably with Article 2219(10), in relation
Article 2199 provides:
to Article 21 of the Civil Code.Exemplary or corrective damages in the amount of P25,000 should
Except as provided by law or by stipulation, one is entitled to an adequate likewise be awarded by way of example or correction for the public good. 20 There being an award
compensation only for such pecuniary loss suffered by him as he has duly of exemplary damages, attorney's fees are also recoverable. 21
proved. Such compensation is referred to as actual or compensatory damages.
WHEREFORE, the 25 May 1994 Decision of the Court of Appeals in CA-G.R. CV No.
Actual or compensatory damages cannot be presumed, but must be proved with 26535 is hereby REVERSED, except as to the award of P50,000 as moral damages, which is hereby
reasonable degree of certainty. 16 A court cannot rely on speculations, conjectures, or guesswork sustained. The 31 January 1990 Decision of the Regional Trial Court of Pangasinan, Branch 54, in
as to the fact and amount of damages, but must depend upon competent proof that they have Civil Case No. A-1574 is MODIFIED setting aside the finding that condition no. 12 of the deed of
been suffered by the injured party and on the best obtainable evidence of the actual amount assignment constituted pactum commissorium and the award of actual damages; and by reducing
thereof. 17 It must point out specific facts which could afford a basis for measuring whatever the amounts of moral damages from P100,000 to P50,000; the exemplary damages, from P50,000
compensatory or actual damages are borne. 18 to P25,000; and the attorney's fees, from P100,000 to P20,000. The Development Bank of the
Philippines is hereby ordered to render an accounting of the income derived from the operation of
In the present case, the trial court awarded in favor of CUBA P1,067,500 as actual the fishpond in question.
damages consisting of P550,000 which represented the value of the alleged lost articles of CUBA
and P517,500 which represented the value of the 230,000 pieces of bangus allegedly stocked in Let this case be REMANDED to the trial court for the reception of the income
1979 when DBP first ejected CUBA from the fishpond and the adjoining house. This award was statement of DBP, as well as the statement of the account of Lydia P. Cuba, and for the
affirmed by the Court of Appeals. determination of each party's financial obligation to one another.

We find that the alleged loss of personal belongings and equipment was not proved by SO ORDERED.
clear evidence. Other than the testimony of CUBA and her caretaker, there was no proof as to the Bellosillo, Vitug and Kapunan, JJ., concur.
existence of those items before DBP took over the fishpond in question. As pointed out by DBP,
there was no "inventory of the alleged lost items before the loss which is normal in a project which Footnotes
sometimes, if not most often, is left to the care of other persons." Neither was a single receipt or
record of acquisition presented. 1.Original Record (OR), 1-7.
 2.OR, 168-170. NATALIA P. BUSTAMANTE, petitioner, vs. SPOUSES RODITO F. ROSEL and
NORMA A. ROSEL,respondents.
3.See OR, 169.

4.Per Judge Artemio R. Corpus. OR, 686-705.

Emerico B. Lomibao for petitioner.
5.Per Manuel C. Herrera, J ., with Artemon D. Luna and Alfredo J. Lagamon, JJ., concurring. Rollo,
G.R. No. 118342, 21-41; Rollo, G.R. No. 118367, 33-53. Julio C Contreras for private respondents.

6.Rollo, G.R. No. 118342, 43; Rollo, G.R. No. 118367, 55.

7.Exhibits "B," "C," and "D"; OR, 37-39. SYNOPSIS

8.Exhibits "B-1," "C-1," and "D-1."

Norma Rosel, respondent herein, entered into a loan agreement with petitioner. Petitioner used as
9.64 Phil. 126, 132 [1937]. collateral a portion of land she owned with an area of 70 sq. m., inclusive of the apartment thereon.
Under the terms of their agreement, the lender has the option to buy the collateral for the amount of
10.Philippine Bank of Commerce v. De Vera, 6 SCRA 1026, 1029 [1962]. P200,000.00 inclusive of the borrowed amount (P100,000.00) and interest therein (18% per annum).
When the loan was about to mature, respondents proposed to buy the land at the pre-set price of
11.V TOLENTINO, ARTURO M., COMMENTARIES & JURISPRUDENCE ON THE CIVIL CODE OF THE
P200,000.00. Petitioner refused to sell and requested for extension of time to pay the loan and offered
PHILIPPINES 536-537 [1992] citing Uy Tong v. Court of Appeals, 161 SCRA 383 [1988].
to sell another land instead. Respondents refused all proposals of the petitioner. On maturing date of
12.Philippine Bank of commerce v. De Vera, supra note 10. the loan, petitioner tendered payment to the respondents, which the latter refused to accept and
insisted that petitioner signed a prepared deed of absolute sale of the collateral. Respondents refused.
13.Eugenio v. Perdido, 97 Phil. 41, 44 [1955]; Republic v. Go Bon Lee, 1 SCRA 1166, 1170 [1961]; Hian v. They thereafter filed with the Regional Trial Court a complaint for specific performance with
Court of Tax Appeals, 59 SCRA 110, 124 [1974]. consignation against petitioner. A few days later, petitioner filed a petition for consignation and
deposited the amount of P153,000.00. After due trial, the trial court rendered a decision denying the
14.Exhibit "N-1-A"; OR, 454. execution of the deed of sale to convey the collateral and ordered that the loan be paid with the
corresponding interest thereon. Respondents appealed to the Court of Appeals, which reversed and set
15.Roxas v. Court of Appeals, 221 SCRA 729 [1993]; Sempio v. Court of Appeals, 263 SCRA 617 [1996]. aside the decision of the trial court and ordering herein petitioner to execute the necessary Deed of Sale
and accept the balance of payment thereon. Hence, this petition for review on certiorari. The questions
16.Del Mundo v. Court of Appeals, 240 SCRA 348 [1995]; Lufthansa German Airlines v. Court of Appeals,
here are whether petitioner failed to pay the loan at its maturity date, and whether the stipulation in the
243 SCRA 600 [1995]; Development Bank of the Philippines v. Court of Appeals, 249 SCRA
loan contract was valid and enforceable.
331 [1995]; Del Rosario v. Court of Appeals, G.R. No. 118325, 29 January 1997.
The Supreme Court ruled that the petitioner did not fail to pay the loan. When the respondents refused
17.Lufthansa German Airlines v. Court of Appeals, supra note 16; People v. Rosario, 246 SCRA 658
to accept payment, petitioner consigned the amount with the trial court. A scrutiny of the stipulation of
[1995]; Del Rosario v. Court of Appeals, supra note 16; Sumalpong v. Court of Appeals, G.R.
the parties reveals a subtle intention of the creditor to acquire the property given as security for the
No. 123404, 26 February 1997.
loan. This is embraced in the concept ofpactum commissorium, which is proscribed by law. The petition
18.Del Mundo v. Court of Appeals, supra note 16. was granted and the decision of the Court of Appeals was reversed.

19.Exhibit 4, OR, 560.

20.Article 2229, Civil Code. SYLLABUS

21.Article 2208(1), Civil Code.

1. CIVIL LAW; CONDITIONAL OBLIGATION; SALE OF COLLATERAL IS OBLIGATION WITH
||| (Development Bank of the Phils. v. Court of Appeals, G.R. Nos. 118342 & 118367, [January 5, 1998], 348 SUSPENSIVE CONDITION; CASE AT BAR. — The sale of the collateral is an obligation with a suspensive
PHIL 15-36) condition. It is dependent upon the happening of an event, without which the obligation to sell does not
arise. Since the event did not occur, respondents do not have the right to demand fulfillment of
petitioner's obligation, especially where the same would not only be disadvantageous to petitioner but
would also unjustly enrich respondents considering the inadequate consideration (P200,000.00) for a 70
FIRST DIVISION square meter property situated at Congressional Avenue, Quezon City.

2. ID.; CONTRACTS; HAVE THE FORCE OF LAW BETWEEN THE CONTRACTING PARTIES;
EXCEPTION. — Respondents argue that contracts have the force of law between the contracting parties
[G.R. No. 126800. November 29, 1999.]
and must be complied with in good faith. There are, however, certain exceptions to the rule, specifically
Article 1306 of the Civil Code, which provides: "Article 1306. The contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy."
3. ID.; ID.; LOAN; PACTUM COMMISSORIUM; ELEMENTS. — The elements of pactum commissorium are developers entitled to subdivision shares or commission if and when they developed at least one half of
as follows: (1) there should be a property mortgaged by way of security for the payment of the principal the subdivision area. 5
obligation, and (2) there should be a stipulation for automatic appropriation by the creditor of the thing
mortgaged in case of non-payment of the principal obligation within the stipulated period. Hence, on March 1, 1989, petitioner tendered payment of the loan to respondents which the latter
refused to accept, insisting on petitioner's signing a prepared deed of absolute sale of the collateral.
4. ID.; ID.; ID.; ID.; CONSTRUED IN CASE AT BAR. — A significant task in contract interpretation is the
ascertainment of the intention of the parties and looking into the words used by the parties to project On February 28, 1990, respondents filed with the Regional Trial Court, Quezon City, Branch 84, a
that intention. In this case, the intent to appropriate the property given as collateral in favor of the complaint for specific performance with consignation against petitioner and her spouse. 6
creditor appears to be evident, for the debtor is obliged to dispose of the collateral at the pre-agreed
Nevertheless, on March 4, 1990, respondents sent a demand letter asking petitioner to sell the collateral
consideration amounting to practically the same amount as the loan. In effect, the creditor acquires the
pursuant to the option to buy embodied in the loan agreement.
collateral in the event of non-payment of the loan. This is within the concept ofpactum commissorium.
Such stipulation is void. On the other hand, on March 5, 1990, petitioner filed in the Regional Trial Court, Quezon City a petition
for consignation, and deposited the amount of P153,000.00 with the City Treasurer of Quezon City on
August 10, 1990. 7

RESOLUTION When petitioner refused to sell the collateral and barangay conciliation failed, respondents consigned
the amount of P47,500.00 with the trial court. 8 In arriving at the amount deposited, respondent
considered the principal loan of P100,000.00 and 18% interest per annum thereon, which amounted to
P52,500.00. 9 The principal lot and the interest taken together amounted to P152,500.00, leaving
balance of P47,500.00. 10
PARDO, J p:
After due trial, on November 10, 1992, the trial court rendered decision holding:
The case before the Court is a petition for review on certiorari 1 to annul the decision of the Court of
Appeals, 2reversing and setting aside the decision of the Regional Trial Court, 3 Quezon City, Branch 84, "WHEREFORE, premises considered, judgment is hereby rendered as follows:
in an action for specific performance with consignation. cdrep
"1. Denying the plaintiff's prayer for the defendants' execution of the Deed of
On March 8, 1987, at Quezon City, Norma Rosel entered into a loan agreement with petitioner Natalia Sale to Convey the collateral in plaintiffs' favor;
Bustamante and her late husband Ismael C. Bustamante, under the following terms and conditions:
"2. Ordering the defendants to pay the loan of P100,000.00 with interest
"1. That the borrowers are the registered owners of a parcel of land, evidenced thereon at 18% per annumcommencing on March 2, 1989, up to and until
by TRANSFER CERTIFICATE OF TITLE No. 80667, containing an area of FOUR August 10, 1990, when defendants deposited the amount with the Office of the
HUNDRED TWENTY THREE (423) SQUARE Meters, more or less, situated City Treasurer under Official Receipt No. 0116548 (Exhibit "2"); and
along Congressional Avenue.
"3. To pay Attorney's Fees in the amount of P5,000.00, plus costs of suit.
"2. That the borrowers were desirous to borrow the sum of ONE HUNDRED
"SO ORDERED. cdasia
THOUSAND (P100,000.00) PESOS from the LENDER, for a period of two (2)
years, counted from March 1, 1987, with an interest of EIGHTEEN (18%) "Quezon City, Philippines, November 10, 1992.
PERCENT per annum, and to guaranty the payment thereof, they are putting as
a collateral SEVENTY (70) SQUARE METERS portion, inclusive of the "TEODORO P. REGINO
apartment therein, of the aforestated parcel of land, however, in the event the
borrowers fail to pay, the lender has the option to buy or purchase the "Judge" 11
collateral for a total consideration of TWO HUNDRED THOUSAND
(P200,000.00) PESOS, inclusive of the borrowed amount and interest therein; On November 16, 1992, respondents appealed from the decision to the Court of Appeals. 12 On July 8,
1996, the Court of Appeals rendered decision reversing the ruling of the Regional Trial Court. The
"3. That the lender do hereby manifest her agreement and conformity to the dispositive portion of the Court of Appeals' decision reads:
preceding paragraph, while the borrowers do hereby confess receipt of the
borrowed amount." 4 "IN VIEW OF THE FOREGOING, the judgment appeal (sic) from is REVERSED
and SET ASIDE and a new one entered in favor of the plaintiffs ordering the
When the loan was about to mature on March 1, 1989, respondents proposed to buy at the pre-set price defendants to accept the amount of P47,000.00 deposited with the Clerk of
of P200,000.00, the seventy (70) square meters parcel of land covered by TCT No. 80667, given as Court of Regional Trial Court of Quezon City under Official Receipt No.
collateral to guarantee payment of the loan. Petitioner, however, refused to sell and requested for 0719847, and for defendants to execute the necessary Deed of Sale in favor of
extension of time to pay the loan and offered to sell to respondents another residential lot located at the plaintiffs over the 70 SQUARE METER portion and the apartment standing
Road 20, Project 8, Quezon City, with the principal loan plus interest to be used as down payment. thereon being occupied by the plaintiffs and covered by TCT No. 80667 within
Respondents refused to extend the payment of the loan and to accept the lot in Road 20 as it was fifteen (15) days from finality hereof. Defendants, in turn, are allowed to
occupied by squatters and petitioner and her husband were not the owners thereof but were mere land withdraw the amount of P153,000.00 deposited by them under Official Receipt
No. 0116548 of the City Treasurer's Office of Quezon City. All other claims and
counterclaims are DISMISSED, for lack of sufficient basis. No costs.
 "The elements of pactum commissorium are as follows: (1) there should be a property mortgaged by way
of security for the payment of the principal obligation, and (2) there should be a stipulation automatic
"SO ORDERED." 13 appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation
within the stipulated period." 23
Hence, this petition. 14
In Nakpil vs. Intermediate Appellate Court, 24 we said:
On January 20, 1997, we required respondents to comment on the petition within ten (10) days from
notice. 15 On February 27, 1997 respondents filed their comment. 16 "The arrangement entered into between the parties, whereby Pulong
Maulap was to be "considered sold to him (respondent) . . . in case petitioner
On February 9, 1998, we resolved to deny the petition on the ground that there was no reversible error
fails to reimburse Valdes, must then be construed as tantamount
on the part of respondent court in ordering the execution of the necessary deed of sale in conformity
to pactumcommissorium which is expressly prohibited by Art. 2088 of the Civil
with the parties' stipulated agreement. The contract is the law between the parties thereof (Syjuco v.
Code. For, there was to be automatic appropriation of the property by Valdes in
Court of Appeals, 172 SCRA 111, 118, citing Phil. American General Insurance v. Mutuc, 61 SCRA
the event of failure of petitioner to pay the value of the advances. Thus,
22; Herrera v. Petrophil Corporation, 146 SCRA 360). 17
contrary to respondent's manifestation, all the elements of a pactum
On March 17, 1998, petitioner filed with this Court a motion for reconsideration of the denial alleging commissorium were present: there was a creditor-debtor relationship between
that the real intention of the parties to the loan was to put up the collateral as guarantee similar to as the parties; the property was used as security for the loan; and there was
equitable mortgage according to Article 1602 of the Civil Code. 18 automatic appropriation by respondent of Pulong Maulap in case of default of
petitioner."
On April 21, 1998, respondents filed an opposition to petitioner's motion for reconsideration. They
contend that the agreement between the parties was not a sale with right of re-purchase, but a loan A significant task in contract interpretation is the ascertainment of the intention of the parties and
with interest at 18% per annum for a period of two years and if petitioner fails to pay, the respondent looking into the words used by the parties to project that intention. In this case, the intent to
was given the right to purchase the property or apartment for P200,000.00, which is not contrary to law, appropriate the property given as collateral in favor of the creditor appears to be evident, for the debtor
morals, good customs, public order or public policy. 19 is obliged to dispose of the collateral at the pre-agreed consideration amounting to practically the same
amount as the loan. In effect, the creditor acquires the collateral in the event of non-payment of the
Upon due consideration of petitioner's motion, we now resolve to grant the motion for reconsideration. loan. This is within the concept of pactum commissorium. Such stipulation is void. 25

The questions presented are whether petitioner failed to pay the loan at its maturity date and whether All persons in need of money are liable to enter into contractual relationships whatever the condition if
the stipulation in the loan contract was valid and enforceable. only to alleviate their financial burden albeit temporarily. Hence, courts are duty bound to exercise
caution in the interpretation and resolution of contracts lest the lenders devour the borrowers like
We rule that petitioner did not fail to pay the loan. vultures do with their prey.
The loan was due for payment on March 1, 1989. On said date, petitioner tendered payment to settle WHEREFORE, we GRANT petitioner's motion for reconsideration and SET ASIDE the Court's resolution
the loan which respondents refused to accept, insisting that petitioner sell to them the collateral of the of February 9, 1998. We REVERSE the decision of the Court of Appeals in CA-G.R. CV No. 40193. In lieu
loan. thereof, we hereby DISMISS the complaint in Civil Case No. Q-90-4813.
When respondents refused to accept payment, petitioner consigned the amount with the trial court. No costs.
We note the eagerness of respondents to acquire the property given as collateral to guarantee the loan. SO ORDERED. LLphil
The sale of the collateral is an obligation with a suspensive condition. 20 It is dependent upon the
happening of an event, without which the obligation to sell does not arise. Since the event did not occur, Davide, Jr., C.J., Puno, Kapunan and Ynares-Santiago, JJ., concur.
respondents do not have the right to demand fulfillment of petitioner's obligation, especially where the
same would not only be disadvantageous to petitioner but would also unjustly enrich respondents
considering the inadequate consideration (P200,000.00) for a 70 square meter property situated at
Congressional Avenue, Quezon City. Footnotes

Respondents argue that contracts have the force of law between the contracting parties and must be
complied with in good faith. 21 There are, however, certain exceptions to the rule, specifically Article 1.Under Rule 45, 1964 Revised Rules of Court.
1306 of the Civil Code, which provides:
2.In CA-G.R. CV No. 40193, promulgated on July 8, 1996.
"ARTICLE 1306. The contracting parties may establish such stipulations,
3.In Civil Case No. Q-90-4813, dated November 10, 1992, Judge Teodoro P. Regino.
clauses, terms and conditions as they may deem convenient, provided they are
not contrary to law, morals, good customs, public order, or public policy." prcd 4.Exhibit "A", RTC Record, p. 142.
A scrutiny of the stipulation of the parties reveals a subtle intention of the creditor to acquire the 5.Regional Trial Court Decision, Rollo, p. 31.
property given as security for the loan. This is embraced in the concept of pactum commissorium, which
is proscribed by law. 22 6.Civil Case No. Q-90-4813.
 7.Exhibit "2", RTC Record, p. 182. SPOUSES WILFREDO N. ONG and EDNA SHEILA PAGUIO-
ONG, petitioners, vs. ROBAN LENDINGCORPORATION, respondent.
8.Under Official Receipt No. 0719847 dated February 28, 1990, issued by the City Treasurer, Quezon
City, with the Clerk of Court, Regional Trial Court, National Capitol Judicial Region,
Quezon City, as payee, RTC Record, p. 162.

9.(P100,000.00 x 18%) 2 years and 11 months (March 8, 1987 up to February 9, 1990) DECISION

P18,000 x 2 years and 11 months = P52,500.

10.Comment, Rollo, pp. 41-45.

CARPIO-MORALES, J p:
11.Decision, Regional Trial Court, Quezon City, Rollo, pp. 30-39.
On different dates from July 14, 1999 to March 20, 2000, petitioner-spouses Wilfredo
12.Docketed as CA-G.R. CV No. 40193. N. Ong and Edna Sheila Paguio-Ong obtained several loans
from Roban Lending Corporation (respondent) in the total amount of P4,000,000.00. These loans
13.Court of Appeals Decision, Rollo, pp. 19-26.
were secured by a real estate mortgage on petitioners' parcels of land located in Binauganan,
14.Petition, filed on November 29, 1996, Rollo, pp. 7-17. On November 27, 1996, the Court granted Tarlac City and covered by TCT No. 297840. 1
petitioner an extension of thirty days from the expiration of the reglementary period On February 12, 2001, petitioners and respondent executed an Amendment to
within which to file a petition for review on certiorari (Rollo, p. 14). Amended Real Estate Mortgage 2 consolidating their loans inclusive of charges thereon which
totaled P5,916,117.50. On even date, the parties executed a Dacion in Payment
15.Rollo, p. 40.
Agreement 3 wherein petitioners assigned the properties covered by TCT No. 297840 to
16.Rollo, pp. 41-45. respondent in settlement of their total obligation, and a Memorandum of
Agreement 4 reading: AIaSTE
17.Rollo, p. 55.
That the FIRST PARTY [Roban Lending Corporation] and the
18.Motion for Reconsideration, Rollo, pp. 56-58. SECOND PARTY [the petitioners] agreed to consolidate and restructure all
aforementioned loans, which have been all past due and delinquent since
19.Rollo, pp. 60-65. April 19, 2000, and outstanding obligations totaling P5,916,117.50. The
SECOND PARTY hereby sign [sic] another promissory note in the amount of
20.Article 1181, Civil Code. In conditional obligations, the acquisition of the right, as well as the P5,916,117.50 (a copy of which is hereto attached and forms . . . an integral
extinguishment or loss of those already acquired, shall depend upon the happening of the part of this document), with a promise to pay the FIRST PARTY in full within
event which constitutes the condition. one year from the date of the consolidation and restructuring, otherwise the
SECOND PARTY agree to have their "DACION IN PAYMENT" agreement,
21.Article 1159, Civil Code.
which they have executed and signed today in favor of the FIRST PARTY be
22.Article 2088, Civil Code. The creditor cannot appropriate the things given by way of pledge or enforced[.] 5
mortgage, or dispose of them. Any stipulation to the contrary is null and void. In April 2002 (the day is illegible), petitioners filed a Complaint, 6 docketed as Civil Case
No. 9322, before the Regional Trial Court (RTC) of Tarlac City, for declaration of mortgage contract
23Development Bank of the Philippines vs. Court of Appeals, 284 SCRA 14, 26 (1998), citing Tolentino,
as abandoned, annulment of deeds, illegal exaction, unjust enrichment, accounting, and damages,
Arturo M., Commentaries & Jurisprudence on the Civil Code of the Philippines, Vol. V, pp.
alleging that the Memorandum of Agreement and the Dacion in Payment executed are void for
536-537 (1992), citing Uy Tong vs. Court of Appeals, 161 SCRA 383 (1988).
being pactum commissorium. 7
24.225 SCRA 456, 467 (1993).
Petitioners alleged that the loans extended to them from July 14, 1999 to March 20,
25.Article 2208, Civil Code, quoted above. 2000 were founded on several uniform promissory notes, which provided for 3.5% monthly
interest rates, 5% penalty per month on the total amount due and demandable, and a further sum
of 25% attorney's fees thereon, 8 and in addition, respondent exacted certain sums denominated
as "EVAT/AR". 9 Petitioners decried these additional charges as "illegal, iniquitous,
||| (Bustamante v. Spouses Rosel, G.R. No. 126800 (Resolution), [November 29, 1999], 377 PHIL 436-445) unconscionable, and revolting to the conscience as they hardly allow any borrower any chance of
survival in case of default." 10
Petitioners further alleged that they had previously made payments on their loan
accounts, but because of the illegal exactions thereon, the total balance appears not to have
SECOND DIVISION
moved at all, hence, accounting was in order. 11
Petitioners thus prayed for judgment:
[G.R. No. 172592. July 9, 2008.]
 a) Declaring the Real Estate Mortgage Contract and its the counsel manifested that he will submit the case for summary
amendments . . . as null and void and without legal force and effect for judgment. 16 (Underscoring supplied)
having been renounced, abandoned, and given up;
It appears that the June 18, 2003 setting was eventually rescheduled to February 11,
b) Declaring the "Memorandum of Agreement" . . . and "Dacion in 2004 at which both counsels were present 17 and the RTC issued the following order:
Payment" . . . as null and void for being pactum commissorium;
The counsel[s] agreed to reset this case on April 14, 2004, at 10:00
c) Declaring the interests, penalties, Evat [sic] and attorney's fees o'clock in the morning. However, the counsels are directed to be ready with
assessed and loaded into the loan accounts of the plaintiffs with defendant their memorand[a] together with all the exhibits or evidence needed to
as unjust, iniquitous, unconscionable and illegal and therefore, stricken out support their respective positions which should be the basis for the
or set aside; judgment on the pleadings if the parties fail to settle the case in the next
scheduled setting. ESTCHa
d) Ordering an accounting on plaintiffs' loan accounts to
determine the true and correct balances on their obligation against legal xxx xxx xxx 18 (Underscoring supplied)
charges only; and
At the scheduled April 14, 2004 hearing, both counsels appeared but only the counsel of
e) Ordering defendant to [pay] to the plaintiffs: — respondent filed a memorandum. 19
e.1 Moral damages in an amount not less than P100,000.00 and By Decision of April 21, 2004, Branch 64 of the Tarlac City RTC, finding on the basis of
exemplary damages of P50,000.00; the pleadings that there was no pactum commissorium, dismissed the complaint. 20
e.2 Attorney's fees in the amount of P50,000.00 plus P1,000.00 On appeal, 21 the Court of Appeals 22 noted that:
appearance fee per hearing; and
. . . [W]hile the trial court in its decision stated that it was
e.3 The cost of suit. 12 rendering judgment on the pleadings, . . . what it actually rendered was a
summary judgment. A judgment on the pleadings is proper when the answer
as well as other just and equitable reliefs. fails to tender an issue, or otherwise admits the material allegations of the
adverse party's pleading. However, a judgment on the pleadings would not
In its Answer with Counterclaim, 13 respondent maintained the legality of its
have been proper in this case as the answer tendered an issue, i.e. the
transactions with petitioners, alleging that: CaEIST
validity of the MOA and DPA. On the other hand, a summary judgment may
xxx xxx xxx be rendered by the court if the pleadings, supporting affidavits, and other
documents show that, except as to the amount of damages, there is no
If the voluntary execution of the Memorandum of Agreement and genuine issue as to any material fact. 23
Dacion in Payment Agreement novated the Real Estate Mortgage then the
allegation of Pactum Commissorium has no more legal leg to stand on; Nevertheless, finding the error in nomenclature "to be mere semantics with no bearing
on the merits of the case", 24 the Court of Appeals upheld the RTC decision that there was
The Dacion in Payment Agreement is lawful and valid as it is no pactum commissorium. 25
recognized . . . under Art. 1245 of the Civil Code as a special form of payment
whereby the debtor-Plaintiffs alienates their property to the creditor- Their Motion for Reconsideration 26 having been denied, 27 petitioners filed the instant
Defendant in satisfaction of their monetary obligation; Petition for Review on Certiorari, 28 faulting the Court of Appeals for having committed a clear and
reversible error:
The accumulated interest and other charges which were
computed for more than two (2) years would stand reasonable and valid I. . . . WHEN IT FAILED AND REFUSED TO APPLY PROCEDURAL
taking into consideration [that] the principal loan is P4,000,000 and if indeed REQUISITES WHICH WOULD WARRANT THE SETTING ASIDE OF THE
it became beyond the Plaintiffs' capacity to pay then the fault is attributed to SUMMARY JUDGMENT IN VIOLATION OF APPELLANTS' RIGHT TO DUE
them and not the Defendant[.] 14 PROCESS;

After pre-trial, the initial hearing of the case, originally set on December 11, 2002, was II. . . . WHEN IT FAILED TO CONSIDER THAT TRIAL IN THIS
reset several times due to, among other things, the parties' efforts to settle the case amicably. 15 CASE IS NECESSARY BECAUSE THE FACTS ARE VERY MUCH IN DISPUTE;

During the scheduled initial hearing of May 7, 2003, the RTC issued the following order: III. . . . WHEN IT FAILED AND REFUSED TO HOLD THAT THE
MEMORANDUM OF AGREEMENT (MOA) AND THE DACION EN PAGO
Considering that the plaintiff Wilfredo Ong is not around on the AGREEMENT (DPA) WERE DESIGNED TO CIRCUMVENT THE LAW
ground that he is in Manila and he is attending to a very sick relative, without AGAINST PACTUM COMMISSORIUM; and
objection on the part of the defendant's counsel, the initial hearing of this
case is reset to June 18, 2003 at 10:00 o'clock in the morning. DSATCI IV. . . . WHEN IT FAILED TO CONSIDER THAT THE
MEMORANDUM OF AGREEMENT (MOA) AND THE DACION EN PAGO
Just in case [plaintiff's counsel] Atty. Concepcion cannot present (DPA) ARE NULL AND VOID FOR BEING CONTRARY TO LAW AND PUBLIC
his witness in the person of Mr. Wilfredo Ong in the next scheduled hearing, POLICY. 29
 The petition is meritorious. The prayer for accounting in petitioners' complaint requires presentation of evidence,
they claiming to have made partial payments on their loans, vis a vis respondent's denial
Both parties admit the execution and contents of the Memorandum of Agreement and thereof. 45 A remand of the case is thus in order. TDCAIS
Dacion in Payment. They differ, however, on whether both contracts constitute pactum
commissorium or dacion en pago. cAIDEa Prescinding from the above disquisition, the trial court and the Court of Appeals erred
in holding that a summary judgment is proper. A summary judgment is permitted only if there is
This Court finds that the Memorandum of Agreement and Dacion in Payment no genuine issue as to any material fact and a moving party is entitled to a judgment as a matter of
constitute pactum commissorium, which is prohibited under Article 2088 of the Civil Code which law. 46 A summary judgment is proper if, while the pleadings on their face appear to raise issues,
provides: the affidavits, depositions, and admissions presented by the moving party show that such issues
The creditor cannot appropriate the things given by way of are not genuine. 47 A genuine issue, as opposed to a fictitious or contrived one, is an issue of fact
pledge or mortgage, or dispose of them. Any stipulation to the contrary is that requires the presentation of evidence. 48 As mentioned above, petitioners' prayer for
null and void." accounting requires the presentation of evidence on the issue of partial payment.

The elements of pactum commissorium, which enables the mortgagee to acquire But neither is a judgment on the pleadings proper. A judgment on the pleadings may be
ownership of the mortgaged property without the need of any foreclosure proceedings, 30 are: (1) rendered only when an answer fails to tender an issue or otherwise admits the material allegations
there should be a property mortgaged by way of security for the payment of the principal of the adverse party's pleadings. 49 In the case at bar, respondent's Answer with Counterclaim
obligation, and (2) there should be a stipulation for automatic appropriation by the creditor of the disputed petitioners' claims that the Memorandum of Agreement and Dation in Payment are
thing mortgaged in case of non-payment of the principal obligation within the stipulated illegal and that the extra charges on the loans are unconscionable. 50Respondent disputed too
period. 31 petitioners' allegation of bad faith. 51

In the case at bar, the Memorandum of Agreement and the Dacion in Payment contain WHEREFORE, the challenged Court of Appeals Decision is REVERSED and SET ASIDE.
no provisions for foreclosure proceedings nor redemption. Under the Memorandum of The Memorandum of Agreement and the Dacion in Payment executed by petitioner — spouses
Agreement, the failure by the petitioners to pay their debt within the one-year period gives Wilfredo N. Ong and Edna Sheila Paguio-Ong and respondent Roban Lending Corporation on
respondent the right to enforce the Dacion in Payment transferring to it ownership of the February 12, 2001 are declared NULL AND VOID for beingpactum commissorium. ECDAcS
properties covered by TCT No. 297840. Respondent, in effect, automatically acquires ownership of In line with the foregoing findings, the following terms of the loan contracts between
the properties upon petitioners' failure to pay their debt within the stipulated period. ASEIDH the parties are MODIFIED as follows:
Respondent argues that the law recognizes dacion en pago as a special form of payment 1. The monthly interest rate of 3.5%, or 42% per annum, is
whereby the debtor alienates property to the creditor in satisfaction of a monetary reduced to 12% per annum;
obligation. 32 This does not persuade. In a true dacion en pago, the assignment of the property
extinguishes the monetary debt. 33 In the case at bar, the alienation of the properties was by way 2. The monthly penalty fee of 5% of the total amount due and
of security, and not by way of satisfying the debt. 34 The Dacion in Payment did not extinguish demandable is reduced to 12% per annum, to be computed from the time of
petitioners' obligation to respondent. On the contrary, under the Memorandum of Agreement demand; and
executed on the same day as the Dacion in Payment, petitioners had to execute a promissory note
for P5,916,117.50 which they were to pay within one year. 35 3. The attorney's fees are reduced to 25% of the principal amount
only. cHCaIE
Respondent cites Solid Homes, Inc. v. Court of Appeals 36 where this Court upheld a
Memorandum of Agreement/Dacion en Pago. 37 That case did not involve the issue of pactum Civil Case No. 9322 is REMANDED to the court of origin only for the purpose of
commissorium. 38 receiving evidence on petitioners' prayer for accounting.

That the questioned contracts were freely and voluntarily executed by petitioners and SO ORDERED.
respondent is of no moment, pactum commissorium being void for being prohibited by law. 39 Quisumbing, Tinga, Velasco, Jr. and Brion, JJ., concur.
Respecting the charges on the loans, courts may reduce interest rates, penalty charges,
Footnotes
and attorney's fees if they are iniquitous or unconscionable. 40
This Court, based on existing jurisprudence, 41 finds the monthly interest rate of 3.5%, 1.Records, pp. 11-16. SEIDAC
or 42% per annum unconscionable and thus reduces it to 12% per annum. This Court finds too the
2.Id. at 37.
penalty fee at the monthly rate of 5% (60% per annum) of the total amount due and demandable
— principal plus interest, with interest not paid when due added to and becoming part of the 3.Id. at 40.
principal and likewise bearing interest at the same rate, compounded monthly 42 —
unconscionable and reduces it to a yearly rate of 12% of the amount due, to be computed from the 4.Id. at 38-39.
time of demand. 43 This Court finds the attorney's fees of 25% of the principal, interests and
interests thereon, and the penalty fees unconscionable, and thus reduces the attorney's fees to 5.Id. at 38-39.
25% of the principal amount only. 44
6.Id. at 1-5.

7.Id. at 2.
8.Id. at 2-3. Vide id. at 20. 38.Solid Homes, Inc. v. Court of Appeals, supra note 37 at 274-280.

9.Id. at 21. 39.Vide CIVIL CODE, Articles 1409 and 2088.

10.Id. at 3. 40.Vide CIVIL CODE, Articles 1229 and 2227; United Coconut Planters Bank v. Beluso,G.R. No. 159912,
August 17, 2007; 530 SCRA 567, 590; Poltan v. BPI Family Savings Bank, Inc., G.R. No.
11.Id. at 3. 164307, March 5, 2007, 517 SCRA 430, 444-446;Radiowealth Finance Co., Inc. v.
International Corporate Bank, G.R. Nos. 77042-43, February 28, 1990, 182 SCRA 862, 868-
12.Id. at 4.
869. DAEIHT
13.Id. at 51-54.
41.Vide Poltan v. BPI Family Savings Bank, Inc., G.R. No. 164307, March 5, 2007, 517 SCRA 430, 444-
14.Id. at 52-53. 446.

15.Id. at 127-128, 138-143, 147-153. 42.Records, p. 41.

16.Id. at 141. 43.Vide United Coconut Planters Bank v. Beluso, G.R. No. 159912, August 17, 2007, 530 SCRA 567, 590,
604-605.
17.Id. at 154.
44.Vide Titan Construction Corporation v. Uni-Field Enterprises, Inc., G.R. No. 153874, March 1, 2007,
18.Id. at 155. 517 SCRA 180, 190.

19.Id. at 156-164, 204. 45.Vide records, pp. 3, 51-52.

20.Id. at 205-206. 46.RULES OF COURT, Rule 35, Section 3; Pineda v. Heirs of Eliseo Guevarra, G.R. No. 143188,
February 14, 2007, 515 SCRA 627, 638.
21.Id. at 207.
47.Vide Marcelo v. Sandiganbayan, G.R. No. 156605, August 28, 2007, 531 SCRA 385, 398. DHIcET
22.Decision of November 30, 2005, penned by Court of Appeals Associate Justice Portia Aliño-
Hormachuelos, with the concurrences of Associate Justices Mariano C. Del Castillo and 48.Ibid.
Magdangal M. de Leon. CA rollo, pp. 35-45. DHAcET
49.RULES OF COURT, Rule 34, Section 1.
23.CA rollo, pp. 40-41.
50.Records, pp. 53.
24.Id. at 41.
51.Id. at 51.
25.Id. at 41-43.
||| (Spouses Ong v. Roban Lending Corporation, G.R. No. 172592, [July 9, 2008], 579 PHIL 769-780)
26.Id. at 48-53.

27.Id. at 65-66.

28.Id. at 8-25. FIRST DIVISION

29.Rollo, p. 15.
[G.R. No. 158891. June 27, 2012.]
30.Vide Lumayag v. Heirs of Jacinto Nemeño, G.R. No. 162112, July 3, 2007, 526 SCRA 315, 328.

31.Development Bank of the Philippines v. Court of Appeals, 348 Phil. 15, 31 (1998). PABLO P. GARCIA, petitioner, vs. YOLANDA VALDEZ VILLAR, respondent.

32.Records, p. 53. Vide CIVIL CODE, Article 1245.

33.Vide CIVIL CODE, Article 1245; Development Bank of the Philippines v. Court of Appeals, 348 Phil.
15, 30 (1998). IHEDAT DECISION

34.Vide Development Bank of the Philippines v. Court of Appeals, ibid.

35.Records, p. 38.
LEONARDO-DE CASTRO, * J p:
36.341 Phil. 261 (1997).

37.Records, p. 160.
This is a petition for review on certiorari 1 of the February 27, 2003 Decision 2 and July 2, 2003 Therefore, Garcia argued, he, as the second mortgagee, was subrogated to Villar's original status as first
Resolution 3 of the Court of Appeals in CA-G.R. SP No. 72714, which reversed the May 27, 2002 mortgagee, which is the creditor with the right to foreclose. Garcia further asserted that he had
Decision 4 of the Regional Trial Court (RTC), Branch 92 of Quezon City in Civil Case No. Q-99-39139. demanded payment from Villar, 15 whose refusal compelled him to incur expenses in filing an action in
court. 16
Lourdes V. Galas (Galas) was the original owner of a piece of property (subject property) located at
Malindang St., Quezon City, covered by Transfer Certificate of Title (TCT) No. RT-67970 (253279). 5 Villar, in her Answer, 17 claimed that the complaint stated no cause of action and that the second
mortgage was done in bad faith as it was without her consent and knowledge. Villar alleged that she
On July 6, 1993, Galas, with her daughter, Ophelia G. Pingol (Pingol), as co-maker, mortgaged the only discovered the second mortgage when she had the Deed of Sale
subject property to Yolanda Valdez Villar (Villar) as security for a loan in the amount of Two Million Two registered. Villar blamed Garcia for the controversy as he accepted the second mortgage without prior
Hundred Thousand Pesos (P2,200,000.00). 6 consent from her. She averred that there could be no subrogation as the assignment of credit was done
with neither her knowledge nor prior consent. Villar added that Garcia should seek recourse against
On October 10, 1994, Galas, again with Pingol as her co-maker, mortgaged the same subject property
Galas and Pingol, with whom he had privity insofar as the second mortgage of property is concerned.
to Pablo P. Garcia(Garcia) to secure her loan of One Million Eight Hundred Thousand Pesos
(P1,800,000.00). 7 On May 23, 2000, the RTC issued a Pre-Trial Order 18 wherein the parties agreed on the following facts
and issue:
Both mortgages were annotated at the back of TCT No. RT-67970 (253279), to wit:
STIPULATIONS OF FACTS/ADMISSIONS
REAL ESTATE MORTGAGE
The following are admitted:
Entry No. 6537/T-RT-67970 (253279) MORTGAGE — In favor of Yolanda
Valdez Villar m/to Jaime Villar to guarantee a principal obligation in the sum of 1. the defendant admits the second mortgage annotated at the back
P2,200,000 — mortgagee's consent necessary in case of subsequent of TCT No. RT-67970 of Lourdes V. Galas with the
encumbrance or alienation of the property; Other conditions set forth in Doc. qualification that the existence of said mortgage was
No. 97, Book No. VI, Page No. 20 of the Not. Pub. of Diana P. discovered only in 1996 after the sale; HICcSA
Magpantay IHTASa
2. the defendant admits the existence of the annotation of the
Date of Instrument: 7-6-93 second mortgage at the back of the title despite the
transfer of the title in the name of the defendant;
Date of Inscription: 7-7-93
3. the plaintiff admits that defendant Yolanda Valdez Villar is the
SECOND REAL ESTATE MORTGAGE
first mortgagee;
Entry No. 821/T-RT-67970(253279) MORTGAGE — In favor of Pablo Garcia m/to
4. the plaintiff admits that the first mortgage was annotated at the
Isabela Garcia to guarantee a principal obligation in the sum of P1,800,000.00
back of the title of the mortgagor Lourdes V. Galas; and
mortgagee's consent necessary in case of subsequent encumbrance or
alienation of the property; Other conditions set forth in Doc. No. 08, Book No. 5. the plaintiff admits that by virtue of the deed of sale the title of
VII, Page No. 03 of the Not. Pub. of Azucena Espejo Lozada the property was transferred from the previous owner in
favor of defendant Yolanda Valdez Villar.
Date of Instrument: 10/10/94
xxx xxx xxx
Date of Inscription: 10/11/94
ISSUE
LRC Consulta No. 169 8 SDaHEc
Whether or not the plaintiff, at this point in time, could judicially foreclose the
On November 21, 1996, Galas sold the subject property to Villar for One Million Five Hundred Thousand
property in question.
Pesos (P1,500,000.00), and declared in the Deed of Sale 9 that such property was "free and clear of all
liens and encumbrances of any kind whatsoever." 10 On June 8, 2000, upon Garcia's manifestation, in open court, of his intention to file a Motion for
Summary Judgment, 19the RTC issued an Order 20 directing the parties to simultaneously file their
On December 3, 1996, the Deed of Sale was registered and, consequently, TCT No. RT-67970 (253279)
respective memoranda within 20 days.
was cancelled and TCT No. N-168361 11 was issued in the name of Villar. Both Villar's and Garcia's
mortgages were carried over and annotated at the back of Villar's new TCT. 12 On June 26, 2000, Garcia filed a Motion for Summary Judgment with Affidavit of Merit 21 on the
grounds that there was no genuine issue as to any of the material facts of the case and that he was
On October 27, 1999, Garcia filed a Petition for Mandamus with Damages 13 against Villar before the
entitled to a judgment as a matter of law.
RTC, Branch 92 of Quezon City. Garcia subsequently amended his petition to a Complaint for
Foreclosure of Real Estate Mortgage with Damages. 14 Garcia alleged that when Villar purchased the On June 28, 2000, Garcia filed his Memorandum 22 in support of his Motion for Summary Judgment and
subject property, she acted in bad faith and with malice as she knowingly and willfully disregarded the in compliance with the RTC's June 8, 2000 Order. Garcia alleged that his equity of redemption had not
provisions on laws on judicial and extrajudicial foreclosure of mortgaged property. Garcia further yet been claimed since Villar did not foreclose the mortgaged property to satisfy her claim.
claimed that when Villar purchased the subject property, Galas was relieved of her contractual
obligation and the characters of creditor and debtor were merged in the person of Villar.
On August 13, 2000, Villar filed an Urgent Ex-Parte Motion for Extension of Time to File Her made a demand on the latter for the payment of the obligation secured by said mortgage prior to the
Memorandum. 23 This, however, was denied 24 by the RTC in view of Garcia's Opposition. 25 CTDHSE institution of his complaint against Villar." 35 cEAHSC

On May 27, 2002, the RTC rendered its Decision, the dispositive portion of which reads: On March 20, 2003, Garcia filed a Motion for Reconsideration 36 on the ground that the Court of
Appeals failed to resolve the main issue of the case, which was whether or not Garcia, as the second
WHEREFORE, the foregoing premises considered, judgment is hereby mortgagee, could still foreclose the mortgage after the subject property had been sold by Galas, the
rendered in favor of the plaintiff Pablo P. Garcia and against the defendant mortgage debtor, to Villar, the mortgage creditor.
Yolanda V. Villar, who is ordered to pay to the former within a period of not less
than ninety (90) days nor more than one hundred twenty (120) days from entry This motion was denied for lack of merit by the Court of Appeals in its July 2, 2003 Resolution.
of judgment, the sum of P1,800,000.00 plus legal interest from October 27,
1999 and upon failure of the defendant to pay the said amount within the Garcia is now before this Court, with the same arguments he posited before the lower courts. In his
prescribed period, the property subject matter of the 2nd Real Estate Mortgage Memorandum, 37he added that the Deed of Real Estate Mortgage contained a stipulation, which is
dated October 10, 1994 shall, upon motion of the plaintiff, be sold at public violative of the prohibition on pactum commissorium.
auction in the manner and under the provisions of Rules 39 and 68 of the 1997
Issues
Revised Rules of Civil Procedure and other regulations governing sale of real
estate under execution in order to satisfy the judgment in this case. The The crux of the controversy before us boils down to the propriety of Garcia's demand upon Villar to
defendant is further ordered to pay costs. 26 either pay Galas's debt of P1,800,000.00, or to judicially foreclose the subject property to satisfy the
aforesaid debt. This Court will, however, address the following issues in seriatim:
The RTC declared that the direct sale of the subject property to Villar, the first mortgagee, could not
operate to deprive Garcia of his right as a second mortgagee. The RTC said that upon Galas's failure to 1. Whether or not the second mortgage to Garcia was valid;
pay her obligation, Villar should have foreclosed the subject property pursuant to Act No. 3135 as
amended, to provide junior mortgagees like Garcia, the opportunity to satisfy their claims from the 2. Whether or not the sale of the subject property to Villar was valid;
residue, if any, of the foreclosure sale proceeds. This, the RTC added, would have resulted in the
extinguishment of the mortgages. 27 STHDAc 3. Whether or not the sale of the subject property to Villar was in violation of
the prohibition on pactum commissorium;
The RTC held that the second mortgage constituted in Garcia's favor had not been discharged, and
that Villar, as the new registered owner of the subject property with a subsisting mortgage, was liable 4. Whether or not Garcia's action for foreclosure of mortgage on the subject
property can prosper.
for it. 28
Discussion
Villar appealed 29 this Decision to the Court of Appeals based on the arguments that Garcia had no valid
cause of action against her; that he was in bad faith when he entered into a contract of mortgage with Validity of second mortgage to Garcia
Galas, in light of the restriction imposed by the first mortgage; and that Garcia, as the one who gave the and sale of subject property to Villar
occasion for the commission of fraud, should suffer. Villar further asseverated that the second mortgage
is a void and inexistent contract considering that its cause or object is contrary to law, moral, good At the onset, this Court would like to address the validity of the second mortgage to Garcia and the sale
customs, and public order or public policy, insofar as she was concerned. 30 of the subject property to Villar. We agree with the Court of Appeals that both are valid under the terms
and conditions of the Deed of Real Estate Mortgage executed by Galas and Villar. AEHTIC
Garcia, in his Memorandum, 31 reiterated his position that his equity of redemption remained
"unforeclosed" since Villar did not institute foreclosure proceedings. Garcia added that "the mortgage, While it is true that the annotation of the first mortgage to Villar on Galas's TCT contained a restriction
until discharged, follows the property to whomever it may be transferred no matter how many times on further encumbrances without the mortgagee's prior consent, this restriction was nowhere to be
over it changes hands as long as the annotation is carried over." 32 found in the Deed of Real Estate Mortgage. As this Deed became the basis for the annotation on Galas's
title, its terms and conditions take precedence over the standard, stamped annotation placed on her
The Court of Appeals reversed the RTC in a Decision dated February 27, 2003, to wit: title. If it were the intention of the parties to impose such restriction, they would have and should have
stipulated such in the Deed of Real Estate Mortgage itself.
WHEREFORE, the decision appealed from is REVERSED and another one
entered DISMISSING the complaint for judicial foreclosure of real estate Neither did this Deed proscribe the sale or alienation of the subject property during the life of the
mortgage with damages. 33 mortgages. Garcia's insistence that Villar should have judicially or extrajudicially foreclosed the
mortgage to satisfy Galas's debt is misplaced. The Deed of Real Estate Mortgage merely provided for
The Court of Appeals declared that Galas was free to mortgage the subject property even the options Villar may undertake in case Galas or Pingol fail to pay their loan. Nowhere was it stated in
without Villar's consent as the restriction that the mortgagee's consent was necessary in case of a the Deed that Galas could not opt to sell the subject property to Villar, or to any other person. Such
subsequent encumbrance was absent in the Deed of Real Estate Mortgage. In the same vein, the Court stipulation would have been void anyway, as it is not allowed under Article 2130 of the Civil Code, to wit:
of Appeals said that the sale of the subject property to Villar was valid as it found nothing in the records
that would show that Galas violated the Deed of Real Estate Mortgage prior to the sale. 34 Art. 2130 .A stipulation forbidding the owner from alienating the immovable
mortgaged shall be void.
In dismissing the complaint for judicial foreclosure of real estate mortgage with damages, the Court of
Appeals held that Garcia had no cause of action against Villar "in the absence of evidence showing that Prohibition on pactum commissorium
the second mortgage executed in his favor by Lourdes V. Galas [had] been violated and that he [had]
Garcia claims that the stipulation appointing Villar, the mortgagee, as the mortgagor's attorney-in-fact, Art. 2126 .The mortgage directly and immediately subjects the property upon
to sell the property in case of default in the payment of the loan, is in violation of the prohibition on which it is imposed, whoever the possessor may be, to the fulfillment of the
pactum commissorium, as stated under Article 2088 of the Civil Code, viz.: obligation for whose security it was constituted. ITESAc

Art. 2088 .The creditor cannot appropriate the things given by way of pledge Simply put, a mortgage is a real right, which follows the property, even after subsequent transfers by
or mortgage, or dispose of them. Any stipulation to the contrary is null and the mortgagor. "A registered mortgage lien is considered inseparable from the property inasmuch as it
void. is a right in rem." 41

The power of attorney provision in the Deed of Real Estate Mortgage reads: The sale or transfer of the mortgaged property cannot affect or release the mortgage; thus the
purchaser or transferee is necessarily bound to acknowledge and respect the encumbrance. 42 In fact,
5. Power of Attorney of MORTGAGEE. — Effective upon the breach of any under Article 2129 of the Civil Code, the mortgage on the property may still be foreclosed despite the
condition of this Mortgage, and in addition to the remedies herein stipulated, transfer, viz.:
the MORTGAGEE is likewise appointed attorney-in-fact of the MORTGAGOR
with full power and authority to take actual possession of the mortgaged Art. 2129 .The creditor may claim from a third person in possession of the
properties, to sell, lease any of the mortgaged properties, to collect rents, to mortgaged property, the payment of the part of the credit secured by the
execute deeds of sale, lease, or agreement that may be deemed convenient, to property which said third person possesses, in terms and with the formalities
make repairs or improvements on the mortgaged properties and to pay the which the law establishes.
same, and perform any other act which the MORTGAGEE may deem
convenient for the proper administration of the mortgaged properties. The While we agree with Garcia that since the second mortgage, of which he is the mortgagee, has not yet
payment of any expenses advanced by the MORTGAGEE in connection with been discharged, we find that said mortgage subsists and is still enforceable. However, Villar, in buying
the purpose indicated herein is also secured by this Mortgage. Any amount the subject property with notice that it was mortgaged, only undertook to pay such mortgage or allow
received from the sale, disposal or administration abovementioned maybe the subject property to be sold upon failure of the mortgage creditor to obtain payment from the
applied by assessments and other incidental expenses and obligations and to principal debtor once the debt matures. Villar did not obligate herself to replace the debtor in the
the payment of original indebtedness including interest and penalties thereon. principal obligation, and could not do so in law without the creditor's consent. 43Article 1293 of the Civil
The power herein granted shall not be revoked during the life of this Mortgage Code provides:
and all acts which may be executed by the MORTGAGEE by virtue of said
Art. 1293 .Novation which consists in substituting a new debtor in the place of
power are hereby ratified. 38 ETAICc
the original one, may be made even without the knowledge or against the will
The following are the elements of pactum commissorium: of the latter, but not without the consent of the creditor. Payment by the new
debtor gives him the rights mentioned in articles 1236 and 1237.
(1) There should be a property mortgaged by way of security for the payment of the principal obligation;
and Therefore, the obligation to pay the mortgage indebtedness remains with the original debtors Galas and
Pingol. 44 The case of E.C. McCullough & Co. v. Veloso and Serna 45 is square on this point:
(2) There should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in
case of non-payment of the principal obligation within the stipulated period. 39 The effects of a transfer of a mortgaged property to a third person are well
determined by the Civil Code. According to article 1879 46 of this Code, the
Villar's purchase of the subject property did not violate the prohibition on pactum commissorium. The creditor may demand of the third person in possession of the property
power of attorney provision above did not provide that the ownership over the subject property would mortgaged payment of such part of the debt, as is secured by the property in
automatically pass to Villar upon Galas's failure to pay the loan on time. What it granted was the mere his possession, in the manner and form established by the law. The Mortgage
appointment of Villar as attorney-in-fact, with authority to sell or otherwise dispose of the subject Law in force at the promulgation of the Civil Code and referred to in the latter,
property, and to apply the proceeds to the payment of the loan. 40 This provision is customary in provided, among other things, that the debtor should not pay the debt upon its
mortgage contracts, and is in conformity with Article 2087 of the Civil Code, which reads: maturity after judicial or notarial demand, for payment has been made by the
creditor upon him. (Art. 135 of the Mortgage Law of the Philippines of 1889.)
Art. 2087 .It is also of the essence of these contracts that when the principal According to this, the obligation of the new possessor to pay the debt
obligation becomes due, the things in which the pledge or mortgage consists originated only from the right of the creditor to demand payment of him, it
may be alienated for the payment to the creditor. being necessary that a demand for payment should have previously been made
upon the debtor and the latter should have failed to pay. And even if these
Galas's decision to eventually sell the subject property to Villar for an additional P1,500,000.00 was well
requirements were complied with, still the third possessor might abandon the
within the scope of her rights as the owner of the subject property. The subject property was transferred
property mortgaged, and in that case it is considered to be in the possession of
to Villar by virtue of another and separate contract, which is the Deed of Sale. Garcia never alleged that
the debtor. (Art. 136 of the same law.) This clearly shows that the spirit of the
the transfer of the subject property to Villar was automatic upon Galas's failure to discharge her debt, or
Civil Code is to let the obligation of the debtor to pay the debt stand although
that the sale was simulated to cover up such automatic transfer.
the property mortgaged to secure the payment of said debt may have been
Propriety of Garcia's action transferred to a third person. While the Mortgage Law of 1893 eliminated these
for foreclosure of mortgage provisions, it contained nothing indicating any change in the spirit of the law in
this respect. Article 129 of this law, which provides the substitution of the
The real nature of a mortgage is described in Article 2126 of the Civil Code, to wit: debtor by the third person in possession of the property, for the purposes of the
 giving of notice, does not show this change and has reference to a case where 9.Id. at 18-20.
the action is directed only against the property burdened with the mortgage.
(Art. 168 of the Regulation.) 47 10.Id. at 19.

This pronouncement was reiterated in Rodriguez v. Reyes 48 wherein this Court, even before quoting the 11.Id. at 21.
same above portion in E.C. McCullough & Co. v. Veloso and Serna, held: cdtai
12.Id. at 21 (dorsal side).
We find the stand of petitioners-appellants to be unmeritorious and untenable.
13.Id. at 3-8.
The maxim "caveat emptor" applies only to execution sales, and this was not
one such. The mere fact that the purchaser of an immovable has notice that the 14.Id. at 31.
acquired realty is encumbered with a mortgage does not render him liable for
the payment of the debt guaranteed by the mortgage, in the absence of 15.Id. at 72-73.
stipulation or condition that he is to assume payment of the mortgage debt.
The reason is plain: the mortgage is merely an encumbrance on the property, 16.Id. at 31.
entitling the mortgagee to have the property foreclosed, i.e., sold, in case the
principal obligor does not pay the mortgage debt, and apply the proceeds of 17.Id. at 38-41.
the sale to the satisfaction of his credit. Mortgage is merely an accessory 18.Id. at 61-63.
undertaking for the convenience and security of the mortgage creditor, and
exists independently of the obligation to pay the debt secured by it. The 19.Id. at 65.
mortgagee, if he is so minded, can waive the mortgage security and proceed to
collect the principal debt by personal action against the original mortgagor. 49 20.Id. at 66.

In view of the foregoing, Garcia has no cause of action against Villar in the absence of evidence to show 21.Id. at 67-68.
that the second mortgage executed in favor of Garcia has been violated by his debtors, Galas and
Pingol, i.e., specifically that Garcia has made a demand on said debtors for the payment of the 22.Id. at 75-80.
obligation secured by the second mortgage and they have failed to pay.
23.Id. at 84.
WHEREFORE, this Court hereby AFFIRMS the February 27, 2003 Decision and March 8, 2003 Resolution
24.Id. at 85.
of the Court of Appeals in CA-G.R. SP No. 72714. HTDcCE
25.Id. at 81-83.
SO ORDERED.
26.Id. at 95-96.
Bersamin, Del Castillo, Villarama, Jr. and Perlas-Bernabe, ** JJ., concur.
27.Id. at 94.

28.Id. at 95.
Footnotes
29.Id. at 98.

*Per Special Order No. 1226 dated May 30, 2012. 30.CA rollo, pp. 17-18.

**Per Special Order No. 1227 dated May 30, 2012. 31.Id. at 10-14.

1.1997 RULES OF COURT, Rule 45. 32.Id. at 12-13.

2.Rollo, pp. 9-17; penned by Associate Justice Marina L. Buzon with Associate Justices Josefina 33.Rollo, p. 17.
Guevara-Salonga and Danilo B. Pine, concurring.
34.Id. at 14.
3.Id. at 23-24.
35.Id. at 17.
4.Records, pp. 93-96.
36.Id. at 18-21.
5.Id. at 9-10.
37.Id. at 99-102.
6.Id. at 11-15.
38.Records, pp. 13-14.
7.Id. at 16-17.
39.Development Bank of the Philippines v. Court of Appeals, 348 Phil. 15, 31 (1998).
8.Id. at 10 (dorsal side).
 40.Id. at 29. 4. ID.; ID.; ID.; ESSENCE. — It is of course of the essence of a contract of pledge or mortgage that when
the principal obligation becomes due, the things in which the pledge or mortgage consists may be
41.Philippine National Bank v. RBL Enterprises, Inc., G.R. No. 149569, May 28, 2004, 430 SCRA 299, alienated for the payment to the creditor (Article 2087, New Civil Code).
307.
FELICIANO, J.; CONCURRING:
42.Ganzon v. Inserto, 208 Phil. 630, 637 (1983).
1. CIVIL LAW; CIVIL CODE; OBLIGATIONS AND CONTRACT; INTENT OF THE PARTIES; TO BE
43.Rodriguez v. Reyes, 147 Phil. 176, 183 (1971). DETERMINED IN THE FIRST INSTANCE BY THE LANGUAGE USED. — I would merely wish to add a few
lines in respect of the point made by Bidin, J.,that "the character of the transactions between the parties
44.Id.
is not, however, determined by the language used in the document but by their intention." This
45.46 Phil. 1 (1924). statement is basically not exceptionable, so far as it goes. It might, however, be borne in mind that the
intent of the parties to the transaction is to be determined, in the first instance, by the very language
46.NEW CIVIL CODE, now Art. 2129. which they used.

47.E.C. McCullough & Co. v. Veloso and Serna, supra note 45 at 4-5. 2. ID.; ID.; ID.; LANGUAGE SHOWS TRANSACTION IN CASE AT BAR IS FOR A LIMITED PURPOSE. —
The point that appears to me to be worth making is that although in its form, the deed of assignment of
48.Supra note 43. receivables partakes of the nature of a complete alienation of the receivables assigned, such form
should be taken in conjunction with, and indeed must be qualified and controlled by, other language
49.Id. at 182-183. showing an intent of the parties that title to the receivables shall pass to the assignee for the limited
||| (Garcia v. Villar, G.R. No. 158891, [June 27, 2012], 689 PHIL 363-378) purpose of securing another, principal; obligation owed by the assignor to the assignee. Title moves from
assignor to assignee but that title is defeasible being designed to collateralize the principal obligation.
B. PLEDGE Operationally, what this means is that the assignee is burdened with an obligation of taking the
proceeds of the receivables assigned and applying such proceeds to the satisfaction of the principal
obligation and returning any balance remaining thereafter to the assignor.

THIRD DIVISION 3. ID.; ID.; ID.; PLEDGE; PACTUM COMMISORIUM; PROHIBITED. — The parties gaved the deed of
assignment the form of an absolute conveyance of title over the receivables assigned, essentially for the
convenience of the assignee. Without such formally unlimited conveyance of title, the assignee would
[G.R. No. 53955. January 13, 1989.] have to treat the deed of assignment as no more than a deed of pledge or of chattel mortgage. In other
words, in such hypothetical case, should the assignee seek to realize upon the security given to him
through the deed of assignment (which would then have to comply with the documentation and
THE MANILA BANKING CORPORATION, plaintiff-appellee, vs. ANASTACIO registration requirements of a pledge or chattel mortgage), the assignee would have to foreclose upon
TEODORO JR. and GRACE ANNA TEODORO, defendants-appellants. the securities or credits assigned and place them on public sale and there acquire the same. It should be
recalled that under the principle which forbids a pactum commisorium Article 2088, Civil Code), a
mortgagee or pledgee is prohibited from simply taking and appropriating the personal property turned
Formoso & Quimbo Law Office for plaintiff-appellee. over to him as security for the payment of a principal obligation. A deed of assignment by way of
security avoids the necessity of a public sale imposed by the rule on pactum commisorium, by in effect
Serafin P. Rivera for defendants-appellants. placing the sale of the collateral up front.

4. ID.; ID.; TO QUALIFY DEED OF ASSIGNMENT AS A SECURITY ARRANGEMENT, LANGUAGE TO

SYLLABUS THAT EFFECT MUST BE FOUND IN THE DOCUMENT. — The foregoing is applicable where, as in the
present instance, the deed of assignment of receivables combines elements of both a complete or
absolute alienation of the credits being assigned and a security arrangement to assure payment of a
1. CIVIL LAW; CIVIL CODE; OBLIGATIONS AND CONTRACTS; CHARACTER OF TRANSACTION, principal obligation. Where the second element is absent, that is, where there is nothing to indicate that
DETERMINED NOT BY THE LANGUAGE BUT BY THE INTENTION. — The character of the transactions the parties intended the deed of assignment to function as a security device, it would of course follow
between the parties is not, however, determined by the language used in the document but by their that the simple absolute conveyance embodied in the deed of assignment would be operative; the
intention. assignment would constitute essentially a mode of payment or dacion en pago. Put a little differently, in
order that a deed of assignment of receivables which is in form an absolute conveyance of title to the
2. ID.; ID.; ID.; NOVATIONS; EXTINGUISHMENT OF OBLIGATION BY ANOTHER WHICH SUBSTITUTES credits being assigned, may be qualified and treated as a security arrangement, language to such effect
THE SAME; REQUISITE. — Moreover, in order that an obligation may be extinguished by another which must be found in the document itself and that language, precisely, is embodied in the deed of
substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the assignment in the instant case. Finally, it might be noted that that deed simply follows a form in
new obligations be on every point incompatible with each other (Article 1292, New Civil Code). standard use in commercial banking.

3. ID.; ID.; PLEDGE; PRESUMPTION IN FAVOR OF PLEDGE. — In case of doubt as to whether a

transaction is a pledge or a dation in payment, the presumption is in favor of pledge, the latter being the
lesser transmission of rights and interests (Lopez v. Court of Appeals, supra).
DECISION
BIDIN, J p: agent and representative of the Assignee and in trust for said
Assignee . . .;
This is an appeal from the decision ** of the Court of First Instance of Manila, Branch XVII in Civil Case
(6) The Assignor guarantees the existence and legality of
No. 78178 for collection of sum of money based on promissory notes executed by the defendants-
said accounts receivable, and the due and punctual payment thereof
appellants in favor of plaintiff-appellee bank. The dispositive portion of the appealed decision (Record
unto the assignee, . . . on demand, . . . and further, that Assignor
on Appeal, p. 33) reads as follows:
warrants the solvency and credit worthiness of each and every
"WHEREFORE judgment is hereby rendered (a) sentencing defendants, account.
Anastacio Teodoro, Jr. and Grace Anna Teodoro jointly and severally, to pay
(7) The Assignor does hereby guarantee the payment
plaintiff the sum of P15,037.11 plus 12% interest per annum from September
when due on all sums payable under the contracts giving rise to the
30, 1969 until fully paid, in payment of Promissory Notes No. 11487, plus the
accounts receivable . . . including reasonable attorney's fees in
sum of P1,000.00 as attorney's fees; and (b) sentencing defendant Anastacio
enforcing any rights against the debtors of the assigned accounts
Teodoro, Jr. to pay plaintiff the sum of P8,934.74, plus interest at 12% per
receivable and will pay upon demand, the entire unpaid balance of
annum from September 30, 1969 until fully paid, in payment of Promissory
said contract in the event of non payment by the said debtors of any
Notes Nos. 11515 and 11699, plus the sum of P500.00 a attorney's fees.
monthly sum at its due date or of any other default by said debtors .
With Costs against defendants." ..

The facts of the case as found by the trial court are as follows: (9) . . . This Assignment shall also stand as a continuing
guarantee for any and all whatsoever there is or in the future there
"On April 25, 1966, defendants, together with Anastacio Teodoro, Sr., jointly will be justly owing from the Assignor to the Assignee . . .
and severally, executed in favor of plaintiff a Promissory Note (No. 11487) for
the sum of P10,420.00 payable in 120 days, or on August 25, 1966, at 12% In their stipulations of Fact, it is admitted by the parties that plaintiff extended
interest per annum. Defendants failed to pay the aid amount inspite of loans to defendants on the basis and by reason of certain contracts entered
repeated demands and the obligation as of September 30, 1969 stood at into by the defunct Emergency Employment Administration (EEA) with
P15,137.11 including accrued interest and service charge. defendants for the fabrication of fishing boats, and that the Philippine Fisheries
Commission succeeded the EEA after its abolition; that non-payment of the
On May 3, 1966 and June 20, 1966, defendants Anastacio Teodoro, Sr. (Father) notes was due to the failure of the Commission to pay defendants after the
and Anastacio Teodoro, Jr. (Son) executed in favor of plaintiff two Promissory latter had complied with their contractual obligations; and that the President of
Notes (Nos. 11515 and 11699) for P8,000.00 and P1,000.00 respectively, plaintiff Bank took steps to collect from the Commission, but no collection was
payable in 120 days at 12% interest per annum. Father and Son made a partial effected.
payment on the May 3, 1966 Promissory Note but none on the June 20, 1966
Promissory Note, leaving still an unpaid balance of P8,934.74 as of September
30, 1969 including accrued interest and service charge. LexLib
For failure of defendants to pay the sums due on the Promissory Note, this
The three Promissory Notes stipulated that any interest due if not paid at the action was instituted on November 13, 1969, originally against the Father, Son,
end of every month shall be added to the total amount then due, the whole and the latter's wife. Because the Father died, however, during the pendency of
amount to bear interest at the rate of 12% per annum until fully paid; and in the suit, the case as against him was dismissed under the provisions of Section
case of collection through an attorney-at-law, the makers shall, jointly and 21, Rule 3 of the Rules of Court. The action, then is against defendant Son and
severally, pay 10% of the amount over-due as attorney's fees, which in no case his wife for the collection of the sum of P15,037.11 on Promissory Note No.
shall be less than P200.00. 14487; and against defendant Son for the recovery of P8,394.74 on Promissory
Notes Nos. 11515 and 11699, plus interest on both amounts at 12% per annum
It appears that on January 24, 1964, the Son executed in favor of plaintiff a from September 30, 1969 until fully paid, and 10% of the amounts due as
Deed of Assignment of Receivables from the Emergency Employment attorney's fees.
Administration in the sum of P44,635.00. The Deed of Assignment provided
that it was for and in consideration of certain credits, loans, overdrafts and Neither of the parties presented any testimonial evidence and submitted the
other credit accommodations extended to defendants as security for the case for decision based on their Stipulations of Fact and on their documentary
payment of said sum and the interest thereon, and that defendants do hereby evidence.
remise, release and quitclaim all its rights, title, and interest in and to the
The issues, as defined by the parties are: (1) whether or not plaintiff's claim is
accounts receivables.' Further:
already considered paid by the Deed of Assignment of Receivables by the Son;
'(1) The title and right of possession to said accounts and (2) whether or not it is plaintiff who should directly sue the Philippine
receivable is to remain in the assignee, and it shall have the right to Fisheries Commission for collection." (Record on Appeal, p. 29-32).
collect the same from the debtor, and whatsoever the Assignor does
On April 17, 1972, the trial court rendered its judgment adverse to defendants. On June 8, 1972,
in connection with the collection of said accounts, it agrees to do as
defendants filed a motion for reconsideration (Record on Appeal, p. 33) which was denied by the trial
court in its order of June 14, 1972 (Record on Appeal, p. 37). On June 23, 1972, defendants filed with the
lower court their notice of appeal together with the appeal bond (Record on Appeal, p. 38). The record assignors, remise, release, and quitclaim to assignee bank all their rights, title and interest in and to the
of appeal was forwarded to the Court of Appeals on August 22, 1972 (Record on Appeal, p. 42). LLpr accounts receivable assigned (1st paragraph). It was further stipulated that the assignment will also
stand as a continuing guaranty for future loans of appellants to appellee bank and correspondingly the
In their appeal (Brief for the Appellants, Rollo, p. 12), appellants raised a single assignment of error, that assignment shall also extend to all the accounts receivable; appellants shall also obtain in the future,
is — until the consideration on the loans secured by appellants from appellee bank shall have been fully paid
by them (No. 9).
"THAT THE DECISION IN QUESTION AMOUNTS TO A JUDICIAL REMAKING
OF THE CONTRACT BETWEEN THE PARTIES, IN VIOLATION OF LAW; The position of appellants, however, is that the deed of assignment is a quitclaim in consideration of
HENCE, TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION.' their indebtedness to appellee bank, not mere guaranty, in view of the following provisions of the deed
of assignment:
As the appeal involves a pure question of law, the Court of Appeals, in its resolution promulgated on
March 6, 1980, certified the case to this Court (Rollo, p. 24). The record on Appeal was forwarded to this ". . . the Assignor do hereby remise, release and quit-claim unto said assignee all
Court on March 31, 1980 (Rollo, p. 1). its rights, title and interest in the accounts receivable described hereunder."
(Emphasis supplied by appellants, first par., Deed of Assignment)."
In the resolution of May 30, 1980, the First Division of this Court ordered that the case be docketed and
declared submitted for decision (Rollo, p. 33). ". . . that the title and right of possession to said account receivable is to remain
in said assignee and it shall have the right to collect directly from the debtor, and
On March 7, 1988, considering the length of time that the case has been pending with the Court and to
whatsoever the Assignor does in connection with the collection of said
determine whether supervening events may have rendered the case moot and academic, the Court
accounts, it agrees to do so agent and representative of the Assignee and
resolved (1) to require the parties to MOVE IN THE PREMISES within thirty days from notice, and in case
it trust for said Assignee . . . " (Ibid. par. 2 of Deed of Assignment)." (Record on
they fail to make the proper manifestation within the required period, (2) to consider the case
Appeal, p. 27)
terminated and closed with the entry of judgment accordingly made thereon (Rollo, p. 40).
The character of the transactions between the parties is not, however, determined by the language used
On April 27, 1988, appellee moved for a resolution of the appeal/review interposed by defendants-
in the document but by their intention. Thus, the Court, quoting from the American Jurisprudence (68
appellants (Rollo, p. 41).
2d, Secured Transaction, Section 50) said:
The major issues raised in this case are as follows: (1) whether or not the assignment of receivables has
"The characters of the transaction between the parties is to be determined by
the effect of payment of all the loans contracted by appellants from appellee bank; and (2) whether or
their intention, regardless of what language was used or what the form of the
not appellee bank must first exhaust all legal remedies against the Philippine Fisheries Commission
transfer was. If it was intended to secure the payment of money, it must be
before it can proceed against appellants for collections of loan under the promissory notes which are
construed all a pledge. However, even though a transfer, if regarded by itself,
plaintiff's bases in the action for collection in Civil Case No. 78178.
appears to have been absolute, its object and character might still be qualified
"Assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, and explained by a contemporaneous writing declaring it to have been a
by a legal cause, such as sale, dation in payment, exchange or donation, and without the need of the deposit of the property as collateral security. It has been said that a transfer of
consent of the debtor, transfers his credit and its accessory rights to another, known as the assignee, property by the debtor to a creditor, even if sufficient on its face to make an
who acquires the power to enforce it to the same extent as the assignor could have enforced it against absolute conveyance, should be treated as a pledge if the debt continues in
the debtor . . . It may be in the form of a sale, but at times it may constitute a dation in payment, such as existence and is not discharged by the transfer, and that accordingly, the use of
when a debtor, in order to obtain a release from his debt, assigns to his creditor a credit he has against a the terms ordinarily importing conveyance, of absolute ownership will not be
third person, or it may constitute a donation as when it is by gratuitous title; or it may even be merely by given that effect in such a transaction if they are also commonly used in
way of guaranty, as when the creditor gives as a collateral, to secure his own debt in favor of the pledges and mortgages and therefore do not unqualifiedly indicate a transfer of
assignee, without transmitting ownership. The character that it may assume determines its requisites absolute ownership, in the absence of clear and ambiguous language or other
and effects, its regulation, and the capacity of the parties to execute it; and in every case, the circumstances excluding an intent to pledge." (Lopez v. Court of Appeals, 114
obligations between assignor and assignee will depend upon the judicial relation which is the basis of SCRA 671 [1962]).
the assignment: (Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol.
Definitely, the assignment of the receivables did not result from a sale transaction. It cannot be said to
5, pp. 165-166).
have been constituted by virtue of a dation in payment for appellants' loans with the bank evidenced by
There is no question as to the validity of the assignment of receivables executed by appellants in favor of promissory note Nos. 11487, 11515 and 11699 which are the subject of the suit for collection in Civil Case
appellee bank. The issue is with regard to its legal effects. No. 78178. At the time the deed of assignment was executed, said loans were non-existent yet. The
deed of assignment was executed on January 24, 1964 (Exh. "G"), while promissory note No. 11487 is
I dated April 25, 1966 (Exh. "A"), promissory note 11515, dated May 3, 1966 (Exh. "B"), promissory note
11699, on June 20, 1966 (Exh. "C"). At most, it was a dation in payment for P10,000.00, the amount of
It is evident that the assignment of receivables executed by appellants on January 24, 1964 did not
credit from appellee bank indicated in the deed of assignment. At the time the assignment was
transfer the ownership of the receivables to appellee bank and release appellants from their loans with
executed, there was no obligation to be extinguished except the amount of P10,000.00. Moreover, in
the bank incurred under promissory notes Nos. 11487, 11515 and 11699. LLpr
order that an obligation may be extinguished by another which substitutes the same, it is imperative
The Deed of Assignment provided that it was for and in consideration of certain credits, loans, that it be so declared in unequivocal terms, or that the old and the new obligations be on every point
overdrafts, and their credit accommodations in the sum of P10,000.00 extended to appellants by incompatible with each other (Article 1292, New Civil Code). LLjur
appellee bank, and as security for the payment of said sum and the interest thereon; that appellants as
Obviously, the deed of assignment was intended as collateral security for the bank loans of appellants, I quite agree with the general reasoning of and the results reached by my distinguished brother Bidin in
as a continuing guaranty for whatever sums would be owing by defendants to plaintiff, as stated in respect of both of the principal issues he addressed in his opinion.
stipulation No. 9 of the deed.
I would merely wish to add a few lines in respect of the point made by Bidin, J., that "the character of the
In case of doubt as to whether a transaction is a pledge or a dation in payment, the presumption is in transactions between the parties is not, however, determined by the language used in the document
favor of pledge, the latter being the lesser transmission of rights and interests (Lopez v. Court of but by their intention." This statement is basically not exceptionable, so far as it goes. It might, however,
Appeals, supra). be borne in mind that the intent of the parties to the transaction is to be determined, in the first
instance, by the very language which they used. The deed of assignment contains language which
In one case, the assignments of rights, title and interest of the defendant in the contracts of lease of two suggest that the parties intended to effect a complete alienation of title to and rights over the
buildings as well as her rights, title and interest in the land on which the buildings were constructed to receivables which are the subject of the assignment. This language is comprised of works like "remise,"
secure an overdraft from a bank amounting to P110,000.00 which was increased to P150,000.00, then to "release and quitclaim" and clauses like "the title and right of possession to said accounts receivable is to
P165,000.00 was considered by the Court to be documents of mortgage contracts inasmuch as they remain in said assignee" who "shall have the right to collect directly from the debtor." The same intent is
were executed to guarantee the principal obligations of the defendant consisting of the overdrafts or also suggested by the use of the words "agent and representative of the assignee" in referring to the
the indebtedness resulting therefrom. The Court ruled that an assignment to guarantee an obligation is assignor. LibLex
in effect a mortgage and not an absolute conveyance of title which confers ownership on the assignee
(Peoples Bank & Trust Co. v. Odom, 64 Phil. 126 [1937]). The point that appears to me to be worth making is that although in its form, the deed of assignment of
receivables partakes of the nature of a complete alienation of the receivables assigned, such form
should be taken in conjunction with, and indeed must be qualified and controlled by, other language
showing an intent of the parties that title to the receivables shall pass to the assignee for the limited
II
purpose of securing another, principal; obligation owed by the assignor to the assignee. Title moves from
As to whether or not appellee bank must have to exhaust all legal remedies against the Philippine assignor to assignee but that title is defeasible being designed to collateralize the principal obligation.
Fisheries Commission before it can proceed against appellants for collection of loans under their Operationally, what this means is that the assignee is burdened with an obligation of taking the
promissory notes, must also be answered in the negative. proceeds of the receivables assigned and applying such proceeds to the satisfaction of the principal
obligation and returning any balance remaining thereafter to the assignor.
The obligation of appellants under the promissory notes not having been released by the assignment of
receivables, appellants remain as the principal debtors of appellee bank rather than mere guarantors. The parties gaved the deed of assignment the form of an absolute conveyance of title over the
The deed of assignment merely guarantees said obligations. That the guarantor cannot be compelled to receivables assigned, essentially for the convenience of the assignee. Without such formally unlimited
pay the creditor unless the latter has exhausted all the property of the debtor, and has resorted to all the conveyance of title, the assignee would have to treat the deed of assignment as no more than a deed of
legal remedies against the debtor, under Article 2058 of the New Civil Code does not therefore apply to pledge or of chattel mortgage. In other words, in such hypothetical case, should the assignee seek to
them. It is of course of the essence of a contract of pledge or mortgage that when the principal realize upon the security given to him through the deed of assignment (which would then have to
obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the comply with the documentation and registration requirements of a pledge or chattel mortgage), the
payment to the creditor (Article 2087, New Civil Code). In the instant case, appellants are both the assignee would have to foreclose upon the securities or credits assigned and place them on public sale
principal debtors and the pledgors or mortgagors. Resort to one is, therefore, resort to the other. and there acquire the same. It should be recalled that under the principle which forbids a pactum
commisorium Article 2088, Civil Code), a mortgagee or pledgee is prohibited from simply taking and
Appellee bank did try to collect on the pledged receivables. As the Emergency Employment Agency appropriating the personal property turned over to him as security for the payment of a principal
(EEA) which issued the receivables had been abolished, the collection had to be coursed through the obligation. A deed of assignment by way of security avoids the necessity of a public sale imposed by the
Office of the President which disapproved the same (Record on Appeal, p. 16). The receivable became rule on pactum commisorium, by in effect placing the sale of the collateral up front.
virtually worthless leaving appellants' loans from appellee bank unsecured. It is but proper that after
their repeated demands made on appellants for the settlement of their obligations, appellee bank The foregoing is applicable where, as in the present instance, the deed of assignment of receivables
should proceed against appellants. It would be an exercise in futility to proceed against a defunct office combines elements of both a complete or absolute alienation of the credits being assigned and a
for the collection of the receivables pledged. security arrangement to assure payment of a principal obligation. Where the second element is absent,
that is, where there is nothing to indicate that the parties intended the deed of assignment to function
WHEREFORE, the appeal is Dismissed for lack of merit and the appealed decision of the trial court is as a security device, it would of course follow that the simple absolute conveyance embodied in the
affirmed in toto. deed of assignment would be operative; the assignment would constitute essentially a mode of
payment or dacion en pago. Put a little differently, in order that a deed of assignment of receivables
SO ORDERED.
which is in form an absolute conveyance of title to the credits being assigned, may be qualified and
Fernan, C.J., Gutierrez, Jr., Feliciano and Cortes, JJ., concur. treated as a security arrangement, language to such effect must be found in the document itself and
that language, precisely, is embodied in the deed of assignment in the instant case. Finally, it might be
noted that that deed simply follows a form in standard use in commercial banking.

Separate Opinions Footnotes

*Penned by then Judge of the Court of First Instance of Manila, Ameurfina Melencio-Herrera, now
Associate Justice of the Court.
FELICIANO, J., concurring:
||| (Manila Banking Corp. v. Teodoro Jr., G.R. No. 53955, [January 13, 1989], 251 PHIL 98-110)
FIRST DIVISION 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
[G.R. No. 156132. October 16, 2006.] 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 respondent's deposits and
money market placements with petitioner Citibank, including her dollar accounts with Citibank-Geneva
CITIBANK, N.A. (Formerly First National City Bank) and INVESTORS' and her money market placements with petitioner FNCB Finance. Thus, petitioners prayed for the
FINANCE CORPORATION, doing business under the name and style of dismissal of the Complaint and for the award of actual, moral, and exemplary damages, and attorney's
FNCB Finance, petitioners, vs. MODESTA R. SABENIANO,respondent. fees. HAaScT

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
DECISION 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

CHICO-NAZARIO, J p: follows:

Before this Court is a Petition for Review on Certiorari, 1 under Rule 45 of the Revised Rules of Court, of (1) Declaring as illegal, null and void the setoff effected by the defendant Bank
the Decision 2 of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March 2002, and the [petitioner Citibank] of plaintiff's [respondent Sabeniano] dollar deposit with
Resolution, 3 dated 20 November 2002, of the same court which, although modifying its earlier Citibank, Switzerland, in the amount of US$149,632.99, and ordering the said
Decision, still denied for the most part the Motion for Reconsideration of herein petitioners. defendant [petitioner Citibank] to refund the said amount to the plaintiff with
legal interest at the rate of twelve percent (12%) per annum, compounded
Petitioner Citibank, N.A. (formerly known as the First National City Bank) is a banking corporation duly yearly, from 31 October 1979 until fully paid, or its peso equivalent at the time
authorized and existing under the laws of the United States of America and licensed to do commercial of payment;
banking activities and perform trust functions in the Philippines.
(2) Declaring the plaintiff [respondent Sabeniano] indebted to the defendant
Petitioner Investor's Finance Corporation, which did business under the name and style of FNCB Bank [petitioner Citibank] in the amount of P1,069,847.40 as of 5 September
Finance, was an affiliate company of petitioner Citibank, specifically handling money market 1979 and ordering the plaintiff [respondent Sabeniano] to pay said amount,
placements for its clients. It is now, by virtue of a merger, doing business as part of its successor-in- however, there shall be no interest and penalty charges from the time the
interest, BPI Card Finance Corporation. However, so as to consistently establish its identity in the illegal setoff was effected on 31 October 1979;
Petition at bar, the said petitioner shall still be referred to herein as FNCB Finance. 4
(3) Dismissing all other claims and counterclaims interposed by the parties
Respondent Modesta R. Sabeniano was a client of both petitioners Citibank and FNCB Finance. against each other.
Regrettably, the business relations among the parties subsequently went awry.
Costs against the defendant Bank.
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 All the parties appealed the foregoing Decision of the RTC to the Court of Appeals, docketed as CA-G.R.
and money market placements with the petitioners, as well as money market placements with the Ayala CV No. 51930. Respondent questioned the findings of the RTC that she was still indebted to petitioner
Investment and Development Corporation (AIDC), the proceeds of which were supposedly deposited Citibank, as well as the failure of the RTC to order petitioners to render an accounting of respondent's
automatically and directly to respondent's accounts with petitioner Citibank. Respondent alleged that deposits and money market placements with them. On the other hand, petitioners argued that
petitioners refused to return her deposits and the proceeds of her money market placements despite petitioner Citibank validly compensated respondent's outstanding loans with her dollar accounts with
her repeated demands, thus, compelling respondent to file Civil Case No. 11336 against petitioners for Citibank-Geneva, in accordance with the Declaration of Pledge she executed in its favor. Petitioners also
"Accounting, Sum of Money and Damages." Respondent eventually filed an Amended Complaint 6 on 9 alleged that the RTC erred in not declaring respondent liable for damages and interest.
October 1985 to include additional claims to deposits and money market placements inadvertently left
out from her original Complaint. 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
In their joint Answer 7 and Answer to Amended Complaint, 8 filed on 12 September 1985 and 6 wise —
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 Wherefore, premises considered, the assailed 24 August 1995 Decision of the
court a quo is hereby AFFIRMED with MODIFICATION, as follows:
(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 1. Declaring as illegal, null and void the set-off effected by the defendant-
Pledge of her dollar accounts in Citibank-Geneva, and (b) Deeds of Assignment of her money market appellant Bank of the plaintiff-appellant's dollar deposit with Citibank,
placements with petitioner FNCB Finance. When respondent failed to pay her loans despite repeated Switzerland, in the amount of US$149,632.99, and ordering defendant-
demands by petitioner Citibank, the latter exercised its right to off-set or compensate respondent's appellant Citibank to refund the said amount to the plaintiff-appellant with
 legal interest at the rate of twelve percent (12%) per annum, compounded of Appeals, nor a Petition for Certiorari with this Court. Yet, the Motion failed to state the exact
yearly, from 31 October 1979 until fully paid, or its peso equivalent at the time extension period respondent was requesting for. EcDTIH
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 Since this Court did not act upon respondent's Motion for Extension of Time to file her Petition for
the account of Ms. Sabeniano is hereby declared as without legal and factual Review, then the period for appeal continued to run and still expired on 3 May 2002. 14 Respondent
basis; 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 —
3. As defendants-appellants failed to account the following plaintiff-appellant's
money market placements, savings account and current accounts, the former is G.R. No. 152985 (Modesta R. Sabeniano vs. Court of Appeals, et al.). — It
hereby ordered to return the same, in accordance with the terms and appearing that petitioner failed to file the intended petition for review
conditions agreed upon by the contending parties as evidenced by the on certiorari within the period which expired on May 3, 2002, the Court Resolves
certificates of investments, to wit: 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
(i) Citibank NNPN Serial No. 023356 (Cancels and Supersedes NNPN final and executory.
No. 22526) issued on 17 March 1977, P318,897.34 with 14.50%
interest p.a.; The said Resolution was duly recorded in the Book of Entries of Judgments on 3 January 2003.
G.R. No. 156132
(ii) Citibank NNPN Serial No. 23357 (Cancels and Supersedes NNPN
No. 22528) issued on 17 March 1977, P203,150.00 with 14.50 interest Meanwhile, petitioners filed with the Court of Appeals a Motion for Reconsideration of its Decision in
p.a.; 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 —
(iii) FNCB NNPN Serial No. 05757 (Cancels and Supersedes NNPN
No. 04952), issued on 02 June 1977, P500,000.00 with 17% interest WHEREFORE, premises considered, the instant Motion for
p.a.; Reconsideration is PARTIALLY GRANTED as Sub-paragraph (V) paragraph 3 of
the assailed Decision's dispositive portion is hereby ordered DELETED.
(iv) FNCB NNPN Serial No. 05758 (Cancels and Supersedes NNPN
No. 04962), issued on 02 June 1977, P500,000.00 with 17% interest The challenged 26 March 2002 Decision of the Court
per annum; is AFFIRMED with MODIFICATION.

(v) The Two Million (P2,000,000.00) money market placements of Assailing the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March
Ms. Sabeniano with the Ayala Investment & Development 2002 and 20 November 2002, respectively, petitioners filed the present Petition, docketed as G.R.
Corporation (AIDC) with legal interest at the rate of twelve percent No. 156132. The Petition was initially denied 17 by this Court for failure of the petitioners to attach
(12%) per annum compounded yearly, from 30 September 1976 until thereto a Certification against Forum Shopping. However, upon petitioners' Motion and compliance
fully paid; with the requirements, this Court resolved 18 to reinstate the Petition.

4. Ordering defendants-appellants to jointly and severally pay the plaintiff- The Petition presented fourteen (14) assignments of errors allegedly committed by the Court of Appeals
appellant the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00) by in its Decision, dated 26 March 2002, involving both questions of fact and questions of law which this
way of moral damages, FIVE HUNDRED THOUSAND PESOS (P500,000.00) as Court, for the sake of expediency, discusses jointly, whenever possible, in the succeeding paragraphs.
exemplary damages, and ONE HUNDRED THOUSAND PESOS (P100,000.00)
as attorney's fees. I
The Resolution of this Court, dated
Apparently, the parties to the case, namely, the respondent, on one hand, and the petitioners, on the
13 November 2002, in G.R. No.
other, made separate attempts to bring the aforementioned Decision of the Court of Appeals, dated 26
152985, declaring the Decision of the
March 2002, before this Court for review.
Court of Appeals, dated 26 March
G.R. No. 152985 2002, final and executory, pertains to
respondent Sabeniano alone.
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 Before proceeding to a discussion of the merits of the instant Petition, this Court wishes to address first
for Extension of Time to File a Petition for Review, 13 which, after payment of the docket and other the argument, persistently advanced by respondent in her pleadings on record, as well as her numerous
lawful fees, was assigned the docket number G.R. No. 152985. In the said Motion, respondent alleged personal and unofficial letters to this Court which were no longer made part of the record, that the
that she received a copy of the assailed Court of Appeals Decision on 18 April 2002 and, thus, had 15 Decision of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March 2002, had already become
days therefrom or until 3 May 2002 within which to file her Petition for Review. Since she informed her final and executory by virtue of the Resolution of this Court in G.R. No. 152985, dated 13 November
counsel of her desire to pursue an appeal of the Court of Appeals Decision only on 29 April 2002, her 2002.
counsel neither had enough time to file a motion for reconsideration of the said Decision with the Court
G.R. No. 152985 was the docket number assigned by this Court to respondent's Motion for Extension of This Court, however, finds no sufficient basis to hold respondent liable for forum shopping.
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 Forum shopping has been defined as the filing of two or more suits involving the same parties for the
November 2002, declaring the Decision of the Court of Appeals, dated 26 March 2002, final and same cause of action, either simultaneously or successively, for the purpose of obtaining a favorable
executory. It should be pointed out, however, that the Resolution, dated 13 November 2002, referred judgment. 22 The test for determining forum shopping is whether in the two (or more) cases pending,
only to G.R. No. 152985, respondent's appeal, which she failed to perfect through the filing of a Petition there is an identity of parties, rights or causes of action, and relief sought. 23 To guard against this
for Review within the prescribed period. The declaration of this Court in the same Resolution would bind deplorable practice, Rule 7, Section 5 of the revised Rules of Court imposes the following requirement —
respondent solely, and not petitioners which filed their own separate appeal before this Court, docketed
SEC. 5. Certification against forum shopping. — The plaintiff or principal party
as G.R. No. 156132, the Petition at bar. This would mean that respondent, on her part, should be bound
shall certify under oath in the complaint or other initiatory pleading asserting a
by the findings of fact and law of the Court of Appeals, including the monetary amounts consequently
claim for relief, or in a sworn certification annexed thereto and simultaneously
awarded to her by the appellate court in its Decision, dated 26 March 2002; and she can no longer refute
filed therewith: (a) that he has not theretofore commenced any action or filed
or assail any part thereof. 19
any claim involving the same issues in any court, tribunal or quasi-judicial
This Court already explained the matter to respondent when it issued a Resolution 20 in G.R. agency and, to the best of his knowledge, no such other action or claim is
No. 156132, dated 2 February 2004, which addressed her Urgent Motion for the Release of the Decision pending therein; (b) if there is such other pending action or claim, a complete
with the Implementation of the Entry of Judgment in the following manner — 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
[A]cting on Citibank's and FNCB Finance's Motion for Reconsideration, we report that fact within five (5) days therefrom to the court wherein his aforesaid
resolved to grant the motion, reinstate the petition and require Sabeniano to complaint or initiatory pleading has been filed.
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 Failure to comply with the foregoing requirements shall not be curable by mere
a Reply dated August 20, 2003. amendment of the complaint or other initiatory pleading but shall be cause for
the dismissal of the case without prejudice, unless otherwise provided, upon
From the foregoing, it is clear that Sabeniano had knowledge of, and in fact motion and after hearing. The submission of a false certification or non-
participated in, the proceedings in G.R. No. 156132. She cannot feign ignorance compliance with any of the undertakings therein shall constitute indirect
of the proceedings therein and claim that the Decision of the Court of Appeals contempt of court, without prejudice to the corresponding administrative and
has become final and executory. More precisely, the Decision became final and criminal actions. If the acts of the party or his counsel clearly constitute willful
executory only with regard to Sabeniano in view of her failure to file a petition and deliberate forum shopping, the same shall be ground for summary
for review within the extended period granted by the Court, and not to Citibank dismissal with prejudice and shall constitute direct contempt, as well as cause
and FNCB Finance whose Petition for Review was duly reinstated and is now for administrative sanctions.
submitted for decision.
Although it may seem at first glance that respondent was simultaneously seeking recourse from the
Accordingly, the instant Urgent Motion is hereby DENIED. (Emphasis supplied.) Court of Appeals and this Court, a careful and closer scrutiny of the details of the case at bar would
reveal otherwise.
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 It should be recalled that respondent did nothing more in G.R. No. 152985 than to file with this Court a
filing with this Court a Motion for Extension of Time to File a Petition for Review, ahead of the Motion for Extension of Time within which to file her Petition for Review. For unexplained reasons,
opposing party, then not actually filing the intended Petition. 21 The party who fails to file its respondent failed to submit to this Court her intended Petition within the reglementary period.
intended Petition within the reglementary or extended period should solely bear the Consequently, this Court was prompted to issue a Resolution, dated 13 November 2002, declaring G.R.
consequences of such failure. aCTADI No. 152985 terminated, and the therein assailed Court of Appeals Decision final and executory. G.R. No.
152985, therefore, did not progress and respondent's appeal was unperfected.
Respondent Sabeniano did not
commit forum shopping.
Another issue that does not directly involve the merits of the present Petition, but raised by petitioners,
The Petition for Review would constitute the initiatory pleading before this Court, upon the timely filing
is whether respondent should be held liable for forum shopping.
of which, the case before this Court commences; much in the same way a case is initiated by the filing of
Petitioners contend that respondent committed forum shopping on the basis of the following facts: 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
While petitioners' Motion for Reconsideration of the Decision in CA-G.R. CV No. 51930, dated 26 March case before this Court. The Motion filed by respondent seeking extension of time within which to file her
2002, was still pending before the Court of Appeals, respondent already filed with this Court on 3 May Petition for Review does not serve the same purpose as the Petition for Review itself. Such a Motion
2002 her Motion for Extension of Time to File a Petition for Review of the same Court of Appeals merely presents the important dates and the justification for the additional time requested for, but it
Decision, docketed as G.R. No. 152985. Thereafter, respondent continued to participate in the does not go into the details of the appealed case.
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 Without any particular idea as to the assignments of error or the relief respondent intended to seek
petitioners' Reply. Thus, petitioners argue that by seeking relief concurrently from this Court and the from this Court, in light of her failure to file her Petition for Review, there is actually no second case
Court of Appeals, respondent is undeniably guilty of forum shopping, if not indirect contempt. 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 Case No. 11336, dated 24 August
initiatory pleading, which, in G.R. No. 152985, should have been respondent's Petition for Review. It is in 1995, was not the same judge who
that Certification wherein respondent certifies, under oath, that: (a) she has not commenced any action heard and tried the case, does not, by
or filed any claim involving the same issues in any court, tribunal or quasi-judicial agency and, to the itself, render the said Decision erroneous.
best of her knowledge, no such other action or claim is pending therein; (b) if there is such other pending
The Decision in Civil Case No. 11336 was rendered more than 10 years from the institution of the said
action or claim, that she is presenting a complete statement of the present status thereof; and (c) if she
case. In the course of its trial, the case was presided over by four (4) different RTC judges. 26 It was
should thereafter learn that the same or similar action or claim has been filed or is pending, she shall
Judge Victorio, the fourth judge assigned to the case, who wrote the RTC Decision, dated 24 August
report that fact within five days therefrom to this Court. Without her Petition for Review, respondent
1995. In his Decision, 27 Judge Victorio made the following findings —
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 After carefully evaluating the mass of evidence adduced by the parties, this
Court as to the pendency of another similar case. Court is not inclined to believe the plaintiff's assertion that the promissory
notes as well as the deeds of assignments of her FNCB Finance money market
Lastly, the fact alone that the Decision of the Court of Appeals, dated 26 March 2002, essentially ruled
placements were simulated. The evidence is overwhelming that the plaintiff
in favor of respondent, does not necessarily preclude her from appealing the same. Granted that such a
received the proceeds of the loans evidenced by the various promissory notes
move is ostensibly irrational, nonetheless, it does not amount to malice, bad faith or abuse of the court
she had signed. What is more, there was not an iota of proof save the plaintiff's
processes in the absence of further proof. Again, it should be noted that the respondent did not file her
bare testimony that she had indeed applied for loan with the Development
intended Petition for Review. The Petition for Review would have presented before this Court the
Bank of the Philippines.
grounds for respondent's 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 More importantly, the two deeds of assignment were notarized, hence they
mere speculations, to which this Court cannot give credence. DAESTI 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
II
assignments were actually filed with the Records Management and Archives
As an exception to the general rule, Office.
this Court takes cognizance of
questions of fact raised in the Finally, there were sufficient evidence wherein the plaintiff had admitted the
Petition at bar. 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",
It is already a well-settled rule that the jurisdiction of this Court in cases brought before it from the Court "32", and "33").
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 In fine, this Court hereby finds that the defendants had established the
exceptions to the foregoing rule, namely: (1) when the findings are grounded entirely on speculation, genuineness and due execution of the various promissory notes heretofore
surmises, or conjectures; (2) when the interference made is manifestly mistaken, absurd, or impossible; identified as well as the two deeds of assignments of the plaintiff's money
(3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of market placements with defendant FNCB Finance, on the strength of which the
facts; (5) when the findings of fact are conflicting; (6) when in making its findings, the Court of Appeals said money market placements were applied to partially pay the plaintiff's past
went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant due obligation with the defendant Bank. Thus, the total sum of P1,053,995.80
and the appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings are of the plaintiff's past due obligation was partially offset by the said money
conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in market placement leaving a balance of P1,069,847.40 as of 5 September 1979
the petition as well as in the petitioner's main and reply briefs are not disputed by the respondent; and (Exhibit "34").
(10) when the findings of fact are premised on the supposed absence of evidence and contradicted by
the evidence on record. 24 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
Several of the enumerated exceptions pertain to the Petition at bar. 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
It is indubitable that the Court of Appeals made factual findings that are contrary to those of the justification for the appellate court to disregard or set aside the findings in the Decision of the court a
RTC, 25 thus, resulting in its substantial modification of the trial court's Decision, and a ruling entirely in quo?
favor of the respondent. In addition, petitioners invoked in the instant Petition for Review several
exceptions that would justify this Court's review of the factual findings of the Court of Appeals, i.e., the This Court rules in the negative.
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 What deserves stressing is that, in this jurisdiction, there exists a disputable presumption that the RTC
contradicted by the evidence on record. 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
On the basis of the foregoing, this Court shall proceed to reviewing and re-evaluating the evidence on evidence. 29 Encompassed in this presumption of regularity is the presumption that the RTC judge, in
record in order to settle questions of fact raised in the Petition at bar. 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
The fact that the trial judge who of little consequence when the records and transcripts of stenographic notes (TSNs) are complete and
rendered the RTC Decision in Civil available for consideration by the former.
In People v. Gazmen, 30 this Court already elucidated its position on such an issue — judge's 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.
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 This Court proceeds to making its
therefrom that the findings of the former are erroneous. Accused-appellant's own findings of fact.
argument does not merit a lengthy discussion. It is well-settled that the
Since the Decision of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March 2002, has become
decision of a judge who did not try the case is not by that reason alone
final and executory as to the respondent, due to her failure to interpose an appeal therefrom within the
erroneous. DAEaTS
reglementary period, she is already bound by the factual findings in the said Decision. Likewise,
It is true that the judge who ultimately decided the case had not heard the respondent's failure to file, within the reglementary period, a Motion for Reconsideration or an appeal of
controversy at all, the trial having been conducted by then Judge Emilio L. the Resolution of the Court of Appeals in the same case, dated 20 November 2002, which modified its
Polig, who was indefinitely suspended by this Court. Nonetheless, the earlier Decision by deleting paragraph 3(v) of its dispositive portion, ordering petitioners to return to
transcripts of stenographic notes taken during the trial were complete and respondent the proceeds of her money market placement with AIDC, shall already bar her from
were presumably examined and studied by Judge Baguilat before he rendered questioning such modification before this Court. Thus, what is for review before this Court is the
his decision. It is not unusual for a judge who did not try a case to decide it on Decision of the Court of Appeals, dated 26 March 2002, as modified by the Resolution of the same
the basis of the record. The fact that he did not have the opportunity to court, dated 20 November 2002.
observe the demeanor of the witnesses during the trial but merely relied on the
Respondent alleged that she had several deposits and money market placements with petitioners.
transcript of their testimonies does not for that reason alone render the
These deposits and money market placements, as determined by the Court of Appeals in its Decision,
judgment erroneous.
dated 26 March 2002, and as modified by its Resolution, dated 20 November 2002, are as follows —

Deposit/Placement Amount
(People vs. Jaymalin, 214 SCRA 685, 692 [1992]) Dollar deposit with Citibank-Geneva $149,632.99
Although it is true that the judge who heard the witnesses testify is in a better Money market placement with Citibank, evidenced by
position to observe the witnesses on the stand and determine by their Promissory Note (PN) No. 23356 (which cancels and
demeanor whether they are telling the truth or mouthing falsehood, it does not supersedes PN No. 22526), earning 14.5% interest per
necessarily follow that a judge who was not present during the trial cannot annum (p.a.) P318,897.34
render a valid decision since he can rely on the transcript of stenographic notes
Money market placement with Citibank, evidenced by PN
taken during the trial as basis of his decision.
No. 23357 (which cancels and supersedes PN No. 22528),
Accused-appellant's contention that the trial judge did not have the earning 14.5% interest p.a. P203,150.00
opportunity to observe the conduct and demeanor of the witnesses since he Money market placement with FNCB Finance, evidenced
was not the same judge who conducted the hearing is also untenable. While it by PN No. 5757 (which cancels and supersedes PN No.
is true that the trial judge who conducted the hearing would be in a better 4952), earning 17% interest p.a. P500,000.00
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 Money market placement with FNCB Finance, evidenced
cannot render a valid and just decision since the latter can also rely on the by PN No. 5758 (which cancels and supersedes PN No.
transcribed stenographic notes taken during the trial as the basis of his 2962), earning 17% interest p.a. P500,000.00
decision. 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
(People vs. De Paz, 212 SCRA 56, 63 [1992])
respondent's transactions with petitioners, from her money market placements with petitioner
At any rate, the test to determine the value of the testimony of the witness is Citibank and petitioner FNCB Finance, to her savings and current accounts with petitioner
whether or not such is in conformity with knowledge and consistent with the Citibank, and to her dollar accounts with Citibank-Geneva. TcAECH
experience of mankind (People vs. Morre, 217 SCRA 219 [1993]). Further, the Money market placements with petitioner Citibank
credibility of witnesses can also be assessed on the basis of the substance of
their testimony and the surrounding circumstances (People v. Gonzales, 210 The history of respondent's money market placements with petitioner Citibank began on 6 December
SCRA 44 [1992]). A critical evaluation of the testimony of the prosecution 1976, when she made a placement of P500,000.00 as principal amount, which was supposed to earn an
witnesses reveals that their testimony accords with the aforementioned tests, interest of 16% p.a. and for which PN No. 20773 was issued. Respondent did not yet claim the proceeds
and carries with it the ring of truth end perforce, must be given full weight and of her placement and, instead, rolled-over or re-invested the principal and proceeds several times in the
credit. succeeding years for which new PNs were issued by petitioner Citibank to replace the ones which
matured. Petitioner Citibank accounted for respondent's original placement and the subsequent roll-
Irrefragably, by reason alone that the judge who penned the RTC Decision was not the same judge who overs thereof, as follows —
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 Maturity
deciding a case, it is not, and should not be, his only consideration. Even more vital for the trial court
 Date PN No. Cancels Date Amount Interest vs. Pua To Ching, 14 Phil. Rep., 222; Banco Español-Filipino vs. McKay & Zoeller,
27 Phil. Rep., 183). . . .
(mm/dd/yyyy) PN No. (mm/dd/yyyy) (P) (p.a.)
Since the genuineness and due execution of PNs No. 23356 and 23357 are uncontested,
12/06/1976 20773 None 01/13/1977 500,000.00 16%
respondent was able to establish prima facie that petitioner Citibank is liable to her for the
01/14/1977 21686 20773 02/08/1977 508,444.44 15% 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
02/09/1977 22526 21686 03/16/1977 313,952.59 15-3/4% 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
22528 21686 03/16/1977 200,000.00 15-3/4% Court that —
03/17/1977 23356 22526 04/20/1977 318,897.34 14-1/2% 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
23357 22528 04/20/1977 203,150.00 14-1/2% burden rests on the defendant to prove payment, rather than on the plaintiff to
Petitioner Citibank alleged that it had already paid to respondent the principal amounts and proceeds of prove non-payment. The debtor has the burden of showing with legal certainty
PNs No. 23356 and 23357, upon their maturity. Petitioner Citibank further averred that respondent used that the obligation has been discharged by payment.
the P500,000.00 from the payment of PNs No. 23356 and 23357, plus P600,000.00 sourced from her
When the existence of a debt is fully established by the evidence contained in
other funds, to open two time deposit (TD) accounts with petitioner Citibank, namely, TD Accounts No. the record, the burden of proving that it has been extinguished by payment
17783 and 17784.
devolves upon the debtor who offers such defense to the claim of the creditor.
Petitioner Citibank did not deny the existence nor questioned the authenticity of PNs No. 23356 and Where the debtor introduces some evidence of payment, the burden of going
23357 it issued in favor of respondent for her money market placements. In fact, it admitted the forward with the evidence — as distinct from the general burden of proof —
genuineness and due execution of the said PNs, but qualified that they were no longer shifts to the creditor, who is then under the duty of producing some evidence of
outstanding. 31 In Hibberd v. Rohde and McMillian, 32 this Court delineated the consequences of such an non-payment. 34
admission —

By the admission of the genuineness and due execution of an instrument, as

Reviewing the evidence on record, this Court finds that petitioner Citibank failed to satisfactorily prove
provided in this section, is meant that the party whose signature it bears admits that PNs No. 23356 and 23357 had already been paid, and that the amount so paid was actually used to
that he signed it or that it was signed by another for him with his authority; that open one of respondent's TD accounts with petitioner Citibank.
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 Petitioner Citibank presented the testimonies of two witnesses to support its contention of payment: (1)
any formal requisites required by law, such as a seal, an acknowledgment, or That of Mr. Herminio Pujeda, 35 the officer-in-charge of loans and placements at the time when the
revenue stamp, which it lacks, are waived by him. Hence, such defenses as that questioned transactions took place; and (2) that of Mr. Francisco Tan, 36 the former Assistant Vice-
the signature is a forgery (Puritan Mfg. Co. vs. Toti & Gradi, 14 N. M., 425; Cox President of Citibank, who directly dealt with respondent with regard to her deposits and loans.
vs. Northwestern Stage Co., 1 Idaho, 376; Woollen vs. Whitacre, 73 Ind.,
198; Smith vs. Ehnert, 47 Wis., 479; Faelnar vs. Escaño, 11 Phil. Rep., 92); or that The relevant portion 37 of Mr. Pujeda's testimony as to PNs No. 23356 and 23357 (referred to therein as
it was unauthorized, as in the case of an agent signing for his principal, or one Exhibits No. "47" and "48," respectively) is reproduced below —
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 Atty. Mabasa:
corporation (Merchant vs. International Banking Corporation, 6 Phil Rep.,
Okey [sic]. Now Mr. Witness, you were asked to testify in this case and this
314; Wanita vs. Rollins, 75 Miss., 253; Barnes vs. Spencer & Barnes Co., 162
case is [sic] consist [sic] of several documents involving transactions
Mich., 509); or that, in the case of the latter, that the corporation was
between the plaintiff and the defendant. Now, were you able to
authorized under its charter to sign the instrument (Merchant vs. International
make your own memorandum regarding all these
Banking Corporation, supra); or that the party charged signed the instrument in
transactions? TCEaDI
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., A Yes, based on my recollection of these facts, I did come up of [sic] the outline
83; Elbring vs. Mullen, 4 Idaho, 199; Thorp vs. Keokuk Coal Co., 48 N.Y., 253; Fire of the chronological sequence of events.
Association of Philadelphia vs. Ruby, 60 Neb., 216) are cut off by the admission
of its genuineness and due execution. Court:

The effect of the admission is such that in the case of a promissory note a prima Are you trying to say that you have personal knowledge or participation to
facie case is made for the plaintiff which dispenses with the necessity of these transactions?
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 A Yes, your Honor, I was the officer-in charge of the unit that was processing
defendant (Papa vs. Martinez, 12 Phil. Rep., 613; Chinese Chamber of Commerce these transactions. Some of the documents bear my signature.
Court: 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]
And this resume or summary that you have prepared is based on purely your from?
recollection or documents?
A She funded it directly.
A Based on documents, your Honor.
Q What are you saying Mr. Witness is that the P600,000 is a [sic] fresh money
Court: coming from Mrs. Modesta Sabeneano [sic]?
Are these documents still available now? A That is right.
A Yes, your honor. 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 —
Court:
Atty. Mabasa:
Better present the documents.
Now from the Exhibits that you have identified Mr. Tan from Exhibits "A" to
Atty. Mabasa:
"F", which are Exhibits of the plaintiff. Now, do I understand from
Yes, your Honor, that is why your Honor. you that the original amount is Five Hundred Thousand and
thereafter renewed in the succeeding exhibits?
Atty. Mabasa:
Mr. Tan:
Q Now, basing on the notes that you prepared, Mr. Witness, and according to
you basing also on your personal recollection about all the Yes, Sir.
transactions involved between Modesta Sabeniano and defendant
Atty. Mabasa:
City Bank [sic] in this case. Now, would you tell us what happened to
the money market placements of Modesta Sabeniano that you have Alright, after these Exhibits "E" and "F" matured, what happened thereafter?
earlier identified in Exhs. "47" and "48"?
Mr. Tan:
A The transactions which I said earlier were terminated and booked to time
deposits. Split into two time deposits.

Q And you are saying time deposits with what bank? Atty. Mabasa:

A With First National Citibank. Exhibits "E" and "F"?

Q Is it the same bank as Citibank, N.A.? Before anything else, it should be noted that when Mr. Pujeda's testimony before the RTC was made on
12 March 1990 and Mr. Tan's deposition in Hong Kong was conducted on 3 September 1990, more than
A Yes, sir. 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
Q And how much was the amount booked as time deposit with defendant
lapse of five years. 38 Taking into consideration the substantial length of time between the transactions
Citibank?
and the witnesses' testimonies, as well as the undeniable fact that bank officers deal with multiple
A In the amount of P500,000.00. 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
Q And outside this P500,000.00 which you said was booked out of the proceeds and the use by respondent of the proceeds thereof for opening TD accounts. This Court finds it
of Exhs. "47" and "48", were there other time deposits opened by implausible that they should remember, after all these years, this particular transaction with respondent
Mrs. Modesta Sabeniano at that time. 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
A Yes, she also opened another time deposit for P600,000.00. 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
Q So all in all Mr. Witness, sometime in April of 1978 Mrs. Modesta Sabeneano and the opening of the time deposit accounts by respondent, such as the date of payment of the two
[sic] had time deposit placements with Citibank in the amount of PNs, mode of payment, and the manner and context by which respondent relayed her instructions to
P500,000.00 which is the proceeds of Exh. "47" and "48" and another the officers of petitioner Citibank to use the proceeds of her two PNs in opening the TD
P600,000.00, is it not? accounts. ADSIaT
A Yes, sir. Moreover, while there are documentary evidences to support and trace respondent's 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 upon their maturity on 1 June 1977. Once again, respondent rolled-over several times the principal
paper trail seems to have ended with the copies of PNs No. 23356 and 23357. Although both Mr. Pujeda amounts of her money market placements with petitioner FNCB Finance, as follows —
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
Maturity
thereof, were never presented before the courts nor made part of the records of the case.
Respondent's money market placements were of substantial amounts — consisting of the principal Date PN No. Cancels Date Amount Interest
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 (mm/dd/yyyy) PN No. (mm/dd/yyyy) (P) (p.a.)
thereof.
04/29/1977 4952 None 06/01/1977 500,000.00 17%
When Mr. Pujeda testified before the RTC on 6 February 1990, 39 petitioners' counsel attempted to
4962 None 06/01/1977 600,000.00 17%
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 06/02/1977 5757 4952 08/31/1977 500,000.00 17%
the amount of P500,000.00. Respondent's 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 5758 4962 08/31/1977 500,000.00 17%
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. Pujeda's testimony on 08/17/1977 8167 5757 08/25/1978 500,000.00 14%
12 March 1990, petitioners' counsel no longer referred to the said document.
8169 5752 08/25/1978 500,000.00 14%
As respondent had established a prima facie case that petitioner Citibank is obligated to her for the As presented by the petitioner FNCB Finance, respondent rolled-over only the principal amounts
amounts stated in PNs No. 23356 and 23357, and as petitioner Citibank failed to present sufficient proof of her money market placements as she chose to receive the interest income therefrom. Petitioner
of payment of the said PNs and the use by the respondent of the proceeds thereof to open her TD FNCB Finance also pointed out that when PN No. 4962, with principal amount of P600,000.00,
accounts, this Court finds that PNs No. 23356 and 23357 are still outstanding and petitioner Citibank matured on 1 June 1977, respondent received a partial payment of the principal which, together
is still liable to respondent for the amounts stated therein.
with the interest, amounted to P102,633.33; 44 thus, only the amount of P500,000.00 from PN No.
The significance of this Court's declaration that PNs No. 23356 and 23357 are still outstanding becomes 4962 was rolled-over to PN No. 5758.
apparent in the light of petitioners' next contentions — that respondent used the proceeds of PNs No. Based on the foregoing records, the principal amounts of PNs No. 5757 and 5758, upon their maturity,
23356 and 23357, together with additional money, to open TD Accounts No. 17783 and 17784 with were rolled over to PNs No. 8167 and 8169, respectively. PN No. 8167 45 expressly canceled and
petitioner Citibank; and, subsequently, respondent pre-terminated these TD accounts and transferred superseded PN No. 5757, while PN No. 8169 46 also explicitly canceled and superseded PN No. 5758.
the proceeds thereof, amounting to P1,100,000.00, to petitioner FNCB Finance for money market Thus, it is patently erroneous for the Court of Appeals to still award to respondent the principal amounts
placements. While respondent's money market placements with petitioner FNCB Finance may be and interests covered by PNs No. 5757 and 5758 when these were already canceled and superseded. It is
traced back with definiteness to TD Accounts No. 17783 and 17784, there is only flimsy and now incumbent upon this Court to determine what subsequently happened to PNs No. 8167 and
unsubstantiated connection between the said TD accounts and the supposed proceeds paid from PNs 8169. AcISTE
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 Petitioner FNCB Finance presented four checks as proof of payment of the principal amounts and
respondent's money market placements with the latter. interests of PNs No. 8167 and 8169 upon their maturity. All the checks were payable to respondent's
savings account with petitioner Citibank, with the following details —
Money market placements with petitioner FNCB Finance
Date of Issuance Amount
According to petitioners, respondent's 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 (mm/dd/yyyy) Check No. (P) Notation
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. 09/01/1978 76962 12,833.34 Interest payment on PN#08167
17783 and 17784 were pre-terminated and petitioner Citibank (then still named First National City Bank)
issued Manager's Checks (MC) No. 199253 41 and 199251 42 for the amounts of P500,000.00 and 09/01/1978 76961 12,833.34 Interest payment on PN#08169
P600,00.00, respectively. Both MCs were payable to Citifinance (which, according to Mr. Pujeda, 43 was
09/05/1978 77035 500,000.00 Full payment of principal on PN#08167
one with and the same as petitioner FNCB Finance), with the additional notation that "A/C MODESTA R.
which is hereby cancelled
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 09/05/1978 77034 500,000.00 Full payment of principal on PN#08169
MCs were paid from the proceeds of respondent's pre-terminated TD accounts with petitioner Citibank. which is hereby cancelled
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 Then again, Checks No. 77035 and 77034 were later returned to petitioner FNCB Finance together
exchange, petitioner FNCB Finance booked the amounts received as money market placements, and with a memo, 47dated 6 September 1978, from Mr. Tan of petitioner Citibank, to a Mr. Bobby
accordingly issued PNs No. 4952 and 4962, for the amounts of P500,000.00 and P600,000.00, Mendoza of petitioner FNCB Finance. According to the memo, the two checks, in the total amount
respectively, payable to respondent's savings account with petitioner Citibank, S/A No. 25-13703-4, of P1,000,000.00, were to be returned to respondent's account with instructions to book the said
 amount in money market placements for one more year. Pursuant to the said memo, Checks No. US$ 30'244.06 Total proceeds on 25.10.1979
77035 and 77034 were invested by petitioner FNCB Finance, on behalf of respondent, in money
US$ 114'000.-- Principal Fid. Placement
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. + US$ 1'358.50 Interest at 4,125% p.a. from 12.07.-25.10.79
On 3 September 1979, petitioner FNCB Finance issued Check No. 100168, pay to the order of "Citibank
- US$ 41.17 Commission
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 US$ 115'317.33 Total proceeds on 25.10.1979
circumstances attending the supposed turn over, but on the basis of the allegations of petitioner
US$ 145'561.39 Total proceeds of both placements on 25.10.1979
Citibank itself, the proceeds of PNs No. 20138 and 20139, amounting to P1,022,916.66, was used by it to
liquidate respondent's outstanding loans. Therefore, the determination of whether or not respondent is + US$ 11'381.31 total of both current accounts
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 respondent's other deposits and money market
placements, to pay for the same. US$ 156'942.70 Total funds available

Savings and current accounts with petitioner Citibank - US$ 149'632.99 Transfer to Citibank Manila on 26.10.1979

Respondent presented and submitted before the RTC deposit slips and bank statements to prove –––––––––––––––––– (counter value of Pesos 1'102'944.78)
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 US$ 7'309.71 Balance in current accounts
withdrawals or debits from the said accounts from the time the said deposits were made.
- US$ 6'998.84 Transfer to Citibank Zuerich — ac no. 121359 on March 13,
Although the RTC and the Court of Appeals did not make any definitive findings as to the status of –––––––––––––––––– 1980
respondent's savings and current accounts with petitioner Citibank, the Decisions of both the trial and
US$ 310.87 various charges including closing charges
appellate courts effectively recognized only the P31,079.14 coming from respondent's savings account
which was used to off-set her alleged outstanding loans with petitioner Citibank. 50 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
Since both the RTC and the Court of Appeals had consistently recognized only the P31,079.14 of was used by the latter to off-set respondent's outstanding loans. The balance of respondent's accounts
respondent's savings account with petitioner Citibank, and that respondent failed to move for with Citibank-Geneva, after the remittance to petitioner Citibank in Manila, amounted to US$7,309.71,
reconsideration or to appeal this particular finding of fact by the trial and appellate courts, it is already which was subsequently expended by a transfer to another account with Citibank-Zuerich, in the
binding upon this Court. Respondent is already precluded from claiming any greater amount in her amount of US$6,998.84, and by payment of various bank charges, including closing charges, in the
savings and current accounts with petitioner Citibank. Thus, this Court shall limit itself to determining amount of US$310.87. Rightly so, both the RTC and the Court of Appeals gave more credence to the
whether or not respondent is entitled to the return of the amount of P31,079.14 should the off-set computation of Citibank-Geneva as to the status of respondent's accounts with the said bank, rather
thereof by petitioner Citibank against her supposed loans be found invalid. 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
Dollar accounts with Citibank-Geneva US$149,632.99 should the off-set thereof by petitioner Citibank against her alleged outstanding loans
Respondent made an effort of preparing and presenting before the RTC her own computations of her be found invalid. Respondent cannot claim any greater amount since she did not perfect an appeal of
money market placements and dollar accounts with Citibank-Geneva, purportedly amounting to a total the Decision of the Court of Appeals, dated 26 March 2002, which found that she is entitled only to the
of United States (US) $343,220.98, as of 23 June 1985. 51 In her Memorandum filed with the RTC, she return of the said amount, as far as her accounts with Citibank-Geneva is concerned. TcDaSI
claimed a much bigger amount of deposits and money market placements with Citibank-Geneva,
totaling US$1,336,638.65. 52 However, respondent herself also submitted as part of her formal offer of III
evidence the computation of her money market placements and dollar accounts with Citibank-Geneva Petitioner Citibank was able to
as determined by the latter. 53 Citibank-Geneva accounted for respondent's money market placements establish by preponderance of
and dollar accounts as follows — evidence the existence of
respondent's loans.
MODESTA SABENIANO &/OR
Petitioners' version of events
US$ 30'000.-- Principal Fid. Placement
In sum, the following amounts were used by petitioner Citibank to liquidate respondent's purported
+ US$ 339.06 Interest at 3,875% p.a. from 12.07.-25.10.79 outstanding loans —
- US$ 95.-- Commission (minimum) Description Amount
––––––––––––––––––
 Principal and interests of PNs No. 20138 and 20139 34509 01/02/1979 03/02/1979 100,000.00
(money market placements with petitioner FNCB Finance) P1,022,916.66
34534 01/09/1979 03/09/1979 150,000.00
Savings account with petitioner Citibank 31,079.14
34612 01/19/1979 03/16/1979 150,000.00
Dollar remittance from Citibank-Geneva (peso equivalent
Of US$149,632.99) 1,102,944.78 34741 01/26/1979 03/12/1979 100,000.00

Total P2,156,940.58 35689 02/23/1979 05/29/1979 300,000.00

According to petitioner Citibank, respondent incurred her loans under the circumstances narrated 35694 03/19/1979 05/29/1979 150,000.00
below.
35695 03/19/1979 05/29/1979 100,000.00
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 356946 03/20/1979 05/29/1979 250,000.00
several other loans in the succeeding months. Some of these loans were paid, while others were rolled-
35697 03/30/1979 05/29/1979 220,000.00
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 Total P1,920,000.00
these loans was P1,920,000.00, which could be broken down as follows —
All the PNs stated that the purpose of the loans covered thereby is "To liquidate existing
Date of Date of Date of obligation," except for PN No. 34534, which stated for its purpose "personal investment."

PN Issuance Maturity Principal Release MC 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
No. (mm/dd/yyyy) (mm/dd/yyyy) Amount (mm/dd/yyyy) No. 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
32935 07/20/1978 09/18/1978 P400,000.00 07/20/1978 220701 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
33751 10/13/1978 12/12/1978 100,000.00 Unrecovered petitioner Citibank, in the aggregate amount of P500,000.00. When PNs No. 8167 and 8169,
representing respondent's money market placements with petitioner FNCB Finance, matured and were
33798 10/19/1978 11/03/1978 100,000.00 10/19/1978 226285 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
34025 11/15/1978 01/15/1979 150,000.00 11/16/1978 226439 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
34079 11/21/1978 01/19/1979 250,000.00 11/21/1978 226467
aggregate principal amount of P500,000.00 per Deed.
34192 12/04/1978 01/18/1979 100,000.00 12/05/1978 228057
In addition to the Deeds of Assignment of her money market placements with petitioner FNCB Finance,
34402 12/26/1978 02/23/1979 300,000.00 12/26/1978 228203 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
34534 01/09/1979 03/09/1979 150,000.00 01/09/1979 228270 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
34609 01/17/1979 03/19/1979 150,000.00 01/17/1979 228357 by a Citibank-Geneva officer, bore the date 24 September 1979. 61
34740 01/30/1979 03/30/1979 220,000.00 01/30/1979 228400 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
Total P1,920,000.00 the other.
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 The first letter 62 was dated 5 April 1979, addressed to respondent and signed by Mr. Tan, as the
petitioner Citibank. As of 5 April 1979, respondent had the following outstanding PNs (second manager of petitioner Citibank, which stated, in part, that —
set), 56 the principal amount of which remained at P1,920,000.00 — Despite our repeated requests and follow-up, we regret you have not granted
Date of Issuance Date of Maturity us with any response or payment.

PN No. (mm/dd/yyyy) (mm/dd/yyyy) Principal Amount 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
34510 01/01/1979 03/02/1979 P400,000.00 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 loan. Therefore, please do not release the captioned placements upon maturity
respondent's company, MC Adore International Palace, the body of which reads — until you have received the instruction from Citibank, Manila.

This is in reply to your letter dated April 5, 1979 inviting my attention to my loan On even date, respondent sent another letter 67 to Mr. Tan of petitioner Citibank, stating that —
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 Re: S/A No. 25-225928
meantime.
and C/A No. 484-946
Please accept our Comtrust Check in the amount of P62,683.33.
This letter serves as an authority to debit whatever the outstanding balance
Please bear with us for a little while, at most ninety days. As you know, we have from my captioned accounts and credit the amount to my loan outstanding
a pending loan with the Development Bank of the Philippines in the amount of account with you.
P11-M. This loan has already been recommended for approval and would be
Unlike respondent's earlier letters, both letters, dated 21 June 1979, are printed on plain paper,
submitted to the Board of Governors. In fact, to further facilitate the early
without the letterhead of her company, MC Adore International Palace.
release of this loan, we have presented and furnished Gov. J. Tengco a xerox
copy of your letter. By 5 September 1979, respondent's outstanding and past due obligations to petitioner Citibank totaled
P2,123,843.20, representing the principal amounts plus interests. Relying on respondent's Deeds of
You will be doing our corporation a very viable service, should you grant us our Assignment, petitioner Citibank applied the proceeds of respondent's money market placements with
request for a little more time. petitioner FNCB Finance, as well as her deposit account with petitioner Citibank, to partly liquidate
respondent's outstanding loan balance, 68 as follows —
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 Respondent's outstanding obligation (principal and interest) P2,123,843.20
the letterhead of MC Adore International Palace. The pertinent paragraphs of the said letter are
reproduced below — Less: Proceeds from respondent's money market placements
with petitioner FNCB Finance (principal and interest) (1,022,916.66)
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 Deposits in respondent's bank accounts with petitioner
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 Citibank (31,079.14)
will more or less assure you of early settlement. cTECHI
––––––––––––
In this regard, please entrust to bearer, our Comtrust check for P62,683.33 to be
Balance of respondent's obligation P1,069,847.40
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. 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
This was followed by a telegram, 65 dated 5 June 1979, and received by petitioner Citibank the following effected. In the letter, Mr. Tan informed respondent that she still had a remaining past-due obligation in
day. The telegram was sent by a Dewey G. Soriano, Legal Counsel. The telegram acknowledged receipt the amount of P1,069,847.40, as of 5 September 1979, and should respondent fail to pay the amount by
of the telegram sent by petitioner Citibank regarding the "re-past due obligation" of McAdore 15 October 1979, then petitioner Citibank shall proceed to off-set the unpaid amount with respondent's
International Palace. However, it reported that respondent, the President and Chairman of MC Adore other collateral, particularly, a money market placement in Citibank-Hongkong.
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 respondent's arrival on or before 31 July 1979. 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
The next letter, 66 dated 21 June 1979, was signed by respondent herself and addressed to Mr. Bobby Finance & Investment, Inc., and requested for a statement of account covering the principal and interest
Mendoza, a Manager of petitioner FNCB Finance. Respondent wrote therein — 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.
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.
Almost three weeks later, or on 25 October 1979, a certain Atty. Moises Tolentino dropped by the office
This is to authorize you to release the accrued quarterly interests payment from of petitioner Citibank, with a letter, dated 9 October 1979, and printed on paper with the letterhead of
my captioned placements and forward directly to Citibank, Manila Attention: MC Adore International Palace, which authorized the bearer thereof to represent the respondent in
Mr. F. A. Tan, Manager, to apply to my interest payable on my outstanding loan settling the overdue account, this time, purportedly, of MC Adore International Palace Hotel. The letter
with Citibank. was signed by respondent as the President and Chairman of the Board.

Please note that the captioned two placements are continuously

pledged/hypothecated to Citibank, Manila to support my personal outstanding
Eventually, Atty. Antonio Agcaoili of Agcaoili & Associates, as counsel of petitioner Citibank, sent a As to the second set of PNs, respondent acknowledged having signed them all. However, she asserted
letter to respondent, dated 31 October 1979, informing her that petitioner Citibank had effected an off- that she only executed these PNs as part of the simulated loans she and Mr. Tan of petitioner Citibank
set using her account with Citibank-Geneva, in the amount of US$149,632.99, against her "outstanding, concocted. Respondent explained that she had a pending loan application for a big amount with the
overdue, demandable and unpaid obligation" to petitioner Citibank. Atty. Agcaoili claimed therein that Development Bank of the Philippines (DBP), and when Mr. Tan found out about this, he suggested that
the compensation or off-set was made pursuant to and in accordance with the provisions of Articles they could make it appear that the respondent had outstanding loans with petitioner Citibank and the
1278 through 1290 of the Civil Code. He further declared that respondent's obligation to petitioner latter was already demanding payment thereof; this might persuade DBP to approve respondent's loan
Citibank was now fully paid and liquidated. aEDCAH 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 respondent's loans with the
Unfortunately, on 7 October 1987, a fire gutted the 7th floor of petitioner Citibank's building at Paseo de latter. On her own copies of the said PNs, respondent wrote by hand the notation, "This isa (sic)
Roxas St., Makati, Metro Manila. Petitioners submitted a Certification 70 to this effect, dated 17 January simulated non-negotiable note, signed copy given to Mr. Tan., (sic) per agreement to be shown to DBP
1991, issued by the Chief of the Arson Investigation Section, Fire District III, Makati Fire Station, representative. itwill (sic) be returned to me if the P11=M (sic) loan for MC Adore Palace Hotel is
Metropolitan Police Force. The 7th floor of petitioner Citibank's building housed its Control Division, approved by DBP." 77
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 Findings of this Court as to the existence of the loans
counsel of petitioner Citibank, forwarded them to the Control Division. The original copies of the MCs,
After going through the testimonial and documentary evidence presented by both sides to this case, it is
which supposedly represent the proceeds of the first set of PNs, as well as that of other documentary
this Court's assessment that respondent did indeed have outstanding loans with petitioner Citibank at
evidence related to the case, were among those burned in the said fire. 71
the time it effected the off-set or compensation on 25 July 1979 (using respondent's savings deposit with
Respondent's version of events petitioner Citibank), 5 September 1979 (using the proceeds of respondent's money market placements
with petitioner FNCB Finance) and 26 October 1979 (using respondent's dollar accounts remitted from
Respondent disputed petitioners' narration of the circumstances surrounding her loans with petitioner Citibank-Geneva). The totality of petitioners' evidence as to the existence of the said loans
Citibank and the alleged authority she gave for the off-set or compensation of her money market preponderates over respondent's. Preponderant evidence means that, as a whole, the evidence
placements and deposit accounts with petitioners against her loan obligation. adduced by one side outweighs that of the adverse party. 78
Respondent denied outright executing the first set of PNs, except for one (PN No. 34534 in particular). Respondent's outstanding obligation for P1,920,000.00 had been sufficiently documented by petitioner
Although she admitted that she obtained several loans from petitioner Citibank, these only amounted Citibank.
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 second set of PNs is a mere renewal of the prior loans originally covered by the first set of PNs,
the Deeds of Assignment of her money market placements with petitioner FNCB Finance as except for PN No. 34534. The first set of PNs is supported, in turn, by the existence of the MCs that
security. 72 To prove payment of these loans, respondent presented two provisional receipts of represent the proceeds thereof received by the respondent. AaEcHC
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 It bears to emphasize that the proceeds of the loans were paid to respondent in MCs, with the
amount of P500,744.00 and P500,000.00, respectively, for "liquidation of loan." respondent specifically named as payee. MCs checks are drawn by the bank's manager upon the bank
itself and regarded to be as good as the money it represents. 79 Moreover, the MCs were crossed
She borrowed another P150,000.00 from petitioner Citibank for personal investment, and for which she checks, with the words "Payee's Account Only."
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 In general, a crossed check cannot be presented to the drawee bank for payment in cash. Instead, the
FNCB Finance. In turn, she used the very same money market placement with petitioner FNCB Finance check can only be deposited with the payee's bank which, in turn, must present it for payment against
as security for her P150,000.00 loan from petitioner Citibank. When she failed to pay the loan when it the drawee bank in the course of normal banking hours. The crossed check cannot be presented for
became due, petitioner Citibank allegedly forfeited her money market placement with petitioner FNCB payment, but it can only be deposited and the drawee bank may only pay to another bank in the payee's
Finance and, thus, the loan was already paid. 75 or indorser's account. 80 The effect of crossing a check was described by this Court in Philippine
Commercial International Bank v. Court of Appeals 81 —
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 [T]he crossing of a check with the phrase "Payee's Account Only" is a warning
recounted in the preceding paragraph, respondent admitted to obtaining a loan of P150,000.00, that the check should be deposited in the account of the payee. Thus, it is the
covered by PN No. 34534, and receiving MC No. 228270 representing the proceeds thereof, but claimed duty of the collecting bank PCI Bank to ascertain that the check be deposited in
that she already paid the same. She denied ever receiving MCs No. 220701 (for the loan of P400,000.00, payee's account only. It is bound to scrutinize the check and to know its
covered by PN No. 33935) and No. 226467 (for the loan of P250,000.00, covered by PN No. 34079), and depositors before it can make the clearing indorsement "all prior indorsements
pointed out that the checks did not bear her indorsements. She did not deny receiving all other checks and/or lack of indorsement guaranteed."
but she interposed that she received these checks, not as proceeds of loans, but as payment of the
The crossed MCs presented by petitioner Bank were indeed deposited in several different bank accounts
principal amounts and/or interests from her money market placements with petitioner Citibank. She
and cleared by the Clearing Office of the Central Bank of the Philippines, as evidenced by the stamp
also raised doubts as to the notation on each of the checks that reads "RE: Proceeds of
marks and notations on the said checks. The crossed MCs are already in the possession of petitioner
PN#[corresponding PN No.]," saying that such notation did not appear on the MCs when she originally
Citibank, the drawee bank, which was ultimately responsible for the payment of the amount stated in
received them and that the notation appears to have been written by a typewriter different from that
the checks. Given that a check is more than just an instrument of credit used in commercial transactions
used in writing all other information on the checks (i.e., date, payee, and amount). 76 She even testified
for it also serves as a receipt or evidence for the drawee bank of the cancellation of the said check due to
that MCs were not supposed to bear notations indicating the purpose for which they were issued.
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, indeed, the MCs were deposited in accounts other than respondent's, then the respondent would have a
the respondent. cause of action against BPI. 90

This Court finds applicable herein the presumptions that private transactions have been fair and BPI further stamped its guarantee on the back of the checks to the effect that, "All prior endorsement
regular, 83 and that the ordinary course of business has been followed. 84 There is no question that the and/or Lack of endorsement guaranteed." Thus, BPI became the indorser of the MCs, and assumed all
loan transaction between petitioner Citibank and the respondent is a private transaction. The the warranties of an indorser, 91specifically, that the checks were genuine and in all respects what they
transactions revolving around the crossed MCs — from their issuance by petitioner Citibank to purported to be; that it had a good title to the checks; that all prior parties had capacity to contract; and
respondent as payment of the proceeds of her loans; to its deposit in respondent's accounts with several that the checks were, at the time of their indorsement, valid and subsisting. 92 So even if the MCs
different banks; to the clearing of the MCs by an independent clearing house; and finally, to the deposited by BPI's client, whether it be by respondent herself or some other person, lacked the
payment of the MCs by petitioner Citibank as the drawee bank of the said checks — are all private necessary indorsement, BPI, as the collecting bank, is bound by its warranties as an indorser and cannot
transactions which shall be presumed to have been fair and regular to all the parties concerned. In set up the defense of lack of indorsement as against petitioner Citibank, the drawee bank. 93
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 respondent's accounts, Furthermore, respondent's bare and unsubstantiated denial of receipt of the MCs in question and their
submitting them for clearing, and their eventual payment and cancellation. 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)
The afore-stated presumptions are disputable, meaning, they are satisfactory if uncontradicted, but were deposited. Likewise, MC No. 226467 was deposited in Account No. 0121-002-43 of BPI Cubao
may be contradicted and overcome by other evidence. 85 Respondent, however, was unable to present Branch, to which MCs No. 226285 and 226439 (which respondent admitted to receiving as proceeds
sufficient and credible evidence to dispute these presumptions. 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
It should be recalled that out of the nine MCs presented by petitioner Citibank, respondent admitted to
proceeds of another check deposited in the very same account. HDCTAc
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 Another inconsistency in respondent's denial of receipt of MC No. 226467 and her deposit of the same in
principal amounts and interests from her money market placements. 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
Respondent admitted receiving MC No. 228270 representing the proceeds of her loan covered by PN
split into three money market placements, and that MC No. 226467 represented the return on her
No. 34534. Although the principal amount of the loan is P150,000.00, respondent only received
investment from one of these placements. 94 Because of her Exhibit "HHH," respondent effectively
P146,312.50, because the interest and handling fee on the loan transaction were already deducted
admitted receipt of MC No. 226467, although for reasons other than as proceeds of a loan.
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 Neither can this Court give credence to respondent's contention that the notations on the MCs, stating
the signature of respondent at the back. 88 And, although respondent would later admit that she did that they were the proceeds of particular PNs, were not there when she received the checks and that the
sign PN No. 34534 and received MC No. 228270 as proceeds of the loan extended to her by petitioner notations appeared to be written by a typewriter different from that used to write the other information
Citibank, she contradicted herself when, in an earlier testimony, she claimed that PN No. 34534 was on the checks. Once more, respondent's allegations were uncorroborated by any other evidence. Her
among the PNs she executed as simulated loans with petitioner Citibank. 89 and her counsel's 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
Respondent denied ever receiving MCs No. 220701 and 226467. However, considering that the said
considering that it constitutes a mere opinion on the appearance of the notation by a witness who does
checks were crossed for payee's account only, and that they were actually deposited, cleared, and paid,
not possess the necessary expertise on the matter. In addition, the notations on the MCs were written
then the presumption would be that the said checks were properly deposited to the account of
using both capital and small letters, while the other information on the checks were written using capital
respondent, who was clearly named the payee in the checks. Respondent's bare allegations that she did
letters only, such difference could easily confuse an untrained eye and lead to a hasty conclusion that
not receive the two checks fail to convince this Court, for to sustain her, would be for this Court to
they were written by different typewriters.
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, Respondent's testimony, that based on her experience transacting with banks, the MCs were not
but also BPI, which accepted the checks for deposit, and the Central Bank of the Philippines, which supposed to include notations on the purpose for which the checks were issued, also deserves scant
cleared the checks. It falls upon the respondent to overcome or dispute the presumption that the consideration. While respondent may have extensive experience dealing with banks, it still does not
crossed checks were issued, accepted for deposit, cleared, and paid for by the banks involved following qualify her as a competent witness on banking procedures and practices. Her testimony on this matter is
the ordinary course of their business. 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
The mere fact that MCs No. 220701 and 226467 do not bear respondent's signature at the back does not
disputed by respondent, also bear similar notations that state the reason for which they were issued.
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 Respondent presented several more pieces of evidence to substantiate her claim that she received MCs
Branch. Once again, it must be noted that the MCs were crossed, for payee's account only, and the No. 226285, 226439, 226467, 226057, 228357, and 228400, not as proceeds of her loans from petitioner
payee named in both checks was none other than respondent. The crossing of the MCs was already a Citibank, but as the return of the principal amounts and payment of interests from her money market
warning to BPI to receive said checks for deposit only in respondent's account. It was up to BPI to verify placements with petitioners. Part of respondent's exhibits were personal checks 95 drawn by
whether it was receiving the crossed MCs in accordance with the instructions on the face thereof. If, 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 respondent's issuance and No. 12723, dated 10 November 1978, both of petitioner Citibank and signed by Mr. Tan, for the
thereof, but there was nothing on the face of the checks that would reveal the purpose for which they amounts of P500,744.00 and P500,000.00, respectively. While these provisional receipts did state that
were issued and that they were actually invested in money market placements as respondent claimed. Mr. Tan, on behalf of petitioner Citibank, received respondent's checks as payment for her loans, they
failed to specifically identify which loans were actually paid. Petitioner Citibank was able to present
Respondent further submitted handwritten notes that purportedly computed and presented the returns evidence that respondent had executed several PNs in the years 1978 and 1979 to cover the loans she
on her money market placements, corresponding to the amount stated in the MCs she received from secured from the said bank. Petitioner Citibank did admit that respondent was able to pay for some of
petitioner Citibank. Exhibit "HHH-1" 96 was a handwritten note, which respondent attributed to Mr. Tan these PNs, and what it identified as the first and second sets of PNs were only those which remained
of petitioner Citibank, showing the breakdown of her BPI Check for P500,000.00 into three different unpaid. It thus became incumbent upon respondent to prove that the checks received by Mr. Tan were
money market placements with petitioner Citibank. This Court, however, noticed several factors which actually applied to the PNs in either the first or second set; a fact that, unfortunately, cannot be
render the note highly suspect. One, it was written on the reversed side of Provisional Receipt No. 12724 determined from the provisional receipts submitted by respondent since they only generally stated that
of petitioner Citibank which bore the initials of Mr. Tan acknowledging receipt of respondent's BPI the checks received by Mr. Tan were payment for respondent's loans.
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 Mr. Tan, in his deposition, further explained that provisional receipts were issued when payment to the
Check No. 120989 for P500,000.00 was supposed to be invested in three money market placements bank was made using checks, since the checks would still be subject to clearing. The purpose for the
with petitioner Citibank for the period of 60 days. Since all these money market placements were made provisional receipts was merely to acknowledge the delivery of the checks to the possession of the bank,
through one check deposited on the same day, 10 November 1978, it made no sense that the but not yet of payment. 99 This bank practice finds legitimacy in the pronouncement of this Court that a
handwritten note at the back of Provisional Receipt No. 12724 provided for different dates of maturity check, whether an MC or an ordinary check, is not legal tender and, therefore, cannot constitute valid
for each of the money market placements (i.e., 16 November 1978, 17 January 1979, and 21 November tender of payment. In Philippine Airlines, Inc. v. Court of Appeals, 100 this Court elucidated that:
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 Since a negotiable instrument is only a substitute for money and not money,
handwritten note — P145,000.00, P145,000.00 and P242,000.00 — totaled P532,000.00, and was the delivery of such an instrument does not, by itself, operate as payment (Sec.
obviously in excess of the P500,000.00 acknowledged on the face of Provisional Receipt No. 12724. 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
Exhibits "III" and "III-1," the front and bank pages of a handwritten note of Mr. Bobby Mendoza of be refused receipt by the obligee or creditor. Mere delivery of checks does not
petitioner FNCB Finance, 98 also did not deserve much evidentiary weight, and this Court cannot rely on discharge the obligation under a judgment. The obligation is not extinguished
the truth and accuracy of the computations presented therein. Mr. Mendoza was not presented as a and remains suspended until the payment by commercial document is actually
witness during the trial before the RTC, so that the document was not properly authenticated nor its realized (Art. 1249, Civil Code, par. 3).
contents sufficiently explained. No one was able to competently identify whether the initials as
appearing on the note were actually Mr. Mendoza's. 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.
Also, going by the information on the front page of the note, this Court observes that payment of
respondent's alleged money market placements with petitioner FNCB Finance were made using As for PN No. 34534, respondent asserted payment thereof at two separate instances by two different
Citytrust Checks; the MCs in question, including MC No. 228057, were issued by petitioner Citibank. means. In her formal offer of exhibits, respondent submitted a deposit slip of petitioner Citibank, dated
Although Citytrust (formerly Feati Bank & Trust Co.), petitioner FNCB Finance, and petitioner Citibank 11 August 1978, evidencing the deposit of BPI Check No. 5785 for P150,000.00. 101 In her Formal Offer
may be affiliates of one another, they each remained separate and distinct corporations, each having its of Documentary Exhibits, dated 7 July 1989, respondent stated that the purpose for the presentation of
own financial system and records. Thus, this Court cannot simply assume that one corporation, such as the said deposit slip was to prove that she already paid her loan covered by PN No. 34534. 102 In her
petitioner Citibank or Citytrust, can issue a check to discharge an obligation of petitioner FNCB Finance. testimony before the RTC three years later, on 28 November 1991, she changed her story. This time she
It should be recalled that when petitioner FNCB Finance paid for respondent's money market narrated that the loan covered by PN No. 34534 was secured by her money market placement with
placements, covered by its PNs No. 8167 and 8169, as well as PNs No. 20138 and 20139, petitioner FNCB petitioner FNCB Finance, and when she failed to pay the said PN when it became due, the security was
Finance issued its own checks. cCSHET applied to the loan, therefore, the loan was considered paid. 103 Given the foregoing, respondent's
assertion of payment of PN No. 34534 is extremely dubious.
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 According to petitioner Citibank, the PNs in the second set, except for PN No. 34534, were mere
Finance, acknowledging the principal amounts of the investments, and stating the applicable interest renewals of the unpaid PNs in the first set, which was why the PNs stated that they were for the purpose
rates, as well as the dates of their of issuance and maturity. After respondent had so meticulously of liquidating existing obligations. PN No. 34534, however, which was part of the first set, was still valid
reconstructed her other money market placements with petitioners and consolidated the documentary and subsisting and so it was included in the second set without need for its renewal, and it still being the
evidence thereon, she came surprisingly short of offering similar details and substantiation for these original PN for that particular loan, its stated purpose was for personal investment. 104 Respondent
particular money market placements. 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
Since this Court is satisfied that respondent indeed received the proceeds of the first set of PNs, then it greater chance of being approved if they made it appear that respondent urgently needed the money
proceeds to analyze her evidence of payment thereof. because petitioner Citibank was already demanding payment for her simulated loans.
In support of respondent's assertion that she had already paid whatever loans she may have had with Respondent's defense of simulated loans to escape liability for the second set of PNs is truly a novel one.
petitioner Citibank, she presented as evidence Provisional Receipts No. 19471, dated 11 August 1978, It is regrettable, however, that she was unable to substantiate the same. Yet again, respondent's version
of events is totally based on her own uncorroborated testimony. The notations on the second set of Ms. Renee Rubio worked for petitioner Citibank for 20 years. She rose from the ranks, initially working
PNs, that they were non-negotiable simulated notes, were admittedly made by respondent herself and as a secretary in the Personnel Group; then as a secretary to the Personnel Group Head; a Service
were, thus, self-serving. Equally self-serving was respondent's letter, written on 7 October 1985, or more Assistant with the Marketing Group, in 1972 to 1974, dealing directly with corporate and individual
than six years after the execution of the second set of PNs, in which she demanded return of the clients who, among other things, secured loans from petitioner Citibank; the Head of the Collection
simulated or fictitious PNs, together with the letters relating thereto, which Mr. Tan purportedly asked Group of the Foreign Department in 1974 to 1976; the Head of the Money Transfer Unit in 1976 to 1978;
her to execute. Respondent further failed to present any proof of her alleged loan application with the the Head of the Loans and Placements Unit up to the early 1980s; and, thereafter, she established
DBP, and of any circumstance or correspondence wherein the simulated or fictitious PNs were indeed operations training for petitioner Citibank in the Asia-Pacific Region responsible for the training of the
used for their supposed purpose. EcTDCI 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
In contrast, petitioner Citibank, as supported by the testimonies of its officers and available an individual or corporation. Petitioner Citibank has a worldwide policy that requires a credit committee,
documentation, consistently treated the said PNs as regular loans — accepted, approved, and paid in composed of a minimum of three people, which would approve the loan and amount thereof. There can
the ordinary course of its business. 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
The PNs executed by the respondent in favor of petitioner Citibank to cover her loans were duly-filled
sent to the signature verifier who would validate the signatures therein against those appearing in the
out and signed, including the disclosure statement found at the back of the said PNs, in adherence to
signature cards previously submitted by the client to the bank. The Operations Unit will check and
the Central Bank requirement to disclose the full finance charges to a loan granted to borrowers.
review the documents, including the PNs, if it is a clean loan, and securities and deposits, if it is
Mr. Tan, then an account officer with the Marketing Department of petitioner Citibank, testified that he collateralized. The loan is then recorded in the General Ledger. The Loans and Placements Department
dealt directly with respondent; he facilitated the loans; and the PNs, at least in the second set, were will not book the loans without the PNs. When the PNs are liquidated, whether they are paid or rolled-
signed by respondent in his presence. 105 over, they are returned to the client. 109 Ms. Rubio further explained that she was familiar with
respondent's accounts since, while she was still the Head of the Loan and Placements Unit, she was
Mr. Pujeda, the officer who was previously in charge of loans and placements, confirmed that the asked by Mr. Tan to prepare a list of respondent's outstanding obligations. 110 She thus calculated
signatures on the PNs were verified against respondent's specimen signature with the bank. 106 respondent's outstanding loans, which was sent as an attachment to Mr. Tan's letter to respondent,
dated 28 September 1979, and presented before the RTC as Exhibits "34-B" and "34-C." 111
Ms. Cristina Dondoyano, who worked at petitioner Citibank as a loan processor, was responsible for
booking respondent's loans. Booking the loans means recording it in the General Ledger. She explained Lastly, the exchange of letters between petitioner Citibank and respondent, as well as the letters sent by
the procedure for booking loans, as follows: The account officer, in the Marketing Department, deals other people working for respondent, had consistently recognized that respondent owed petitioner
directly with the clients who wish to borrow money from petitioner Citibank. The Marketing Citibank money.
Department will forward a loan booking checklist, together with the borrowing client's PNs and other
supporting documents, to the loan pre-processor, who will check whether the details in the loan In consideration of the foregoing discussion, this Court finds that the preponderance of evidence
booking checklist are the same as those in the PNs. The documents are then sent to Signature Control supports the existence of the respondent's loans, in the principal sum of P1,920,000.00, as of 5
for verification of the client's signature in the PNs, after which, they are returned to the loan pre- September 1979. While it is well-settled that the term "preponderance of evidence" should not be
processor, to be forwarded finally to the loan processor. The loan processor shall book the loan in the wholly dependent on the number of witnesses, there are certain instances when the number of
General Ledger, indicating therein the client name, loan amount, interest rate, maturity date, and the witnesses become the determining factor —
corresponding PN number. Since she booked respondent's loans personally, Ms. Dondoyano testified
The preponderance of evidence may be determined, under certain conditions,
that she saw the original PNs. In 1986, Atty. Fernandez of petitioner Citibank requested her to prepare
by the number of witnesses testifying to a particular fact or state of facts. For
an accounting of respondent's loans, which she did, and which was presented as Exhibit "120" for the
instance, one or two witnesses may testify to a given state of facts, and six or
petitioners. The figures from the said exhibit were culled from the bookings in the General Ledger, a fact
seven witnesses of equal candor, fairness, intelligence, and truthfulness, and
which respondent's counsel was even willing to stipulate. 107
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
Ms. Teresita Glorioso was an Investigation and Reconcilement Clerk at the Control Department of vs. Hines, 100 Tenn. 524, 66 Am. St. Rep., 761.) 112
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 Best evidence rule
documents are actually done by people at the Operations Department. At the end of the day or during This Court disagrees in the pronouncement made by the Court of Appeals summarily dismissing the
the day, the original copies of all bank documents, not just those pertaining to loans, are microfilmed. documentary evidence submitted by petitioners based on its broad and indiscriminate application of the
She refuted the possibility that insertions could be made in the microfilm because the microfilm is best evidence rule.
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 In general, the best evidence rule requires that the highest available degree of proof must be produced.
machine only the following day for use, until the spool is full. This is the microfilming procedure Accordingly, for documentary evidence, the contents of a document are best proved by the production
followed everyday. When the microfilm spool is already full, the microfilm is developed, then sent to the of the document itself, 113 to the exclusion of any secondary or substitutionary evidence. 114
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 The best evidence rule has been made part of the revised Rules of Court, Rule 130, Section 3, which
microfilms with the original documents; a random review of the contents is done on every role of reads —
microfilm. 108
 SEC. 3. Original document must be produced; exceptions. — When the subject of exception of PN No. 34534) never existed, while the PNs in the second set (again, excluding PN No.
inquiry is the contents of a document, no evidence shall be admissible other 34534) were merely executed to cover simulated loan transactions. As for the MCs representing the
than the original document itself, except in the following cases: 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
(a) When the original has been lost or destroyed, or cannot be produced in through her representatives to Mr. Tan of petitioner Citibank acknowledging the loans, except that she
court, without bad faith on the part of the offeror; 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
(b) When the original is in the custody or under the control of the party against
purpose for which the documents were executed, matters which are, undoubtedly, external to the
whom the evidence is offered, and the latter fails to produce it after reasonable
documents, and which had nothing to do with the contents thereof.
notice;
Alternatively, even if it is granted that the best evidence rule should apply to the evidence presented by
(c) When the original consists of numerous accounts or other documents which
petitioners regarding the existence of respondent's loans, it should be borne in mind that the rule
cannot be examined in court without great loss of time and the fact sought to
admits of the following exceptions under Rule 130, Section 5 of the revised Rules of Court —
be established from them is only the general result of the whole; and ISADET

(d) When the original is a public record in the custody of a public officer or is
recorded in a public office. SEC. 5. When the original document is unavailable. — When the original
document has been lost or destroyed, or cannot be produced in court, the
As the afore-quoted provision states, the best evidence rule applies only when the subject of the
offeror, upon proof of its execution or existence and the cause of its
inquiry is the contents of the document. The scope of the rule is more extensively explained thus —
unavailability without bad faith on his part, may prove its contents by a copy, or
But even with respect to documentary evidence, the best evidence rule applies by a recital of its contents in some authentic document, or by the testimony of
only when the content of such document is the subject of the inquiry. Where witnesses in the order stated.
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 The execution or existence of the original copies of the documents was established through the
evidence rule does not apply and testimonial evidence is admissible (5 Moran, testimonies of witnesses, such as Mr. Tan, before whom most of the documents were personally
op. cit., pp. 76-66; 4 Martin, op. cit., p. 78). Any other substitutionary evidence is executed by respondent. The original PNs also went through the whole loan booking system of
likewise admissible without need for accounting for the original. 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
Thus, when a document is presented to prove its existence or condition it is were seen by Ms. Dondoyano, the processor, who recorded them in the General Ledger. Mr. Pujeda
offered not as documentary, but as real, evidence. Parol evidence of the fact of personally saw the original MCs, proving respondent's receipt of the proceeds of her loans from
execution of the documents is allowed (Hernaez, et al. vs. McGrath, etc., et al., petitioner Citibank, when he helped Attys. Cleofe and Fernandez, the bank's legal counsels, to
91 Phil 565). . . . 115 reconstruct the records of respondent's 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
In Estrada v. Desierto, 116 this Court had occasion to rule that — original MCs were subsequently turned over to the Control and Investigation Division of petitioner
It is true that the Court relied not upon the original but only copy of the Angara Citibank. 118
Diary as published in the Philippine Daily Inquirer on February 4-6, 2001. In
It was only petitioner FNCB Finance who claimed that they lost the original copies of the PNs when it
doing so, the Court, did not, however, violate the best evidence rule. Wigmore, in
moved to a new office. Citibank did not make a similar contention; instead, it explained that the original
his book on evidence, states that:
copies of the PNs were returned to the borrower upon liquidation of the loan, either through payment or
"Production of the original may be dispensed with, in the trial court's discretion, roll-over. Petitioner Citibank proffered the excuse that they were still looking for the documents in their
whenever in the case in hand the opponent does not bona fide dispute the storage or warehouse to explain the delay and difficulty in the retrieval thereof, but not their absence or
contents of the document and no other useful purpose will be served by loss. The original documents in this case, such as the MCs and letters, were destroyed and, thus,
requiring production. unavailable for presentation before the RTC only on 7 October 1987, when a fire broke out on the 7th
floor of the office building of petitioner Citibank. There is no showing that the fire was intentionally set.
xxx xxx xxx 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
"In several Canadian provinces, the principle of unavailability has been for cases in which petitioner Citibank was involved.
abandoned, for certain documents in which ordinarily no real dispute arised.
This measure is a sensible and progressive one and deserves universal adoption The foregoing would have been sufficient to allow the presentation of photocopies or microfilm copies
(post, sec. 1233). Its essential feature is that a copy may be used unconditionally, of the PNs, MCs, and letters by the petitioners as secondary evidence to establish the existence of
if the opponent has been given an opportunity to inspect it." (Emphasis supplied.) respondent's loans, as an exception to the best evidence rule. HcDaAI

This Court did not violate the best evidence rule when it considered and weighed in evidence the The impact of the Decision of the Court of Appeals in the Dy case
photocopies and microfilm copies of the PNs, MCs, and letters submitted by the petitioners to establish In its assailed Decision, the Court of Appeals made the following pronouncement —
the existence of respondent's loans. The terms or contents of these documents were never the point of
contention in the Petition at bar. It was respondent's position that the PNs in the first set (with the
 Besides, We find the declaration and conclusions of this Court in CA-G.R. CV basic rule of evidence, however, states that, "Evidence that one did or did not do a certain thing at one
No. 15934 entitled Sps. Dr. Ricardo L. Dy and Rosalind O. Dy vs. City Bank, N.A., time is not admissible to prove that he did or did not do the same or similar thing at another time; but it
et al, promulgated on 15 January 1990, as disturbing taking into consideration may be received to prove a specific intent or knowledge, identity, plan, system, scheme, habit, custom
the similarities of the fraud, machinations, and deceits employed by the or usage, and the like." 120 The rationale for the rule is explained thus —
defendant-appellant Citibank and its Account Manager Francisco Tan.
The rule is founded upon reason, public policy, justice and judicial convenience.
Worthy of note is the fact that Our declarations and conclusions against The fact that a person has committed the same or similar acts at some prior
Citibank and the person of Francisco Tan in CA-G.R. CV No. 15934 were time affords, as a general rule, no logical guaranty that he committed the act in
affirmed in toto by the Highest Magistrate in a Minute Resolution dated 22 question. This is so because, subjectively, a man's mind and even his modes of
August 1990 entitled Citibank, N.A., vs. Court of Appeals, G.R. 93350. 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
As the factual milieu of the present appeal created reasonable doubts as to different way. Besides, if evidence of similar acts are to be invariably admitted,
whether the nine (9) Promissory Notes were indeed executed with they will give rise to a multiplicity of collateral issues and will subject the
considerations, the doubts, coupled by the findings and conclusions of this defendant to surprise as well as confuse the court and prolong the trial. 121
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 The factual backgrounds of the two cases are so different and unrelated that the Dy case cannot
Finance. 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
What this Court truly finds disturbing is the significance given by the Court of Appeals in its assailed case.
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. IV
The liquidation of respondent's
Although petitioner Citibank and its officer, Mr. Tan, were also involved in the Dy case, that is about the
outstanding loans were valid in so
only connection between the Dy case and the one at bar. Not only did the Dy case tackle transactions
far as petitioner Citibank used
between parties other than the parties presently before this Court, but the transactions are absolutely
respondent's savings account with
independent and unrelated to those in the instant Petition.
the bank and her money market
In the Dy case, Severino Chua Caedo managed to obtain loans from herein petitioner Citibank placements with petitioner FNCB
amounting to P7,000,000.00, secured to the extent of P5,000,000.00 by a Third Party Real Estate Finance; but illegal and void in so
Mortgage of the properties of Caedo's aunt, Rosalind Dy. It turned out that Rosalind Dy and her husband far as petitioner Citibank used
were unaware of the said loans and the mortgage of their properties. The transactions were carried out respondent's dollar accounts with
exclusively between Caedo and Mr. Tan of petitioner Citibank. The RTC found Mr. Tan guilty of fraud for Citibank-Geneva.
his participation in the questionable transactions, essentially because he allowed Caedo to take out the Savings Account with petitioner Citibank
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 Compensation is a recognized mode of extinguishing obligations. Relevant provisions of the Civil Code
were approved by the signature verifier since the signature cards against which they were compared to provides —
were also forged. Neither the RTC nor the Court of Appeals, however, categorically declared Mr. Tan
Art. 1278. Compensation shall take place when two persons, in their own right,
personally responsible for the forgeries, which, in the narration of the facts, were more likely committed
are creditors and debtors of each other.
by Caedo.
Art. 1279. In order that compensation may be proper, it is necessary;
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 (1) That each one of the obligors be bound principally, and that he be at the
raise suspicion as to the authenticity of her signatures on certain documents, these were nothing more same time a principal creditor of the other;
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 (2) That both debts consist in a sum of money, or if the things due are
fraud or forgery was committed, or how Mr. Tan could have been directly responsible for the same. consumable, they be of the same kind, and also of the same quality if the latter
has been stated; DISEaC
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 (3) That the two debts be due;
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 (4) That they be liquidated and demandable;
wrongdoing or misconduct on the part of herein petitioner Citibank and Mr. Tan. Any finding of
(5) That over neither of them there be any retention or controversy,
wrongdoing or misconduct as against herein petitioners should be made based on the factual
commenced by third persons and communicated in due time to the debtor.
background and pieces of evidence submitted in this case, not those in another case.
There is little controversy when it comes to the right of petitioner Citibank to compensate respondent's
It is apparent that the Court of Appeals took judicial notice of the Dy case not as a legal precedent for
outstanding loans with her deposit account. As already found by this Court, petitioner Citibank was the
the present case, but rather as evidence of similar acts committed by petitioner Citibank and Mr. Tan. A
creditor of respondent for her outstanding loans. At the same time, respondent was the creditor of On the evidentiary value of these documents, it should be recalled that the
petitioner Citibank, as far as her deposit account was concerned, since bank deposits, whether fixed, notarization of a private document converts it into a public one and renders it
savings, or current, should be considered as simple loan or mutuum by the depositor to the banking admissible in court without further proof of its authenticity (Joson vs. Baltazar,
institution. 122 Both debts consist in sums of money. By June 1979, all of respondent's PNs in the second 194 SCRA 114 [1991]). This is so because a public document duly executed and
set had matured and became demandable, while respondent's savings account was demandable entered in the proper registry is presumed to be valid and genuine until the
anytime. Neither was there any retention or controversy over the PNs and the deposit account contrary is shown by clear and convincing proof (Asido vs. Guzman, 57 Phil. 652
commenced by a third person and communicated in due time to the debtor concerned. Compensation [1918]; U.S. vs. Enriquez, 1 Phil 241 [1902]; Favor vs. Court of Appeals, 194 SCRA
takes place by operation of law, 123 therefore, even in the absence of an expressed authority from 308 [1991]). As such, the party challenging the recital of the document must
respondent, petitioner Citibank had the right to effect, on 25 June 1979, the partial compensation or off- prove his claim with clear and convincing evidence (Diaz vs. Court of Appeals,
set of respondent's outstanding loans with her deposit account, amounting to P31,079.14. 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
Money market placements with FNCB Finance constituted prima facie evidence of the execution thereof. Thus, the burden of refuting this presumption
Things though are not as simple and as straightforward as regards to the money market placements and fell on respondent. She could have presented evidence of any defect or irregularity in the execution of
bank account used by petitioner Citibank to complete the compensation or off-set of respondent's the said documents 125 or raised questions as to the verity of the notary public's acknowledgment and
outstanding loans, which came from persons other than petitioner Citibank. 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
Respondent's money market placements were with petitioner FNCB Finance, and after several roll- security were already paid. And, she assailed the Deeds of Assignment, dated 25 August 1978, with
overs, they were ultimately covered by PNs No. 20138 and 20139, which, by 3 September 1979, the date nothing more than her bare denial of execution thereof, hardly the clear and convincing evidence
the check for the proceeds of the said PNs were issued, amounted to P1,022,916.66, inclusive of the required to trounce the presumption of due execution of a notarized document. IHaSED
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 Petitioners not only presented the notarized Deeds of Assignment, but even secured certified literal
creditor and respondent the debtor. Consequently, legal compensation, under Article 1278 of the Civil copies thereof from the National Archives. 127 Mr. Renato Medua, an archivist, working at the Records
Code, would not apply since the first requirement for a valid compensation, that each one of the Management and Archives Office of the National Library, testified that the copies of the Deeds
obligors be bound principally, and that he be at the same time a principal creditor of the other, was not presented before the RTC were certified literal copies of those contained in the Notarial Registries of the
met. 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
What petitioner Citibank actually did was to exercise its rights to the proceeds of respondent's money Deeds of Assignment, because the Department of Justice (DOJ) Circular No. 97, dated 8 November
market placements with petitioner FNCB Finance by virtue of the Deeds of Assignment executed by 1968, prohibits the bringing of original documents to the courts to prevent the loss of irreplaceable and
respondent in its favor. priceless documents. 128

The Court of Appeals did not consider these Deeds of Assignment because of petitioners' failure to Accordingly, this Court gives the Deeds of Assignment grave importance in establishing the authority
produce the original copies thereof in violation of the best evidence rule. This Court again finds itself in given by the respondent to petitioner Citibank to use as security for her loans her money her market
disagreement in the application of the best evidence rule by the appellate court. 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,
To recall, the best evidence rule, in so far as documentary evidence is concerned, requires the and the obligations arising therefrom shall have the force of law between the parties and should be
presentation of the original copy of the document only when the context thereof is the subject of inquiry complied with in good faith. 129 Standard clauses in all of the Deeds provide that —
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 The ASSIGNOR and the ASSIGNEE hereby further agree as follows:
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 xxx xxx xxx
executing both Deeds of Assignment, dated 25 August 1978, covering PNs No. 20138 and 20139. These
2. In the event the OBLIGATIONS are not paid at maturity or upon demand, as
are again issues collateral to the contents of the documents involved, which could be proven by
the case may be, the ASSIGNEE is fully authorized and empowered to collect
evidence other than the original copies of the said documents.
and receive the PLACEMENT (or so much thereof as may be necessary) and
Moreover, the Deeds of Assignment of the money market placements with petitioner FNCB Finance apply the same in payment of the OBLIGATIONS. Furthermore, the ASSIGNOR
were notarized documents, thus, admissible in evidence. Rule 132, Section 30 of the Rules of Court agrees that at any time, and from time to time, upon request by the ASSIGNEE,
provides that — the ASSIGNOR will promptly execute and deliver any and all such further
instruments and documents as may be necessary to effectuate this
SEC. 30. Proof of notarial documents. — Every instrument duly acknowledged or Assignment.
proved and certified as provided by law, may be presented in evidence without
further proof, the certificate of acknowledgement beingprima facie evidence of xxx xxx xxx
the execution of the instrument or document involved.
5. This Assignment shall be considered as sufficient authority to FNCB Finance
Significant herein is this Court's elucidation in De Jesus v. Court of Appeals, 124 which reads — 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 of Pledge, certified by an officer of Citibank-Geneva, which bore the date 24 September
provisions hereof. 130 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
Petitioner Citibank was only acting upon the authority granted to it under the foregoing Deeds when it pledge was signed before 24 September 1979, but could not provide an explanation as to how and why
finally used the proceeds of PNs No. 20138 and 20139, paid by petitioner FNCB Finance, to partly pay for the said date was written on the pledge. Although Mr. Tan testified that the Declaration of Pledge was
respondent's outstanding loans. Strictly speaking, it did not effect a legal compensation or off-set under signed by respondent personally before him, he could not give the exact date when the said signing
Article 1278 of the Civil Code, but rather, it partly extinguished respondent's obligations through the took place. It is important to note that the copy of the Declaration of Pledge submitted by the
application of the security given by the respondent for her loans. Although the pertinent documents respondent to the RTC was certified by an officer of Citibank-Geneva, which had possession of the
were entitled Deeds of Assignment, they were, in reality, more of a pledge by respondent to petitioner original copy of the pledge. It is dated 24 September 1979, and this Court shall abide by the presumption
Citibank of her credit due from petitioner FNCB Finance by virtue of her money market placements with that the written document is truly dated. 134 Since it is undeniable that respondent was out of the
the latter. According to Article 2118 of the Civil Code — country on 24 September 1979, then she could not have executed the pledge on the said date. DSCIEa
ART. 2118. If a credit has been pledged becomes due before it is redeemed, the Third, the Declaration of Pledge was irregularly filled-out. The pledge was in a standard printed form. It
pledgee may collect and receive the amount due. He shall apply the same to was constituted in favor of Citibank, N.A., otherwise referred to therein as the Bank. It should be noted,
the payment of his claim, and deliver the surplus, should there be any, to the however, that in the space which should have named the pledgor, the name of petitioner Citibank was
pledgor. typewritten, to wit —
PNs No. 20138 and 20139 matured on 3 September 1979, without them being redeemed by respondent, The pledge right herewith constituted shall secure all claims which the Bank
so that petitioner Citibank collected from petitioner FNCB Finance the proceeds thereof, which included now has or in the future acquires against Citibank, N.A., Manila (full name and
the principal amounts and interests earned by the money market placements, amounting to address of the Debtor), regardless of the legal cause or the transaction (for
P1,022,916.66, and applied the same against respondent's outstanding loans, leaving no surplus to be example current account, securities transactions, collections, credits,
delivered to respondent. payments, documentary credits and collections) which gives rise thereto, and
including principal, all contractual and penalty interest, commissions, charges,
Dollar accounts with Citibank-Geneva
and costs.
Despite the legal compensation of respondent's savings account and the total application of the
proceeds of PNs No. 20138 and 20139 to respondent's outstanding loans, there still remained a balance The pledge, therefore, made no sense, the pledgor and pledgee being the same entity. Was a
of P1,069,847.40. Petitioner Citibank then proceeded to applying respondent's dollar accounts with mistake made by whoever filled-out the form? Yes, it could be a possibility. Nonetheless,
Citibank-Geneva against her remaining loan balance, pursuant to a Declaration of Pledge supposedly considering the value of such a document, the mistake as to a significant detail in the pledge could
executed by respondent in its favor. 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
Certain principles of private international law should be considered herein because the property pledged passed through the hands of several bank officers in the country and abroad, yet, surprisingly and
was in the possession of an entity in a foreign country, namely, Citibank-Geneva. In the absence of any implausibly, no one noticed such a glaring mistake.
allegation and evidence presented by petitioners of the specific rules and laws governing the
Lastly, respondent denied that it was her signature on the Declaration of Pledge. She claimed that the
constitution of a pledge in Geneva, Switzerland, they will be presumed to be the same as Philippine local
signature was a forgery. When a document is assailed on the basis of forgery, the best evidence rule
or domestic laws; this is known as processual presumption. 131
applies —
Upon closer scrutiny of the Declaration of Pledge, this Court finds the same exceedingly suspicious and
Basic is the rule of evidence that when the subject of inquiry is the contents of a
irregular.
document, no evidence is admissible other than the original document itself
First of all, it escapes this Court why petitioner Citibank took care to have the Deeds of Assignment of except in the instances mentioned in Section 3, Rule 130 of the Revised Rules of
the PNs notarized, yet left the Declaration of Pledge unnotarized. This Court would think that petitioner Court. Mere photocopies of documents are inadmissible pursuant to the best
Citibank would take greater cautionary measures with the preparation and execution of the Declaration evidence rule. This is especially true when the issue is that of forgery.
of Pledge because it involved respondent's "all present and future fiduciary placements" with a Citibank
As a rule, forgery cannot be presumed and must be proved by clear, positive
branch in another country, specifically, in Geneva, Switzerland. While there is no express legal
and convincing evidence and the burden of proof lies on the party alleging
requirement that the Declaration of Pledge had to be notarized to be effective, even so, it could not
forgery. The best evidence of a forged signature in an instrument is the
enjoy the same prima facie presumption of due execution that is extended to notarized documents, and
instrument itself reflecting the alleged forged signature. The fact of forgery can
petitioner Citibank must discharge the burden of proving due execution and authenticity of the
only be established by a comparison between the alleged forged signature and
Declaration of Pledge.
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
Second, petitioner Citibank was unable to establish the date when the Declaration of Pledge was would establish forgery. A comparison based on a mere xerox copy or
actually executed. The photocopy of the Declaration of Pledge submitted by petitioner Citibank before reproduction of the document under controversy cannot produce reliable
the RTC was undated. 132 It presented only a photocopy of the pledge because it already forwarded the results. 135
original copy thereof to Citibank-Geneva when it requested for the remittance of respondent's dollar
accounts pursuant thereto. Respondent, on the other hand, was able to secure a copy of the Declaration 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 Petitioners protest the award by the Court of Appeals of moral damages, exemplary damages, and
had possession of the original copy of the pledge. While petitioner Citibank in Manila and its branch in attorney's fees in favor of respondent. They argued that the RTC did not award any damages, and
Geneva may be separate and distinct entities, they are still incontestably related, and between respondent, in her appeal before the Court of Appeals, did not raise in issue the absence of
petitioner Citibank and respondent, the former had more influence and resources to convince Citibank- such. CAaSED
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 While it is true that the general rule is that only errors which have been stated in the assignment of
copy of the pledge, nor did it proffer the reason why Citibank-Geneva obstinately refused to give it back, errors and properly argued in the brief shall be considered, this Court has also recognized exceptions to
when such document would have been very vital to the case of petitioner Citibank. There is thus no the general rule, wherein it authorized the review of matters, even those not assigned as errors in the
justification to allow the presentation of a mere photocopy of the Declaration of Pledge in lieu of the appeal, if the consideration thereof is necessary in arriving at a just decision of the case, and there is a
original, and the photocopy of the pledge presented by petitioner Citibank has nil probative close inter-relation between the omitted assignment of error and those actually assigned and discussed
value. 137 In addition, even if this Court cannot make a categorical finding that respondent's signature by the appellant. 140 Thus, the Court of Appeals did not err in awarding the damages when it already
on the original copy of the pledge was forged, it is persuaded that petitioner Citibank willfully made findings that would justify and support the said award.
suppressed the presentation of the original document, and takes into consideration the presumption
Although this Court appreciates the right of petitioner Citibank to effect legal compensation of
that the evidence willfully suppressed would be adverse to petitioner Citibank if produced. 138
respondent's local deposits, as well as its right to the proceeds of PNs No. 20138 and 20139 by virtue of
Without the Declaration of Pledge, petitioner Citibank had no authority to demand the remittance of the notarized Deeds of Assignment, to partly extinguish respondent's outstanding loans, it finds that
respondent's dollar accounts with Citibank-Geneva and to apply them to her outstanding loans. It petitioner Citibank did commit wrong when it failed to pay and properly account for the proceeds of
cannot effect legal compensation under Article 1278 of the Civil Code since, petitioner Citibank itself respondent's money market placements, evidenced by PNs No. 23356 and 23357, and when it sought
admitted that Citibank-Geneva is a distinct and separate entity. As for the dollar accounts, respondent the remittance of respondent's dollar accounts from Citibank-Geneva by virtue of a highly-suspect
was the creditor and Citibank-Geneva is the debtor; and as for the outstanding loans, petitioner Citibank Declaration of Pledge to be applied to the remaining balance of respondent's outstanding loans. It bears
was the creditor and respondent was the debtor. The parties in these transactions were evidently not to emphasize that banking is impressed with public interest and its fiduciary character requires high
the principal creditor of each other. 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
Therefore, this Court declares that the remittance of respondent's dollar accounts from Citibank- millions of pesos. 142 The bank must record every single transaction accurately, down to the last
Geneva and the application thereof to her outstanding loans with petitioner Citibank was illegal, and centavo, and as promptly as possible. 143 Petitioner Citibank evidently failed to exercise the required
null and void. Resultantly, petitioner Citibank is obligated to return to respondent the amount of degree of care and transparency in its transactions with respondent, thus, resulting in the wrongful
US$149,632.99 from her Citibank-Geneva accounts, or its present equivalent value in Philippine deprivation of her property.
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 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
The parties shall be liable for wrongfully withheld from her. In her testimony 144 before the RTC, respondent narrated —
interests on their monetary
obligations to each other, Q By the way Mrs. Witness will you kindly tell us again, you said before that you
as determined herein. are a businesswoman, will you tell us again what are the businesses
you are engaged into [sic]?
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 A I am engaged in real estate. I am the owner of the Modesta Village 1 and 2 in
P203,150.00, respectively, earning an interest of 14.5% per annum as stipulated in the San Mateo, Rizal. I am also the President and Chairman of the Board
PNs, 139 beginning 17 March 1977, the date of the placements. of Macador [sic] Co. and Business Inc. which operates the Macador
[sic] International Palace Hotel. I am also the President of the
Petitioner Citibank is also ordered to refund to respondent the amount of US$149,632.99, or its
Macador [sic] International Palace Hotel, and also the Treasures
equivalent in Philippine currency, which had been remitted from her Citibank-Geneva accounts. These
Home Industries, Inc. which I am the Chairman and president of the
dollar accounts, consisting of two fiduciary placements and current accounts with Citibank-Geneva shall
Board and also operating affiliated company in the name of
continue earning their respective stipulated interests from 26 October 1979, the date of their remittance
Treasures Motor Sales engaged in car dealers [sic] like Delta Motors,
by Citibank-Geneva to petitioner Citibank in Manila and applied against respondent's outstanding loans.
we are the dealers of the whole Northern Luzon and I am the
As for respondent, she is ordered to pay petitioner Citibank the balance of her outstanding loans, which president of the Disto Company, Ltd., based in Hongkong licensed
amounted to P1,069,847.40 as of 5 September 1979. These loans continue to earn interest, as stipulated in Honkong [sic] and now operating in Los Angeles, California.
in the corresponding PNs, from the time of their respective maturity dates, since the supposed payment
Q What is the business of that Disto Company Ltd.?
thereof using respondent's dollar accounts from Citibank-Geneva is deemed illegal, null and void, and,
thus, ineffective. A Disto Company, Ltd., is engaged in real estate and construction.
VI Q Aside from those businesses are you a member of any national or community
Petitioner Citibank shall be liable for organization for social and civil activities?
damages to respondent.
 A Yes sir. 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
Q What are those?
Having failed to exercise more care and prudence than a private individual in its dealings with
A I am the Vice-President of thes [sic] Subdivision Association of the Philippines respondent, petitioner Citibank should be liable for exemplary damages, in the amount of P250,000.00,
in 1976, I am also an officer of the . . . Chamber of Real Estate in accordance with Article 2229 146 and 2234 147 of the Civil Code.
Business Association; I am also an officer of the Chatholic [sic]
Women's League and I am also a member of the CMLI, I forgot the With the award of exemplary damages, then respondent shall also be entitled to an award of attorney's
definition. fees. 148Additionally, 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
Q How about any political affiliation or government position held if any? award of P200,000.00 attorney's fees shall be satisfactory.

A I was also a candidate for Mayo last January 30, 1980. 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.
Q Where? 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 one's rights
A In Dagupan City, Pangasinan.
is damnum absque injuria. 150
Q What else?
IN VIEW OF THE FOREGOING, the instant Petition is PARTLY GRANTED. The assailed Decision of the
A I also ran as an Assemblywoman last May, 1984, Independent party in Court of Appeals in CA-G.R. No. 51930, dated 26 March 2002, as already modified by its Resolution,
Regional I, Pangasinan. dated 20 November 2002, is hereby AFFIRMED WITH MODIFICATION, as follows —

Q What happened to your businesses you mentioned as a result of your failure 1. PNs No. 23356 and 23357 are DECLARED subsisting and outstanding. Petitioner Citibank is ORDERED
to recover you [sic] investments and bank deposits from the to return to respondent the principal amounts of the said PNs, amounting to Three Hundred Eighteen
defendants? 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
A They are not all operating, in short, I was hampered to push through the interest of Fourteen and a half percent (14.5%) per annum, beginning 17 March 1977;
businesses that I have.
2. The remittance of One Hundred Forty-Nine Thousand Six Hundred Thirty Two US Dollars and Ninety-
A [sic] Of all the businesses and enterprises that you mentioned what are those Nine Cents (US$149,632.99) from respondent's Citibank-Geneva accounts to petitioner Citibank in
that are paralyzed and what remain inactive? Manila, and the application of the same against respondent's outstanding loans with the latter, is
DECLARED illegal, null and void. Petitioner Citibank is ORDERED to refund to respondent the said
A Of all the company [sic] that I have, only the Disto Company that is now amount, or its equivalent in Philippine currency using the exchange rate at the time of payment, plus the
operating in California. stipulated interest for each of the fiduciary placements and current accounts involved, beginning 26
October 1979;
Q How about your candidacy as Mayor of Dagupan, [sic] City, and later as
Assemblywoman of Region I, what happened to this? 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
A I won by voting but when election comes on [sic] the counting I lost and I Pesos (P250,000.00); and attorney's fees in the amount of Two Hundred Thousand Pesos (P200,000.00);
protested this, it is still pending and because I don't have financial and
resources I was not able to push through the case. I just have it
pending in the Comelec. 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
Q Now, do these things also affect your social and civic activities? Million Sixty-Nine Thousand Eight Hundred Forty-Seven Pesos and Forty Centavos (P1,069,847.40),
A Yes sir, definitely. CacISA 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. DTIaHE
Q How?
SO ORDERED.
A I was embarrassed because being a businesswoman I would like to inform the
Panganiban, C.J., Ynares-Santiago, Austria-Martinez and Callejo, Sr., JJ., concur.
Honorable Court that I was awarded as the most outstanding
businesswoman of the year in 1976 but when this money was not ||| (Citibank, N.A. v. Sabeniano, G.R. No. 156132, [October 16, 2006], 535 PHIL 384-480)
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