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Evidence CASES

Contents
Rule 128 ........................................................................................................................................................ 2
Section 1 ........................................................................................................................................................ 2
SAMAR II ELECTRIC COOPERATIVE INCORPORATED, represented by PONCIANO R. ROSALES, General
Manager vs. THE NATIONAL LABOR RELATIONS COMMISSION and FROILAN RAQUIZA ......................... 2
MARIO HORNALES vs.THE NATIONAL LABOR RELATIONS COMMISSION, JOSE CAYANAN AND JEAC
INTERNATIONAL MANAGEMENT CONTRACTOR SERVICES ...................................................................... 6



Rule 128
Section 1
SAMAR II ELECTRIC COOPERATIVE INCORPORATED, represented by
PONCIANO R. ROSALES, General Manager vs. THE NATIONAL LABOR
RELATIONS COMMISSION and FROILAN RAQUIZA
G.R. No. 116692 March 21, 1997
SAMAR II ELECTRIC COOPERATIVE INCORPORATED, represented by PONCIANO R. ROSALES, General
Manager, petitioner,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION and FROILAN RAQUIZA, respondents.

ROMERO, J.:
This petition for certiorari with prayer for the issuance of a writ of preliminary injunction and/or
temporary restraining order seeks the annulment of the March 10, 1994, decision of the National Labor
Relations Commission in NLRC Case No. V-0307-92, as well as its order dated April 28, 1994, denying
petitioner's motion for reconsideration for lack of merit. The antecedent facts follow.
Private respondent Froilan V. Raquiza was employed by petitioner Samar II Electric Cooperative, Inc.
(SAMELCO II) as probationary power plant operator on January 1, 1976, and became a regular employee
on July 1, 1976. On February 9, 1980, he was appointed as switchboard operator and sometimes
alternated as acting plant superintendent.
Raquiza's problems began when a major breakdown of the pielstick engine causing electric failure to the
whole franchise area for a period of four months occurred during his shift on January 21, 1988. On
January 22, 1988, he was immediately asked to explain the incident, which he did the following day.
After investigation, however, SAMELCO II General Manager Ponciano Rosales found Raquiza and his two
companions in the shift, Manuel Balasbas and Pascual Martinez, guilty of gross negligence in the
performance of their duty. The three were placed under preventive suspension from January 27, 1988,
until their termination on February 29, 1988. Nine months later, or on December 5, 1988, Raquiza filed a
complaint against petitioner for illegal dismissal, praying for reinstatement and payment of unpaid
wages, unpaid overtime pay, attorney's fees, moral and exemplary damages, and the cost of suit.
Labor Arbiter Gabino A. Velasquez, Jr. rendered a decision on September 25, 1992, finding Raquiza's
dismissal to be based on a just cause. On appeal, however, the NLRC reversed and set aside his ruling,
and ruled as follows:
WHEREFORE, in view of all the foregoing, the decision appealed from is hereby reversed and set aside,
and a new one entered to wit:
1) declaring the dismissal of the complainant-appellant (Raquiza) due to gross negligence as illegal;
2) ordering respondents (herein petitioners) to reinstate the complainant-appellant to his former
position with full backwages not exceeding three (3) years, without loss of seniority rights and other
privileges, or in the event reinstatement is no longer feasible due to the realities of the situation, to pay
him his separation pay equivalent to one (1) month for every year of service from January 1, 1976 up to
and including the three (3) years imputed service for which backwages was awarded;
3) ordering respondents further to pay attorney's fees of 10% of the total monetary award.
All other claims are hereby dismissed for lack of sufficient basis.
SO ORDERED.
Its motion for reconsideration having likewise failed, petitioner filed the instant petition.
Petitioner's present action is premised solely on the grave abuse of discretion allegedly exercised by the
NLRC in reversing the labor arbiter's decision. Its arguments, however, fail to persuade this Court, and a
closer examination of the questioned judgment would reveal that the NLRC disposed of the case
judiciously.
Labor Arbiter Velasquez opined that since Raquiza was not able to specifically deny the charges against
him, he should be deemed to have admitted them. Technical rules of evidence are not, however, strictly
followed in labor cases. The Labor Code itself affirms this liberality, viz.:
Art. 221. Technical Rules not binding and prior resort to amicable settlement. In any proceeding
before the Commission or any of the Labor Arbiters, the rules of evidence prevailing in
courts of law or equity shall not be controlling and it is the spirit and intention of this Code
that the Commission and its members and the Labor Arbiters shall use every and all
reasonable means to ascertain the facts in each case speedily and objectively and without
regard to technicalities of law or procedure, all in the interest of due process. . . .
1

This rule is reiterated in the Rules of Procedure of the NLRC, to wit:
Rule V.
Sec. 7. Nature of Proceedings. The proceedings before a Labor Arbiter shall be non-litigious
in nature. Subject to the requirements of due process, the technicalities of law and
procedure and the rules obtaining in the courts of law shall not strictly apply thereto. The
Labor Arbiter may avail himself of all reasonable means to ascertain the facts of the
controversy speedily, including ocular inspection and examination of well-informed
persons.
xxx xxx xxx
Rule VII.
Sec. 10. Technical rules not binding. The rules of procedure and evidence prevailing in courts
of law and equity shall not be controlling and the Commission shall use every and all
reasonable means to ascertain the facts in each case speedily and objectively, without regard
to technicalities of law or procedure, all in the interest of due process.
xxx xxx xxx
Raquiza's failure to specifically deny or explain the charges against him should not, therefore, be
deemed fatal to his claim.
Our laws as well as this Court have consistently recognized and respected an employer's right to
terminate the services of an employee for just or authorized causes. This prerogative, however, must be
exercised in good faith. As we held in Mercury Drug Corp. v. NLRC, et al.:
2

Management also has its own rights, which, as such, are entitled to respect and enforcement in the
interest of simple fair play. Out of its concern for those with less privileges in life, the Supreme Court has
inclined more often than not toward the worker and upheld his cause in his conflicts with the employer.
Such favoritism, however, has not blinded the Court to rule that justice is in every case for the
deserving, to be dispensed in the light of the established facts and applicable law and doctrine.
3

Petitioner as employer is duty-bound to establish the existence of a clear, valid and just ground for
dismissing Raquiza. It cannot merely allege that its employee was grossly negligent in the performance
of his duty thereby causing great damage to its property and resulting in great pecuniary loss.
Raquiza's dismissal was based on three factors, namely, (a) leaving his work assignment while on duty;
(b) not properly checking the engine before starting it; and (c) authorizing the continued running of
pielstick (engine) no. 2 in spite of the discovery that there was an oil leakage.
In the case of Citibank, N.A. v. Gatchalian,
4
we ruled that "(g)ross negligence implies a want or absence
of or failure to exercise slight care or diligence, or the entire absence of care. It evinces a thoughtless
disregard of consequences without exerting any effort to avoid them.
While it is true that Raquiza left his place of work to go to the administration building to get the
proceeds of his loan during the testing period of the engine, such act cannot be perceived to be so
serious as would amount to gross negligence. As to the claim that he did not check the engine, the NLRC
found that he actually made several inspections of the engine before actually starting it. We find no
reason to disturb this finding in view of the respect and finality which this Court has constantly accorded
to factual findings of quasi-judicial agencies such as the NLRC.
5
Finally, the fact that Raquiza failed to
prevent the occurrence of the incident does not sufficiently show nor can it be inferred that he was
grossly negligent. At most, it can be considered an error of judgment on his part when he continued to
operate the engine. It must be remembered that the purpose of the operation of said engine was to
synchronize it with the National Power Corporation's Geothermal Plant in Tangonan, Leyte to augment
power during the peak hours in the early evenings.
6
Stoppage of the operation would have defeated
such purpose and violated the very franchise of petitioner.
The investigation conducted by petitioner revealed that "the breakdown was due to the serious error
committed by Froilan V. Raquiza, Manuel Balasbas, and Pascual Martinez, although complainant's
command responsibility, liability and negligence, . . . , was most serious and the gravest."
7
Yet, despite
this collective error, only Raquiza was dismissed; the other two were merely suspended. Such
discrimination cannot be sanctioned by this Court.
Furthermore, the NLRC correctly pointed out from the evidence that there was no clarity or
confirmation as to the cause of the pielstick engine breakdown. Thus, it stated:
More significantly, the findings of the consultant who inspected pielstick Engine No. 2 at the instance of
the respondents cost (sic) a serious doubt on the alleged negligence of the complainant-appellant as the
proximate cause for the damage of the said engine. It appears from the said inspection result that the
said unit bogged down in September 1986, and in that incident all con/rod bearings were replaced with
old sets taken from Dorelco Units. The same con/rod bearings were likewise noted to be due for
replacement in (sic) December 17, 1987. Lastly, the said engine unit at the time it broke down had a
total running hours [of] 21,332.1 far exceeding the tolerable maximum requirement of 18,000 hrs. The
above attendant circumstances shows (sic) that Pielstick Engine No. 2 broke down last January 21, 1988
not due to the negligence of the complainant but due to worn out spare parts and its continued
operation beyond the schedule of replacement of con/rod bearing on December 17, 1987.
8

Petitioner claimed below that Raquiza's dismissal was not solely attributable to the January 21, 1988,
incident but was, in fact, a result of a "long string of neglect and violations of company R & R (rules and
regulations)." But this is beside the point. What is significant is that the employer bears the burden of
proving that the dismissal of an employee is for a just cause, failing which the dismissal cannot be
deemed justified thus entitling the latter to reinstatement.
9
The decision to dismiss must be in accord
with the law and the evidence and not merely the whim or caprice of the employer.
10

IN VIEW OF THE FOREGOING, the petition is DISMISSED for failing to show that respondent National
Labor Relations Commission committed grave abuse of discretion in arriving at its assailed decision
dated March 10, 1994, and order dated April 28, 1994.
SO ORDERED.

MARIO HORNALES vs.THE NATIONAL LABOR RELATIONS COMMISSION, JOSE
CAYANAN AND JEAC INTERNATIONAL MANAGEMENT CONTRACTOR SERVICES
G.R. No. 118943 September 10, 2001
MARIO HORNALES, petitioner,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, JOSE CAYANAN AND JEAC INTERNATIONAL
MANAGEMENT CONTRACTOR SERVICES, respondents.
SANDOVAL-GUTIERREZ, J.:
It is sad enough that poverty has impelled many of our countrymen to seek greener pastures in foreign
lands. But what is more lamentable is when a Filipino recruiter, after sending his unlettered countrymen
to a foreign land and letting them suffer inhuman treatment in the hand of an abusive employer,
connives with the foreign employer in denying them their rightful compensation. Surely, there shall be a
day of reckoning for such a recruiter whose insatiable love for money made him a tyrant to his own race.
At bench is a petition for certiorari seeking to annul and set aside the (a) Decision
1
dated July 28, 1994 of
the National Labor Relations Commission (NLRC) reversing the Decision
2
of the Philippine Overseas
Employment Administration (POEA) in POEA Case No. (L) 92-07- 939,
3
and (b) Resolution
4
dated October
6, 1994 denying petitioner's motion for reconsideration.1wphi1.nt
The facts as shown by the records are:
On July 15, 1992, Mario Hornales (herein petitioner) filed with the POEA a complaint
5
for non-payment
of wages and recovery of damages against JEAC International Management & Contractor Services (JEAC)
and its owner, Jose Cayanan (herein private respondents). As private respondents' surety, Country
Bankers Insurance Corporation (Country Bankers) was later on impleaded by petitioner. The complaint
alleged that on October 8, 1991, private respondents sent petitioner, together with other Filipinos, to
Singapore. At their departure, they were advised that someone would meet them in Singapore. True
enough, they were welcomed by Victor Lim, the owner of Step-Up Employment Agency (Step-Up
Agency).
6
He informed them that they would be working as fishermen with a monthly salary of US
$200.00 each. Thereafter, they boarded Ruey Horn #3, a vessel owned by Min Fu Fishery Co. Ltd. of
Taiwan.
On board the vessel, petitioner was subjected to inhumane work conditions, like inadequate supply of
food and water, maltreatment by the ship captain, and lack of medical attendance. He was also required
to work for twenty-two hours a day without pay. Unable to bear his situation any longer, he joined the
other Filipino workers in leaving the vessel while it was docked at Mauritius Islands on July 15, 1992.
Upon his return to the Philippines, petitioner asked private respondents to pay his salaries. Instead of
doing so, they required him to surrender his passport promising that they would procure another job for
him. Later, private respondents gave him the amount of five hundred pesos (P500.00).
Private respondents filed an answer
7
claiming that, petitioner, Victor Lim and Min Fee Fishery Co. Ltd are
all "total strangers" to them. To bolster the claim, they offered in evidence the Joint Affidavit
8
of Efren
B. Balucas and Alexander C. Natura, petitioner's co-workers in Singapore, stating that while they were in
Singapore, petitioner admitted to them that he did not apply in any agency in the Philippines; that he
came to Singapore merely as a tourist; and that, he applied directly and personally with Step-Up Agency.
These statements were corroborated by the "Certification"
9
issued by Step-Up Agency.
On January 23, 1993, petitioner filed a Supplemental Affidavit
10
claiming that he was not a "total
stranger" to private respondents, and that, as a matter of fact, he knew respondent Cayanan since 1990,
when they used to go to the San Lazaro Hippodrome to watch horse races. He also averred that while
the vessel was docked at Mauritius Islands on June 1992, respondent Cayanan reminded him and his co-
workers of their loan obligations by sending them photocopies of the PNB checks he (respondent
Cayanan) issued in favor of their relatives, and theagreements whereby they authorized Victor Lim to
deduct from their salaries the amount of their loan obligations.
On January 5, 1994, the POEA rendered a decision in favor of petitioner, the dispositive portion of which
reads:
"WHEREFORE, premises considered, respondents JEAC International Management and Contractor
Services, Jose E. Cayanan and Travellers Insurance Corp. are hereby ordered, jointly and severally to pay
complainant the amount of US DOLLARS: ONE THOUSAND SIX HUNDRED FORTY SIX AND 66/100 (US$ 1,
646.66) representing his unpaid salaries and US $ 164.66 as and by way of attorney's fees. Payment shall
be made in Philippine Currency at the prevailing rate of exchange at the time of payment.
For want of jurisdiction, the claim for moral and exemplary damages is denied.
All other claims and counterclaims are denied.
SO ORDERED."
11

Incidentally, the POEA dismissed petitioner's claim against Country Bankers on the ground that the
surety bond which was effective at the time of petitioner's deployment was that of Travelers Insurance
Corporation.
On appeal, respondent NLRC vacated the decision of the POEA and dismissed petitioner's complaint
mainly on the ground that there was no employer-employee relationship between the parties. The NLRC
ratiocinated as follows:
"At the outset, we note that the record is bereft of any showing that complainant applied with the
respondent agency as a job applicant and subsequently entered into an overseas contract with the latter
which was later processed and approved by the POEA. X x x What appears is that complainant used the
agency as a stepping stone to enter Singapore as a tourist and obtain employment thereat on his own.
This is evidenced by Annexes "A-1 " to '"H" of Complainant's Reply (See pp. 65-72, record) which
purports to show that the batch of complainant was obligated to pay back respondent Jose Cayanan the
expenses for their deployment. No less than the POEA noted that the respondent agency "is a service
contractor and is not authorized to deploy fishermen." Based on this fact, the respondent agency could
not have deployed complainant as an overseas contract worker. What is apparent is that it obtained a
tourist passport and plane ticket for complainant as a travel agent on a clearly "fly now pay later" plan.
We cannot rely on the employment agreements and checks (See pp. 66-67, record) presented by
complainant to show proof of employment relations considering that his name does not appear in any
of the documents, hence they are merely hearsay."
12

In reversing the POEA's finding, respondent NLRC gave considerable weight to the Joint Affidavit of
Natura and Balucas.
Unsatisfied, petitioner filed a motion for reconsideration but was denied.
Petitioner now comes to this Court via a petition for certiorari, imputing grave abuse of discretion to
public respondent NLRC. He asserts that private respondents were the ones who deployed him to
Singapore to work as fisherman; and that, respondent NLRC's conclusion that respondent JEAC was a
mere "travel agency" and petitioner, a mere tourist, has no basis in fact and in law.
For their part, private respondents maintain that respondent NLRC did not commit grave abuse of
discretion when it set aside the decision of the POEA, since petitioner failed to show any POEA record or
document to prove that they deployed him to work in Singapore. Neither did he present a Special Power
of Attorney to prove that Step-Up Agency authorized private respondents to recruit and deploy contract
workers in its behalf nor an Affidavit of Responsibility to show that they (private respondents and Step-
Up Agency) assumed solidary liability to petitioner.
13
Private respondents likewise insist that the
photocopies of the PNB checks and agreements are hearsay and inadmissible in evidence.
The Solicitor General, in his comment,
14
joins petitioner in assailing the decision of respondent NLRC as
"baseless and erroneous." According to him, the conclusion of respondent NLRC directly contradicts
private respondents' defense that petitioner was a "total stranger." Further, he contends that the Joint
Affidavit of Balucas and Natura are hearsay.
The cardinal issue in this case hinges on the question - Are private respondents responsible for
petitioner's recruitment and deployment to Singapore?
Let us take a closer look at the scale of evidence.
On one arm of the scale are petitioner's evidence consisting of photocopies of the PNB
checks and agreementswhich were intended to disprove private respondents' claim that petitioner,
Victor Lim and Step-Up Agency are "total strangers." The PNB checks represent the payments made by
respondent Cayanan to the relatives of petitioner's co-workers (including Balucas and Natura). The
checks show the name of LIM Chang Koo &/or Jose Cayanan, as drawers. While the agreements,
denominated "For Fisherman Deployed For Work To Singapore,"constitute authorization to Victor Lim to
deduct from the monthly salaries of the workers the amounts of their obligations to private
respondents. Petitioner's own undertaking to private respondents reads:
"I hereby certify that my expenses abroad in going to Singapore as fisherman amounting to SIXTEEN
THOUSAND PESOS (P16,000.00) shall be temporarily shouldered by JEAC INT'L MGT & CONT.
SERVICES and as soon as I arrive in Singapore, said amount will be charged by MR. VICTOR LIM and will
be remitted to Eng. Jose E. Cayanan.
(Sgd.) Mario Hornales
F. CREW" 15
On the other side of the scale are the Joint Affidavit secured by private respondents from petitioner's
co-workers, Balucas and Natura, and a Certification issued by Step-Up Agency. These evidence were
intended to prove the alleged admission of petitioner to Balucas and Natura that he went as a tourist to
Singapore and that he applied directly with Step-Up Agency. The Certification of Step-Up Agency re-
echoes the allegations in the Joint Affidavit.
The scale of evidence must tilt in favor of petitioner.
In a catena of labor cases, this Court has consistently held that where the adverse party is deprived of
the opportunity to cross-examine the affiants, affidavits are generally rejected for being hearsay, unless
the affiant themselves are placed on the witness stand to testify thereon.
16
Private respondents' Joint
Affidavit has no probative value. It suffers from two infirmities, first, petitioner was not given the
opportunity to cross-examine the two affiants regarding the contents thereof, and second, the two
affiants merely swore as to what petitioner told them but not as to the truth of the statements
uttered.
17

In the same vein, the Certification must not be given weight. Private respondents not only failed to
present Victor Lim before the POEA to be cross-examined by petitioner, but the Certification was also
not verified or under oath.
18
To our mind, it is just a last-ditch attempt on the part of Step-Up Agency to
help private respondents free themselves from liability to petitioner. It bears noting that private
respondents, Victor Lim and Step-Up Agency, as shown by petitioner's evidence, acted in concert in his
deployment to Singapore. Hence, such certification is, at most, self-serving.
On the other hand, the PNB Checks and the agreements presented by petitioner strongly disprove
private respondents' total strangers" theory .It may be observed that, in their attempt to exculpate
themselves from monetary liability, private respondents adopted an extreme position, i.e., that they
have nothing to do with petitioner, Victor Lim and Step-Up Agency. Such strategy proved to be
disastrous to them. The mere presentation of documents bearing private respondents' names and that
of Step-Up Agency and Victor Lim is enough to defeat their theory. More so, when the documetary
evidence consist of bank checks showing the existence of a joint account, and authorization agreements
revealing a contract of agency.
Private respondents' argument that petitioner's evidence are mere, photocopies and therefore cannot
be considered as the best evidence on the issue does not persuade us. The best evidence rule enshrined
in the Revised Rules on Evidence provides that "when the subject of an inquiry is the contents of a
document, no evidence shall be admissible other than the original document itself."
19
This rule is not
without exception. Some of the exception are when the original has been lost or destroyed; cannot be
produced in court without bad faith on the part of the offeror; or when the original is in the custody or
under the control of the party against whom the evidence is offered and the latter fails to produce it
after reasonable notice.
20
It would be unreasonable to demand from petitioner the presentation of the
original PNB Checks considering that it is a banking practice that for a check to be encashed, the same
must be surrendered to the bank first. These checks are, therefore, most likely in the possession of the
bank. As to the agreements, it is reasonable to conclude that respondent Cayanan was the one in
possession of the originals thereof. It maybe recalled that these agreements were executed by the
workers for his security and benefit. At any rate, it is worthy to note that private respondents did not
disown thePNB checks nor deny the existence of the agreements.
Notwithstanding the foregoing, it must be emphasized that the proceedings before the POEA is
non-litigious in nature. The technicalities of law and procedure and the rules obtaining in
the courts of law shall not strictly apply thereto and a hearing officer may avail himself of all
reasonable means to ascertain the facts of the case.
21
On the applicability of the Rules of Court to
labor cases, the Supreme Court has ruled in Shoemart, Inc. v. National Labor Relations Commission
22
:
"The argument cannot be sustained. Whatever merit it might have in the context of ordinary civil
actions, where the rules of evidence apply with more or less strictness, disappears when adduced in
connection with proceedings before Labor Arbiters and the National Labor Relations Commission; for in
said proceedings, the law is explicit that 'the rules of evidence prevailing in courts of law or equity shall
not be controlling and it is the (law's) spirit and intention that the Commission and its members and the
Labor Arbiters shall use every and all reasonable means to ascertain the facts in each case
speedily and objectively and without regard to technicalities of law or procedure, all in the
interest of due process.' Indeed, it is not the Rules of Court enacted by the Supreme Court but rather
the regulations promulgated by the National Labor Relations Commission which govern "the hearing and
disposition of cases before it and its regional branches**.' The 'Revised Rules of Court of the Philippines
and prevailing jurisprudence,' the law says, may be applied to labor cases only under quite stringent
limits, i.e., 'in the absence of any applicable provision (in the Rules of the Commission), and in order to
effectuate the objectives of the Labor Code**, in the interest of expeditious labor justice and whenever
practicable and convenient, by analogy or in a suppletory character and effect." Under these rules, the
proceedings before a Labor Arbiter are 'non-litigious in nature' in which, 'subject to the
requirements of due process, the technicalities of law and procedure and the rules obtaining
in the courts of law ** (do not) strictly apply."
Undoutedly, the factual and legal bases of respondent NLRC's conclusions are bereft of substantial
evidence - the quantum of proof in labor cases. As aptly said by the Solicitor General, its decision is
"baseless and erroneous." Its disposition is manifestly a grave abuse of discretion.
23

In concluding that respondent JEAC was a mere "travel agency" and petitioner, a mere "tourist, "
respondent NLRC came up with a new theory which find no support even from the evidence of private
respondents, the party in whose favor the decision was rendered. First, there is nothing in the record
which shows that respondent JEAC is a mere travel agency. Even private respondents consistently plead
that respondent JEAC is a "licensed recruitment agency authorized to recruit and deploy overseas
Filipino contract workers."
Second, the evidence upon which respondent NLRC based its findings consist
of agreements authorizing Victor Lim to deduct from the salaries of petitioner and his co-workers the
amount of their obligations to respondent Cayanan. It would be too much of a coincidence to say that
petitioner and his co-workers are all mere tourists who allowed a certain Victor Lim to deduct from their
salaries the amount of their obligations to respondent Cayanan. What is evident here is that there is an
internal arrangement between respondent Cayanan and Victor Lim brought about by the fact that the
former deployed these workers to serve the latter. As correctly pointed out by the POEA, there must be
a "previous arrangement" between private respondents and Victor Lim.
Significantly, from these pieces of evidence respondent NLRC could already see the falsity in private
respondents' "total strangers" theory. How could there be an arrangement between two persons who
do not know each other? Note how respondent NLRC conveniently closed its eye to the name of Victor
Lim, as mentioned in theagreements, when it ruled that Victor Lim and Step-Up Agency are indeed
" total strangers" to private respondents. We sustain the findings of the POEA, being more convincing
and supported by substantial evidence, thus:
"[C]omplainant applied at the office of respondent agency and was able to seek employment in
Singapore through Engineer Jose Cayanan, owner of respondent agency. Complainant's allegations are
supported by the Annexes he attached to his Reply (Annexes "'A" to "H"). These documents readily
show that it was not only complainant who was recruited by respondent agency through Engr. Cayanan
and as agreed upon, the expenses in going to Singapore shall be advanced by respondents. Thus their
loans payable to Engr. Cayanan and charged against their salaries. The checks representing the salaries
of the complainant and his co-workers show that they are drawn from the account of Lim Chang Khoo
and/or Jose Gayanan. From the foregoing, it is properly noted that complainant's salaries were taken
from the funds of respondents which means that the latter had a hand or participated in his
recruitment and deployment.
We cannot give credence to respondents' contentions that complainant is a total stranger to them
and that MIN Fee Fishery Co. Ltd. is not its principal, neither do we believe that respondents do not
know Mr. Victor Lim who met complainant in Singapore. Annex "B" in respondents' position paper
belies respondents' contentions. How could respondents write to a certain Step Up Employment
Agency in Singapore, complainant's employer, when the latter is not even mentioned in his
complaint? We wonder where respondents got the name of this employer if the same is really not
known to them.
It is very unlikely for complainant to proceed to Singapore as a tourist without knowing anybody at
the site and just to apply for work. Had there not been previous arrangements with respondents, it is
not all possible for complainant to land on a job in Singapore because he is only a tourist.
Respondents had to resort to this misrepresentation of allowing its recruits to leave as tourist because it
is a service contractor and it is not authorized to deploy fishermen."
24

Private respondents further argue that they cannot be held liable by petitioner because no employment
contract between him and Step-Up Agency had been approved by the POEA. They also claim that the
absence of a Special Power of Attorney and an Affidavit of Responsibility, as required under Sections 1
and 2, Rule 1, Book III of the POEA Rules and Regulations
25
only proves that they did not deploy
petitioner to Singapore.
Their argument is far from persuasive. Surely, they cannot expect us to utilize their non-compliance with
the POEA Rules and Regulations as a basis in absolving them. To do so would be tantamount to giving
premium to acts done in violation of established rules. At most, private respondents' act of deploying
petitioner to Singapore without complying with the POEA requirements only made them susceptible to
cancellation or suspension of license as provided by Section 2, Rule I, Book VI of POEA Rules and
Regulations:
SEC.2.Grounds for suspension/cancellation of license.
x x x x x x
m. Deploying workers whose employment and travel documents were not processed by the
Administration;
n. Deploying workers workers or seafarers to vessels or principals not accredited by the Administration;
But of course, such violations should be threshed out in a proper administrative proceeding for
suspension or cancellation of license.
Meantime, we just uphold POEA's Decision holding private respondents and Travelers Insurance
Corporation jointly and severally liable to petitioner. Section 2 (e), Rule V, Book I of the Omnibus Rules
lmplementing the Labor Code requires a private employment agency to assume all responsibilities for
the implementation of the contract of employment of an overseas worker.
26
This provision is
substantially reiterated in Section 1 (f) (3) of Rule II, Book II of the POEA Rules and Regulations which
provides:
"Section 1. Requirements for Issuance of License - Every applicant for license to operate a private
employment agency or manning agency shall submit a written application together with the following
requirements:
x x x x x x
f) a verified undertaking stating that the applicant:
x x x
(3) shall assume joint and solidary liability with the employer which may arise in connection with the
implementation of the contract, including but not limited to payment of wages, health and disability
compensation and repatriation.
With respect to private respondents' surety, its liability is founded on Section 4, Rule II, Book II of the
POEA Rules and Regulations. Cash and surety bonds are required by the POEA from recruitment and
employment companies precisely as a means of ensuring prompt and effective recourse against such
companies when held liable for applicant's or worker's claims. The cash and surety bonds shall answer
for all valid and legal claims arising from violations of the conditions for the grant and use of the license,
and/or accreditations and contracts of employment. The bonds shall likewise guarantee compliance
with the provisions of the Code and its implementing rules and regulations relating to recruitment and
placement, the POEA Rules and relevant issuances of the Department and all liabilities which the POEA
may impose.
27

Accordingly, we find it proper to reinstate the Decision dated January 5, 1994 of the POEA subject to the
modification that the amount of P16,000, the amount which petitioner admitted to have been advanced
by respondent JEAC for his expenses in going to Singapore
28
be deducted from the total amount to be
awarded to him which includes a) US$ 1,646.66 corresponding to his unpaid salaries and b) attorney's
fees. The award of attorney's fees amounting to ten percent (10%) of the total award is justified under
Article 111 (a) of the Labor Code. The solidary liability of Travelers Insurance Corp., as surety of
respondent JEAC, is maintained.
WHEREFORE, the petition is hereby GRANTED and the respondent NLRC's a) Decision dated July 28,
1994, andb) Resolution dated October 6, 1994 are SET ASIDE. The Decision of POEA Administrator
Felicisimo O. Joson in POEA Case No. (L) 92-07-939 is REINSTATED with the MODIFICATION that the sum
of P16,000.00 be deducted from the total amount to be awarded to petitioner. 1wphi1.nt
Payment should be made in Philippine currency at the prevailing rate of exchange at the time of
payment.
SO ORDERED.

ANG TIBAY, represented by TORIBIO TEODORO, manager and propietor, and
NATIONAL WORKERS BROTHERHOOD vs. THE COURT OF INDUSTRIAL
RELATIONS and NATIONAL LABOR UNION, INC
G.R. No. L-46496 February 27, 1940
ANG TIBAY, represented by TORIBIO TEODORO, manager and propietor, and
NATIONAL WORKERS BROTHERHOOD, petitioners,
vs.
THE COURT OF INDUSTRIAL RELATIONS and NATIONAL LABOR UNION, INC., respondents.
Office of the Solicitor-General Ozaeta and Assistant Attorney Barcelona for the Court of Industrial
Relations.
Antonio D. Paguia for National Labor Unon.
Claro M. Recto for petitioner "Ang Tibay".
Jose M. Casal for National Workers' Brotherhood.
LAUREL, J.:
The Solicitor-General in behalf of the respondent Court of Industrial Relations in the above-entitled case
has filed a motion for reconsideration and moves that, for the reasons stated in his motion, we
reconsider the following legal conclusions of the majority opinion of this Court:
1. an employment contract, so individually and collectively, with no fixed term of duration or not for a
particular ends or at the will of either party or whenever ilega the deadline for the payment of wages
according to custom in the city or when the MTU work is finished;
2. workers in a manufacturing firm, having concluded contract, individually and collectively, with ell, no
fixed time, and have been forced to stop their tarbajos for having declared lockout at the factory in
which tarbajan cease to be employees or workers of the same;
3. an employer or company has entered into a collective bargaining agreement with its osbreros no fixed
time duration without being for determiminada and refuses to reinstate those workers who resigned
following a layoff work is not guilty of unfair practices in incurs a penal sanction of Article 5 of Law No.
213 of the Commonwealth, but its refusal to reinstate it be because these workers belong to a particular
labor organization, as such and have left deser own employees termination of the contract under arrest.
The respondent National Labor Union, Inc., on the other hand, prays for the vacation of the judgement
rendered by the majority of this Court and the remanding of the case to the Court of Industrial Relations
for a new trial, and avers:
1. That Toribio Teodoro's claim that on September 26, 1938, there was shortage of leather soles in ANG
TIBAY making it necessary for him to temporarily lay off the members of the National Labor Union Inc., is
entirely false and unsupported by the records of the Bureau of Customs and the Books of Accounts of
native dealers in leather.
2. That the supposed lack of leather materials claimed by Toribio Teodoro was but a scheme to
systematically prevent the forfeiture of this bond despite the breach of his CONTRACT with the
Philippine Army.
3. That Toribio Teodoro's letter to the Philippine Army dated September 29, 1938, (re supposed delay of
leather soles from the States) was but a scheme to systematically prevent the forfeiture of this bond
despite the breach of his CONTRACT with the Philippine Army.
4. That the National Worker's Brotherhood of ANG TIBAY is a company or employer union dominated by
Toribio Teodoro, the existence and functions of which are illegal. (281 U.S., 548, petitioner's printed
memorandum, p. 25.)
5. That in the exercise by the laborers of their rights to collective bargaining, majority rule and elective
representation are highly essential and indispensable. (Sections 2 and 5, Commonwealth Act No. 213.)
6. That the century provisions of the Civil Code which had been (the) principal source of dissensions and
continuous civil war in Spain cannot and should not be made applicable in interpreting and applying the
salutary provisions of a modern labor legislation of American origin where the industrial peace has
always been the rule.
7. That the employer Toribio Teodoro was guilty of unfair labor practice for discriminating against the
National Labor Union, Inc., and unjustly favoring the National Workers' Brotherhood.
8. That the exhibits hereto attached are so inaccessible to the respondents that even with the exercise
of due diligence they could not be expected to have obtained them and offered as evidence in the Court
of Industrial Relations.
9. That the attached documents and exhibits are of such far-reaching importance and effect that their
admission would necessarily mean the modification and reversal of the judgment rendered herein.
The petitioner, Ang Tibay, has filed an opposition both to the motion for reconsideration of the
respondent National Labor Union, Inc.
In view of the conclusion reached by us and to be herein after stead with reference to the motion for a
new trial of the respondent National Labor Union, Inc., we are of the opinion that it is not necessary to
pass upon the motion for reconsideration of the Solicitor-General. We shall proceed to dispose of the
motion for new trial of the respondent labor union. Before doing this, however, we deem it necessary,
in the interest of orderly procedure in cases of this nature, in interest of orderly procedure in cases of
this nature, to make several observations regarding the nature of the powers of the Court of Industrial
Relations and emphasize certain guiding principles which should be observed in the trial of cases
brought before it. We have re-examined the entire record of the proceedings had before the Court of
Industrial Relations in this case, and we have found no substantial evidence that the exclusion of the 89
laborers here was due to their union affiliation or activity. The whole transcript taken contains what
transpired during the hearing and is more of a record of contradictory and conflicting statements of
opposing counsel, with sporadic conclusion drawn to suit their own views. It is evident that these
statements and expressions of views of counsel have no evidentiary value.
The Court of Industrial Relations is a special court whose functions are specifically stated in the law of its
creation (Commonwealth Act No. 103). It is more an administrative than a part of the
integrated judicial system of the nation. It is not intended to be a mere receptive organ of the
Government. Unlike a court of justice which is essentially passive, acting only when its
jurisdiction is invoked and deciding only cases that are presented to it by the parties litigant,
the function of the Court of Industrial Relations, as will appear from perusal of its organic
law, is more active, affirmative and dynamic. It not only exercises judicial or quasi-judicial functions
in the determination of disputes between employers and employees but its functions in the
determination of disputes between employers and employees but its functions are far more
comprehensive and expensive. It has jurisdiction over the entire Philippines, to consider, investigate,
decide, and settle any question, matter controversy or dispute arising between, and/or affecting
employers and employees or laborers, and regulate the relations between them, subject to, and in
accordance with, the provisions of Commonwealth Act No. 103 (section 1). It shall take cognizance or
purposes of prevention, arbitration, decision and settlement, of any industrial or agricultural dispute
causing or likely to cause a strike or lockout, arising from differences as regards wages, shares or
compensation, hours of labor or conditions of tenancy or employment, between landlords and tenants
or farm-laborers, provided that the number of employees, laborers or tenants of farm-laborers involved
exceeds thirty, and such industrial or agricultural dispute is submitted to the Court by the Secretary of
Labor or by any or both of the parties to the controversy and certified by the Secretary of labor as
existing and proper to be by the Secretary of Labor as existing and proper to be dealth with by the Court
for the sake of public interest. (Section 4, ibid.) It shall, before hearing the dispute and in the course of
such hearing, endeavor to reconcile the parties and induce them to settle the dispute by amicable
agreement. (Paragraph 2, section 4, ibid.) When directed by the President of the Philippines, it shall
investigate and study all industries established in a designated locality, with a view to determinating the
necessity and fairness of fixing and adopting for such industry or locality a minimum wage or share of
laborers or tenants, or a maximum "canon" or rental to be paid by the "inquilinos" or tenants or less to
landowners. (Section 5, ibid.) In fine, it may appeal to voluntary arbitration in the settlement of
industrial disputes; may employ mediation or conciliation for that purpose, or recur to the more
effective system of official investigation and compulsory arbitration in order to determine specific
controversies between labor and capital industry and in agriculture. There is in reality here a mingling of
executive and judicial functions, which is a departure from the rigid doctrine of the separation of
governmental powers.
In the case of Goseco vs. Court of Industrial Relations et al., G.R. No. 46673, promulgated September 13,
1939, we had occasion to joint out that the Court of Industrial Relations et al., G. R. No. 46673,
promulgated September 13, 1939, we had occasion to point out that the Court of Industrial
Relations is not narrowly constrained by technical rules of procedure, and the Act requires it
to "act according to justice and equity and substantial merits of the case, without regard to
technicalities or legal forms and shall not be bound by any technicalities or legal forms and
shall not be bound by any technical rules of legal evidence but may inform its mind in such
manner as it may deem just and equitable." (Section 20, Commonwealth Act No. 103.) It shall not
be restricted to the specific relief claimed or demands made by the parties to the industrial
or agricultural dispute, but may include in the award, order or decision any matter or
determination which may be deemed necessary or expedient for the purpose of settling the
dispute or of preventing further industrial or agricultural disputes. (section 13, ibid.) And in
the light of this legislative policy, appeals to this Court have been especially regulated by the
rules recently promulgated by the rules recently promulgated by this Court to carry into the
effect the avowed legislative purpose. The fact, however, that the Court of Industrial
Relations may be said to be free from the rigidity of certain procedural requirements does
not mean that it can, in justifiable cases before it, entirely ignore or disregard the
fundamental and essential requirements of due process in trials and investigations of an
administrative character. There are primary rights which must be respected even in
proceedings of this character:
(1) The first of these rights is the right to a hearing, which includes the right of the party interested or
affected to present his own case and submit evidence in support thereof. In the language of Chief
Hughes, in Morgan v. U.S., 304 U.S. 1, 58 S. Ct. 773, 999, 82 Law. ed. 1129, "the liberty and property of
the citizen shall be protected by the rudimentary requirements of fair play.
(2) Not only must the party be given an opportunity to present his case and to adduce evidence tending
to establish the rights which he asserts but the tribunal must consider the evidence presented. (Chief
Justice Hughes in Morgan v. U.S. 298 U.S. 468, 56 S. Ct. 906, 80 law. ed. 1288.) In the language of this
court inEdwards vs. McCoy, 22 Phil., 598, "the right to adduce evidence, without the corresponding duty
on the part of the board to consider it, is vain. Such right is conspicuously futile if the person or persons
to whom the evidence is presented can thrust it aside without notice or consideration."
(3) "While the duty to deliberate does not impose the obligation to decide right, it does imply a
necessity which cannot be disregarded, namely, that of having something to support it is a nullity, a
place when directly attached." (Edwards vs. McCoy, supra.) This principle emanates from the more
fundamental is contrary to the vesting of unlimited power anywhere. Law is both a grant and a
limitation upon power.
(4) Not only must there be some evidence to support a finding or conclusion (City of Manila vs. Agustin,
G.R. No. 45844, promulgated November 29, 1937, XXXVI O. G. 1335), but the evidence must be
"substantial." (Washington, Virginia and Maryland Coach Co. v. national labor Relations Board, 301 U.S.
142, 147, 57 S. Ct. 648, 650, 81 Law. ed. 965.) It means such relevant evidence as a reasonable mind
accept as adequate to support a conclusion." (Appalachian Electric Power v. National Labor Relations
Board, 4 Cir., 93 F. 2d 985, 989; National Labor Relations Board v. Thompson Products, 6 Cir., 97 F. 2d
13, 15; Ballston-Stillwater Knitting Co. v. National Labor Relations Board, 2 Cir., 98 F. 2d 758, 760.) . . .
The statute provides that "the rules of evidence prevailing in courts of law and equity shall not be
controlling.' The obvious purpose of this and similar provisions is to free administrative boards from the
compulsion of technical rules so that the mere admission of matter which would be deemed
incompetent inn judicial proceedings would not invalidate the administrative order. (Interstate
Commerce Commission v. Baird, 194 U.S. 25, 44, 24 S. Ct. 563, 568, 48 Law. ed. 860; Interstate
Commerce Commission v. Louisville and Nashville R. Co., 227 U.S. 88, 93 33 S. Ct. 185, 187, 57 Law. ed.
431; United States v. Abilene and Southern Ry. Co. S. Ct. 220, 225, 74 Law. ed. 624.) But this assurance
of a desirable flexibility in administrative procedure does not go far as to justify orders without a basis in
evidence having rational probative force. Mere uncorroborated hearsay or rumor does not constitute
substantial evidence. (Consolidated Edison Co. v. National Labor Relations Board, 59 S. Ct. 206, 83 Law.
ed. No. 4, Adv. Op., p. 131.)"
(5) The decision must be rendered on the evidence presented at the hearing, or at least contained in the
record and disclosed to the parties affected. (Interstate Commence Commission vs. L. & N. R. Co., 227
U.S. 88, 33 S. Ct. 185, 57 Law. ed. 431.) Only by confining the administrative tribunal to the evidence
disclosed to the parties, can the latter be protected in their right to know and meet the case against
them. It should not, however, detract from their duty actively to see that the law is enforced, and for
that purpose, to use the authorized legal methods of securing evidence and informing itself of facts
material and relevant to the controversy. Boards of inquiry may be appointed for the purpose of
investigating and determining the facts in any given case, but their report and decision are only advisory.
(Section 9, Commonwealth Act No. 103.) The Court of Industrial Relations may refer any industrial or
agricultural dispute or any matter under its consideration or advisement to a local board of inquiry, a
provincial fiscal. a justice of the peace or any public official in any part of the Philippines for
investigation, report and recommendation, and may delegate to such board or public official such
powers and functions as the said Court of Industrial Relations may deem necessary, but such delegation
shall not affect the exercise of the Court itself of any of its powers. (Section 10, ibid.)
(6) The Court of Industrial Relations or any of its judges, therefore, must act on its or his own
independent consideration of the law and facts of the controversy, and not simply accept the views of a
subordinate in arriving at a decision. It may be that the volume of work is such that it is literally
Relations personally to decide all controversies coming before them. In the United States the difficulty is
solved with the enactment of statutory authority authorizing examiners or other subordinates to render
final decision, with the right to appeal to board or commission, but in our case there is no such statutory
authority.
(7) The Court of Industrial Relations should, in all controversial questions, render its decision in such a
manner that the parties to the proceeding can know the various issues involved, and the reasons for the
decision rendered. The performance of this duty is inseparable from the authority conferred upon it.
In the right of the foregoing fundamental principles, it is sufficient to observe here that, except as to the
alleged agreement between the Ang Tibay and the National Worker's Brotherhood (appendix A), the
record is barren and does not satisfy the thirst for a factual basis upon which to predicate, in a national
way, a conclusion of law.
This result, however, does not now preclude the concession of a new trial prayed for the by respondent
National Labor Union, Inc., it is alleged that "the supposed lack of material claimed by Toribio Teodoro
was but a scheme adopted to systematically discharged all the members of the National Labor Union
Inc., from work" and this avernment is desired to be proved by the petitioner with the "records of the
Bureau of Customs and the Books of Accounts of native dealers in leather"; that "the National Workers
Brotherhood Union of Ang Tibay is a company or employer union dominated by Toribio Teodoro, the
existence and functions of which are illegal." Petitioner further alleges under oath that the exhibits
attached to the petition to prove his substantial avernments" are so inaccessible to the respondents that
even within the exercise of due diligence they could not be expected to have obtained them and offered
as evidence in the Court of Industrial Relations", and that the documents attached to the petition "are of
such far reaching importance and effect that their admission would necessarily mean the modification
and reversal of the judgment rendered herein." We have considered the reply of Ang Tibay and its
arguments against the petition. By and large, after considerable discussions, we have come to the
conclusion that the interest of justice would be better served if the movant is given opportunity to
present at the hearing the documents referred to in his motion and such other evidence as may be
relevant to the main issue involved. The legislation which created the Court of Industrial Relations and
under which it acts is new. The failure to grasp the fundamental issue involved is not entirely
attributable to the parties adversely affected by the result. Accordingly, the motion for a new trial
should be and the same is hereby granted, and the entire record of this case shall be remanded to the
Court of Industrial Relations, with instruction that it reopen the case, receive all such evidence as may
be relevant and otherwise proceed in accordance with the requirements set forth hereinabove. So
ordered.

ROBIN M. CANO vs. THE CHIEF, PHILIPPINE NATIONAL POLICE, EDGAR C.
GALVANTE, as Police Director for Personnel and Records Management, PNP,
and the DEPARTMENT OF INTERIOR AND LOCAL GOVERNMENT
G.R. No. 139368 November 21, 2002]
ROBIN M. CANO, petitioner,
vs.
THE CHIEF, PHILIPPINE NATIONAL POLICE, EDGAR C. GALVANTE, as Police Director for Personnel and
Records Management, PNP,
and the DEPARTMENT OF INTERIOR AND LOCAL GOVERNMENT, respondents.
R E S O L U T I O N
QUISUMBING, J.:
This petition for review on certiorari assails (a) the order
1
dated May 17, 1999 of the Regional Trial Court
of Quezon City, Branch 224, in Civil Case No. Q-98-36370, dismissing the complaint filed on December
21, 1998 by petitioner against respondents for payment of back salaries and allowances amounting
to P301,018; and (b) the order of said court denying on July 15, 1999, his motion for reconsideration.
The factual background of the instant petition, as culled from the records of the case, is as follows:
For the alleged bungled investigation of the Eileen Sarmenta and Allan Gomez rape-slay, a complaint for
grave misconduct was filed with the National Police Commission under the Department of Interior and
Local Government against petitioner, then Police Chief Inspector of the Calauan Police Station. The Chief
of the Philippine National Police (PNP) found petitioner guilty and ordered his summary dismissal from
the service, in a decision
2
dated July 12, 1995. Petitioner appealed his dismissal to the National
Appellate Board of the National Police Commission (NAPOLCOM). On May 15, 1997, the NAPOLCOM
reversed the decision of the PNP Chief:
WHEREFORE, premises considered, we find respondent appellant, Chief Inspector ROBIN M. CANO
administratively culpable for Simple Misconduct and hereby orders (sic) his suspension for a period of
three (3) months. Considering, however, that said respondent had been under suspension since August
7, 1995, pursuant to Special Order No. 1690 dated August 8, 1995, the penalty imposed is considered
deemed served. Respondent-Appellant is strongly warned to be more prudent and responsible in the
exercise of his duties as a member of the PNP.
3

The NAPOLCOM decision having been allowed by both parties to become final and executory, petitioner
was restored to full duty status effective May 15, 1997. He also received all benefits and emoluments
pertaining to his post pursuant to PNP Special Order No. 1341. With the modification of his penalty to
three (3) months suspension, petitioner filed a claim for payment of back salaries and other allowances
corresponding to the period he was allegedly unjustly discharged from service until he was restored to
full duty status, or from August 7, 1995 to May 15, 1997. However, this claim, computed by the PNP
Regional Police Comptrollership and Finance Division to be Three Hundred One Thousand Eighteen
Pesos (P301,018.00), was denied by respondent Police Director Edgar C. Galvante of the PNP Directorate
for Personnel and Records Management (DPRM) on the strength of a Memorandum/Opinion from the
PNP Legal Service. Petitioner forthwith asked for a reconsideration of the denial but the same was
rejected.
On account of said denial, petitioner filed on December 23, 1998 a complaint
4
before the Regional Trial
Court of Quezon City for the recovery of his back salaries and other allowances for the said period. The
court a quo dismissed the complaint in an order dated May 17, 1999. Said the trial court:
The Court is prone to agree with the stand and position of the defendants that plaintiff's claim should
not be granted because plaintiff has not shown any clear and legal right which would entitle him to back
salaries, allowances and other benefits and besides, plaintiff has failed to exhaust administrative
remedies no[t] discounting the fact that his claim against defendants is actually a suit against the state.
x x x
This complaint is actually a suit against the government because the ultimate liability for payment of
back salaries, etc. will fall on the government. This being so, this case should be dismissed because the
government cannot be sued without its consent.
Accordingly, therefore, the Court has to dismiss this case without costs against the plaintiff.
IT IS SO ORDERED.
5

On May 31, 1999, petitioner moved for the reconsideration of the trial court's decision, but his motion
was denied in an order dated July 15, 1999.
Accordingly, petitioner filed the instant appeal via petition for review on certiorari, raising only one
issue:
Whether or not the petitioner is entitled to his claim for back salaries and allowances under the terms of
the decision of the NAPOLCOM Appellate Board.
6

Mainly involved in this controversy is petitioner's entitlement to back salaries and other allowances
upon the reduction of his penalty of dismissal to mere suspension for three months. But secondarily, it
should be asked whether petitioner failed to exhaust the administrative remedies available to him so as
to render the filing of the complaint with the trial court premature?
At the outset, we note that the principal issue raised before us is a mixed question of fact and law. There
is a question of fact when doubt or difference arises as to the truth or falsehood of the alleged
facts,
7
and there is a question of law where the doubt or difference arises as to what the law is on a
certain state of facts.
8
Here, petitioner seeks to recover back salaries and allowances allegedly due him
from August 7, 1995, when he was unjustly discharged from the service, to May 15, 1997, when he was
restored to full duty status. The determination of petitioner's entitlement to said back salaries and
allowances is a mixed question as it involves the determination of his duty status for the period of his
claim and the resolution of whether the petitioner was acquitted by the NAPOLCOM Appellate Board in
its decision finding him liable only for simple misconduct, not gross misconduct.
Under Section 1 of Rule 45 of the Rules of Court, an appeal by certiorari to this Court should raise only
questions of law which must be distinctly set forth in the petition. It is elementary that a review is not a
matter of right, but of sound judicial discretion, and will be granted only when there are special and
important reasons therefor.
9
As the error raised herein includes one of fact and law, and not a proper
subject for a petition for review on certiorari, we are constrained to decline exercise of our equity
jurisdiction in this case.
At any rate, petitioner also failed without justifiable cause to observe due regard for the hierarchy of
courts. Even on this reason alone, we are constrained to deny the petition. The policy of this Court
respecting the hierarchy of courts and, consequently, prohibiting the filing of a petition in this Court in
view of the concurrent jurisdiction with the lower courts has been consistently observed in the absence
of any compelling reason for departing from such policy.
10
Pursuant to Section 2, Rule 41 of the Rules of
Court,
11
petitioner should have taken his appeal to the Court of Appeals.
Having ruled for the denial of the petition, we need not tarry on the other issues that may have been
raised in the petition.
WHEREFORE, the instant petition is DENIED. The order of the Regional Trial Court, Branch 224, Quezon
City, in Civil Case No. Q-98-36370 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.


THE PEOPLE OF THE PHILIPPINES vs. LARRY LAVAPIE, SIMEON LACHANO,
ARNOLD BUATES, SANTOS SAN PASCUAL, SR., SANTOS SAN PASCUAL, JR., REY
SAN PASCUAL, BENIGNO CATINA, JR. and SEVERAL DOES, accused.
LARRY LAVAPIE and SANTOS SAN PASCUAL, SR.
G.R. No. 130209 March 14, 2001
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
vs.
LARRY LAVAPIE, SIMEON LACHANO, ARNOLD BUATES, SANTOS SAN PASCUAL, SR., SANTOS SAN
PASCUAL, JR., REY SAN PASCUAL, BENIGNO CATINA, JR. and SEVERAL DOES, accused.
LARRY LAVAPIE and SANTOS SAN PASCUAL, SR., accused-appellants.
BUENA, J.:
This is an appeal from the Decision
1
dated December 16, 1996, of the Regional Trial Court of Iriga City,
Branch 36,
2
finding accused-appellants Larry Lavapie and Santos San Pascual, Sr. guilty beyond
reasonable doubt of murder, sentencing each of them to suffer the penalty of reclusion perpetua and to
pay the heirs of the victim, Sonny Sierva, jointly and severally, the amount of P7,000.00 as actual
damages, P50,000.00 as death indemnity and P50,000.00 as moral damages, and to pay the costs.
The antecedent facts are as follows:
Accused-appellants Larry Lavapie and Santos San Pascual, Sr., together with Simeon Lachano, Arnold
Buates, Santos San Pascual, Jr., Rey San Pascual, Benigno Catina, Jr. and several Does, were charged in
an information which reads:
"That on or about the 29th day of March, 1989, at Sitio Tastas, Barangay San Vicente, (Buraburan)
Municipality of Buhi, Province of Camarines Sur, Philippines, and within the jurisdiction of this
Honorable Court, the said accused, armed with bolos, with intent to kill and with treachery and evident
premeditation, conspiring, confederating together and mutually helping one another, did then and there
willfully, unlawfully and feloniously attack, assault and hack with said bolos one Sonny Sierva, thereby
inflicting upon the latter [a] mortal wound which directly caused his death, to the damage and prejudice
of his heirs in the sum of Fifty Thousand Pesos (P50,000.00), plus other forms of damages that may be
proven in court.
ACTS CONTRARY TO LAW."
3

Upon their arraignment on October 17, 1989, accused Larry Lavapie and Rey San Pascual pleaded not
guilty. 4 Subsequently, or on January 29, 1990, the other accused Benigno Catina. Jr., Santos San
Pascual, Sr. and Santos San Pascual, Jr. also pleaded not guilty.
5
Accused Simeon Lachano, likewise,
pleaded not guilty on July 16, 1991.
6
Accused Arnold Buates remained at large.
At the trial, the prosecution presented the following witnesses against accused Larry Lavapie, Rey San
Pascual, Benigno Catina, Jr., Santos San Pascual, Sr. and Santos San Pascual, Jr. Dr. Alicia M. Mercurio,
Jenny Cordial, Enrico Sierva, Domingo Samonte, Rogelio Sierva and Sgt. Jaime Patiam. The following
witnesses, on the other hand, testified against accused Simeon Lachano Erlinda Sierva and Rogelio
Sierva. In their defense, all of the six (6) accused, who were brought before the jurisdiction of the trial
court, testified in court, in addition to Felix Lavapie, Juan Bongais and Loreto Camasis.
For the prosecution, eyewitness Domingo Samonte testified that on March 29, 1989, at around 11 p.m.,
he came from the dance hall in San Vicente with Rogelio Sierva and the victim Sonny Sierva.
7
While on
their way, Rogelio and Sonny talked with some ladies, then, Rogelio went home ahead, and left
Domingo and Sonny behind.
8
While approaching Rogelio's house, Domingo and Sonny noticed a group
of persons coming towards them. Domingo stepped backwards towards Sonny. Sonny focused the
flashlight, which he was holding, on accused-appellant Santos San Pascual, Sr. and accused-appellant
Larry Lavapie, who was then holding a bolo. Accused-appellant Santos San Pascual, Sr. suddenly held the
hands of Sonny behind his back, while accused-appellant Larry Lavapie hacked Sonny.
9
Domingo
testified that Sonny was hit on the neck, the same witness pointing to the left side of his neck.
10
When
Sonny fell on the ground, Domingo ran towards some pili trees. Then, Domingo saw two (2) persons, a
boy and a girl, who were following them and holding a torch which they used to lighten the fallen body
of Sonny. Domingo, however, was not able to recognize these two (2) persons. On cross-examination,
Domingo testified that when he witnessed the hacking incident, there were other persons at the scene
of the crime but he was not able to recognize them.
11
Domingo further recounted that after he saw the
hacking incident, he ran towards the back of a pili tree and stayed there until dawn of the following
day.
12
At dawn, he proceeded to his house in Buraburan.
13
He did not report the incident to anybody
else but a certain friend and his wife. Domingo also admitted that when accused-appellant Santos San
Pascual, Sr. held the hands of Sonny behind the latter's back, he did not tell Santos San Pascual, Sr. to
stop but just took a step backwards.
14

Jenny Cordial, a 15-year-old ward of Sonny Sierva's aunt, testified that on March 29, 1989, at around 11
p.m., she and Rico Sierva
15
came from a dance in San Vicente, Buraburan and were on their way home
when they came upon the body of Sonny Sierva lying on the middle of the road.
16
They recognized
Sonny Sierva because Cordial was then holding a torch.
17
Cordial and Enrico Sierva came upon Sonny
Sierva, who was lying prostrate on the road, with a hack wound on the neck, and was almost
beheaded.
18
At that instance, Cordial saw accused-appellant Larry Lavapie, who was holding a bolo,
standing at a distance of about five (5) to six (6) meters from the body of Sonny Sierva.
19
Aside from
accused-appellant Larry Lavapie, Cordial also saw other persons at the scene of the crime but she was
not able to recognize them. Thereafter, Cordial and Enrico Sierva ran away and went home to inform the
father of Sonny Sierva of what happened but they were told by his wife that Rogelio Sierva was also
hacked. Incidentally, while on cross-examination, the prosecutor informed the trial court that Cordial
actually grew up under the care of Rogelio Sierva's sister. Cordial testified on cross-examination that
when she and Enrico Sierva saw the body of Sonny Sierva lying on the road, they were only about one
(1) meter away from the body. When they saw accused-appellant Larry Lavapie, he was holding
a bolo which was pointed downwards. Cordial clearly recognized accused-appellant Larry Lavapie
because she was then holding a torch. Cordial described thebolo held by accused-appellant Larry
Lavapie as "shiny and sharp," and "clear and clean."
20
Cordial also noticed that the other persons, who
were at scene of the crime, were standing still, facing the body of Sonny Sierva, about a meter away
from accused-appellant Larry Lavapie, and that some of these persons were smoking.
21
Cordial did not
recognize these other persons because according to her "it was dark."
22
On further cross-examination,
she estimated these other persons at the scene of the crime to number about seven (7) persons.
Enrico Sierva, 15-year-old cousin of the victim, Sonny Sierva, testified that on March 29, 1989, at around
11 p.m., he and Jenny Cordial came from a dance in San Vicente, Buhi and were on their way home.
Near the house of the victim's father, Rogelio Sierva, they saw a man lying prostrate on the road. They
went closer to the body and saw that the said man sustained a hack wound on the neck. They
recognized the man lying on the road as Sonny Sierva.
23
Glancing around, Enrico saw accused-appellant
Larry Lavapie holding a bolo and standing by the road with accused-appellant Santos San Pascual,
Sr.
24
According to Enrico, both accused-appellants were at a distance of about five (5) to six (6) meters
away from him when he saw them. He also saw other persons at the scene of the crime but he was not
able to recognize them because they were in a "dark place."
25
Thereafter, he and Jenny Cordial ran
towards the house of Rogelio Sierva, located about 30 meters away, and informed Rogelio's wife, Erlinda
Velasco, that her son was lying dead on the road. Erlinda Velasco told them that her husband was also
hacked and was being brought to a hospital. On cross-examination, Enrico Sierva testified that he told
his uncle, Rogelio Sierva, that it was the group of accused-appellant Larry Lavapie who hacked Sonny
Sierva,
26
and that accused-appellants Larry Lavapie and Santos San Pascual, Sr. were there.
27
Enrico
further testified that the torch they were carrying on the night of March 29, 1989 was made of a round
bottle of gin.
Dr. Alicia M. Mercurio, Municipal Health Officer of Buhi II, Camarines Sur, conducted the autopsy on the
body of Sonny Sierva and prepared an autopsy report
28
dated April 25, 1989, with the following findings:
"Lesions:
"Incised wound at the neck, right side cutting the whole neck structure with a portion of the skin only on
the left side holding it in place about 3 in. long.
"Cause of Death Incised wound, neck (almost whole neck) with secondary hemorrhage (massive)."
29

Dr. Mercurio explained that due to the hack wound (or incised wound) sustained by the victim, Sonny
Sierva, the victim's head was almost severed from the body, with only three (3) inches of flesh on the
left side of the neck, connecting the neck to the body.
30
According to Dr. Mercurio, the hack wound
could have been caused by a sharp instrument like a very sharp bolo. Dr. Mercurio further opined that
the victim could have died at around 1 or 2 a.m. of March 30, 1989.
Rogelio Sierva, father of the victim, Sonny Sierva, testified that on March 29, 1989, at around 11 p.m., he
came from a dance in Buraburan, San Vicente, together with his son, Sonny Sierva and his brother-in-
law, Felix Buendia.
31
On their way home, they passed by the house of a certain Teresita Gaite, where
Sonny Sierva was left behind with his friends. Rogelio and Felix proceeded on their way home. When
they were already near his house, Rogelio saw six (6) of the seven (7) identified accused.
32
Rogelio
continued to testify that he was hacked on his right ear by accused Arnold Buates. Rogelio and Felix then
ran towards Rogelio's house. When Rogelio was about to open the door of his house, he was hacked on
the right arm by accused Santos San Pascual, Jr. Rogelio then entered the house and got a bolo but his
assailants already retreated to the place where he was first hacked. Thereafter, Rogelio sought the
assistance of his brother, Silvestre Sierva, whose house was located about 20 meters away,
33
and
requested that he be brought to a hospital. On their way to the hospital, they saw Sonny Sierva, who
was almost beheaded, lying on the road. When Rogelio discovered that Sonny was already dead, they
proceeded to the San Vicente Assistance Center and reported the hacking incident. Afterwards, they
proceeded to the Mediatrix Hospital where Rogelio was treated for his wounds. Rogelio also testified
that he spent more or less P7,000.00 which he incurred due to the death of Sonny Sierva.
34
On cross-
examination, Rogelio admitted that he was previously charged for the attempted rape of the daughter
of accused Santos San Pascual, Sr.
35

Because accused Simeon Lachano was arrested only after the prosecution had already presented the
foregoing witnesses against the five (5) other accused, the prosecution presented anew, Rogelio Sierva
and an additional witness, Erlinda Sierva, to testify against accused Simeon Lachano.
Erlinda Sierva, mother of the victim, Sonny Sierva, testified that she spent less than P10,000.00 as burial
and funeral expenses on account of the death of Sonny Sierva.
36

Rogelio Sierva, in testifying against accused Simeon Lachano, merely reiterated his previous testimony
against the five (5) other accused.
For the defense, on the other hand, all of the six (6) accused, who were brought before the jurisdiction
of the trial court, testified together with Felix Lavapie, Juan Bongais and Loreto Camasis.
Accused-appellant Larry Lavapie, in his defense, interposed denial and alibi. Lavapie testified that on
March 29, 1989, at around 8 p.m., he was at a dance in San Vicente, Buhi,
37
with accused Santos San
Pascual, Jr., a certain Santiago Sanorjo and Danny Belardo.
38
Lavapie, Santos San Pascual, Jr., Santiago
Sanorjo
39
and Danny Belardo left the dance hall at past 11:30 p.m. and went to the barn of Santiago
Sanorjo, arriving thereat at around 1 a.m.
40
They slept in the said barn and went to their respective
houses on the following day.
Accused Santos San Pascual, Jr. corroborated the testimony of accused-appellant Larry Lavapie that they
attended a dance in San Vicente, Buhi. They left the dance hall at past 12 midnight
41
and went to the
house of Santiago Sanorjo where they slept until 6 o'clock of the following morning.
42

Juan Bongais testified that in the evening of March 29, 1989, he was at a dance in San Vicente,
Buraburan. He arrived at the dance at 7 p.m. and left at about 12:30 a.m. of the following day.
43
He left
the dance with Jenny Cordial, Rico Sierva and Liza San Pascual.
44
On their way home, they met Rogelio
Sierva who was hacked and being carried by Dionesio Coronel and Felicito Conas. They continued
walking for several meters until they came upon the dead body of Sonny Sierva, lying on the road.
45
On
cross-examination, Bongais testified that when they were about to leave the dance at around 12:30 a.m.
of March 30, 1989, accused-appellant Larry Lavapie and his co-accused Santos San Pascual, Jr. were still
at the dancing hall.
46

Accused-appellant Santos San Pascual, Sr., likewise, claimed denial and alibi. San Pascual, Sr. testified
that in the evening of March 29, 1989, he was resting in his house in sitio Tastas, Labawon, Buhi.
47
He
slept at 7 p.m. and awoke at 5 o'clock of the following day.
48
San Pascual, Sr. further claimed that
Rogelio Sierva, father of the victim, was actuated by ill-motive to implicate him in this crime, i.e., he filed
a complaint against Rogelio for the attempted rape of his daughter, Gina San Pascual.
49
On cross-
examination, San Pascual, Sr. testified that sitio Labawon is adjacent to barangay San Vicente.
The three (3) other accused, Rey San Pascual, Simeon Lachano and Benigno Catina, Jr., likewise,
interposed denial and alibi in their respective testimonies before the trial court.
On January 23, 1997, the trial court rendered a Decision dated December 16, 1996, finding accused-
appellants Larry Lavapie and Santos San Pascual, Sr. guilty of murder qualified by treachery. The four (4)
other accused, Santos San Pascual, Jr., Rey San Pascual, Benigno Catina, Jr. and Simeon Lachano were
acquitted for insufficiency of evidence. The dispositive part of the said Decision reads:
"WHEREFORE, premises considered, the Court finds
"1. The accused, Larry Lavapie and Santos San Pascual, Sr., guilty beyond reasonable doubt as
principal[s] of the crime of murder defined and penalized under Article [2]48 of the Revised Penal Code,
prior to its amendment by Rep. Act No. 7659, as charged in the information, and there being no generic
aggravating nor mitigating circumstances, [the Court] hereby sentences the said accused to suffer the
penalty of reclusion perpetua; to pay, jointly and severally the heirs of the deceased, Sonny Sierva,
spouses Rogelio and Erlinda Sierva the following:
a) P7,000.00 as actual damages,
b) P50,000.00 as death indemnity,
c) P50,000.00 as moral damages, and to pay the costs;
"2. [T]he [other] accused, Santos San Pascual, Jr., Rey San Pascual, Benigno Catina, Jr., and Simeon
Lachano, not guilty of the crime charged in the information and [the Court] hereby acquits them thereof
for insufficiency of evidence. The bonds posted for their provisional liberty are hereby ordered cancelled
and released.
"With respect to the accused, Arnold Buates, who was never brought to the jurisdiction of this [C]ourt,
let the records of this case be sent to the archives to be revived as soon as this [C]ourt acquires
jurisdiction over [the] said accused.
"SO ORDERED."
50

In convicting accused-appellants, Larry Lavapie and Santos San Pascual, Sr., the trial court relied
primarily on the testimony of prosecution witness Domingo Samonte that accused-appellant Larry
Lavapie was the one who hacked Sonny Sierva on the neck with the use of a bolo while accused-
appellant Santos San Pascual, Sr. was at the back of Sonny Sierva, holding the latter's hands.
51
The trial
court also relied heavily on the testimony of prosecution witness Jenny Cordial that she saw accused-
appellant Larry Lavapie, standing about five (5) meters away from the dead body of Sonny Sierva; and
on the testimony of prosecution witness Enrico Sierva that he saw accused-appellants, Larry Lavapie and
Santos San Pascual, Sr., standing five (5) meters away from the dead body of Sonny Sierva.
52
The trial
court further maintained that Jenny Cordial's description of Sonny Sierva's body when they came upon
it, lying prostrate on the road, was supported by the medical findings stated in the autopsy report of Dr.
Alicia M. Mercurio.
53
The trial court rejected the defenses of denial and alibi raised by accused-
appellants, and ruled that denial and alibi cannot prevail over positive identification, and that accused-
appellants' alibi was not corroborated by any credible and disinterested witness.
54
In ruling that the
killing was qualified by treachery, the trial court explained that accused-appellants awaited, in ambush,
for their victim;"
55
and that the suddenness of the attack on Sonny Sierva and the fact that his hands
were being held at his back by accused-appellant Santos San Pascual, Sr. while he was hacked by
accused-appellant Larry Lavapie, rendered him "helpless to put up any defense."
56
The trial court also
found that conspiracy attended the commission of the crime, based on the fact that ". . .they [accused-
appellants] are related to each other (uncle and nephew) and from their concerted acts in killing Sonny
Sierva."
57

On February 3, 1997, accused-appellants filed a Motion for New Trial, alleging that prosecution
witnesses, Jenny Cordial and Domingo Samonte retracted their respective testimonies.
58
However, in an
Order dated March 12, 1997, the trial court denied the foregoing motion, for lack of merit.
59

Hence, this appeal.
In their appellant's brief, accused-appellants raise a lone assignment of error:
THE LOWER COURT ERRED IN NOT CONSIDERING THE RETRACTION OF PROSECUTION WITNESS[ES]
JENNY CORDIAL AND DOMINGO SAMONTE [AS] NEWLY-DISCOVERED EVIDENCE WHICH SHALL JUSTIFY
THE HOLDING OF A NEW TRIAL.
We find merit in this appeal.
The conviction of accused-appellants by the trial court was predicated primarily on the testimony of
prosecution witness Domingo Samonte who "positively identified [accused-appellant] Larry Lavapie as
the one who hacked Sonny Sierva with a bolo at his neck while accused[-appellant] Santos San Pascual,
Sr., was at the rear of Sonny Sierva, holding his hands;"
60
and on the testimonies of the two (2)
witnesses who arrived at the scene of the crime shortly after the hacking incident occurred Jenny
Cordial, who "saw accused[-appellant] Larry Lavapie standing about five [5] meters away from the dead
body of Sonny Sierva"
61
and Enrico Sierva, who "saw and recognized the same accused[-appellant] Larry
Lavapie and accused[-appellant] Santos San Pascual, Sr., standing [five] 5 meters away from the dead
body of Sonny Sierva."
62
According to the trial court, Jenny Cordial's description of the condition of
Sonny Sierva's body when they came upon it, ". . . is supported by the medical findings" as stated in the
autopsy report.
63
Furthermore, the trial court observed that accused-appellants failed to show "any
improper motive on the part of the said witnesses to falsely testify against them."
64

While it is settled to the point of being elementary that on the issue of credibility of witnesses, appellate
courts will not disturb the findings arrived at by the trial court, which was certainly in a better position
to rate the credibility of the witnesses after hearing them and observing their deportment and manner
of testifying during the trial; this rule stands absent any showing that certain facts and circumstances of
weight and value have been overlooked, misinterpreted or misapplied by the trial court which, if
considered, would affect the result or outcome of the case.
65
After a careful review of the records of this
case, particularly, the testimonies of prosecution witnesses, the Court finds that significant facts and
circumstances were overlooked and disregarded by the trial court, which, if properly considered, would
have affected the result of this case. The records show that there are strong and cogent reasons that
justify a departure from the trial court's findings.
In the case at bar, prosecution eyewitness Domingo Samonte testified that accused-appellant Larry
Lavapie suddenly hacked Sonny Sierva, hitting the latter on his neck; Samonte demonstrated
by pointing to the left side of his neck, thus:
"PROSECUTOR:
"Q: All right. You said Larry Lavapie suddenly hacked Sonny Sierva[,] was Sonny Sierva hit?
[WITNESS DOMINGO SAMONTE]:
"A: Yes, sir.
"Q: Where was he hit?
"A: He was hit on his neck. (Witness pointing to the left side of his neck.)
"Q: After Sonny Sierva was hacked by Larry Lavapie[,] what happened to Sonny Sierva, Mr.
Samonte?
"A: He fell down, sir."
66
(Emphasis supplied.)
The foregoing testimony of Samonte is belied by the physical evidence that the deceased,
Sonny Sierva sustained an "incised wound at the neck, right side cutting the whole neck
structure with a portion of the skin only on the left side holding it in place about 3 in.
long."
67
(Emphasis supplied.) While Samonte categorically testified that Sonny Sierva was hacked on the
neck, at the same time, Samonte demonstrated by pointing to the left side of his neck; the autopsy
report clearly revealed that Sonny Sierva was hacked on the right side of his neck and not on the left
side. This material inconsistency, consequently, casts a serious doubt on the testimony of Samonte. As
we have ruled in People vs. Vasquez,
68
since the physical evidence on record runs counter to the
testimonial evidence of the prosecution witnesses, conclusions as to physical evidence should prevail. It
bears reiteration that physical evidence is that mute but eloquent manifestations of truth which rate
high in our hierarchy of trustworthy evidence.
69
In the light of the physical evidence obtaining in this
case, contrary to oral assertions cannot normally prevail. Greater credence is given to physical evidence
as evidence of the highest order because it speaks more eloquently than a hundred witnesses.
70

Moreover, Samonte's claim that on March 29, 1989, at around 11 p.m., he came from the dance hall in
San Vicente with Rogelio Sierva and the victim Sonny Sierva,
71
and that while on their way, Rogelio and
Sonny talked with some ladies, then, Rogelio went ahead, leaving Domingo and Sonny behind,
72
was
even contradicted by Rogelio's (one of Samonte's alleged companions on that fateful night) testimony
on two (2) different instances,
73
that on March 29, 1989, at about 11 p.m., he was with his son, Sonny
Sierva and his brother-in-law, Felix Buendia,
74
without any reference to the alleged presence of
Samonte, thus:
"ROGELIO SIERVA'S FIRST TESTIMONY WHICH WAS TAKEN ON AUGUST 16, 1990:
"PROSECUTOR:
"Q: Mr. Sierva, on March 29, 1990 [should be 1989] at about 11 o'clock in the evening, where were
you?
[WITNESS ROGELIO SIERVA]:
"A: We came from a dance at Sitio Buraburan, San Vicente, Buhi, Camarines Sur.
"Q: You said we, who were your companions during that time[,] Mr. Sierva?
"A: My son Sonny Sierva and my brother-in-law, Felix Buendia.
"Q: While you together with your late son Sonny Sierva and your brother-in-law Felix Buendia were
on your way home from centro Buraburan, Buhi, Camarines Sur, do you recall of any incident that
happened?
"A: Yes, sir."
75
(Emphasis supplied.)
"ROGELIO SIERVA'S SECOND TESTIMONY WHICH WAS TAKEN ON AUGUST 5, 1993:
"PROSECUTOR:
"Q: Mr. Sierva, where were you on March 29, 1989 at about 11 o'clock in the evening?
[WITNESS ROGELIO SIERVA]:
"A: I was then at San Vicente, Buraburan, Buhi, Camarines Sur.
"Q: Why did you happen to be there, Mr. Sierva during the aforesaid date and time?
"A: I accompanied my son to the dancing hall.
"Q: Where was this dancing hall?
"A: At Centro San Vicente, Bura-buran.
"Q: What were you doing at the aforesaid place during the aforesaid date and time?
"A: I was watching the dance.
"Q: Who were with you, if any, during that time, Mr. Sierva?
"A: My son and my brother-in-law.
"xxx xxx xxx"
"Q: After watching the dance, what did you do, if any?
"A: We went home.
"Q: You said "we went home". Who were with you?
"A: My brother-in-law and my son.
"Q: What is the name of your brother-in-law?
"A: Felix Buendia.
"Q: While you were on your way home together with your brother-in-law and your son Sonny Sierva,
do you recall of any incident that happened, Mr. Sierva?
"A: Yes, sir."
76
(Emphasis supplied.)
Certainly, the foregoing testimonies of Rogelio Sierva, which we find to be consistent on material points,
further cast serious doubt on the veracity of Samonte's testimony.
In addition, we find Samonte's response to the occurrence to be contrary to ordinary human experience
and behavior. If indeed Samonte was present at the scene of the crime when the victim, Sonny Sierva,
whose hands were held at the back by accused-appellant Santos San Pascual, Sr., was hacked on the
neck by accused-appellant Larry Lavapie, while the other accused, numbering at least five (5), were
apparently merely observing the incident; it was then unnatural and against common experience that
Samonte ran away towards some pili trees and simply stayed there until dawn of the following day, even
as he had already seen a boy and a girl discovered the fallen body of Sonny Sierva shortly after the
incident occurred. Considering the testimonies of prosecution witnesses, Jenny Cordial and Enrico
Sierva, that after discovering the dead body of Sonny Sierva lying prostrate on the ground, and seeing
the several accused standing near the dead body of Sonny Sierva, they were able to run away and go to
Rogelio Sierva's house to report what they saw, without the several accused following them or even
attempting to threaten them in any way, it appears that the several accused posed no threat to
Samonte, which could have forced him to remain near some pili trees. It is also perplexing why Samonte
did not see, inform or seek the help of Rogelio Sierva, Felix Buendia, Silvestre Sierva and an unidentified
person, who also happened to come upon the dead body of Sonny Sierva while on their way to the
hospital. This Court finds occasion, at this point, to apply a long-held doctrine that to be credible,
testimonial evidence should come not only from the mouth of a credible witness but it should also be
credible, reasonable and in accord with human experience.
77
While we take judicial notice that
eyewitnesses to a crime are often reluctant to report the incident, the Court finds the response of
Samonte to the occurrence contrary to human experience, and his testimony not credible, thus, we
reject his testimony.
In view of the resulting lack of positive identification, accused-appellants' conviction or acquittal would
now depend primarily on the sufficiency of the circumstantial evidence against them, based on the
testimonies of the other prosecution witnesses, particularly, Jenny Cordial and Enrico Sierva. Section 4,
Rule 133 of the Rules of Court provides that circumstantial evidence is sufficient for conviction if: (1)
there is more than one circumstance; (2) the facts from which the inferences are derived are proven;
and (3) the combination of all the circumstances is such as to produce a conviction beyond reasonable
doubt.
In the instant case, prosecution witness Jenny Cordial testified that she saw accused-appellant Larry
Lavapie, who was holding a bolo, standing at a distance of about five (5) to six (6) meters from the body
of Sonny Sierva;
78
while prosecution witness Enrico Sierva testified that after he recognized the man lying
on the road as Sonny Sierva, he saw accused-appellant Larry Lavapie with a bolo, standing by the road,
with accused-appellant Santos San Pascual, Sr.
79
The above circumstance, in the absence of other
corroborative evidence, does not satisfy the requirements under Section 4, Rule 133 of the Rules of
Court nor point with moral certainty to the guilt of accused-appellants. As we have consistently held, the
mere presence of accused-appellants at the locus criminis cannot be solely interpreted to mean that
they committed the killing. The mere presence of accused appellants at the crime scene, without more,
is inadequate to support the conclusion that, indeed, they committed the crime.
80
We also observe that
as testified by prosecution witness Jenny Cordial, the bolo allegedly held by accused-appellant Larry
Lavapie was "shiny and sharp," and "clear and clean."
81
If indeed it was accused-appellant Larry Lavapie
who hacked Sonny Sierva on the neck, the bolo, which he allegedly used in hacking Sonny Sierva, would
not have been "clear and clean." It should also be noted that aside from the two (2) accused-appellants,
there were at least five (5) other persons who were at the scene of the crime, and who could have been
responsible for the killing, but unfortunately, they were not recognized by prosecution witnesses, Jenny
Cordial and Enrico Sierva. According to Jenny Cordial, the other persons, numbering about seven (7),
who were at the scene of the crime, standing still and facing the body of Sonny Sierva, were only about a
meter away from accused-appellant Larry Lavapie,
82
but she was not able to recognize them because "it
was dark."
83
In corroboration, Enrico Sierva testified that both accused-appellants were at a distance of
about five (5) to six (6) meters away from him when he saw them; and that he also saw other persons at
the scene of the crime but he was not able to recognize them because they were in a "dark place."
84

In resume, considering the evidence for the prosecution and the attendant circumstances, the Court
entertains reasonable doubt as to the culpability of accused-appellants.
WHEREFORE, for failure of the prosecution to prove beyond reasonable doubt that the accused-
appellants are guilty of the crime charged, the Decision dated December 16, 1996, of Branch 36 of the
Regional Trial Court of Iriga City in Criminal Case No. IR-2639 is hereby REVERSED AND SET ASIDE. The
accused-appellants are ACQUITTED, and their immediate release from confinement is ordered unless
some other lawful cause warrants their further detention.
The Director of Prisons is DIRECTED to implement this Decision and to report to this Court immediately
the action taken hereon within five (5) days from receipt hereof.
SO ORDERED.

GSIS v. CA

People v. Macalaba


Section 2
People v. Ayupan

Jarco Marketing

Section 3
People v. Caneta

People v. Santos

Section 4
Salcedo v. CA

Navarro v. CA

RA 9372

RA 9165

People v. Almorfe

People v. Sanchez


Rule 129
Pigao

Saludo

Chavez

Sanado

Espanol

Republic v. CA

People v. Meneses

Gabriel v. CA

People v. Silverio

Oliva

People v.
Saludo


LBP

People v. Pruna

Binarao

Cassent

Alfelor

Republic v. Cua

Atilio

Fule

King

People v. Malimit

People v. Yatar

People v. Alejandro

Columbia

People v. Pruna



Lee v. People

Consolidate v. De Leon

ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION vs.
COMMISSIONER OF INTERNAL REVENUE
G.R. Nos. 141104 & 148763 June 8, 2007
ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
D E C I S I O N
CHICO-NAZARIO, J.:
Before this Court are the consolidated cases involving the unsuccessful claims of herein petitioner Atlas
Consolidated Mining and Development Corporation (petitioner corporation) for the refund/credit of the
input Value Added Tax (VAT) on its purchases of capital goods and on its zero-rated sales in the taxable
quarters of the years 1990 and 1992, the denial of which by the Court of Tax Appeals (CTA), was
affirmed by the Court of Appeals.
Petitioner corporation is engaged in the business of mining, production, and sale of various mineral
products, such as gold, pyrite, and copper concentrates. It is a VAT-registered taxpayer. It was initially
issued VAT Registration No. 32-A-6-002224, dated 1 January 1988, but it had to register anew with the
appropriate revenue district office (RDO) of the Bureau of Internal Revenue (BIR) when it moved its
principal place of business, and it was re-issued VAT Registration No. 32-0-004622, dated 15 August
1990.
1

G.R. No. 141104
Petitioner corporation filed with the BIR its VAT Return for the first quarter of 1992.
2
It alleged that it
likewise filed with the BIR the corresponding application for the refund/credit of its input VAT on its
purchases of capital goods and on its zero-rated sales in the amount of P26,030,460.00.
3
When its
application for refund/credit remained unresolved by the BIR, petitioner corporation filed on 20 April
1994 its Petition for Review with the CTA, docketed as CTA Case No. 5102. Asserting that it was a "zero-
rated VAT person," it prayed that the CTA order herein respondent Commissioner of Internal Revenue
(respondent Commissioner) to refund/credit petitioner corporation with the amount of P26,030,460.00,
representing the input VAT it had paid for the first quarter of 1992. The respondent Commissioner
opposed and sought the dismissal of the petition for review of petitioner corporation for failure to state
a cause of action. After due trial, the CTA promulgated its Decision
4
on 24 November 1997 with the
following disposition
WHEREFORE, in view of the foregoing, the instant claim for refund is hereby DENIED on the ground of
prescription, insufficiency of evidence and failure to comply with Section 230 of the Tax Code, as
amended. Accordingly, the petition at bar is hereby DISMISSED for lack of merit.
The CTA denied the motion for reconsideration of petitioner corporation in a Resolution
5
dated 15 April
1998.
When the case was elevated to the Court of Appeals as CA-G.R. SP No. 47607, the appellate court, in its
Decision,
6
dated 6 July 1999, dismissed the appeal of petitioner corporation, finding no reversible error
in the CTA Decision, dated 24 November 1997. The subsequent motion for reconsideration of petitioner
corporation was also denied by the Court of Appeals in its Resolution,
7
dated 14 December 1999.
Thus, petitioner corporation comes before this Court, via a Petition for Review on Certiorari under Rule
45 of the Revised Rules of Court, assigning the following errors committed by the Court of Appeals
I
THE COURT OF APPEALS ERRED IN AFFIRMING THE REQUIREMENT OF REVENUE REGULATIONS NO. 2-88
THAT AT LEAST 70% OF THE SALES OF THE [BOARD OF INVESTMENTS (BOI)]-REGISTERED FIRM MUST
CONSIST OF EXPORTS FOR ZERO-RATING TO APPLY.
II
THE COURT OF APPEALS ERRED IN AFFIRMING THAT PETITIONER FAILED TO SUBMIT SUFFICIENT
EVIDENCE SINCE FAILURE TO SUBMIT PHOTOCOPIES OF VAT INVOICES AND RECEIPTS IS NOT A FATAL
DEFECT.
III
THE COURT OF APPEALS ERRED IN RULING THAT THE JUDICIAL CLAIM WAS FILED BEYOND THE
PRESCRIPTIVE PERIOD SINCE THE JUDICIAL CLAIM WAS FILED WITHIN TWO (2) YEARS FROM THE FILING
OF THE VAT RETURN.
IV
THE COURT OF APPEALS ERRED IN NOT ORDERING CTA TO ALLOW THE RE-OPENING OF THE CASE FOR
PETITIONER TO PRESENT ADDITIONAL EVIDENCE.
8

G.R. No. 148763
G.R. No. 148763 involves almost the same set of facts as in G.R. No. 141104 presented above, except
that it relates to the claims of petitioner corporation for refund/credit of input VAT on its purchases of
capital goods and on its zero-rated sales made in the last three taxable quarters of 1990.
Petitioner corporation filed with the BIR its VAT Returns for the second, third, and fourth quarters of
1990, on 20 July 1990, 18 October 1990, and 20 January 1991, respectively. It submitted separate
applications to the BIR for the refund/credit of the input VAT paid on its purchases of capital goods and
on its zero-rated sales, the details of which are presented as follows
Date of Application Period Covered Amount Applied For
21 August 1990 2
nd
Quarter, 1990 P 54,014,722.04
21 November 1990 3
rd
Quarter, 1990 75,304,774.77
19 February 1991 4
th
Quarter, 1990 43,829,766.10
When the BIR failed to act on its applications for refund/credit, petitioner corporation filed with the CTA
the following petitions for review
Date Filed Period Covered CTA Case No.
20 July 1992 2
nd
Quarter, 1990 4831
9 October 1992 3
rd
Quarter, 1990 4859
14 January 1993 4
th
Quarter, 1990 4944
which were eventually consolidated. The respondent Commissioner contested the foregoing Petitions
and prayed for the dismissal thereof. The CTA ruled in favor of respondent Commissioner and in its
Decision,
9
dated 30 October 1997, dismissed the Petitions mainly on the ground that the prescriptive
periods for filing the same had expired. In a Resolution,
10
dated 15 January 1998, the CTA denied the
motion for reconsideration of petitioner corporation since the latter presented no new matter not
already discussed in the court's prior Decision. In the same Resolution, the CTA also denied the
alternative prayer of petitioner corporation for a new trial since it did not fall under any of the grounds
cited under Section 1, Rule 37 of the Revised Rules of Court, and it was not supported by affidavits of
merits required by Section 2 of the same Rule.
Petitioner corporation appealed its case to the Court of Appeals, where it was docketed as CA-G.R. SP
No. 46718. On 15 September 2000, the Court of Appeals rendered its Decision,
11
finding that although
petitioner corporation timely filed its Petitions for Review with the CTA, it still failed to substantiate its
claims for the refund/credit of its input VAT for the last three quarters of 1990. In its Resolution,
12
dated
27 June 2001, the appellate court denied the motion for reconsideration of petitioner corporation,
finding no cogent reason to reverse its previous Decision.
Aggrieved, petitioner corporation filed with this Court another Petition for Review on Certiorari under
Rule 45 of the Revised Rules of Court, docketed as G.R. No. 148763, raising the following issues
A.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER'S CLAIM IS BARRED
UNDER REVENUE REGULATIONS NOS. 2-88 AND 3-88 I.E., FOR FAILURE TO PTOVE [sic] THE 70%
THRESHOLD FOR ZERO-RATING TO APPLY AND FOR FAILURE TO ESTABLISH THE FACTUAL BASIS FOR THE
INSTANT CLAIM.
B.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN FINDING THAT THERE IS NO BASIS TO GRANT
PETITIONER'S MOTION FOR NEW TRIAL.
There being similarity of parties, subject matter, and issues, G.R. Nos. 141104 and 148763 were
consolidated pursuant to a Resolution, dated 4 September 2006, issued by this Court. The ruling of this
Court in these cases hinges on how it will resolve the following key issues: (1) prescription of the claims
of petitioner corporation for input VAT refund/credit; (2) validity and applicability of Revenue
Regulations No. 2-88 imposing upon petitioner corporation, as a requirement for the VAT zero-rating of
its sales, the burden of proving that the buyer companies were not just BOI-registered but also
exporting 70% of their total annual production; (3) sufficiency of evidence presented by petitioner
corporation to establish that it is indeed entitled to input VAT refund/credit; and (4) legal ground for
granting the motion of petitioner corporation for re-opening of its cases or holding of new trial before
the CTA so it could be given the opportunity to present the required evidence.
Prescription
The prescriptive period for filing an application for tax refund/credit of input VAT on zero-rated sales
made in 1990 and 1992 was governed by Section 106(b) and (c) of the Tax Code of 1977, as amended,
which provided that
SEC. 106. Refunds or tax credits of input tax. x x x.
(b) Zero-rated or effectively zero-rated sales. Any person, except those covered by paragraph (a)
above, whose sales are zero-rated may, within two years after the close of the quarter when such sales
were made, apply for the issuance of a tax credit certificate or refund of the input taxes attributable to
such sales to the extent that such input tax has not been applied against output tax.
x x x x
(e) Period within which refund of input taxes may be made by the Commissioner. The Commissioner
shall refund input taxes within 60 days from the date the application for refund was filed with him or his
duly authorized representative. No refund of input taxes shall be allowed unless the VAT-registered
person files an application for refund within the period prescribed in paragraphs (a), (b) and (c) as the
case may be.
By a plain reading of the foregoing provision, the two-year prescriptive period for filing the application
for refund/credit of input VAT on zero-rated sales shall be determined from the close of the quarter
when such sales were made.
Petitioner contends, however, that the said two-year prescriptive period should be counted, not from
the close of the quarter when the zero-rated sales were made, but from the date of filing of the
quarterly VAT return and payment of the tax due 20 days thereafter, in accordance with Section 110(b)
of the Tax Code of 1977, as amended, quoted as follows
SEC. 110. Return and payment of value-added tax. x x x.
(b) Time for filing of return and payment of tax. The return shall be filed and the tax paid within 20
days following the end of each quarter specifically prescribed for a VAT-registered person under
regulations to be promulgated by the Secretary of Finance: Provided, however, That any person whose
registration is cancelled in accordance with paragraph (e) of Section 107 shall file a return within 20 days
from the cancellation of such registration.
It is already well-settled that the two-year prescriptive period for instituting a suit or proceeding for
recovery of corporate income tax erroneously or illegally paid under Section 230
13
of the Tax Code of
1977, as amended, was to be counted from the filing of the final adjustment return. This Court already
set out in ACCRA Investments Corporation v. Court of Appeals,
14
the rationale for such a rule, thus
Clearly, there is the need to file a return first before a claim for refund can prosper inasmuch as the
respondent Commissioner by his own rules and regulations mandates that the corporate taxpayer
opting to ask for a refund must show in its final adjustment return the income it received from all
sources and the amount of withholding taxes remitted by its withholding agents to the Bureau of
Internal Revenue. The petitioner corporation filed its final adjustment return for its 1981 taxable year on
April 15, 1982. In our Resolution dated April 10, 1989 in the case of Commissioner of Internal Revenue v.
Asia Australia Express, Ltd. (G.R. No. 85956), we ruled that the two-year prescriptive period within which
to claim a refund commences to run, at the earliest, on the date of the filing of the adjusted final tax
return. Hence, the petitioner corporation had until April 15, 1984 within which to file its claim for
refund.
Considering that ACCRAIN filed its claim for refund as early as December 29, 1983 with the respondent
Commissioner who failed to take any action thereon and considering further that the non-resolution of
its claim for refund with the said Commissioner prompted ACCRAIN to reiterate its claim before the
Court of Tax Appeals through a petition for review on April 13, 1984, the respondent appellate court
manifestly committed a reversible error in affirming the holding of the tax court that ACCRAIN's claim
for refund was barred by prescription.
It bears emphasis at this point that the rationale in computing the two-year prescriptive period with
respect to the petitioner corporation's claim for refund from the time it filed its final adjustment return
is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses
in its business operations. The "date of payment", therefore, in ACCRAIN's case was when its tax liability,
if any, fell due upon its filing of its final adjustment return on April 15, 1982.
In another case, Commissioner of Internal Revenue v. TMX Sales, Inc.,
15
this Court further expounded on
the same matter
A re-examination of the aforesaid minute resolution of the Court in the Pacific Procon case is warranted
under the circumstances to lay down a categorical pronouncement on the question as to when the two-
year prescriptive period in cases of quarterly corporate income tax commences to run. A full-blown
decision in this regard is rendered more imperative in the light of the reversal by the Court of Tax
Appeals in the instant case of its previous ruling in the Pacific Procon case.
Section 292 (now Section 230) of the National Internal Revenue Code should be interpreted in relation
to the other provisions of the Tax Code in order to give effect the legislative intent and to avoid an
application of the law which may lead to inconvenience and absurdity. In the case of People vs.
Rivera (59 Phil. 236 [1933]), this Court stated that statutes should receive a sensible construction, such
as will give effect to the legislative intention and so as to avoid an unjust or an absurd
conclusion. INTERPRETATIO TALIS IN AMBIGUIS SEMPER FRIENDA EST, UT EVITATUR INCONVENIENS ET
ABSURDUM. Where there is ambiguity, such interpretation as will avoid inconvenience and absurdity is
to be adopted. Furthermore, courts must give effect to the general legislative intent that can be
discovered from or is unraveled by the four corners of the statute, and in order to discover said intent,
the whole statute, and not only a particular provision thereof, should be considered. (Manila Lodge No.
761, et al. vs. Court of Appeals, et al. 73 SCRA 162 [1976) Every section, provision or clause of the statute
must be expounded by reference to each other in order to arrive at the effect contemplated by the
legislature. The intention of the legislator must be ascertained from the whole text of the law and every
part of the act is to be taken into view. (Chartered Bank vs. Imperial, 48 Phil. 931 [1921]; Lopez vs. El
Hoger Filipino, 47 Phil. 249, cited in Aboitiz Shipping Corporation vs. City of Cebu, 13 SCRA 449 [1965]).
Thus, in resolving the instant case, it is necessary that we consider not only Section 292 (now Section
230) of the National Internal Revenue Code but also the other provisions of the Tax Code, particularly
Sections 84, 85 (now both incorporated as Section 68), Section 86 (now Section 70) and Section 87 (now
Section 69) on Quarterly Corporate Income Tax Payment and Section 321 (now Section 232) on keeping
of books of accounts. All these provisions of the Tax Code should be harmonized with each other.
x x x x
Therefore, the filing of a quarterly income tax returns required in Section 85 (now Section 68) and
implemented per BIR Form 1702-Q and payment of quarterly income tax should only be considered
mere installments of the annual tax due. These quarterly tax payments which are computed based on
the cumulative figures of gross receipts and deductions in order to arrive at a net taxable income, should
be treated as advances or portions of the annual income tax due, to be adjusted at the end of the
calendar or fiscal year. This is reinforced by Section 87 (now Section 69) which provides for the filing of
adjustment returns and final payment of income tax. Consequently, the two-year prescriptive period
provided in Section 292 (now Section 230) of the Tax Code should be computed from the time of filing
the Adjustment Return or Annual Income Tax Return and final payment of income tax.
In the case of Collector of Internal Revenue vs. Antonio Prieto (2 SCRA 1007 [1961]), this Court held that
when a tax is paid in installments, the prescriptive period of two years provided in Section 306 (Section
292) of the National Internal Revenue Code should be counted from the date of the final payment. This
ruling is reiterated in Commissioner of Internal Revenue vs. Carlos Palanca (18 SCRA 496 [1966]),
wherein this Court stated that where the tax account was paid on installment, the computation of the
two-year prescriptive period under Section 306 (Section 292) of the Tax Code, should be from the date
of the last installment.
In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the two-year
prescriptive period should be counted from the filing of the Adjustment Return on April 15,1982, TMX
Sales, Inc. is not yet barred by prescription.
The very same reasons set forth in the afore-cited cases concerning the two-year prescriptive period for
claims for refund of illegally or erroneously collected income tax may also apply to the Petitions at bar
involving the same prescriptive period for claims for refund/credit of input VAT on zero-rated sales.
It is true that unlike corporate income tax, which is reported and paid on installment every quarter, but
is eventually subjected to a final adjustment at the end of the taxable year, VAT is computed and paid on
a purely quarterly basis without need for a final adjustment at the end of the taxable year. However, it is
also equally true that until and unless the VAT-registered taxpayer prepares and submits to the BIR its
quarterly VAT return, there is no way of knowing with certainty just how much input VAT
16
the taxpayer
may apply against its output VAT;
17
how much output VAT it is due to pay for the quarter or how much
excess input VAT it may carry-over to the following quarter; or how much of its input VAT it may claim as
refund/credit. It should be recalled that not only may a VAT-registered taxpayer directly apply against
his output VAT due the input VAT it had paid on its importation or local purchases of goods and services
during the quarter; the taxpayer is also given the option to either (1) carry over any excess input VAT to
the succeeding quarters for application against its future output VAT liabilities, or (2) file an application
for refund or issuance of a tax credit certificate covering the amount of such input VAT.
18
Hence, even in
the absence of a final adjustment return, the determination of any output VAT payable necessarily
requires that the VAT-registered taxpayer make adjustments in its VAT return every quarter, taking into
consideration the input VAT which are creditable for the present quarter or had been carried over from
the previous quarters.
Moreover, when claiming refund/credit, the VAT-registered taxpayer must be able to establish that it
does have refundable or creditable input VAT, and the same has not been applied against its output VAT
liabilities information which are supposed to be reflected in the taxpayer's VAT returns. Thus, an
application for refund/credit must be accompanied by copies of the taxpayer's VAT return/s for the
taxable quarter/s concerned.
Lastly, although the taxpayer's refundable or creditable input VAT may not be considered as illegally or
erroneously collected, its refund/credit is a privilege extended to qualified and registered taxpayers by
the very VAT system adopted by the Legislature. Such input VAT, the same as any illegally or erroneously
collected national internal revenue tax, consists of monetary amounts which are currently in the hands
of the government but must rightfully be returned to the taxpayer. Therefore, whether claiming
refund/credit of illegally or erroneously collected national internal revenue tax, or input VAT, the
taxpayer must be given equal opportunity for filing and pursuing its claim.
For the foregoing reasons, it is more practical and reasonable to count the two-year prescriptive period
for filing a claim for refund/credit of input VAT on zero-rated sales from the date of filing of the return
and payment of the tax due which, according to the law then existing, should be made within 20 days
from the end of each quarter. Having established thus, the relevant dates in the instant cases are
summarized and reproduced below
Period Covered Date of
Filing(Return w/
BIR)
Date of
Filing(Application w/
BIR)
Date of Filing(Case
w/ CTA)
2
nd
Quarter, 1990 20 July 1990 21 August 1990 20 July 1992
3
rd
Quarter, 1990 18 October 1990 21 November 1990 9 October 1992
4
th
Quarter, 1990 20 January 1991 19 February 1991 14 January 1993
1
st
Quarter, 1992 20 April 1992 -- 20 April 1994
The above table readily shows that the administrative and judicial claims of petitioner corporation for
refund of its input VAT on its zero-rated sales for the last three quarters of 1990 were all filed within the
prescriptive period.
However, the same cannot be said for the claim of petitioner corporation for refund of its input VAT on
its zero-rated sales for the first quarter of 1992. Even though it may seem that petitioner corporation
filed in time its judicial claim with the CTA, there is no showing that it had previously filed an
administrative claim with the BIR. Section 106(e) of the Tax Code of 1977, as amended, explicitly
provided that no refund of input VAT shall be allowed unless the VAT-registered taxpayer filed an
application for refund with respondent Commissioner within the two-year prescriptive period. The
application of petitioner corporation for refund/credit of its input VAT for the first quarter of 1992 was
not only unsigned by its supposed authorized representative, Ma. Paz R. Semilla, Manager-Finance and
Treasury, but it was not dated, stamped, and initialed by the BIR official who purportedly received the
same. The CTA, in its Decision,
19
dated 24 November 1997, in CTA Case No. 5102, made the following
observations
This Court, likewise, rejects any probative value of the Application for Tax Credit/Refund of VAT Paid
(BIR Form No. 2552) [Exhibit "B'] formally offered in evidence by the petitioner on account of the fact
that it does not bear the BIR stamp showing the date when such application was filed together with the
signature or initial of the receiving officer of respondent's Bureau. Worse still, it does not show the date
of application and the signature of a certain Ma. Paz R. Semilla indicated in the form who appears to be
petitioner's authorized filer.
A review of the records reveal that the original of the aforecited application was lost during the time
petitioner transferred its office (TSN, p. 6, Hearing of December 9, 1994). Attempt was made to prove
that petitioner exerted efforts to recover the original copy, but to no avail. Despite this, however, We
observe that petitioner completely failed to establish the missing dates and signatures abovementioned.
On this score, said application has no probative value in demonstrating the fact of its filing within two
years after the [filing of the VAT return for the quarter] when petitioner's sales of goods were made as
prescribed under Section 106(b) of the Tax Code. We believe thus that petitioner failed to file an
application for refund in due form and within the legal period set by law at the administrative level.
Hence, the case at bar has failed to satisfy the requirement on the prior filing of an application for
refund with the respondent before the commencement of a judicial claim for refund, as prescribed
under Section 230 of the Tax Code. This fact constitutes another one of the many reasons for not
granting petitioner's judicial claim.
As pointed out by the CTA, in serious doubt is not only the fact of whether petitioner corporation timely
filed its administrative claim for refund of its input VAT for the first quarter of 1992, but also whether
petitioner corporation actually filed such administrative claim in the first place. For failing to prove that
it had earlier filed with the BIR an application for refund/credit of its input VAT for the first quarter of
1992, within the period prescribed by law, then the case instituted by petitioner corporation with the
CTA for the refund/credit of the very same tax cannot prosper.
Revenue Regulations No. 2-88 and the 70% export requirement
Under Section 100(a) of the Tax Code of 1977, as amended, a 10% VAT was imposed on the gross selling
price or gross value in money of goods sold, bartered or exchanged. Yet, the same provision subjected
the following sales made by VAT-registered persons to 0% VAT
(1) Export sales; and
(2) Sales to persons or entities whose exemption under special laws or international agreements to
which the Philippines is a signatory effectively subjects such sales to zero-rate.
"Export Sales" means the sale and shipment or exportation of goods from the Philippines to a foreign
country, irrespective of any shipping arrangement that may be agreed upon which may influence or
determine the transfer of ownership of the goods so exported, or foreign currency denominated sales.
"Foreign currency denominated sales", means sales to nonresidents of goods assembled or
manufactured in the Philippines, for delivery to residents in the Philippines and paid for in convertible
foreign currency remitted through the banking system in the Philippines.
These are termed zero-rated sales. A zero-rated sale is still considered a taxable transaction for VAT
purposes, although the VAT rate applied is 0%. A sale by a VAT-registered taxpayer of goods and/or
services taxed at 0% shall not result in any output VAT, while the input VAT on its purchases of goods or
services related to such zero-rated sale shall be available as tax credit or refund.
20

Petitioner corporation questions the validity of Revenue Regulations No. 2-88 averring that the said
regulations imposed additional requirements, not found in the law itself, for the zero-rating of its sales
to Philippine Smelting and Refining Corporation (PASAR) and Philippine Phosphate, Inc. (PHILPHOS),
both of which are registered not only with the BOI, but also with the then Export Processing Zone
Authority (EPZA).
21

The contentious provisions of Revenue Regulations No. 2-88 read
SEC. 2. Zero-rating. (a) Sales of raw materials to BOI-registered exporters. Sales of raw materials to
export-oriented BOI-registered enterprises whose export sales, under rules and regulations of the Board
of Investments, exceed seventy percent (70%) of total annual production, shall be subject to zero-rate
under the following conditions:
"(1) The seller shall file an application with the BIR, ATTN.: Division, applying for zero-rating for each and
every separate buyer, in accordance with Section 8(d) of Revenue Regulations No. 5-87. The application
should be accompanied with a favorable recommendation from the Board of Investments."
"(2) The raw materials sold are to be used exclusively by the buyer in the manufacture, processing or
repacking of his own registered export product;
"(3) The words "Zero-Rated Sales" shall be prominently indicated in the sales invoice. The exporter
(buyer) can no longer claim from the Bureau of Internal Revenue or any other government office tax
credits on their zero-rated purchases;
(b) Sales of raw materials to foreign buyer. Sales of raw materials to a nonresident foreign buyer for
delivery to a resident local export-oriented BOI-registered enterprise to be used in manufacturing,
processing or repacking of the said buyer's goods and paid for in foreign currency, inwardly remitted in
accordance with Central Bank rules and regulations shall be subject to zero-rate.
It is the position of the respondent Commissioner, affirmed by the CTA and the Court of Appeals, that
Section 2 of Revenue Regulations No. 2-88 should be applied in the cases at bar; and to be entitled to
the zero-rating of its sales to PASAR and PHILPHOS, petitioner corporation, as a VAT-registered seller,
must be able to prove not only that PASAR and PHILPHOS are BOI-registered corporations, but also that
more than 70% of the total annual production of these corporations are actually exported. Revenue
Regulations No. 2-88 merely echoed the requirement imposed by the BOI on export-oriented
corporations registered with it.
While this Court is not prepared to strike down the validity of Revenue Regulations No. 2-88, it finds that
its application must be limited and placed in the proper context. Note that Section 2 of Revenue
Regulations No. 2-88 referred only to the zero-rated sales of raw materials to export-oriented BOI-
registered enterprises whose export sales, under BOI rules and regulations, should exceed seventy
percent (70%) of their total annual production.
Section 2 of Revenue Regulations No. 2-88, should not have been applied to the zero-rating of the sales
made by petitioner corporation to PASAR and PHILPHOS. At the onset, it must be emphasized that
PASAR and PHILPHOS, in addition to being registered with the BOI, were also registered with the EPZA
and located within an export-processing zone. Petitioner corporation does not claim that its sales to
PASAR and PHILPHOS are zero-rated on the basis that said sales were made to export-oriented BOI-
registered corporations, but rather, on the basis that the sales were made to EPZA-registered
enterprises operating within export processing zones. Although sales to export-oriented BOI-registered
enterprises and sales to EPZA-registered enterprises located within export processing zones were both
deemed export sales, which, under Section 100(a) of the Tax Code of 1977, as amended, shall be subject
to 0% VAT distinction must be made between these two types of sales because each may have different
substantiation requirements.
The Tax Code of 1977, as amended, gave a limited definition of export sales, to wit: "The sale and
shipment or exportation of goods from the Philippines to a foreign country, irrespective of any shipping
arrangement that may be agreed upon which may influence or determine the transfer of ownership of
the goods so exported, or foreign currency denominated sales." Executive Order No. 226, otherwise
known as the Omnibus Investments Code of 1987 - which, in the years concerned (i.e., 1990 and 1992),
governed enterprises registered with both the BOI and EPZA, provided a more comprehensive definition
of export sales, as quoted below:
"ART. 23. "Export sales" shall mean the Philippine port F.O.B. value, determined from invoices, bills of
lading, inward letters of credit, landing certificates, and other commercial documents, of export
products exported directly by a registered export producer or the net selling price of export product sold
by a registered export producer or to an export trader that subsequently exports the same: Provided,
That sales of export products to another producer or to an export trader shall only be deemed export
sales whenactually exported by the latter, as evidenced by landing certificates of similar commercial
documents: Provided, further, That without actual exportation the following shall be
considered constructively exportedfor purposes of this provision: (1) sales to bonded manufacturing
warehouses of export-oriented manufacturers; (2) sales to export processing zones; (3) sales to
registered export traders operating bonded trading warehouses supplying raw materials used in the
manufacture of export products under guidelines to be set by the Board in consultation with the Bureau
of Internal Revenue and the Bureau of Customs; (4) sales to foreign military bases, diplomatic missions
and other agencies and/or instrumentalities granted tax immunities, of locally manufactured, assembled
or repacked products whether paid for in foreign currency or not: Provided, further, That export sales of
registered export trader may include commission income; and Provided, finally, That exportation of
goods on consignment shall not be deemed export sales until the export products consigned are in fact
sold by the consignee.
Sales of locally manufactured or assembled goods for household and personal use to Filipinos abroad
and other non-residents of the Philippines as well as returning Overseas Filipinos under the Internal
Export Program of the government and paid for in convertible foreign currency inwardly remitted
through the Philippine banking systems shall also be considered export sales. (Underscoring ours.)
The afore-cited provision of the Omnibus Investments Code of 1987 recognizes as export sales the sales
of export products to another producer or to an export trader, provided that the export products are
actually exported. For purposes of VAT zero-rating, such producer or export trader must be registered
with the BOI and is required to actually export more than 70% of its annual production.
Without actual exportation, Article 23 of the Omnibus Investments Code of 1987 also considers
constructive exportation as export sales. Among other types of constructive exportation specifically
identified by the said provision are sales to export processing zones. Sales to export processing zones
are subjected to special tax treatment. Article 77 of the same Code establishes the tax treatment of
goods or merchandise brought into the export processing zones. Of particular relevance herein is
paragraph 2, which provides that "Merchandise purchased by a registered zone enterprise from the
customs territory and subsequently brought into the zone, shall be considered as export sales and the
exporter thereof shall be entitled to the benefits allowed by law for such transaction."
Such tax treatment of goods brought into the export processing zones are only consistent with the
Destination Principle and Cross Border Doctrine to which the Philippine VAT system adheres. According
to the Destination Principle,
22
goods and services are taxed only in the country where these are
consumed. In connection with the said principle, the Cross Border Doctrine
23
mandates that no VAT shall
be imposed to form part of the cost of the goods destined for consumption outside the territorial border
of the taxing authority. Hence, actual export of goods and services from the Philippines to a foreign
country must be free of VAT, while those destined for use or consumption within the Philippines shall be
imposed with 10% VAT.
24
Export processing zones
25
are to be managed as a separate customs territory
from the rest of the Philippines and, thus, for tax purposes, are effectively considered as foreign
territory. For this reason, sales by persons from the Philippine customs territory to those inside the
export processing zones are already taxed as exports.
Plainly, sales to enterprises operating within the export processing zones are export sales, which, under
the Tax Code of 1977, as amended, were subject to 0% VAT. It is on this ground that petitioner
corporation is claiming refund/credit of the input VAT on its zero-rated sales to PASAR and PHILPHOS.
The distinction made by this Court in the preceding paragraphs between the zero-rated sales to export-
oriented BOI-registered enterprises and zero-rated sales to EPZA-registered enterprises operating within
export processing zones is actually supported by subsequent development in tax laws and regulations. In
Revenue Regulations No. 7-95, the Consolidated VAT Regulations, as amended,
26
the BIR defined with
more precision what are zero-rated export sales
(1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any
shipping arrangement that may be agreed upon which may influence or determine the transfer of
ownership of the goods so exported paid for in acceptable foreign currency or its equivalent in goods or
services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP);
(2) The sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident
local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the
Philippines of the said buyer's goods and paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
(3) The sale of raw materials or packaging materials to an export-oriented enterprise whose export sales
exceed seventy percent (70%) of total annual production;
Any enterprise whose export sales exceed 70% of the total annual production of the preceding taxable
year shall be considered an export-oriented enterprise upon accreditation as such under the provisions
of the Export Development Act (R.A. 7844) and its implementing rules and regulations;
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and
(5) Those considered export sales under Articles 23 and 77 of Executive Order No. 226, otherwise known
as the Omnibus Investments Code of 1987, and other special laws, e.g. Republic Act No. 7227, otherwise
known as the Bases Conversion and Development Act of 1992.
The Tax Code of 1997, as amended,
27
later adopted the foregoing definition of export sales, which are
subject to 0% VAT.
This Court then reiterates its conclusion that Section 2 of Revenue Regulations No. 2-88, which applied
to zero-rated export sales to export-oriented BOI-registered enterprises, should not be applied to the
applications for refund/credit of input VAT filed by petitioner corporation since it based its applications
on the zero-rating of export sales to enterprises registered with the EPZA and located within export
processing zones.
Sufficiency of evidence
There can be no dispute that the taxpayer-claimant has the burden of proving the legal and factual
bases of its claim for tax credit or refund, but once it has submitted all the required documents, it is the
function of the BIR to assess these documents with purposeful dispatch.
28
It therefore falls upon herein
petitioner corporation to first establish that its sales qualify for VAT zero-rating under the existing laws
(legal basis), and then to present sufficient evidence that said sales were actually made and resulted in
refundable or creditable input VAT in the amount being claimed (factual basis).
It would initially appear that the applications for refund/credit filed by petitioner corporation cover only
input VAT on its purportedly zero-rated sales to PASAR and PHILPHOS; however, a more thorough
perusal of its applications, VAT returns, pleadings, and other records of these cases would reveal that it
is also claiming refund/credit of its input VAT on purchases of capital goods and sales of gold to the
Central Bank of the Philippines (CBP).
This Court finds that the claims for refund/credit of input VAT of petitioner corporation have sufficient
legal bases.
As has been extensively discussed herein, Section 106(b)(2), in relation to Section 100(a)(2) of the Tax
Code of 1977, as amended, allowed the refund/credit of input VAT on export sales to enterprises
operating within export processing zones and registered with the EPZA, since such export sales were
deemed to be effectively zero-rated sales.
29
The fact that PASAR and PHILPHOS, to whom petitioner
corporation sold its products, were operating inside an export processing zone and duly registered with
EPZA, was never raised as an issue herein. Moreover, the same fact was already judicially recognized in
the case Atlas Consolidated Mining & Development Corporation v. Commissioner of Internal
Revenue.
30
Section 106(c) of the same Code likewise permitted a VAT-registered taxpayer to apply for
refund/credit of the input VAT paid on capital goods imported or locally purchased to the extent that
such input VAT has not been applied against its output VAT. Meanwhile, the effective zero-rating of
sales of gold to the CBP from 1989 to 1991
31
was already affirmed by this Court in Commissioner of
Internal Revenue v. Benguet Corporation,
32
wherein it ruled that
At the time when the subject transactions were consummated, the prevailing BIR regulations relied
upon by respondent ordained that gold sales to the Central Bank were zero-rated. The BIR interpreted
Sec. 100 of the NIRC in relation to Sec. 2 of E.O. No. 581 s. 1980 which prescribed that gold sold to the
Central Bank shall be considered export and therefore shall be subject to the export and premium
duties. In coming out with this interpretation, the BIR also considered Sec. 169 of Central Bank Circular
No. 960 which states that all sales of gold to the Central Bank are considered constructive exports. x x x.
This Court now comes to the question of whether petitioner corporation has sufficiently established the
factual bases for its applications for refund/credit of input VAT. It is in this regard that petitioner
corporation has failed, both in the administrative and judicial level.
Applications for refund/credit of input VAT with the BIR must comply with the appropriate revenue
regulations. As this Court has already ruled, Revenue Regulations No. 2-88 is not relevant to the
applications for refund/credit of input VAT filed by petitioner corporation; nonetheless, the said
applications must have been in accordance with Revenue Regulations No. 3-88, amending Section 16 of
Revenue Regulations No. 5-87, which provided as follows
SECTION 16. Refunds or tax credits of input tax.
x x x x
(c) Claims for tax credits/refunds. Application for Tax Credit/Refund of Value-Added Tax Paid (BIR Form
No. 2552) shall be filed with the Revenue District Office of the city or municipality where the principal
place of business of the applicant is located or directly with the Commissioner, Attention: VAT Division.
A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall be submitted
together with the application. The original copy of the said invoice/receipt, however, shall be presented
for cancellation prior to the issuance of the Tax Credit Certificate or refund. In addition, the following
documents shall be attached whenever applicable:
x x x x
"3. Effectively zero-rated sale of goods and services.
"i) photo copy of approved application for zero-rate if filing for the first time.
"ii) sales invoice or receipt showing name of the person or entity to whom the sale of goods or services
were delivered, date of delivery, amount of consideration, and description of goods or services
delivered.
"iii) evidence of actual receipt of goods or services.
"4. Purchase of capital goods.
"i) original copy of invoice or receipt showing the date of purchase, purchase price, amount of value-
added tax paid and description of the capital equipment locally purchased.
"ii) with respect to capital equipment imported, the photo copy of import entry document for internal
revenue tax purposes and the confirmation receipt issued by the Bureau of Customs for the payment of
the value-added tax.
"5. In applicable cases,
where the applicant's zero-rated transactions are regulated by certain government agencies, a
statement therefrom showing the amount and description of sale of goods and services, name of
persons or entities (except in case of exports) to whom the goods or services were sold, and date of
transaction shall also be submitted.
In all cases, the amount of refund or tax credit that may be granted shall be limited to the amount of the
value-added tax (VAT) paid directly and entirely attributable to the zero-rated transaction during the
period covered by the application for credit or refund.
Where the applicant is engaged in zero-rated and other taxable and exempt sales of goods and services,
and the VAT paid (inputs) on purchases of goods and services cannot be directly attributed to any of the
aforementioned transactions, the following formula shall be used to determine the creditable or
refundable input tax for zero-rated sale:
Amount of Zero-rated Sale
Total Sales
X
Total Amount of Input Taxes
=
Amount Creditable/Refundable
In case the application for refund/credit of input VAT was denied or remained unacted upon by the BIR,
and before the lapse of the two-year prescriptive period, the taxpayer-applicant may already file a
Petition for Review before the CTA. If the taxpayer's claim is supported by voluminous documents, such
as receipts, invoices, vouchers or long accounts, their presentation before the CTA shall be governed by
CTA Circular No. 1-95, as amended, reproduced in full below
In the interest of speedy administration of justice, the Court hereby promulgates the following rules
governing the presentation of voluminous documents and/or long accounts, such as receipts, invoices
and vouchers, as evidence to establish certain facts pursuant to Section 3(c), Rule 130 of the Rules of
Court and the doctrine enunciated in Compania Maritima vs. Allied Free Workers Union (77 SCRA 24), as
well as Section 8 of Republic Act No. 1125:
1. The party who desires to introduce as evidence such voluminous documents must, after motion and
approval by the Court, present:
(a) a Summary containing, among others, a chronological listing of the numbers, dates and amounts
covered by the invoices or receipts and the amount/s of tax paid; and (b) a Certification of an
independent Certified Public Accountant attesting to the correctness of the contents of the summary
after making an examination, evaluation and audit of the voluminous receipts and invoices. The name of
the accountant or partner of the firm in charge must be stated in the motion so that he/she can be
commissioned by the Court to conduct the audit and, thereafter, testify in Court relative to such
summary and certification pursuant to Rule 32 of the Rules of Court.
2. The method of individual presentation of each and every receipt, invoice or account for marking,
identification and comparison with the originals thereof need not be done before the Court or Clerk of
Court anymore after the introduction of the summary and CPA certification. It is enough that the
receipts, invoices, vouchers or other documents covering the said accounts or payments to be
introduced in evidence must be pre-marked by the party concerned and submitted to the Court in order
to be made accessible to the adverse party who desires to check and verify the correctness of the
summary and CPA certification. Likewise, the originals of the voluminous receipts, invoices or accounts
must be ready for verification and comparison in case doubt on the authenticity thereof is raised during
the hearing or resolution of the formal offer of evidence.
Since CTA Cases No. 4831, 4859, 4944,
33
and 5102,
34
were still pending before the CTA when the said
Circular was issued, then petitioner corporation must have complied therewith during the course of the
trial of the said cases.
In Commissioner of Internal Revenue v. Manila Mining Corporation,
35
this Court denied the claim of
therein respondent, Manila Mining Corporation, for refund of the input VAT on its supposed zero-rated
sales of gold to the CBP because it was unable to substantiate its claim. In the same case, this Court
emphasized the importance of complying with the substantiation requirements for claiming
refund/credit of input VAT on zero-rated sales, to wit
For a judicial claim for refund to prosper, however, respondent must not only prove that it is a VAT
registered entity and that it filed its claims within the prescriptive period. It must substantiate the input
VAT paid by purchase invoices or official receipts.
This respondent failed to do.
Revenue Regulations No. 3-88 amending Revenue Regulations No. 5-87 provides the requirements in
claiming tax credits/refunds.
x x x x
Under Section 8 of RA1125, the CTA is described as a court of record. As cases filed before it are
litigatedde novo, party litigants should prove every minute aspect of their cases. No evidentiary value
can be given the purchase invoices or receipts submitted to the BIR as the rules on documentary
evidence require that these documents must be formally offered before the CTA.
This Court thus notes with approval the following findings of the CTA:
x x x [S]ale of gold to the Central Bank should not be subject to the 10% VAT-output tax but this does
not ipso fact mean that [the seller] is entitled to the amount of refund sought as it is required by law to
present evidence showing the input taxes it paid during the year in question. What is being claimed in
the instant petition is the refund of the input taxes paid by the herein petitioner on its purchase of
goods and services. Hence, it is necessary for the Petitioner to show proof that it had indeed paid the
input taxes during the year 1991. In the case at bar, Petitioner failed to discharge this duty. It did not
adduce in evidence the sales invoice, receipts or other documents showing the input value added tax on
the purchase of goods and services.
x x x
Section 8 of Republic Act 1125 (An Act Creating the Court of Tax Appeals) provides categorically that the
Court of Tax Appeals shall be a court of record and as such it is required to conduct a formal trial (trial
de novo) where the parties must present their evidence accordingly if they desire the Court to take such
evidence into consideration. (Emphasis and italics supplied)
A "sales or commercial invoice" is a written account of goods sold or services rendered indicating the
prices charged therefor or a list by whatever name it is known which is used in the ordinary course of
business evidencing sale and transfer or agreement to sell or transfer goods and services.
A "receipt" on the other hand is a written acknowledgment of the fact of payment in money or other
settlement between seller and buyer of goods, debtor or creditor, or person rendering services and
client or customer.
These sales invoices or receipts issued by the supplier are necessary to substantiate the actual amount
or quantity of goods sold and their selling price, and taken collectively are the best means to prove the
input VAT payments.
36

Although the foregoing decision focused only on the proof required for the applicant for refund/credit
to establish the input VAT payments it had made on its purchases from suppliers, Revenue Regulations
No. 3-88 also required it to present evidence proving actual zero-rated VAT sales to qualified buyers,
such as (1) photocopy of the approved application for zero-rate if filing for the first time; (2) sales
invoice or receipt showing the name of the person or entity to whom the goods or services were
delivered, date of delivery, amount of consideration, and description of goods or services delivered; and
(3) the evidence of actual receipt of goods or services.
Also worth noting in the same decision is the weight given by this Court to the certification by the
independent certified public accountant (CPA), thus
Respondent contends, however, that the certification of the independent CPA attesting to the
correctness of the contents of the summary of suppliers' invoices or receipts which were examined,
evaluated and audited by said CPA in accordance with CTA Circular No. 1-95 as amended by CTA Circular
No. 10-97 should substantiate its claims.
There is nothing, however, in CTA Circular No. 1-95, as amended by CTA Circular No. 10-97, which either
expressly or impliedly suggests that summaries and schedules of input VAT payments, even if certified
by an independent CPA, suffice as evidence of input VAT payments.
x x x x
The circular, in the interest of speedy administration of justice, was promulgated to avoid the time-
consuming procedure of presenting, identifying and marking of documents before the Court. It does not
relieve respondent of its imperative task of pre-marking photocopies of sales receipts and invoices
andsubmitting the same to the court after the independent CPA shall have examined and compared
them with the originals. Without presenting these pre-marked documents as evidence from which the
summary and schedules were based, the court cannot verify the authenticity and veracity of the
independent auditor's conclusions.
There is, moreover, a need to subject these invoices or receipts to examination by the CTA in order to
confirm whether they are VAT invoices. Under Section 21 of Revenue Regulation, No. 5-87, all purchases
covered by invoices other than a VAT invoice shall not be entitled to a refund of input VAT.
x x x x
While the CTA is not governed strictly by technical rules of evidence, as rules of procedure are not ends
in themselves but are primarily intended as tools in the administration of justice, the presentation of the
purchase receipts and/or invoices is not mere procedural technicality which may be disregarded
considering that it is the only means by which the CTA may ascertain and verify the truth of the
respondent's claims.
The records further show that respondent miserably failed to substantiate its claims for input VAT
refund for the first semester of 1991. Except for the summary and schedules of input VAT payments
prepared by respondent itself, no other evidence was adduced in support of its claim.
As for respondent's claim for input VAT refund for the second semester of 1991, it employed the services
of Joaquin Cunanan & Co. on account of which it (Joaquin Cunanan & Co.) executed a certification that:
We have examined the information shown below concerning the input tax payments made by the
Makati Office of Manila Mining Corporation for the period from July 1 to December 31, 1991. Our
examination included inspection of the pertinent suppliers' invoices and official receipts and such other
auditing procedures as we considered necessary in the circumstances. x x x
As the certification merely stated that it used "auditing procedures considered necessary" and not
auditing procedures which are in accordance with generally accepted auditing principles and standards,
and that the examination was made on "input tax payments by the Manila Mining Corporation," without
specifying that the said input tax payments are attributable to the sales of gold to the Central Bank, this
Court cannot rely thereon and regard it as sufficient proof of the respondent's input VAT payments for
the second semester.
37

As for the Petition in G.R. No. 141104, involving the input VAT of petitioner corporation on its zero-rated
sales in the first quarter of 1992, this Court already found that the petitioner corporation failed to
comply with Section 106(b) of the Tax Code of 1977, as amended, imposing the two-year prescriptive
period for the filing of the application for refund/credit thereof. This bars the grant of the application for
refund/credit, whether administratively or judicially, by express mandate of Section 106(e) of the same
Code.
Granting arguendo that the application of petitioner corporation for the refund/credit of the input VAT
on its zero-rated sales in the first quarter of 1992 was actually and timely filed, petitioner corporation
still failed to present together with its application the required supporting documents, whether before
the BIR or the CTA. As the Court of Appeals ruled
In actions involving claims for refund of taxes assessed and collected, the burden of proof rests on the
taxpayer. As clearly discussed in the CTA's decision, petitioner failed to substantiate its claim for tax
refunds. Thus:
"We note, however, that in the cases at bar, petitioner has relied totally on Revenue Regulations No. 2-
88 in determining compliance with the documentary requirements for a successful refund or issuance of
tax credit. Unmentioned is the applicable and specific amendment later introduced by Revenue
Regulations No. 3-88 dated April 7, 1988 (issued barely after two months from the promulgation of
Revenue Regulations No. 2-88 on February 15, 1988), which amended Section 16 of Revenue
Regulations No. 5-87 on refunds or tax credits of input tax. x x x.
x x x x
"A thorough examination of the evidence submitted by the petitioner before this court reveals outright
the failure to satisfy documentary requirements laid down under the above-cited regulations.
Specifically, petitioner was not able to present the following documents, to wit:
"a) sales invoices or receipts;
"b) purchase invoices or receipts;
"c) evidence of actual receipt of goods;
"d) BOI statement showing the amount and description of sale of goods, etc.
"e) original or attested copies of invoice or receipt on capital equipment locally purchased; and
"f) photocopy of import entry document and confirmation receipt on imported capital equipment.
"There is the need to examine the sales invoices or receipts in order to ascertain the actual amount or
quantity of goods sold and their selling price. Without them, this Court cannot verify the correctness of
petitioner's claim inasmuch as the regulations require that the input taxes being sought for refund
should be limited to the portion that is directly and entirely attributable to the particular zero-rated
transaction. In this instance, the best evidence of such transaction are the said sales invoices or receipts.
"Also, even if sales invoices are produced, there is the further need to submit evidence that such goods
were actually received by the buyer, in this case, by CBP, Philp[h]os and PASAR.
x x x x
"Lastly, this Court cannot determine whether there were actual local and imported purchase of capital
goods as well as domestic purchase of non-capital goods without the required purchase invoice or
receipt, as the case may be, and confirmation receipts.
"There is, thus, the imperative need to submit before this Court the original or attested photocopies of
petitioner's invoices or receipts, confirmation receipts and import entry documents in order that a full
ascertainment of the claimed amount may be achieved.
"Petitioner should have taken the foresight to introduce in evidence all of the missing
documentsabovementioned. Cases filed before this Court are litigated de novo. This means that party
litigants should endeavor to prove at the first instance every minute aspect of their cases strictly in
accordance with the Rules of Court, most especially on documentary evidence." (pp. 37-42, Rollo)
Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the sovereign
authority, and should be construed in strictissimi juris against the person or entity claiming the
exemption. The taxpayer who claims for exemption must justify his claim by the clearest grant of organic
or statute law and should not be permitted to stand on vague implications (Asiatic Petroleum Co. v.
Llanes, 49 Phil. 466; Northern Phil. Tobacco Corp. v. Mun. of Agoo, La Union, 31 SCRA 304; Reagan v.
Commissioner, 30 SCRA 968; Asturias Sugar Central, Inc. v. Commissioner of Customs, 29 SCRA 617;
Davao Light and Power Co., Inc. v. Commissioner of Customs, 44 SCRA 122).
There is no cogent reason to fault the CTA's conclusion that the SGV's certificate is "self-destructive", as
it finds comfort in the very SGV's stand, as follows:
"It is our understanding that the above procedure are sufficient for the purpose of the Company. We
make no presentation regarding the sufficiency of these procedures for such purpose. We did not
compare the total of the input tax claimed each quarter against the pertinent VAT returns and books of
accounts. The above procedures do not constitute an audit made in accordance with generally accepted
auditing standards. Accordingly, we do not express an opinion on the company's claim for input VAT
refund or credit. Had we performed additional procedures, or had we made an audit in accordance with
generally accepted auditing standards, other matters might have come to our attention that we would
have accordingly reported on."
The SGV's "disclaimer of opinion" carries much weight as it is petitioner's independent auditor. Indeed,
SGV expressed that it "did not compare the total of the input tax claimed each quarter against the VAT
returns and books of accounts."
38

Moving on to the Petition in G.R. No. 148763, concerning the input VAT of petitioner corporation on its
zero-rated sales in the second, third, and fourth quarters of 1990, the appellate court likewise found
that petitioner corporation failed to sufficiently establish its claims. Already disregarding the
declarations made by the Court of Appeals on its erroneous application of Revenue Regulations No. 2-
88, quoted hereunder is the rest of the findings of the appellate court after evaluating the evidence
submitted in accordance with the requirements under Revenue Regulations No. 3-88
The Secretary of Finance validly adopted Revenue Regulations [No.] x x x 3-98 pursuant to Sec. 245 of
the National Internal Revenue Code, which recognized his power to "promulgate all needful rules and
regulations for the effective enforcement of the provisions of this Code." Thus, it is incumbent upon a
taxpayer intending to file a claim for refund of input VATs or the issuance of a tax credit certificate with
the BIR x x x to prove sales to such buyers as required by Revenue Regulations No. 3-98. Logically, the
same evidence should be presented in support of an action to recover taxes which have been paid.
x x x Neither has [herein petitioner corporation] presented sales invoices or receipts showing sales of
gold, copper concentrates, and pyrite to the CBP, [PASAR], and [PHILPHOS], respectively, and the dates
and amounts of the same, nor any evidence of actual receipt by the said buyers of the mineral products.
It merely presented receipts of purchases from suppliers on which input VATs were allegedly paid. Thus,
the Court of Tax Appeals correctly denied the claims for refund of input VATs or the issuance of tax
credit certificates of petitioner [corporation]. Significantly, in the resolution, dated 7 June 2000, this
Court directed the parties to file memoranda discussing, among others, the submission of proof for "its
[petitioner's] sales of gold, copper concentrates, and pyrite to buyers." Nevertheless, the parties,
including the petitioner, failed to address this issue, thereby necessitating the affirmance of the ruling of
the Court of Tax Appeals on this point.
39

This Court is, therefore, bound by the foregoing facts, as found by the appellate court, for well-settled is
the general rule that the jurisdiction of this Court in cases brought before it from the Court of Appeals,
by way of a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, is limited to
reviewing or revising errors of law; findings of fact of the latter are conclusive.
40
This Court is not a trier
of facts. It is not its function to review, examine and evaluate or weigh the probative value of the
evidence presented.
41

The distinction between a question of law and a question of fact is clear-cut. It has been held that
"[t]here is a question of law in a given case when the doubt or difference arises as to what the law is on
a certain state of facts; there is a question of fact when the doubt or difference arises as to the truth or
falsehood of alleged facts."
42

Whether petitioner corporation actually made zero-rated sales; whether it paid input VAT on these sales
in the amount it had declared in its returns; whether all the input VAT subject of its applications for
refund/credit can be attributed to its zero-rated sales; and whether it had not previously applied the
input VAT against its output VAT liabilities, are all questions of fact which could only be answered after
reviewing, examining, evaluating, or weighing the probative value of the evidence it presented, and
which this Court does not have the jurisdiction to do in the present Petitions for Review
on Certiorari under Rule 45 of the revised Rules of Court.
Granting that there are exceptions to the general rule, when this Court looked into questions of fact
under particular circumstances,
43
none of these exist in the instant cases. The Court of Appeals, in both
cases, found a dearth of evidence to support the claims for refund/credit of the input VAT of petitioner
corporation, and the records bear out this finding. Petitioner corporation itself cannot dispute its non-
compliance with the requirements set forth in Revenue Regulations No. 3-88 and CTA Circular No. 1-95,
as amended. It concentrated its arguments on its assertion that the substantiation requirements under
Revenue Regulations No. 2-88 should not have applied to it, while being conspicuously silent on the
evidentiary requirements mandated by other relevant regulations.
Re-opening of cases/holding of new trial before the CTA
This Court now faces the final issue of whether the prayer of petitioner corporation for the re-opening
of its cases or holding of new trial before the CTA for the reception of additional evidence, may be
granted. Petitioner corporation prays that the Court exercise its discretion on the matter in its favor,
consistent with the policy that rules of procedure be liberally construed in pursuance of substantive
justice.
This Court, however, cannot grant the prayer of petitioner corporation.
An aggrieved party may file a motion for new trial or reconsideration of a judgment already rendered in
accordance with Section 1, Rule 37 of the revised Rules of Court, which provides
SECTION 1. Grounds of and period for filing motion for new trial or reconsideration. Within the period
for taking an appeal, the aggrieved party may move the trial court to set aside the judgment or final
order and grant a new trial for one or more of the following causes materially affecting the substantial
rights of said party:
(a) Fraud, accident, mistake or excusable negligence which ordinary prudence could not have guarded
against and by reason of which such aggrieved party has probably been impaired in his rights; or
(b) Newly discovered evidence, which he could not, with reasonable diligence, have discovered and
produced at the trial, and which if presented would probably alter the result.
Within the same period, the aggrieved party may also move fore reconsideration upon the grounds that
the damages awarded are excessive, that the evidence is insufficient to justify the decision or final
order, or that the decision or final order is contrary to law.
In G.R. No. 148763, petitioner corporation attempts to justify its motion for the re-opening of its cases
and/or holding of new trial before the CTA by contending that the "[f]ailure of its counsel to adduce the
necessary evidence should be construed as excusable negligence or mistake which should constitute
basis for such re-opening of trial as for a new trial, as counsel was of the belief that such evidence was
rendered unnecessary by the presentation of unrebutted evidence indicating that respondent
[Commissioner] has acknowledged the sale of [sic] PASAR and [PHILPHOS] to be zero-rated."
44
The CTA
denied such motion on the ground that it was not accompanied by an affidavit of merit as required by
Section 2, Rule 37 of the revised Rules of Court. The Court of Appeals affirmed the denial of the motion,
but apart from this technical defect, it also found that there was no justification to grant the same.
On the matter of the denial of the motion of the petitioner corporation for the re-opening of its cases
and/or holding of new trial based on the technicality that said motion was unaccompanied by an
affidavit of merit, this Court rules in favor of the petitioner corporation. The facts which should
otherwise be set forth in a separate affidavit of merit may, with equal effect, be alleged and
incorporated in the motion itself; and this will be deemed a substantial compliance with the formal
requirements of the law, provided, of course, that the movant, or other individual with personal
knowledge of the facts, take oath as to the truth thereof, in effect converting the entire motion for new
trial into an affidavit.
45
The motion of petitioner corporation was prepared and verified by its counsel,
and since the ground for the motion was premised on said counsel's excusable negligence or mistake,
then the obvious conclusion is that he had personal knowledge of the facts relating to such negligence
or mistake. Hence, it can be said that the motion of petitioner corporation for the re-opening of its cases
and/or holding of new trial was in substantial compliance with the formal requirements of the revised
Rules of Court.
Even so, this Court finds no sufficient ground for granting the motion of petitioner corporation for the
re-opening of its cases and/or holding of new trial.
In G.R. No. 141104, petitioner corporation invokes the Resolution,
46
dated 20 July 1998, by the CTA in
another case, CTA Case No. 5296, involving the claim of petitioner corporation for refund/credit of input
VAT for the third quarter of 1993. The said Resolution allowed the re-opening of CTA Case No. 5296,
earlier dismissed by the CTA, to give the petitioner corporation the opportunity to present the missing
export documents.
The rule that the grant or denial of motions for new trial rests on the discretion of the trial court,
47
may
likewise be extended to the CTA. When the denial of the motion rests upon the discretion of a lower
court, this Court will not interfere with its exercise, unless there is proof of grave abuse thereof.
48

That the CTA granted the motion for re-opening of one case for the presentation of additional evidence
and, yet, deny a similar motion in another case filed by the same party, does not necessarily
demonstrate grave abuse of discretion or arbitrariness on the part of the CTA. Although the cases
involve identical parties, the causes of action and the evidence to support the same can very well be
different. As can be gleaned from the Resolution, dated 20 July 1998, in CTA Case No. 5296, petitioner
corporation was claiming refund/credit of the input VAT on its zero-rated sales, consisting of actual
export sales, to Mitsubishi Metal Corporation in Tokyo, Japan. The CTA took into account the
presentation by petitioner corporation of inward remittances of its export sales for the quarter involved,
its Supply Contract with Mitsubishi Metal Corporation, its 1993 Annual Report showing its sales to the
said foreign corporation, and its application for refund. In contrast, the present Petitions involve the
claims of petitioner corporation for refund/credit of the input VAT on its purchases of capital goods and
on its effectively zero-rated sales to CBP and EPZA-registered enterprises PASAR and PHILPHOS for the
second, third, and fourth quarters of 1990 and first quarter of 1992. There being a difference as to the
bases of the claims of petitioner corporation for refund/credit of input VAT in CTA Case No. 5926 and in
the Petitions at bar, then, there are resulting variances as to the evidence required to support them.
Moreover, the very same Resolution, dated 20 July 1998, in CTA Case No. 5296, invoked by petitioner
corporation, emphasizes that the decision of the CTA to allow petitioner corporation to present
evidence "is applicable pro hac vice or in this occasion only as it is the finding of [the CTA] that petitioner
[corporation] has established a few of the aforementioned material points regarding the possible
existence of the export documents together with the prior and succeeding returns for the quarters
involved, x x x" [Emphasis supplied.] Therefore, the CTA, in the present cases, cannot be bound by its
ruling in CTA Case No. 5296, when these cases do not involve the exact same circumstances that
compelled it to grant the motion of petitioner corporation for re-opening of CTA Case No. 5296.
Finally, assuming for the sake of argument that the non-presentation of the required documents was
due to the fault of the counsel of petitioner corporation, this Court finds that it does not constitute
excusable negligence or mistake which would warrant the re-opening of the cases and/or holding of
new trial.
Under Section 1, Rule 37 of the Revised Rules of Court, the "negligence" must be excusable and
generally imputable to the party because if it is imputable to the counsel, it is binding on the client. To
follow a contrary rule and allow a party to disown his counsel's conduct would render proceedings
indefinite, tentative, and subject to re-opening by the mere subterfuge of replacing the counsel. What
the aggrieved litigant should do is seek administrative sanctions against the erring counsel and not ask
for the reversal of the court's ruling.
49

As elucidated by this Court in another case,
50
the general rule is that the client is bound by the action of
his counsel in the conduct of his case and he cannot therefore complain that the result of the litigation
might have been otherwise had his counsel proceeded differently. It has been held time and again that
blunders and mistakes made in the conduct of the proceedings in the trial court as a result of the
ignorance, inexperience or incompetence of counsel do not qualify as a ground for new trial. If such
were to be admitted as valid reasons for re-opening cases, there would never be an end to litigation so
long as a new counsel could be employed to allege and show that the prior counsel had not been
sufficiently diligent, experienced or learned.
Moreover, negligence, to be "excusable," must be one which ordinary diligence and prudence could not
have guarded against.
51
Revenue Regulations No. 3-88, which was issued on 15 February 1988, had been
in effect more than two years prior to the filing by petitioner corporation of its earliest application for
refund/credit of input VAT involved herein on 21 August 1990. CTA Circular No. 1-95 was issued only on
25 January 1995, after petitioner corporation had filed its Petitions before the CTA, but still during the
pendency of the cases of petitioner corporation before the tax court. The counsel of petitioner
corporation does not allege ignorance of the foregoing administrative regulation and tax court circular,
only that he no longer deemed it necessary to present the documents required therein because of the
presentation of alleged unrebutted evidence of the zero-rated sales of petitioner corporation. It was a
judgment call made by the counsel as to which evidence to present in support of his client's cause, later
proved to be unwise, but not necessarily negligent.
Neither is there any merit in the contention of petitioner corporation that the non-presentation of the
required documentary evidence was due to the excusable mistake of its counsel, a ground under Section
1, Rule 37 of the revised Rules of Court for the grant of a new trial. "Mistake," as it is referred to in the
said rule, must be a mistake of fact, not of law, which relates to the case.
52
In the present case, the
supposed mistake made by the counsel of petitioner corporation is one of law, for it was grounded on
his interpretation and evaluation that Revenue Regulations No. 3-88 and CTA Circular No. 1-95, as
amended, did not apply to his client's cases and that there was no need to comply with the
documentary requirements set forth therein. And although the counsel of petitioner corporation
advocated an erroneous legal position, the effects thereof, which did not amount to a deprivation of his
client's right to be heard, must bind petitioner corporation. The question is not whether petitioner
corporation succeeded in establishing its interests, but whether it had the opportunity to present its
side.
53

Besides, litigation is a not a "trial and error" proceeding. A party who moves for a new trial on the
ground of mistake must show that ordinary prudence could not have guarded against it. A new trial is
not a refuge for the obstinate.
54
Ordinary prudence in these cases would have dictated the presentation
of all available evidence that would have supported the claims for refund/credit of input VAT of
petitioner corporation. Without sound legal basis, counsel for petitioner corporation concluded that
Revenue Regulations No. 3-88, and later on, CTA Circular No. 1-95, as amended, did not apply to its
client's claims. The obstinacy of petitioner corporation and its counsel is demonstrated in their failure,
nay, refusal, to comply with the appropriate administrative regulations and tax court circular in pursuing
the claims for refund/credit, now subject of G.R. Nos. 141104 and 148763, even though these were
separately instituted in a span of more than two years. It is also evident in the failure of petitioner
corporation to address the issue and to present additional evidence despite being given the opportunity
to do so by the Court of Appeals. As pointed out by the appellate court, in its Decision, dated 15
September 2000, in CA-G.R. SP No. 46718
x x x Significantly, in the resolution, dated 7 June 2000, this Court directed the parties to file memoranda
discussing, among others, the submission of proof for "its [petitioner's] sales of gold, copper
concentrates, and pyrite to buyers." Nevertheless, the parties, including the petitioner, failed to address
this issue, thereby necessitating the affirmance of the ruling of the Court of Tax Appeals on this point.
55

Summary
Hence, although this Court agreed with the petitioner corporation that the two-year prescriptive period
for the filing of claims for refund/credit of input VAT must be counted from the date of filing of the
quarterly VAT return, and that sales to EPZA-registered enterprises operating within economic
processing zones were effectively zero-rated and were not covered by Revenue Regulations No. 2-88, it
still denies the claims of petitioner corporation for refund of its input VAT on its purchases of capital
goods and effectively zero-rated sales during the second, third, and fourth quarters of 1990 and the first
quarter of 1992, for not being established and substantiated by appropriate and sufficient evidence.
Petitioner corporation is also not entitled to the re-opening of its cases and/or holding of new trial since
the non-presentation of the required documentary evidence before the BIR and the CTA by its counsel
does not constitute excusable negligence or mistake as contemplated in Section 1, Rule 37 of the revised
Rules of Court.
WHEREFORE, premises considered, the instant Petitions for Review are hereby DENIED, and the
Decisions, dated 6 July 1999 and 15 September 2000, of the Court of Appeals in CA-G.R. SP Nos. 47607
and 46718, respectively, are hereby AFFIRMED. Costs against petitioner.

COMPAIA MARITIMA vs. ALLIED FREE WORKERS UNION, SALVADOR T.
LLUCH, MARIANO LL. BADELLES, individually and in their capacities as
President and Vice-President, respectively of the Allied Free Workers Union,
NICANOR HALEBAS and LAURENTINO LL. BADELLES, individually and officers
of Allied Free Workers Union

G.R. No. L-28999 May 24, 1977
COMPAIA MARITIMA, plaintiff-appellee,
vs.
ALLIED FREE WORKERS UNION, SALVADOR T. LLUCH, MARIANO LL. BADELLES, individually and in their
capacities as President and Vice-President, respectively of the Allied Free Workers Union, NICANOR
HALEBAS and LAURENTINO LL. BADELLES, individually and officers of Allied Free Workers
Union,defendants-appellants.
Halibas, Badelles, Padilla & Sepulveda and Vicente A. Rafael & Associates for defendants-appellants.
Rufino J. Abadies, Francisco Obach & Jesus Quijano for appellee.

AQUINO, J.:
Antecedents. - Since the onset in 1954 of litigation between the parties herein, this is the fifth case
between them that has been elevated to this Court. The incidents preceding the instant appeal are as
follows:
On August 11, 1952 the Compaia Maritima and the Allied Free Workers Union entered into a written
contract whereby the union agreed to perform arrastre and stevedoring work for the consignees.
vessels at Iligan City. The contract was to be effective for one month counted from August 12, 1952.
It was stipulated that the company could revoke the contract before the expiration of the term if the
union failed to render proper service. The contract could be renewed by agreement of the parties (Exh.
J).
At the time the contract was entered into, the union had just been organized. Its primordial desire was
to find work for its members. The union agreed to the stipulation that the company would not be liable
for the payment of the services of the union "for the loading, unloading and deliveries of cargoes" and
that the compensation for such services would be paid "by the owners and consigness of the cargoes" as
"has been the practice in the port of Iligan City" (Par. 2 of Exh. J).
The union found out later that that stipulation was oppressive and that the company was unduly
favored by that arrangement.
Under the contract, the work of the union consisted of arrastre and stevedoring service. Arrastre, a
Spanish word which refers to hauling of cargo, comprehends the handling of cargo on the wharf or
between the establishment of the consignee or shipper and the ship's tackle. The service is usually
performed by longshoremen.
On the other hand, stevedoring refers to the handling of the cargo in the holds of the vessel or between
the ship's tackle and the holds of the vessel.
The shippers and consignees paid the union oth for the arrastre work. They refused to pay for the
stevedoring service. They claimed that the shipowner was the one obligated to pay for the stevedoring
service because the bill of lading provided that the unloading of the cargo was at the shipowner's
expense (Exh. 1).
On the other hand, the company refused to pay for the stevedoring service because the contract (Exh. J)
explicitly provided that the compensation for both arrastre and stevedoring work should be paid by the
shippers and consignees, as was the alleged practice in Iligan City, and that the shipowner would not be
liable for the payment of such services.
Thus, the issue of whether the company should pay for the stevedoring service became a sore point of
contention between the parties. The union members labored under the impression that they were not
being compensated for their stevedoring service as distinguished from arrastre service.
Although the arrastre and stevedoring contract (Exh. J) was disadvantageous to the union, it did not
terminate the contract because its members were in dire need of work and work, which was not
adequately compensated, was preferable to having no work at all (204, 214-5, 226-7 tsn May 20, 1960).
Upon the expiration of the one-month period, the said contract was verbally renewed. The company
allowed the union to continue performing arrastre and stevedoring work.
On July 23, 1954 the union sent a letter to the company requesting that it be recognized as the exclusive
bargaining unit to load and unload the cargo of its vessels at Iligan City. The company ignored that
demand. So, the union filed on August 6, 1954 in the Court of Industrial Relations (CIR) a petition praying
that it be certified as the sole collective bargaining unit.
Despite that certification case, the company on August 24, 1954 served a written notice on the union
that, in accordance with payment of the 1952 contract, the same would be terminated on August 31,
1954. Because of that notice, the union on August 26, 1954 filed in the CIR charges of unfair labor
practice against the company.
On August 31, 1954 the company entered into a new stevedoring and arrastre contract with the Iligan
Stevedoring Association. On the following day, September 1, the union members picketed the wharf and
prevented the Iligan Stevedoring Association from performing arrastre and stevedoring work. The picket
lasted for nine days.
On September 8, 1954 the company sued the union and its officers in the Court of First Instance of
Lanao for the rescission of the aforementioned 1952 contract, to enjoin the union from interfering with
the loading and unloading of the cargo, and for the recovery of damages.
On the following day, September 9, the lower court issued ex parte a writ of preliminary injunction after
the company had posted a bond in the sum of P20,000. A few hours lateron that same day the union
was allowed to file a counterbond. The injunction was lifted. The union members resumed their arrastre
and stevedoring work.
Later, the union assailed in a prohibition action in this Court the jurisdiction of the trial court to
entertain the action for damages, and injunction.
A majority of this Court held that the lower court had jurisdiction to issue the injunction and to take
cognizance of the damage suit filed by the company but that the injunction was void because it was
issued ex parte and the procedure laid down in section 9(d) of Republic Act No. 875 was not followed by
the trial court (Allied Free Workers Union vs. Judge Apostol, 102 Phil. 292, 298).
After trial, the lower court rendered a decision dated December 5, 1960, amended on January 11, 1961,
(1) declaring the arrastre and stevedoring contract terminated on August $1, 1954; (2) dismissing the
union's counterclaim; (3) ordering the union and its officers to pay solidarily to the company P520,000
as damages, with six percent interest per annum from September 9, 1954, when the complaint. was
filed; (4) permanently enjoining the union from performing any arrastre and stevedoring work for the
company at Iligan City, and (5) requiring the union to post a supersedeas bond in the sum of P520,000 to
stay execution.
The union filed a motion for reconsideration. On the other hand, the company filed a motion for the
execution pending appeal of the money judgment. It filed another motion for the immediate issuance of
a writ of injunction. That second motion was filed in the municipal court of Iligan City in view of the
absence of the District Judge.
The municipal court issued the writ of injunction. However, this Court set it aside because it was not an
interlocutory order and no special reasons were adduced to justify its issuance (Allied Free Workers
Union vs. Judge Estipona, 113 Phil. 748).
The union on January 6, 1961 had perfected an appeal from the lower court's original decision. It did not
appeal from the amended decision. On March 24, 1962 the lower court issued an order declaring its
amended decision final and executory in view of the union's failure to appeal therefrom. The court
directed the clerk of court to issue a writ of execution. That order was assailed by the union in a
certiorari action filed in this Court. A preliminary injunction was issued by this Court to restrain the
execution of the judgment.
On May 16, 1962 this Court dissolved the injunction at the instance of the company which had filed a
counterbond. Thereupon, the 225 members of the union yielded their ten-year old jobs to the new set
of workers contracted by the company.
The certiorari incident was decided on June 30, 1966. This Court noted that the lower court amended its
decision for the purpose of correcting certain errors and omissions which were not substantial in
character and that its amended decision was served upon the parties after the union had perfected its
appeal from the original decision.
Under those circumstances, this Court held that the union's appeal should be given due coarse, subject
to the amendment of its record on appeal. This Court reserved to the members of the union the right to
secure restitution under sections 2 and 5, Rule 39 of the Rules of Court (Allied Free Workers Union vs.
Estipona, L-19651, June 30, 1966,17 SCRA 513, 64 O.G. 2701).
Pursuant to that reservation, the union on December 16, 1966 filed a motion for restitution, praying that
its 225 members be restored to their jobs and that the company be ordered to pay P 1,620,000 as
damages, consisting of the lost earnings during the four-years period from May 8, 1962 to May 8, 1966.
On the other hand, the company in its motion of January 18, 1967 reiterated its 1960 motion for the
execution of the lower court's judgment as to the damages, of P520,000 and the permanent injunction.
Later, the company called the lower court's attention to this Court's decision dated January 31, 1967. In
that decision, this Court affirmed the CIR's decision holding that the company did not commit any unfair
labor practice and reversed the CIR's directive that a certification election be held to determine whether
the union should be the exonemtod bargaining unit. This Court held that the union could not act as a
collective bargaining unit because the union was an independent contractor and its members were not
employees of the company (Allied Free Workers Union vs. Compaia Maritima, L-22951-2 and L-22971,
19 SCRA 258).
The lower court in its order of April 25, 1967 (1) denied the union's motion for restitution and to stay
execution of its amended decision on January 11, 1961 and (2) required the union to file a supersedeas
bond in the sum of P100,000 within thirty days from notice. The bond was reduced to P50,000 in the
lower court's order of August 16, 1967. The union posted the bond on August 24,1967.
The lower court approved the union's amended record on appeal in its order of October 6, 1967.
The union appealed directly to this Court because the amount involved exceeds P200,000. The appeal
was perfected before Republic Act No. 5440 took effect on September 9,1968.
Other proceedings. - The company in its original complaint prayed that the union and its officials be
ordered to pay actual damages, amounting to P15,000 for the union's failure to load and unload cargo in
and from the consignees. vessels from September 1 to 8, 1954; P50,000 as damages, due to the union's
inefficiency in performing arrastre and stevedoring work "during the latter part of the existence" of the
contract; P50,000 as moral and exemplary damages, (not supported by any allegation in the body of the
complaint) and P5,000 as attorney's Considering (10-12, Record on Appeal).
On September 15, 1954 the company added a fourth cause ofaction to its complaint. It alleged that by
reason of the acts of harassment and obstruction perpetrated by the union in the loading and unloading
ofcargo the company suffered additional damage in the form of lost and unrealized freight and
passenger charges in the amount of P10,000 for September 9 and 10, 1954 (66, Record on Appeal).
On November 2, 1954 the company attached to its motion for the revival of the injunction against the
union an auditor's report dated September 15, 1954 wherein it was indicated that the company lost
freight revenues amounting to P178,579.20 during the period from January 1 to September 7, 1954
(121-143, Record on Appeal).
On November 27, 1954 the company filed another motion for the restoration of the injunction. In
support of that motion the company attached a trip operation report showing the unloaded cargoes on
the consignees. vessels, when they docked at Iligan City on September 14, 19, 22 and 26 and October 3
and 5, 1954, as well as the delays in their departure (157-162, Record on Appeal).
On March 5, 1955 the company added a fifth cause ofaction too its complaint. It alleged that during the
period from September 12 to December 28, 1954 it lost freight charges on unloaded cargoes in the sum
of P62,680.12, as shown in a detailed statement, and that it incurred an estimated amount of P20,000
for overhead expenses. for the delay in the dismissal of its vessels attributable to the union's
unsatisfactory stevedoring and arrastre work (225-229, 237-8, Record on Appeal).
Also on March 5, 1955 the union answered the original and supplemental complaints. It denied that its
members had rendered inefficient service. It averred that the termination of the contract was prompted
by the consignees. desire to give the work to the Iligan Stevedoring Association which the company had
allegedly organized and subsidized. The union filed a counterclaim for P200,000 as compensation for its
services to the company and P500,000 as other damages, (239-252, Record on Appeal).
On March 9, 1960 the company filed a third supplemental complaint, It alleged that the continuation of
the stevedoring and arrastre work by the union for the company from 1955 to date had caused losses to
the company at the rate of P25,000 annually in the form of lost freight on shutout cargoes and the
expenses. for the equipment used to assist the union members in performing their work (320-3, Record
on Appeal).
Plaintiff company's evidence. - Jose C. Teves, the consignees. branch manager at Iligan City, testified that
on August 24, 1954 he terminated the arrastre and stevedoring contract with the union (Exh. J) upon
instruction of the head office. The contract was terminated in order to avoid further losses to the
company caused by the union's inefficient service (85-86 tsn March 11, 1960).
After the termination of the contract, the members of the union allegedly harassed the company with
the help of goons. The cargoes could not be unloaded in spite of the fact that the company had sought
the protection of the law-enforcing authorities (88). The consignees. last recourse was to go to court.
(89).
The company supposedly suffered losses as a result of the union's inefficient service since September 1,
1954 (91). Teves hired auditors to ascertain the losses suffered by the company during the period from
January 1 to September 11, 1954.
The trial court awarded actual damages, amounting to P450,000 on the basis of the auditor's reports,
Exhibits A to I. It did not carefully examine the said exhibits. Contrary to the trial court's impression,
Exhibits B, C and D are not auditors' reports.
The trial court did not bother to make a breakdown of the alleged damages, totalling P450,000. The
reports of the two hired accountants, Demetrio S. Jayme and M. J. Siojo, show the following alleged
damages, in the aggregate amount of P349,245.37 (not P412,663.17, as erroneously added by the
consignees. counsel, 161,163-4 tsn March 11, 1960):
TABULATION OF ALLEGED
DAMAGES CLAIMED BY COMPAIA MARITIMA
(1) Freight for 74,751 bags of fertilizer
allegedly booked for shipment in the
company's vessels but loaded in other vessels
during the period from Jan. 1 to August 31,
1954, Statement A in Exh. A, CPA Jayme's
report......................................................... P29,900.40
(2) Lost freight on other shutout cargoes
for January 1 to August 31, 1954, Statement A
in Exh. A, of CPA Jayme ......................... 4,339.64
(3) Lost freight on shutout cargoes for
September 2 to 7, 1954 booked for shipment in
M. V. Mindoro, Panay and Masterhead Knot,
Statement B in Exh. A, CPA Jayme's report... 6,167.16
(4) Losses sustained in voyages of M.V.
Panay and Mindoro in four voyages from
September 4 to 11, 1954, with estimates,
Statement B, Exh. A............................... 3,764.50
(5) Other estimated losses for the said
voyages of M.V. Panay and Mindoro for the
same period, based on interviews of parties at
the wharf, Statement B, Exh. A............... 10,000.00
(6) Additional subsistence expenses. for the
M.V. Mindoro and Panay due to the delays in
their dismissal from January 1 to August 31,
1954 as certified by the pursers of the two
vessels, Statement C, Exh. A..................... 4,407.50
(7) Estimated loss in freight and passenger
revenue for the period from January 1 to
August 31, 1954, based on 1953 freight revenue
for the same period Statement D, Exh. A..... 100,000.00
(8) Estimated loss in passenger fares for
the period from September to December 31,
1954, Statement D, Exh. A....................... 20,000.00
(9) Lost freight charges from September
12 to December 28, 1954, as certified by the
chief clerk of the consignees. Iligan office. Exh.
B............................................................. 62,680.12
(10) Estimated overhead expenses for
delay of vessels in port, Exh. B................. 20,000.00
(11) Forklift operating expenses. for 1955,
consisting of salaries and maintenance
expenses, Exh. E- 1.................................... 5,677.54
(12) Lost freight revenue for 1955, Exh. E-
2............................................................... 17,838.78
(13) Forklift operating expenses. for 1956,
Exh. F- 1................................................... 3,520.90
(14) Lost freight revenue for 1956, Exh. F-2 3,849.56
(15) Forklift operating expenses. for 1957,
Exh. G- 1................................................... 8,259.08
(16) Lost freight revenue for 1957, Exh. G-
2.................................................................... 14,538.10
(17) Forklift operating expenses. for 1958,
Exh. H-1................................................... 7,503.45
(18) Lost freight revenue for 1958, Exh. H-
2............................................................. 10,193.46
(19) Forklift operating expenses. for 1959,
Exh. I-1.................................................... 8,745.35
(20) Lost freight revenue for 1959, Exh. I-2 7,959.83
T OT A L - P349,245.37
We tabulated the alleged damages, to show that the trial court's award to the company of P450,000 as
damages, is not supported by the evidence. On the other hand, the statement of the consignees.
counsel that the damages, totalled P412,663.17 (162- 164 tsn March 11, 1960) is wrong.
Teves, the consignees. branch manager, submitted a statement (Exh. K) showing the alleged cost of
three forklifts, 200 pieces of pallet boards, 530 pieces of wire rope slings and two pieces of tarpaulins in
the total sum of P27,215. In that statement, he claims that the damages, to the company by reason of
the depreciation of the said items of equipment amounted to P38,835 or more than the cost thereof.
The company's counsel, in his summary of the damages, ignored the alleged damages, of P38,835
indicated by Teves in Exhibit K. The consignees. counsel relied oth on the auditors' reports, Exhibits A
and E to I and on Exhibit B, the chief clerk's statement. As already noted, those documents show that
the total damages, claimed by the company amounted to P349,245.37.
The best evidence on the cost of the said equipment would have been the sales invoices instead of the
oral testimony of Teves. He did not produce the sales invoices.
Teves further testified that Salvador T. Lluch was the president of the union; Nicanor Halibas, the
treasurer; Mariano Badelles, the general manager, and Luarentino Badelles, a vice president.
Appellants' statement of facts. - To sustain their appeal, the appellants made the following exceedingly
short and deficient recital of the facts:
Sometime in the month of August, 1954, defendant, Allied Free Workers Union filed an unfair labor
practice case against defendant (should be plaintiff) and its branch manager, Mr. Jose Teves, with the
Court of Industrial Relations, Manila, and docketed as Case No. 426-UPL: defendant union also filed a
petition for certification election docketed as Case No, 175-MC against plaintiff; defendant union also
filed a notice of strike dated August 27, 1954; the Secretary of Labor wired the public defender, Iligan
City, on August 27, 1954 (see annexes 1-4, motion to dismiss, Record on Appeal, pp. 54-65).
To counteract these legitimate moves of labor, plaintiff filed the complaint docketed as Civil Case No.
577 in the Court of First Instance of Lanao (now Lanao del Norte) for damages, and/or resolution of
contract with writ of preliminary injunction, On a decision adverse to their interests, defendants take
this appeal.
On the question of jurisdiction taken before this Honorable Tribunal in G.R. No. L-8876, it was held:
... for the instant case merely refers to the recovery of damages, occasioned by the picketing undertaken
by the members of the union and the rescission of the arrastre and stevedoring contract previously
entered into between the parties.
The appellants did not discuss their oral and documentary evidence. *
First assignment of error. - The appellants contend that the trial court erred in awarding to the company
actual damages, amounting to P450,000, moral damages, of P50,000 and attorney's Considering of
P20,000, and in holding that the four officers of the union are solidarily liable for the said damages.
Appellants' counsel assailed the award of actual damages, on the ground that the auditors' reports, on
which they were based, were hearsay.
After analyzing the nature of the damages, awarded, how the same were computed, and the
trustworthiness of the company's evidence, we find the first assignment of error meritorious.
We have already stress that, on the basis of the reports of the two accountants, the damages, claimed
by the complaint as a matter of simple addition, does not reach the sum of P 450,000 fixed by the trial
court. The damages, shown in the accountants' reports and in the statement made by the consignees.
chief clerk (who did not testify) amount to P349,245.37, or much less than P450,000.
The company argues that the accountants' reports are admissible in evidence because of the rule that
"when the original consists of numerous accounts or other documents which cannot be examined in
court without great loss-of time and the fact sought to be established from them is oth the general
result of the whole", the original writings need not be produced (Sec. 2[e], Rule 130, Rules of Court).
That rule cannot be applied in this case because the voluminous character of the records, on which the
accountants' reports were based, was not duly established (U. S. vs. Razon and Tayag, 37 Phil. 856, 861;
29 Am Jur 2nd 529).
It is also a requisite for the application of the rule that the records and accounts should be made
accessible to the adverse party so that the company, of the summary may be tested on cross-
examination (29 Am Jur 2nd 517-8; 32A C.J.S. 111).
What applies to this case is the general rule "that an audit made by, or the testimony of, a private
auditor, is inadmissible in evidence as proof of the original records, books of accounts, reports or the
like" (Anno 52 ALR 1266).
That general rule cannot be relaxed in this case because the company failed to make a preliminary
showing as to the difficulty or impossibility attending the production of the records in court and their
examination and analysis as evidence by the court (29 Am Jur 2nd 529).
A close scrutiny of the accountants' reports reveals their lack of probative value. The propriety of
allowing the different items of damages, is discussed below.
Unrealized freight and passenger revenue for 1954 ascertained by Accountant Demetrio S. Jayme. - In his
report (Exh. A, pp. 134 to 147, Record on Appeal), Jayme used the pronouns "we" and "our" and made
reference to the examination made by the "auditors" and his accounting office.
He did not disclose the names of other "auditors" who assisted him in making the examination of the
consignees. records.
He gave the impression that he was an independent accountant hired by the company to make a
"special investigation" of the consignees. losses for the period from January 1 to September 7, 1954.
The truth is that Jayme was a "personal friend" of Teves, the consignees. branch manager at Iligan City.
Teves was the consignees. principal witness in this case. He verified the complaint. herein. He signed for
the company the stevedoring and arrastre contract which he later rescinded. In fact, Teves intervened in
the drafting of the contract. It was his Idea that the company should not pay the arrastre and
stevedoring Considering and that those charges should be borne by the shippers and consignees.
Jayme was not only the friend of Teves but was also his co-employee. Jayme was the consignees. branch
manager at Ozamis City and later at Cagayan de Oro City (217-8 tsn May 20, 1960; Exh. 12). He
suppressed that fact in his report of examination. Apparently, the practice of accounting was his sideline
or he practised accounting and, as the saying goes, he moonlighted as the consignees. branch manager.
Obviously, Jayme would be biased for the company. He violated a rule of the accountants' code of ethics
by not disclosing in his report of examination that he was an employee of the company (84 tsn June 2,
1960).
Accountant Jayme allegedly found from the consignees. records at Iligan City that its freight and
passenger revenue for the eight- month period from January 1 to August 31, 1953 amounted to
P373,333.14 and that for the same period in 1954, that revenue amounted to P470,716.29, or an
increase of P97,383.12 (Statement D of Exh. A, 145, Record on Appeal).
Jayme interpreted those figures as signifying that the company would have realized more revenue if the
union had rendered better service. He reasoned out that there was a big volume of business in Iligan
City due to the Maria Cristina Fertilizer Plant, Iligan Steel Mill and NPC Hydroelectric Plant. He imagined
that the consignees. freight revenue during the first eight months of 1954 could have amounted to at
least P600,000 and that since it actually realized oth P 470,716.29, its loss of freight revenue for that
period could be "conservatively" estimated at least P100,000 (item 7 of the tabulation of damages).
He stated that he attached to his report on the comparative statement of gross revenue a certificate of
the captain of the vessel Panay showing the delays in its dismissal in Iligan City as indicated in its
logbook. No such document was attached to Jayme's report.
And from the fact that the total fares received by the company during the eight-month period were
reduced in the sum of P3,951.58 (Jayme fixed the reduction at the round figure of P4,000), he calculated
that the company suffered a loss of at least P20,000 in passenger revenue up to December 31, 1954
(Item 8 of the tabulation of damages).
Jayme also included in his report (a) damages, amounting to P10,000 as his estimate of losses
supposedly "based on interviews with disinterested parties at the wharf and city proper customers"; (b)
damages, amounting to P3,764.50 allegedly suffered in the operation of the
vessels Mindoro and Panay from September 4 to 11, 1954, consisting of extra meals, expenses. for
unloading cargo, estimated loss in passage revenue for four voyages, and estimated loss from 14 re-
routed freights to competing vessels" (consisting of rice, corn and bananas), and (e) the sum of
P4,407.50 as alleged additional subsistence incurred for the crew of the Panay and Mindoro from
January 1 to August 31, 1954 (items 4, 5 and 6 of the tabulation of damages). The records of the purser
and chief steward were allegedly examined in ascertaining those damages.
It would not be proper to allow Jayme's estimates as recoverable damages. They are not supported by
reliable evidence. They can hardly be sanctioned by the "generally accepted auditing standards" alluded
to in Jayme's report. The pertinent records of the company should have been produced in court. The
purser and steward did not testify.
The rule is that the auditor's summary should not include his conclusions or inferences (29 Am Jur 2d
519). His opinion is not evidence.
The trial court unreservedly gave credence to the conjectures of Jayme. Obviously, his inflated guesses
are inherently speculative and devoid of probative value. Furthermore, his estimate of the unrealized
freight revenue for January 1 to August 31, 1954 overlapped with his computation of the lost freight for
the unloaded 74,751 bags of fertilizer and other cargoes covering the same period (Statement A of Exh.
A).
The foregoing discussion shows Jayme's unreliable modus operandi in ascertaining the 1954 losses
which the company claimed to have suffered in consequence of the union's alleged inefficiency or poor
service. It is noteworthy that those losses were not averred with particularity and certitude in the
consignees. complaint.
The same observations apply with equal cogency to the damages, amounting to P40,407.20 as lost
freight revenue also for the year 1954 (items 1 to 3 of the tabulation of damages) which were computed
by Accountant Jayme.
Those items refer to (1) the sum of P29,900.40 as lost freight revenue on 74,751 bags of fertilizer,
already mentioned, which were booked for shipment in the consignees. vessels from January 1 to
August 31, 1954 but which were allegedly loaded in other vessels; (2) P4,339.64 as unrealized freight
revenue for other cargoes booked in the consignees. vessels but not loaded therein during the same
eight-month period, and (3) P6,167,16 as unrealized freight revenue on shutout cargoes not loaded in
the consignees. vessels during the six-day period from September 2 to 7, 1954.
Jayme allegedly based his computations on the records of the company which were not produced in
court. The union objected to Jayme's report as inadmissible under the hearsay rule or as not being the
best evidence.
Even if the presentation of the records themselves as exhibits should have been dispensed with, yet the
complaint to show good faith and fair dealing, could have brought the records in court (manifests, bills
of lading, receipts for the freights, if any, etc.) and enabled the court and the union's counsel and its
expert accountant to verify the accuracy of Jayme's summaries.
Photostatic copies of some manifests and bills of lading proving that the company was not able to
collect the stipulated freight on the alleged shutout cargoes should have been proforma. in evidence as
supporting papers for Jayme's report. No such exhibits were presented.
The flaw or error in relying merely on Jayme's summaries is that, as pointed out by witness Mariano LL.
Badelles, cargoes might be shutout due to causes other than the supposed inefficiency of the union. He
testified that cargoes were shutout deliberately by the company because they could not be loaded in
one vessel (for example, 50,000 bags of fertilizer), or a shipper had no allotment, or because the
company did not want to load cargoes like bananas (189-194 tsn May 20, 1960). Jayme's summaries did
not take into account the probability that a part of the cargo booked in the consignees. vessel for a
certain date might not have been loaded on that date but was loaded in another vessel of the company
which docked at the port a few days later, In that case, there would be no loss of freight revenue. The
mere shutting out of cargo in a particular voyage did not ipso facto produce loss of freight revenue.
Our conclusion is that an injustice would be perpetrated if the damages, aggregating P178,579
computed and estimated in the report of Jayme, a biased witness, should be accepted at their face
value.
Damages computed by Salvador M. Magante. - The company also claims as damages, for the period
from September 12 to December 28, 1954 lost freight charges on shutout cargoes in the sum of
P62,680.12, and the sum of P20,000 as "overhead expenses. for delay of vessels in port", as set forth by
Salvador M. Magante, the consignees. chief clerk at Iligan City, in his statement, Exhibit B (items 9 and
10 of the tabulation of damages).
Magante did not testify on his statement. Instead, accountant Jayme, substituting for Magante, testified
on that statement. Jayme said that he verified the consignees. records on which Magante based his
statement. Jayme assured the court that the figures in Magante's statement were supported by the
consignees. records.
But as to the damages, of P20,000, Jayme said that he could not certify as to their company, because he
had not finished his investigation (33 tsn March 9, 1955). In spite of that admission, the trial court
allowed that item of damages.
The trial court erred in allowing the damages, totalling P82,680.12 because Magante's statement,
Exhibit B, is hearsay. Magante should have been proforma. as a witness. Jayme was not competent to
take his place since the statement was prepared by Magante, not by Jayme. More appropriate still, the
documents and records on which the statement was based should have been proforma. as evidence or
at least brought to the court for examination by the union's counsel and its accountant. The trial court
required the production of the manifests supporting Magante's statement (85-86 tsn march 9, 1955).
Only one such manifest, Exhibit C, was produced. The nonproduction of the other records was not
explained.
Lost freight revenue and operating expenses for the forklifts. - The company claimed as damages, the
sum of P87,986.05 (P151,403.85 as erroneously computed by the consignees. counsel, 163 tsn March
11, 1950) consisting of supposed unrealized freight charges for shutout or unloaded cargoes for the year
1955 to 1959 (Exh. E to I, Items 11 to 20 of the tabulation of damages).
The claim is covered by the company's third supplemental complaint dated March 9, 1960 wherein it
was alleged that due to the acts of the union and its officers the company had suffered damages, of not
less than P25,000 annually since 1955 (320-3, Record on Appeal). That supplemental complaint was
hurriedly filed during the trial as directed by the trial court.
The said damages, were computed in the reports of Miguel J. Siojo, an accountant who, for two days
and nights, March 8 to 10, 1960, or shortly before and during the trial, allegedly examined the
consignees. record at Iligan City, such as its cash book, cash vouchers, reports to the head office,
shipping manifests, and liquidation reports. Those records were not produced in court. Their
nonproduction was not explained. If the accountant was able to summarize the contents of those
records in two days, they could not have been very voluminous. They should have been offered in
evidence.
The alleged expenses. in the operation of the forklifts consisted of (a) the wates of the operators hired
by the company and (b) the cost of gasoline and oil and expenses. for repair.
The company's theory is that under the 1952 contract (Exh. J) the union was obligated to provide for
forklifts in the loading and unloading of cargo. Inasmuch as the union allegedly did not have forklifts, the
complaint to expedite the arrastre and stevedoring work, purchase forklifts, hired laborers to operate
the same, and paid for the maintenance expenses. The company treated those expenses as losses or
damages.
Those alleged damages, amounting to P87,986.05 are in the same category as the depreciation
allowances amounting to P38,835 which the company claimed for the forklifts, pallet boards, tarpaulins
and wire rope slings that it purchased for oth P27,215, We have stated that the consignees. counsel
ignored that depreciation in his recapitulation of the damages, claimed by the plaintiff.
The union contends that Siojo's reports (Exh. E to I) were inadmissible evidence because they were
hearsay, meaning that the original documents, on which the reports were based, were not presented in
evidence and, therefore, appellants' counsel and the court itself were not able to gauge the correctness
of the figures or data contained in the said reports. The person who had personal knowledge of the
operating expenses. was not examined in court.
We are of the opinion that, to avoid fraud or fabrication, the documents evidencing the alleged
expenses. should have been proforma. in evidence. Siojo's reports were not the best evidence on the
said operating expenses. The explanation of Badelles with respect to shutout cargoes and our
observations on Jayme's summaries are applicable to accountant Siojo's reports.
A more substantial ground for rejecting Siojo's reports is that the said expenses, if really incurred,
cannot be properly treated as darn ages to the company.
The union's witness, Mariano LI. Badelles, testified that the consignees. forklifts were not used
exclusively on the wharf. They were used in the fertilizer and carbide plants. Sometimes, the union
supplied the driver and the gasoline for the operation of the forklifts (174-177 tsn May 20, 1960).
Moreover, as stated earlier, the company was not paying the union a single centavo for arrastre and
stevedoring work. The shippers and consignees paid for the arrastre service rendered by the union. The
union did not receive any compensation for stevedoring work.
The company complained that the union had been rendering unsatisfactory arrastre and stevedoring
services. That grievance was controverted by the union.
The use of the forklifts, tarpaulins pallet boards and wire rope slings immeasurably benefitted the
company. It is not proper nor just that the consignees. investment in those pieces of equipment should
be considered damages, just because it was able to bind the union to a one-sided contract which
exempted it from the payment of arrastre and stevedoring Considering and which impliedly obligated
the union to purchase the said equipment.
If the service rendered by the union members was unsatisfactory, it must be because the poor
stevedores were underfed and underpaid. They were underfed and underpaid because the company
was astute enough to insure that it would obtain stevedoring service without paying for it.
If to improve the arrastre and stevedoring service, the company had to incur expenses. for the purchase
of forklifts, pallet boards, tarpaulins and wire rope slings and for the operation of the forklifts, the union
should not be required to reimburse the company for those expenses. The company should bear those
expenses. because the same redounded to its benefit.
The trial court erred in ordering the union and its officials to pay the amount of the said expenses. as
damages, to the company.
Moral damages and attorney's fees. - Considering that the consignees. claim for moral damages, was
based on the same facts on which it predicated its claim for actual deduction which we have found to be
groundless, it follows that the company, a juridical person, is not entitled to moral damages.
Anyway, the company did not plead and prove moral damages. It merely claimed moral damages, in the
prayer of its complaint. That is not sufficient (Darang vs. Ty Belizar, L-19487, January 31, 1967, 19 SCRA
214, 222).
Under the facts of this case, we do not find any justification for awarding attorney's Considering to the
company. Hence, the trial court's award of P20,000 as attorney's Considering is set aside.
Appellants' first assignment of error, although not properly argued by their counsel, should be
sustained.
Other assignments of error. - The union and its officers contend that the lower court erred in dismissing
their counterclaims. Their counsel did not even bother to state in their brief the amount of the
counterclaims.
The union filed counterclaims for P200,000 as compensation for stevedoring services from August, 1952
to March 4, 1955; P500,000 as deduction P10,000 as attorney's Considering and P5,000 as premium on
the counterbond (251-2, Record on Appeal). In their supplemental counterclaim, they demanded
P500,000 as stevedoring charges for the period from March 4, 1955 to March 4, 1960 and additional
damages, of P10,000 (308-10, Record on Appeal). The trial court dismissed the said counterclaims.
The appellants in their three-sentence argument in support of their counterclaims alleged that the
company's bill of lading provided that the unloading of the cargoes was at the consignees. expense (Exh.
1); that the company had not paid the sum of P500,000 as compensation for the stevedoring services
rendered by the laborers up to 1960, and that the stipulation in the arrastre contract, "that the
Compaia Maritima shall not be liable for the payment of the services rendered by the Allied Free
Workers Union for the loading and deliveries of cargoes as same is payable by the owners and
consignees of cargoes, as it has been the practice in the port of Iligan City" (Exh. J, pp. 14, 334, 359, 500
Record on Appeal), was 'non- operative" and void, "being contrary to morals and public policy".
That superficial argument is not well-taken. The printed stipulation in the bill of lading was superseded
by the contractual stipulation. The contract was prepared by the union officials. As already noted, it was
stipulated in the contract that the stevedoring and arrastre charges should be paid by the shippers and
consignees in consonance with the practice in Iligan City. That stipulation was binding and enforceable.
The supposed illegality of that stipulation was not squarely raised by the union and its officials in their
answer. They merely averred that the contract did not express the true agreement of the parties. They
did not sue for reformation of the instrument evidencing the contract. The lower court did not err in
dismissing defendants' counterclaims.
The other two errors assigned by the appellants, namely, that the lower court erred in issuing a
permanent injunction against them and in executing its decision pending appeal, are devoid of merit.
The appellants invoke section 9(d) of the Magna Carta of Labor regarding the issuance of injunctions.
That section has no application to this case because it was definitively ruled by this Court in the
certification and unfair labor practice cases that there is no employer-employee relationship between
the company and the stevedores. (They work under the cabo system).
The lower court did not execute the money aspect of its judgment. It merely required the defendants to
file a supersedeas bond of P50,000.
As to the injunction, it should be recalled that it was this Court which, in its resolution of May 16, 1962
in the execution and appeal incident (L-19651, 17 SCRA 513), allowed the company to terminate the
stevedoring and arrastre work of the union and to use another union to perform that work.
The company had the contractual right to terminate the 1952 contract (Taylor vs. Uy Teng Piao, 43 Phil.
873). The lower court did not err in sustaining the consignees. rescission of the contract and in enjoining
the union from performing arrastre and stevedoring work.
WHEREFORE, that portion of the trial court's judgment declaring the arrastre and stevedoring contract
terminated, permanently enjoining the union and its officials from performing arrastre and stevedoring
work for the vessels of the Compaia Maritima, and dismissing defendants' counterclaim is affirmed.
The lower court's award of damages, is reversed and set aside. No costs.
SO ORDERED.


CITIBANK, N.A. (Formerly First National City Bank) and INVESTORS' FINANCE
CORPORATION, doing business under the name and style of FNCB Finance vs.
MODESTA R. SABENIANO

G.R. No. 156132 October 12, 2006
CITIBANK, N.A. (Formerly First National City Bank) and INVESTORS' FINANCE CORPORATION, doing
business under the name and style of FNCB Finance, petitioners,
vs.
MODESTA R. SABENIANO, respondent.


D E C I S I O N
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari,
1
under Rule 45 of the Revised Rules of Court, of
the Decision
2
of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March 2002, and the
Resolution,
3
dated 20 November 2002, of the same court which, although modifying its earlier Decision,
still denied for the most part the Motion for Reconsideration of herein petitioners.
Petitioner Citibank, N.A. (formerly known as the First National City Bank) is a banking corporation duly
authorized and existing under the laws of the United States of America and licensed to do commercial
banking activities and perform trust functions in the Philippines.
Petitioner Investor's Finance Corporation, which did business under the name and style of FNCB Finance,
was an affiliate company of petitioner Citibank, specifically handling money market placements for its
clients. It is now, by virtue of a merger, doing business as part of its successor-in-interest, BPI Card
Finance Corporation. However, so as to consistently establish its identity in the Petition at bar, the said
petitioner shall still be referred to herein as FNCB Finance.
4

Respondent Modesta R. Sabeniano was a client of both petitioners Citibank and FNCB Finance.
Regrettably, the business relations among the parties subsequently went awry.
On 8 August 1985, respondent filed a Complaint
5
against petitioners, docketed as Civil Case No. 11336,
before the Regional Trial Court (RTC) of Makati City. Respondent claimed to have substantial deposits
and money market placements with the petitioners, as well as money market placements with the Ayala
Investment and Development Corporation (AIDC), the proceeds of which were supposedly deposited
automatically and directly to respondent's accounts with petitioner Citibank. Respondent alleged that
petitioners refused to return her deposits and the proceeds of her money market placements despite
her repeated demands, thus, compelling respondent to file Civil Case No. 11336 against petitioners for
"Accounting, Sum of Money and Damages." Respondent eventually filed an Amended Complaint
6
on 9
October 1985 to include additional claims to deposits and money market placements inadvertently left
out from her original Complaint.
In their joint Answer
7
and Answer to Amended Complaint,
8
filed on 12 September 1985 and 6 November
1985, respectively, petitioners admitted that respondent had deposits and money market placements
with them, including dollar accounts in the Citibank branch in Geneva, Switzerland (Citibank-Geneva).
Petitioners further alleged that the respondent later obtained several loans from petitioner Citibank, for
which she executed Promissory Notes (PNs), and secured by (a) a Declaration of Pledge of her dollar
accounts in Citibank-Geneva, and (b) Deeds of Assignment of her money market placements with
petitioner FNCB Finance. When respondent failed to pay her loans despite repeated demands by
petitioner Citibank, the latter exercised its right to off-set or compensate respondent's outstanding
loans with her deposits and money market placements, pursuant to the Declaration of Pledge and the
Deeds of Assignment executed by respondent in its favor. Petitioner Citibank supposedly informed
respondent Sabeniano of the foregoing compensation through letters, dated 28 September 1979 and 31
October 1979. Petitioners were therefore surprised when six years later, in 1985, respondent and her
counsel made repeated requests for the withdrawal of respondent's deposits and money market
placements with petitioner Citibank, including her dollar accounts with Citibank-Geneva and her money
market placements with petitioner FNCB Finance. Thus, petitioners prayed for the dismissal of the
Complaint and for the award of actual, moral, and exemplary damages, and attorney's fees.
When the parties failed to reach a compromise during the pre-trial hearing,
9
trial proper ensued and the
parties proceeded with the presentation of their respective evidence. Ten years after the filing of the
Complaint on 8 August 1985, a Decision
10
was finally rendered in Civil Case No. 11336 on 24 August 1995
by the fourth Judge
11
who handled the said case, Judge Manuel D. Victorio, the dispositive portion of
which reads
WHEREFORE, in view of all the foregoing, decision is hereby rendered as follows:
(1) Declaring as illegal, null and void the setoff effected by the defendant Bank [petitioner Citibank] of
plaintiff's [respondent Sabeniano] dollar deposit with Citibank, Switzerland, in the amount of
US$149,632.99, and ordering the said defendant [petitioner Citibank] to refund the said amount to the
plaintiff with legal interest at the rate of twelve percent (12%) per annum, compounded yearly, from 31
October 1979 until fully paid, or its peso equivalent at the time of payment;
(2) Declaring the plaintiff [respondent Sabeniano] indebted to the defendant Bank [petitioner Citibank]
in the amount of P1,069,847.40 as of 5 September 1979 and ordering the plaintiff [respondent
Sabeniano] to pay said amount, however, there shall be no interest and penalty charges from the time
the illegal setoff was effected on 31 October 1979;
(3) Dismissing all other claims and counterclaims interposed by the parties against each other.
Costs against the defendant Bank.
All the parties appealed the foregoing Decision of the RTC to the Court of Appeals, docketed as CA-G.R.
CV No. 51930. Respondent questioned the findings of the RTC that she was still indebted to petitioner
Citibank, as well as the failure of the RTC to order petitioners to render an accounting of respondent's
deposits and money market placements with them. On the other hand, petitioners argued that
petitioner Citibank validly compensated respondent's outstanding loans with her dollar accounts with
Citibank-Geneva, in accordance with the Declaration of Pledge she executed in its favor. Petitioners also
alleged that the RTC erred in not declaring respondent liable for damages and interest.
On 26 March 2002, the Court of Appeals rendered its Decision
12
affirming with modification the RTC
Decision in Civil Case No. 11336, dated 24 August 1995, and ruling entirely in favor of respondent in this
wise
Wherefore, premises considered, the assailed 24 August 1995 Decision of the court a quo is
herebyAFFIRMED with MODIFICATION, as follows:
1. Declaring as illegal, null and void the set-off effected by the defendant-appellant Bank of the plaintiff-
appellant's dollar deposit with Citibank, Switzerland, in the amount of US$149,632.99, and ordering
defendant-appellant Citibank to refund the said amount to the plaintiff-appellant with legal interest at
the rate of twelve percent (12%) per annum, compounded yearly, from 31 October 1979 until fully paid,
or its peso equivalent at the time of payment;
2. As defendant-appellant Citibank failed to establish by competent evidence the alleged indebtedness
of plaintiff-appellant, the set-off of P1,069,847.40 in the account of Ms. Sabeniano is hereby declared as
without legal and factual basis;
3. As defendants-appellants failed to account the following plaintiff-appellant's money market
placements, savings account and current accounts, the former is hereby ordered to return the same, in
accordance with the terms and conditions agreed upon by the contending parties as evidenced by the
certificates of investments, to wit:
(i) Citibank NNPN Serial No. 023356 (Cancels and Supersedes NNPN No. 22526) issued on 17 March
1977, P318,897.34 with 14.50% interest p.a.;
(ii) Citibank NNPN Serial No. 23357 (Cancels and Supersedes NNPN No. 22528) issued on 17 March
1977, P203,150.00 with 14.50 interest p.a.;
(iii) FNCB NNPN Serial No. 05757 (Cancels and Supersedes NNPN No. 04952), issued on 02 June
1977, P500,000.00 with 17% interest p.a.;
(iv) FNCB NNPN Serial No. 05758 (Cancels and Supersedes NNPN No. 04962), issued on 02 June
1977, P500,000.00 with 17% interest per annum;
(v) The Two Million (P2,000,000.00) money market placements of Ms. Sabeniano with the Ayala
Investment & Development Corporation (AIDC) with legal interest at the rate of twelve percent (12%)
per annum compounded yearly, from 30 September 1976 until fully paid;
4. Ordering defendants-appellants to jointly and severally pay the plaintiff-appellant the sum of FIVE
HUNDRED THOUSAND PESOS (P500,000.00) by way of moral damages, FIVE HUNDRED THOUSAND
PESOS (P500,000.00) as exemplary damages, and ONE HUNDRED THOUSAND PESOS (P100,000.00) as
attorney's fees.
Apparently, the parties to the case, namely, the respondent, on one hand, and the petitioners, on the
other, made separate attempts to bring the aforementioned Decision of the Court of Appeals, dated 26
March 2002, before this Court for review.
G.R. No. 152985
Respondent no longer sought a reconsideration of the Decision of the Court of Appeals in CA-G.R. CV
No. 51930, dated 26 March 2002, and instead, filed immediately with this Court on 3 May 2002 a
Motion for Extension of Time to File a Petition for Review,
13
which, after payment of the docket and
other lawful fees, was assigned the docket number G.R. No. 152985. In the said Motion, respondent
alleged that she received a copy of the assailed Court of Appeals Decision on 18 April 2002 and, thus,
had 15 days therefrom or until 3 May 2002 within which to file her Petition for Review. Since she
informed her counsel of her desire to pursue an appeal of the Court of Appeals Decision only on 29 April
2002, her counsel neither had enough time to file a motion for reconsideration of the said Decision with
the Court of Appeals, nor a Petition for Certiorari with this Court. Yet, the Motion failed to state the
exact extension period respondent was requesting for.
Since this Court did not act upon respondent's Motion for Extension of Time to file her Petition for
Review, then the period for appeal continued to run and still expired on 3 May 2002.
14
Respondent
failed to file any Petition for Review within the prescribed period for appeal and, hence, this Court
issued a Resolution,
15
dated 13 November 2002, in which it pronounced that
G.R. No. 152985 (Modesta R. Sabeniano vs. Court of Appeals, et al.). It appearing that petitioner
failed to file the intended petition for review on certiorari within the period which expired on May 3,
2002, the Court Resolves to DECLARE THIS CASE TERMINATED and DIRECT the Division Clerk of Court
to INFORM the parties that the judgment sought to be reviewed has become final and executory.
The said Resolution was duly recorded in the Book of Entries of Judgments on 3 January 2003.
G.R. No. 156132
Meanwhile, petitioners filed with the Court of Appeals a Motion for Reconsideration of its Decision in
CA-G.R. CV No. 51930, dated 26 March 2002. Acting upon the said Motion, the Court of Appeals issued
the Resolution,
16
dated 20 November 2002, modifying its Decision of 26 March 2002, as follows
WHEREFORE, premises considered, the instant Motion for Reconsideration is PARTIALLY GRANTED as
Sub-paragraph (V) paragraph 3 of the assailed Decision's dispositive portion is hereby ordered DELETED.
The challenged 26 March 2002 Decision of the Court is AFFIRMED with MODIFICATION.
Assailing the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March
2002 and 20 November 2002, respectively, petitioners filed the present Petition, docketed as G.R. No.
156132. The Petition was initially denied
17
by this Court for failure of the petitioners to attach thereto a
Certification against Forum Shopping. However, upon petitioners' Motion and compliance with the
requirements, this Court resolved
18
to reinstate the Petition.
The Petition presented fourteen (14) assignments of errors allegedly committed by the Court of Appeals
in its Decision, dated 26 March 2002, involving both questions of fact and questions of law which this
Court, for the sake of expediency, discusses jointly, whenever possible, in the succeeding paragraphs.
I
The Resolution of this Court, dated 13 November 2002, in G.R. No. 152985, declaring the Decision of
the Court of Appeals, dated 26 March 2002, final and executory, pertains to respondent Sabeniano
alone.
Before proceeding to a discussion of the merits of the instant Petition, this Court wishes to address first
the argument, persistently advanced by respondent in her pleadings on record, as well as her numerous
personal and unofficial letters to this Court which were no longer made part of the record, that the
Decision of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March 2002, had already become
final and executory by virtue of the Resolution of this Court in G.R. No. 152985, dated 13 November
2002.
G.R. No. 152985 was the docket number assigned by this Court to respondent's Motion for Extension of
Time to File a Petition for Review. Respondent, though, did not file her supposed Petition. Thus, after
the lapse of the prescribed period for the filing of the Petition, this Court issued the Resolution, dated 13
November 2002, declaring the Decision of the Court of Appeals, dated 26 March 2002, final and
executory. It should be pointed out, however, that the Resolution, dated 13 November 2002, referred
only to G.R. No. 152985, respondent's appeal, which she failed to perfect through the filing of a Petition
for Review within the prescribed period. The declaration of this Court in the same Resolution would bind
respondent solely, and not petitioners which filed their own separate appeal before this Court, docketed
as G.R. No. 156132, the Petition at bar. This would mean that respondent, on her part, should be bound
by the findings of fact and law of the Court of Appeals, including the monetary amounts consequently
awarded to her by the appellate court in its Decision, dated 26 March 2002; and she can no longer
refute or assail any part thereof.
19

This Court already explained the matter to respondent when it issued a Resolution
20
in G.R. No. 156132,
dated 2 February 2004, which addressed her Urgent Motion for the Release of the Decision with the
Implementation of the Entry of Judgment in the following manner
[A]cting on Citibank's and FNCB Finance's Motion for Reconsideration, we resolved to grant the motion,
reinstate the petition and require Sabeniano to file a comment thereto in our Resolution of June 23,
2003. Sabeniano filed a Comment dated July 17, 2003 to which Citibank and FNCB Finance filed
a Reply dated August 20, 2003.
From the foregoing, it is clear that Sabeniano had knowledge of, and in fact participated in, the
proceedings in G.R. No. 156132. She cannot feign ignorance of the proceedings therein and claim that
the Decision of the Court of Appeals has become final and executory. More precisely,
the Decision became final and executory only with regard to Sabeniano in view of her failure to file a
petition for review within the extended period granted by the Court, and not to Citibank and FNCB
Finance whose Petition for Review was duly reinstated and is now submitted for decision.
Accordingly, the instant Urgent Motion is hereby DENIED. (Emphasis supplied.)
To sustain the argument of respondent would result in an unjust and incongruous situation wherein one
party may frustrate the efforts of the opposing party to appeal the case by merely filing with this Court a
Motion for Extension of Time to File a Petition for Review, ahead of the opposing party, then not
actually filing the intended Petition.
21
The party who fails to file its intended Petition within the
reglementary or extended period should solely bear the consequences of such failure.
Respondent Sabeniano did not commit forum shopping.
Another issue that does not directly involve the merits of the present Petition, but raised by petitioners,
is whether respondent should be held liable for forum shopping.
Petitioners contend that respondent committed forum shopping on the basis of the following facts:
While petitioners' Motion for Reconsideration of the Decision in CA-G.R. CV No. 51930, dated 26 March
2002, was still pending before the Court of Appeals, respondent already filed with this Court on 3 May
2002 her Motion for Extension of Time to File a Petition for Review of the same Court of Appeals
Decision, docketed as G.R. No. 152985. Thereafter, respondent continued to participate in the
proceedings before the Court of Appeals in CA-G.R. CV No. 51930 by filing her Comment, dated 17 July
2002, to petitioners' Motion for Reconsideration; and a Rejoinder, dated 23 September 2002, to
petitioners' Reply. Thus, petitioners argue that by seeking relief concurrently from this Court and the
Court of Appeals, respondent is undeniably guilty of forum shopping, if not indirect contempt.
This Court, however, finds no sufficient basis to hold respondent liable for forum shopping.
Forum shopping has been defined as the filing of two or more suits involving the same parties for the
same cause of action, either simultaneously or successively, for the purpose of obtaining a favorable
judgment.
22
The test for determining forum shopping is whether in the two (or more) cases pending,
there is an identity of parties, rights or causes of action, and relief sought.
23
To guard against this
deplorable practice, Rule 7, Section 5 of the revised Rules of Court imposes the following requirement
SEC. 5. Certification against forum shopping. The plaintiff or principal party shall certify under oath in
the complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed
thereto and simultaneously filed therewith: (a) that he has not theretofore commenced any action or
filed any claim involving the same issues in any court, tribunal or quasi-judicial agency and, to the best of
his knowledge, no such other action or claim is pending therein; (b) if there is such other pending action
or claim, a complete statement of the present status thereof; and (c) if he should thereafter learn that
the same or similar action or claim has been filed or is pending, he shall report that fact within five (5)
days therefrom to the court wherein his aforesaid complaint or initiatory pleading has been filed.
Failure to comply with the foregoing requirements shall not be curable by mere amendment of the
complaint or other initiatory pleading but shall be cause for the dismissal of the case without prejudice,
unless otherwise provided, upon motion and after hearing. The submission of a false certification or
non-compliance with any of the undertakings therein shall constitute indirect contempt of court,
without prejudice to the corresponding administrative and criminal actions. If the acts of the party or his
counsel clearly constitute willful and deliberate forum shopping, the same shall be ground for summary
dismissal with prejudice and shall constitute direct contempt, as well as cause for administrative
sanctions.
Although it may seem at first glance that respondent was simultaneously seeking recourse from the
Court of Appeals and this Court, a careful and closer scrutiny of the details of the case at bar would
reveal otherwise.
It should be recalled that respondent did nothing more in G.R. No. 152985 than to file with this Court a
Motion for Extension of Time within which to file her Petition for Review. For unexplained reasons,
respondent failed to submit to this Court her intended Petition within the reglementary period.
Consequently, this Court was prompted to issue a Resolution, dated 13 November 2002, declaring G.R.
No. 152985 terminated, and the therein assailed Court of Appeals Decision final and executory. G.R. No.
152985, therefore, did not progress and respondent's appeal was unperfected.
The Petition for Review would constitute the initiatory pleading before this Court, upon the timely filing
of which, the case before this Court commences; much in the same way a case is initiated by the filing of
a Complaint before the trial court. The Petition for Review establishes the identity of parties, rights or
causes of action, and relief sought from this Court, and without such a Petition, there is technically no
case before this Court. The Motion filed by respondent seeking extension of time within which to file her
Petition for Review does not serve the same purpose as the Petition for Review itself. Such a Motion
merely presents the important dates and the justification for the additional time requested for, but it
does not go into the details of the appealed case.
Without any particular idea as to the assignments of error or the relief respondent intended to seek
from this Court, in light of her failure to file her Petition for Review, there is actually no second case
involving the same parties, rights or causes of action, and relief sought, as that in CA-G.R. CV No. 51930.
It should also be noted that the Certification against Forum Shopping is required to be attached to the
initiatory pleading, which, in G.R. No. 152985, should have been respondent's Petition for Review. It is in
that Certification wherein respondent certifies, under oath, that: (a) she has not commenced any action
or filed any claim involving the same issues in any court, tribunal or quasi-judicial agency and, to the
best of her knowledge, no such other action or claim is pending therein; (b) if there is such other
pending action or claim, that she is presenting a complete statement of the present status thereof; and
(c) if she should thereafter learn that the same or similar action or claim has been filed or is pending, she
shall report that fact within five days therefrom to this Court. Without her Petition for Review,
respondent had no obligation to execute and submit the foregoing Certification against Forum
Shopping. Thus, respondent did not violate Rule 7, Section 5 of the Revised Rules of Court; neither did
she mislead this Court as to the pendency of another similar case.
Lastly, the fact alone that the Decision of the Court of Appeals, dated 26 March 2002, essentially ruled in
favor of respondent, does not necessarily preclude her from appealing the same. Granted that such a
move is ostensibly irrational, nonetheless, it does not amount to malice, bad faith or abuse of the court
processes in the absence of further proof. Again, it should be noted that the respondent did not file her
intended Petition for Review. The Petition for Review would have presented before this Court the
grounds for 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
mere speculations, to which this Court cannot give credence.
II
As an exception to the general rule, this Court takes cognizance of questions of fact raised in the
Petition at bar.
It is already a well-settled rule that the jurisdiction of this Court in cases brought before it from the
Court of Appeals by virtue of Rule 45 of the Revised Rules of Court is limited to reviewing errors of law.
Findings of fact of the Court of Appeals are conclusive upon this Court. There are, however, recognized
exceptions to the foregoing rule, namely: (1) when the findings are grounded entirely on speculation,
surmises, or conjectures; (2) when the interference made is manifestly mistaken, absurd, or impossible;
(3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of
facts; (5) when the findings of fact are conflicting; (6) when in making its findings, the Court of Appeals
went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant
and the appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings are
conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in
the petition as well as in the petitioner's main and reply briefs are not disputed by the respondent; and
(10) when the findings of fact are premised on the supposed absence of evidence and contradicted by
the evidence on record.
24

Several of the enumerated exceptions pertain to the Petition at bar.
It is indubitable that the Court of Appeals made factual findings that are contrary to those of the
RTC,
25
thus, resulting in its substantial modification of the trial court's Decision, and a ruling entirely in
favor of the respondent. In addition, petitioners invoked in the instant Petition for Review several
exceptions that would justify this Court's review of the factual findings of the Court of Appeals, i.e., the
Court of Appeals made conflicting findings of fact; findings of fact which went beyond the issues raised
on appeal before it; as well as findings of fact premised on the supposed absence of evidence and
contradicted by the evidence on record.
On the basis of the foregoing, this Court shall proceed to reviewing and re-evaluating the evidence on
record in order to settle questions of fact raised in the Petition at bar.
The fact that the trial judge who rendered the RTC Decision in Civil Case No. 11336, dated 24 August
1995, was not the same judge who heard and tried the case, does not, by itself, render the said
Decision erroneous.
The Decision in Civil Case No. 11336 was rendered more than 10 years from the institution of the said
case. In the course of its trial, the case was presided over by four (4) different RTC judges.
26
It was Judge
Victorio, the fourth judge assigned to the case, who wrote the RTC Decision, dated 24 August 1995. In
his Decision,
27
Judge Victorio made the following findings
After carefully evaluating the mass of evidence adduced by the parties, this Court is not inclined to
believe the plaintiff's assertion that the promissory notes as well as the deeds of assignments of her
FNCB Finance money market placements were simulated. The evidence is overwhelming that the
plaintiff received the proceeds of the loans evidenced by the various promissory notes she had signed.
What is more, there was not an iota of proof save the plaintiff's bare testimony that she had indeed
applied for loan with the Development Bank of the Philippines.
More importantly, the two deeds of assignment were notarized, hence they partake the nature of a
public document. It makes more than preponderant proof to overturn the effect of a notarial
attestation. Copies of the deeds of assignments were actually filed with the Records Management and
Archives Office.
Finally, there were sufficient evidence wherein the plaintiff had admitted the existence of her loans with
the defendant Bank in the total amount of P1,920,000.00 exclusive of interests and penalty charges
(Exhibits "28", "31", "32", and "33").
In fine, this Court hereby finds that the defendants had established the genuineness and due execution
of the various promissory notes heretofore identified as well as the two deeds of assignments of the
plaintiff's money market placements with defendant FNCB Finance, on the strength of which the said
money market placements were applied to partially pay the plaintiff's past due obligation with the
defendant Bank. Thus, the total sum of P1,053,995.80 of the plaintiff's past due obligation was partially
offset by the said money market placement leaving a balance of P1,069,847.40 as of 5 September 1979
(Exhibit "34").
Disagreeing in the foregoing findings, the Court of Appeals stressed, in its Decision in CA-G.R. CV No.
51930, dated 26 March 2002, "that the ponente of the herein assailed Decision is not the Presiding
Judge who heard and tried the case."
28
This brings us to the question of whether the fact alone that the
RTC Decision was rendered by a judge other than the judge who actually heard and tried the case is
sufficient justification for the appellate court to disregard or set aside the findings in the Decision of the
court a quo?
This Court rules in the negative.
What deserves stressing is that, in this jurisdiction, there exists a disputable presumption that the RTC
Decision was rendered by the judge in the regular performance of his official duties. While the said
presumption is only disputable, it is satisfactory unless contradicted or overcame by other
evidence.
29
Encompassed in this presumption of regularity is the presumption that the RTC judge, in
resolving the case and drafting his Decision, reviewed, evaluated, and weighed all the evidence on
record. That the said RTC judge is not the same judge who heard the case and received the evidence is
of little consequence when the records and transcripts of stenographic notes (TSNs) are complete and
available for consideration by the former.
In People v. Gazmen,
30
this Court already elucidated its position on such an issue
Accused-appellant makes an issue of the fact that the judge who penned the decision was not the judge
who heard and tried the case and concludes therefrom that the findings of the former are erroneous.
Accused-appellant's argument does not merit a lengthy discussion. It is well-settled that the decision of
a judge who did not try the case is not by that reason alone erroneous.
It is true that the judge who ultimately decided the case had not heard the controversy at all, the trial
having been conducted by then Judge Emilio L. Polig, who was indefinitely suspended by this Court.
Nonetheless, the transcripts of stenographic notes taken during the trial were complete and were
presumably examined and studied by Judge Baguilat before he rendered his decision. It is not unusual
for a judge who did not try a case to decide it on the basis of the record. The fact that he did not have
the opportunity to observe the demeanor of the witnesses during the trial but merely relied on the
transcript of their testimonies does not for that reason alone render the judgment erroneous.
(People vs. Jaymalin, 214 SCRA 685, 692 [1992])
Although it is true that the judge who heard the witnesses testify is in a better position to observe the
witnesses on the stand and determine by their demeanor whether they are telling the truth or mouthing
falsehood, it does not necessarily follow that a judge who was not present during the trial cannot render
a valid decision since he can rely on the transcript of stenographic notes taken during the trial as basis of
his decision.
Accused-appellant's contention that the trial judge did not have the opportunity to observe the conduct
and demeanor of the witnesses since he was not the same judge who conducted the hearing is also
untenable. While it is true that the trial judge who conducted the hearing would be in a better position
to ascertain the truth and falsity of the testimonies of the witnesses, it does not necessarily follow that a
judge who was not present during the trial cannot render a valid and just decision since the latter can
also rely on the transcribed stenographic notes taken during the trial as the basis of his decision.
(People vs. De Paz, 212 SCRA 56, 63 [1992])
At any rate, the test to determine the value of the testimony of the witness is whether or not such is in
conformity with knowledge and consistent with the experience of mankind (People vs. Morre, 217 SCRA
219 [1993]). Further, the credibility of witnesses can also be assessed on the basis of the substance of
their testimony and the surrounding circumstances (People v. Gonzales, 210 SCRA 44 [1992]). A critical
evaluation of the testimony of the prosecution witnesses reveals that their testimony accords with the
aforementioned tests, and carries with it the ring of truth end perforce, must be given full weight and
credit.
Irrefragably, by reason alone that the judge who penned the RTC Decision was not the same judge who
heard the case and received the evidence therein would not render the findings in the said Decision
erroneous and unreliable. While the conduct and demeanor of witnesses may sway a trial court judge in
deciding a case, it is not, and should not be, his only consideration. Even more vital for the trial court
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.
This Court proceeds to making its own findings of fact.
Since the Decision of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March 2002, has become
final and executory as to the respondent, due to her failure to interpose an appeal therefrom within the
reglementary period, she is already bound by the factual findings in the said Decision. Likewise,
respondent's failure to file, within the reglementary period, a Motion for Reconsideration or an appeal
of the Resolution of the Court of Appeals in the same case, dated 20 November 2002, which modified its
earlier Decision by deleting paragraph 3(v) of its dispositive portion, ordering petitioners to return to
respondent the proceeds of her money market placement with AIDC, shall already bar her from
questioning such modification before this Court. Thus, what is for review before this Court is the
Decision of the Court of Appeals, dated 26 March 2002, as modified by the Resolution of the same court,
dated 20 November 2002.
Respondent alleged that she had several deposits and money market placements with petitioners. These
deposits and money market placements, as determined by the Court of Appeals in its Decision, dated 26
March 2002, and as modified by its Resolution, dated 20 November 2002, are as follows
Deposit/Placement Amount
Dollar deposit with Citibank-Geneva $ 149,632.99
Money market placement with Citibank, evidenced by Promissory Note (PN) No.
23356 (which cancels and supersedes PN No. 22526), earning 14.5% interest per
annum (p.a.)
P 318,897.34
Money market placement with Citibank, evidenced by PN No. 23357 (which cancels
and supersedes PN No. 22528), earning 14.5% interest p.a.
P 203,150.00
Money market placement with FNCB Finance, evidenced by PN No. 5757 (which
cancels and supersedes PN No. 4952), earning 17% interest p.a.
P 500,000.00
Money market placement with FNCB Finance, evidenced by PN No. 5758 (which
cancels and supersedes PN No. 2962), earning 17% interest p.a.
P 500,000.00
This Court is tasked to determine whether petitioners are indeed liable to return the foregoing amounts,
together with the appropriate interests and penalties, to respondent. It shall trace respondent's
transactions with petitioners, from her money market placements with petitioner Citibank and
petitioner FNCB Finance, to her savings and current accounts with petitioner Citibank, and to her dollar
accounts with Citibank-Geneva.
Money market placements with petitioner Citibank
The history of respondent's money market placements with petitioner Citibank began on 6 December
1976, when she made a placement of P500,000.00 as principal amount, which was supposed to earn an
interest of 16% p.a. and for which PN No. 20773 was issued. Respondent did not yet claim the proceeds
of her placement and, instead, rolled-over or re-invested the principal and proceeds several times in the
succeeding years for which new PNs were issued by petitioner Citibank to replace the ones which
matured. Petitioner Citibank accounted for respondent's original placement and the subsequent roll-
overs thereof, as follows
Date
(mm/dd/yyyy)
PN No. Cancels PN No.
Maturity Date
(mm/dd/yyyy)
Amount
(P)
Interest
(p.a.)
12/06/1976 20773 None 01/13/1977 500,000.00 16%
01/14/1977 21686 20773 02/08/1977 508,444.44 15%
02/09/1977
22526 21686 03/16/1977 313,952.59 15-3/4%
22528 21686 03/16/1977 200,000.00 15-3/4%
03/17/1977
23356 22526 04/20/1977 318,897.34 14-1/2%
23357 22528 04/20/1977 203,150.00 14-1/2%
Petitioner Citibank alleged that it had already paid to respondent the principal amounts and proceeds of
PNs No. 23356 and 23357, upon their maturity. Petitioner Citibank further averred that respondent used
theP500,000.00 from the payment of PNs No. 23356 and 23357, plus P600,000.00 sourced from her
other funds, to open two time deposit (TD) accounts with petitioner Citibank, namely, TD Accounts No.
17783 and 17784.
Petitioner Citibank did not deny the existence nor questioned the authenticity of PNs No. 23356 and
23357 it issued in favor of respondent for her money market placements. In fact, it admitted the
genuineness and due execution of the said PNs, but qualified that they were no longer
outstanding.
31
In Hibberd v. Rohde and McMillian,
32
this Court delineated the consequences of such an
admission
By the admission of the genuineness and due execution of an instrument, as provided in this section, is
meant that the party whose signature it bears admits that he signed it or that it was signed by another
for him with his authority; that at the time it was signed it was in words and figures exactly as set out in
the pleading of the party relying upon it; that the document was delivered; and that any formal
requisites required by law, such as a seal, an acknowledgment, or revenue stamp, which it lacks, are
waived by him. Hence, such defenses as that the signature is a forgery (Puritan Mfg. Co.vs. Toti & Gradi,
14 N. M., 425; Cox vs. Northwestern Stage Co., 1 Idaho, 376; Woollen vs. Whitacre, 73 Ind., 198;
Smith vs. Ehnert, 47 Wis., 479; Faelnar vs. Escao, 11 Phil. Rep., 92); or that it was unauthorized, as in
the case of an agent signing for his principal, or one signing in behalf of a partnership (Country
Bank vs. Greenberg, 127 Cal., 26; Henshaw vs. Root, 60 Inc., 220; Naftzker vs.Lantz, 137 Mich., 441) or of
a corporation (Merchant vs. International Banking Corporation, 6 Phil Rep., 314; Wanita vs. Rollins, 75
Miss., 253; Barnes vs. Spencer & Barnes Co., 162 Mich., 509); or that, in the case of the latter, that the
corporation was authorized under its charter to sign the instrument (Merchant vs. International Banking
Corporation, supra); or that the party charged signed the instrument in some other capacity than that
alleged in the pleading setting it out (Payne vs.National Bank, 16 Kan., 147); or that it was never
delivered (Hunt vs. Weir, 29 Ill., 83; Elbring vs.Mullen, 4 Idaho, 199; Thorp vs. Keokuk Coal Co., 48 N.Y.,
253; Fire Association of Philadelphia vs.Ruby, 60 Neb., 216) are cut off by the admission of its
genuineness and due execution.
The effect of the admission is such that in the case of a promissory note a prima facie case is made for
the plaintiff which dispenses with the necessity of evidence on his part and entitles him to a judgment
on the pleadings unless a special defense of new matter, such as payment, is interposed by the
defendant (Papa vs. Martinez, 12 Phil. Rep., 613; Chinese Chamber of Commerce vs. Pua To Ching, 14
Phil. Rep., 222; Banco Espaol-Filipino vs. McKay & Zoeller, 27 Phil. Rep., 183). x x x
Since the genuineness and due execution of PNs No. 23356 and 23357 are uncontested, respondent was
able to establish prima facie that petitioner Citibank is liable to her for the amounts stated therein. The
assertion of petitioner Citibank of payment of the said PNs is an affirmative allegation of a new matter,
the burden of proof as to such resting on petitioner Citibank. Respondent having proved the existence of
the obligation, the burden of proof was upon petitioner Citibank to show that it had been
discharged.
33
It has already been established by this Court that
As a general rule, one who pleads payment has the burden of proving it. Even where the plaintiff must
allege non-payment, the general rule is that the burden rests on the defendant to prove payment,
rather than on the plaintiff to prove non-payment. The debtor has the burden of showing with legal
certainty that the obligation has been discharged by payment.
When the existence of a debt is fully established by the evidence contained in the record, the burden of
proving that it has been extinguished by payment devolves upon the debtor who offers such defense to
the claim of the creditor. Where the debtor introduces some evidence of payment, the burden of going
forward with the evidence as distinct from the general burden of proof shifts to the creditor, who is
then under the duty of producing some evidence of non-payment.
34

Reviewing the evidence on record, this Court finds that petitioner Citibank failed to satisfactorily prove
that PNs No. 23356 and 23357 had already been paid, and that the amount so paid was actually used to
open one of respondent's TD accounts with petitioner Citibank.
Petitioner Citibank presented the testimonies of two witnesses to support its contention of payment: (1)
That of Mr. Herminio Pujeda,
35
the officer-in-charge of loans and placements at the time when the
questioned transactions took place; and (2) that of Mr. Francisco Tan,
36
the former Assistant Vice-
President of Citibank, who directly dealt with respondent with regard to her deposits and loans.
The relevant portion
37
of Mr. Pujeda's testimony as to PNs No. 23356 and 23357 (referred to therein as
Exhibits No. "47" and "48," respectively) is reproduced below
Atty. Mabasa:
Okey [sic]. Now Mr. Witness, you were asked to testify in this case and this case is [sic] consist [sic] of
several documents involving transactions between the plaintiff and the defendant. Now, were you able
to make your own memorandum regarding all these transactions?
A Yes, based on my recollection of these facts, I did come up of [sic] the outline of the chronological
sequence of events.
Court:
Are you trying to say that you have personal knowledge or participation to these transactions?
A Yes, your Honor, I was the officer-in charge of the unit that was processing these transactions. Some
of the documents bear my signature.
Court:
And this resume or summary that you have prepared is based on purely your recollection or documents?
A Based on documents, your Honor.
Court:
Are these documents still available now?
A Yes, your honor.
Court:
Better present the documents.
Atty. Mabasa:
Yes, your Honor, that is why your Honor.
Atty. Mabasa:
Q Now, basing on the notes that you prepared, Mr. Witness, and according to you basing also on your
personal recollection about all the transactions involved between Modesta Sabeniano and defendant
City Bank [sic] in this case. Now, would you tell us what happened to the money market placements of
Modesta Sabeniano that you have earlier identified in Exhs. "47" and "48"?
A The transactions which I said earlier were terminated and booked to time deposits.
Q And you are saying time deposits with what bank?
A With First National Citibank.
Q Is it the same bank as Citibank, N.A.?
A Yes, sir.
Q And how much was the amount booked as time deposit with defendant Citibank?
A In the amount of P500,000.00.
Q And outside this P500,000.00 which you said was booked out of the proceeds of Exhs. "47" and "48",
were there other time deposits opened by Mrs. Modesta Sabeniano at that time.
A Yes, she also opened another time deposit for P600,000.00.
Q So all in all Mr. Witness, sometime in April of 1978 Mrs. Modesta Sabeneano [sic] had time deposit
placements with Citibank in the amount of P500,000.00 which is the proceeds of Exh. "47" and "48" and
another P600,000.00, is it not?
A Yes, sir.
Q And would you know where did the other P600,000 placed by Mrs. Sabeneano [sic] in a time deposit
with Citibank, N.A. came [sic] from?
A She funded it directly.
Q What are you saying Mr. Witness is that the P600,000 is a [sic] fresh money coming from Mrs.
Modesta Sabeneano [sic]?
A That is right.
In his deposition in Hong Kong, Mr. Tan recounted what happened to PNs No. 23356 and 23357
(referred to therein as Exhibits "E" and "F," respectively), as follows
Atty. Mabasa : Now from the Exhibits that you have identified Mr. Tan from Exhibits "A" to "F", which
are Exhibits of the plaintiff. Now, do I understand from you that the original amount is Five Hundred
Thousand and thereafter renewed in the succeeding exhibits?
Mr. Tan : Yes, Sir.
Atty. Mabasa : Alright, after these Exhibits "E" and "F" matured, what happened thereafter?
Mr. Tan : Split into two time deposits.
Atty. Mabasa : Exhibits "E" and "F"?
Before anything else, it should be noted that when Mr. 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 decade had passed from the time the transactions they were testifying on took place. This Court had
previously recognized the frailty and unreliability of human memory with regards to figures after the
lapse of five years.
38
Taking into consideration the substantial length of time between the transactions
and the witnesses' testimonies, as well as the undeniable fact that bank officers deal with multiple
clients and process numerous transactions during their tenure, this Court is reluctant to give much
weight to the testimonies of Mr. Pujeda and Mr. Tan regarding the payment of PNs No. 23356 and
23357 and the use by respondent of the proceeds thereof for opening TD accounts. This Court finds it
implausible that they should remember, after all these years, this particular transaction with respondent
involving her PNs No. 23356 and 23357 and TD accounts. Both witnesses did not give any reason as to
why, from among all the clients they had dealt with and all the transactions they had processed as
officers of petitioner Citibank, they specially remembered respondent and her PNs No. 23356 and
23357. Their testimonies likewise lacked details on the circumstances surrounding the payment of the
two PNs and the opening of the time deposit accounts by respondent, such as the date of payment of
the two PNs, mode of payment, and the manner and context by which respondent relayed her
instructions to the officers of petitioner Citibank to use the proceeds of her two PNs in opening the TD
accounts.
Moreover, while there are documentary evidences to support and trace 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
paper trail seems to have ended with the copies of PNs No. 23356 and 23357. Although both Mr. Pujeda
and Mr. Tan said that they based their testimonies, not just on their memories but also on the
documents on file, the supposed documents on which they based those portions of their testimony on
the payment of PNs No. 23356 and 23357 and the opening of the TD accounts from the proceeds
thereof, were never presented before the courts nor made part of the records of the case.
Respondent's money market placements were of substantial amounts consisting of the principal
amount of P500,000.00, plus the interest it should have earned during the years of placement and it is
difficult for this Court to believe that petitioner Citibank would not have had documented the payment
thereof.
When Mr. Pujeda testified before the RTC on 6 February 1990,
39
petitioners' counsel attempted to
present in evidence a document that would supposedly support the claim of petitioner Citibank that the
proceeds of PNs No. 23356 and 23357 were used by respondent to open one of her two TD accounts in
the amount ofP500,000.00. 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
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
12 March 1990, petitioners' counsel no longer referred to the said document.
As respondent had established a prima facie case that petitioner Citibank is obligated to her for the
amounts stated in PNs No. 23356 and 23357, and as petitioner Citibank failed to present sufficient proof
of payment of the said PNs and the use by the respondent of the proceeds thereof to open her TD
accounts, this Court finds that PNs No. 23356 and 23357 are still outstanding and petitioner Citibank is
still liable to respondent for the amounts stated therein.
The significance of this Court's declaration that PNs No. 23356 and 23357 are still outstanding becomes
apparent in the light of petitioners' next contentions that respondent used the proceeds of PNs No.
23356 and 23357, together with additional money, to open TD Accounts No. 17783 and 17784 with
petitioner Citibank; and, subsequently, respondent pre-terminated these TD accounts and transferred
the proceeds thereof, amounting to P1,100,000.00, to petitioner FNCB Finance for money market
placements. While respondent's money market placements with petitioner FNCB Finance may be traced
back with definiteness to TD Accounts No. 17783 and 17784, there is only flimsy and unsubstantiated
connection between the said TD accounts and the supposed proceeds paid from PNs No. 23356 and
23357. With PNs No. 23356 and 23357 still unpaid, then they represent an obligation of petitioner
Citibank separate and distinct from the obligation of petitioner FNCB Finance arising from respondent's
money market placements with the latter.
Money market placements with petitioner FNCB Finance
According to petitioners, respondent's TD Accounts No. 17783 and 17784, in the total amount
ofP1,100,000.00, were supposed to mature on 15 March 1978. However, respondent, through a letter
dated 28 April 1977,
40
pre-terminated the said TD accounts and transferred all the proceeds thereof to
petitioner FNCB Finance for money market placement. Pursuant to her instructions, TD Accounts No.
17783 and 17784 were pre-terminated and petitioner Citibank (then still named First National City Bank)
issued Manager's Checks (MC) No. 199253
41
and 199251
42
for the amounts of P500,000.00
and P600,00.00, respectively. Both MCs were payable to Citifinance (which, according to Mr.
Pujeda,
43
was one with and the same as petitioner FNCB Finance), with the additional notation that "A/C
MODESTA R. SABENIANO." Typewritten on MC No. 199253 is the phrase "Ref. Proceeds of TD 17783,"
and on MC No. 199251 is a similar phrase, "Ref. Proceeds of TD 17784." These phrases purportedly
established that the MCs were paid from the proceeds of respondent's pre-terminated TD accounts with
petitioner Citibank. Upon receipt of the MCs, petitioner FNCB Finance deposited the same to its account
with Feati Bank and Trust Co., as evidenced by the rubber stamp mark of the latter found at the back of
both MCs. In exchange, petitioner FNCB Finance booked the amounts received as money market
placements, and accordingly issued PNs No. 4952 and 4962, for the amounts of P500,000.00
and P600,000.00, respectively, payable to respondent's savings account with petitioner Citibank, S/A No.
25-13703-4, upon their maturity on 1 June 1977. Once again, respondent rolled-over several times the
principal amounts of her money market placements with petitioner FNCB Finance, as follows
Date
(mm/dd/yyyy)
PN No. Cancels PN No.
Maturity Date
(mm/dd/yyyy)
Amount
(P)
Interest
(p.a.)
04/29/1977
4952 None 06/01/1977 500,000.00 17%
4962 None 06/01/1977 600,000.00 17%
06/02/1977
5757 4952 08/31/1977 500,000.00 17%
5758 4962 08/31/1977 500,000.00 17%
08/31/1977
8167 5757 08/25/1978 500,000.00 14%
8169 5752 08/25/1978 500,000.00 14%
As presented by the petitioner FNCB Finance, respondent rolled-over only the principal amounts of her
money market placements as she chose to receive the interest income therefrom. Petitioner FNCB
Finance also pointed out that when PN No. 4962, with principal amount of P600,000.00, matured on 1
June 1977, respondent received a partial payment of the principal which, together with the interest,
amounted to P102,633.33;
44
thus, only the amount of P500,000.00 from PN No. 4962 was rolled-over to
PN No. 5758.
Based on the foregoing records, the principal amounts of PNs No. 5757 and 5758, upon their maturity,
were rolled over to PNs No. 8167 and 8169, respectively. PN No. 8167
45
expressly canceled and
superseded PN No. 5757, while PN No. 8169
46
also explicitly canceled and superseded PN No. 5758.
Thus, it is patently erroneous for the Court of Appeals to still award to respondent the principal amounts
and interests covered by PNs No. 5757 and 5758 when these were already canceled and superseded. It
is now incumbent upon this Court to determine what subsequently happened to PNs No. 8167 and
8169.
Petitioner FNCB Finance presented four checks as proof of payment of the principal amounts and
interests of PNs No. 8167 and 8169 upon their maturity. All the checks were payable to respondent's
savings account with petitioner Citibank, with the following details
Date of
Issuance
Check
No.
Amount
(P)
Notation
(mm/dd/yyyy)
09/01/1978 76962 12,833.34 Interest payment on PN#08167
09/01/1978 76961 12,833.34 Interest payment on PN#08169
09/05/1978 77035 500,000.00 Full payment of principal on PN#08167 which is hereby
cancelled
09/05/ 1978 77034 500,000.00 Full payment of principal on PN#08169 which is hereby
cancelled
Then again, Checks No. 77035 and 77034 were later returned to petitioner FNCB Finance together with a
memo,
47
dated 6 September 1978, from Mr. Tan of petitioner Citibank, to a Mr. Bobby Mendoza of
petitioner FNCB Finance. According to the memo, the two checks, in the total amount of P1,000,000.00,
were to be returned to 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. 77035 and 77034 were
invested by petitioner FNCB Finance, on behalf of respondent, in money market placements for which it
issued PNs No. 20138 and 20139. The PNs each coveredP500,000.00, to earn 11% interest per annum,
and to mature on 3 September 1979.
On 3 September 1979, petitioner FNCB Finance issued Check No. 100168, pay to the order of "Citibank
N.A. A/C Modesta Sabeniano," in the amount of P1,022,916.66, as full payment of the principal amounts
and interests of both PNs No. 20138 and 20139 and, resultantly, canceling the said PNs.
48
Respondent
actually admitted the issuance and existence of Check No. 100168, but with the qualification that the
proceeds thereof were turned over to petitioner Citibank.
49
Respondent did not clarify the
circumstances attending the supposed turn over, but on the basis of the allegations of petitioner
Citibank itself, the proceeds of PNs No. 20138 and 20139, amounting toP1,022,916.66, was used by it to
liquidate respondent's outstanding loans. Therefore, the determination of whether or not respondent is
still entitled to the return of the proceeds of PNs No. 20138 and 20139 shall be dependent on the
resolution of the issues raised as to the existence of the loans and the authority of petitioner Citibank to
use the proceeds of the said PNs, together with respondent's other deposits and money market
placements, to pay for the same.
Savings and current accounts with petitioner Citibank
Respondent presented and submitted before the RTC deposit slips and bank statements to prove
deposits made to several of her accounts with petitioner Citibank, particularly, Accounts No. 00484202,
59091, and 472-751, which would have amounted to a total of P3,812,712.32, had there been no
withdrawals or debits from the said accounts from the time the said deposits were made.
Although the RTC and the Court of Appeals did not make any definitive findings as to the status of
respondent's savings and current accounts with petitioner Citibank, the Decisions of both the trial and
appellate courts effectively recognized only the P31,079.14 coming from respondent's savings account
which was used to off-set her alleged outstanding loans with petitioner Citibank.
50

Since both the RTC and the Court of Appeals had consistently recognized only the P31,079.14 of
respondent's savings account with petitioner Citibank, and that respondent failed to move for
reconsideration or to appeal this particular finding of fact by the trial and appellate courts, it is already
binding upon this Court. Respondent is already precluded from claiming any greater amount in her
savings and current accounts with petitioner Citibank. Thus, this Court shall limit itself to determining
whether or not respondent is entitled to the return of the amount ofP31,079.14 should the off-set
thereof by petitioner Citibank against her supposed loans be found invalid.
Dollar accounts with Citibank-Geneva
Respondent made an effort of preparing and presenting before the RTC her own computations of her
money market placements and dollar accounts with Citibank-Geneva, purportedly amounting to a total
of United States (US) $343,220.98, as of 23 June 1985.
51
In her Memorandum filed with the RTC, she
claimed a much bigger amount of deposits and money market placements with Citibank-Geneva,
totaling US$1,336,638.65.
52
However, respondent herself also submitted as part of her formal offer of
evidence the computation of her money market placements and dollar accounts with Citibank-Geneva
as determined by the latter.
53
Citibank-Geneva accounted for respondent's money market placements
and dollar accounts as follows
MODESTA SABENIANO &/OR
= = = = = = = = = = = = = = = = = =
US$ 30'000.-- Principal Fid. Placement
+ US$ 339.06 Interest at 3,875% p.a. from 12.07.
25.10.79
- US$ 95.-- Commission (minimum)
US$ 30'244.06 Total proceeds on 25.10.1979
US$ 114'000.-- Principal Fid. Placement
+ US$ 1'358.50 Interest at 4,125% p.a. from 12.07.
25.10.79
- US$ 41.17 Commission
US$ 115'317.33 Total proceeds on 25.10.1979
US$ 145'561.39 Total proceeds of both placements on
25.10.1979
+ US$ 11'381.31 total of both current accounts
US$ 156'942.70 Total funds available
- US$ 149'632.99 Transfer to Citibank Manila on 26.10.1979
(counter value of Pesos 1'102'944.78)
US$ 7'309.71 Balance in current accounts
- US$ 6'998.84 Transfer to Citibank Zuerich ac no. 121359
on March 13, 1980
US$ 310.87 various charges including closing charges
According to the foregoing computation, by 25 October 1979, respondent had a total of US$156,942.70,
from which, US$149,632.99 was transferred by Citibank-Geneva to petitioner Citibank in Manila, and
was used by the latter to off-set respondent's outstanding loans. The balance of respondent's accounts
with Citibank-Geneva, after the remittance to petitioner Citibank in Manila, amounted to US$7,309.71,
which was subsequently expended by a transfer to another account with Citibank-Zuerich, in the
amount of US$6,998.84, and by payment of various bank charges, including closing charges, in the
amount of US$310.87. Rightly so, both the RTC and the Court of Appeals gave more credence to the
computation of Citibank-Geneva as to the status of respondent's accounts with the said bank, rather
than the one prepared by respondent herself, which was evidently self-serving. Once again, this Court
shall limit itself to determining whether or not respondent is entitled to the return of the amount of
US$149,632.99 should the off-set thereof by petitioner Citibank against her alleged outstanding loans be
found invalid. Respondent cannot claim any greater amount since she did not perfect an appeal of the
Decision of the Court of Appeals, dated 26 March 2002, which found that she is entitled only to the
return of the said amount, as far as her accounts with Citibank-Geneva is concerned.
III
Petitioner Citibank was able to establish by preponderance of evidence the existence of respondent's
loans.
Petitioners' version of events
In sum, the following amounts were used by petitioner Citibank to liquidate respondent's purported
outstanding loans
Description Amount
Principal and interests of PNs No. 20138 and 20139
(money market placements with petitioner FNCB Finance) P 1,022,916.66
Savings account with petitioner Citibank 31,079.14
Dollar remittance from Citibank-Geneva (peso equivalent of
US$149,632.99) 1,102,944.78
Total

P 2,156,940.58
According to petitioner Citibank, respondent incurred her loans under the circumstances narrated
below.
As early as 9 February 1978, respondent obtained her first loan from petitioner Citibank in the principal
amount ofP200,000.00, for which she executed PN No. 31504.
54
Petitioner Citibank extended to her
several other loans in the succeeding months. Some of these loans were paid, while others were rolled-
over or renewed. Significant to the Petition at bar are the loans which respondent obtained from July
1978 to January 1979, appropriately covered by PNs (first set).
55
The aggregate principal amount of
these loans was P1,920,000.00, which could be broken down as follows
PN No.
Date of
Issuance
(mm/dd/yyyy)
Date of Maturity
(mm/dd/yyyy)
Principal
Amount
Date of Release
(mm/dd/yyyy)
MC No.
32935 07/20/1978 09/18/1978 P 400,000.00 07/20/1978 220701
33751 10/13/1978 12/12/1978 100,000.00 Unrecovered
33798 10/19/1978 11/03/1978 100,000.00 10/19/1978 226285
34025 11/15/1978 01/15/1979 150,000.00 11/16/1978 226439
34079 11/21/1978 01/19/1979 250,000.00 11/21/1978 226467
34192 12/04/1978 01/18/1979 100,000.00 12/05/1978 228057
34402 12/26/1978 02/23/1979 300,000.00 12/26/1978 228203
34534 01/09/1979 03/09/1979 150,000.00 01/09/1979 228270
34609 01/17/1979 03/19/1979 150,000.00 01/17/1979 228357
34740 01/30/1979 03/30/1979 220,000.00 01/30/1979 228400
Total

P 1,920,000.00

When respondent was unable to pay the first set of PNs upon their maturity, these were rolled-over or
renewed several times, necessitating the execution by respondent of new PNs in favor of petitioner
Citibank. As of 5 April 1979, respondent had the following outstanding PNs (second set),
56
the principal
amount of which remained atP1,920,000.00
PN No.
Date of Issuance
(mm/dd/yyyy)
Date of Maturity
(mm/dd/yyyy)
Principal Amount
34510 01/01/1979 03/02/1979 P 400,000.00
34509 01/02/1979 03/02/1979 100,000.00
34534 01/09/1979 03/09/1979 150,000.00
34612 01/19/1979 03/16/1979 150,000.00
34741 01/26/1979 03/12/1979 100,000.00
35689 02/23/1979 05/29/1979 300,000.00
35694 03/19/1979 05/29/1979 150,000.00
35695 03/19/1979 05/29/1979 100,000.00
356946 03/20/1979 05/29/1979 250,000.00
35697 03/30/1979 05/29/1979 220,000.00
Total P 1,920,000.00
All the PNs stated that the purpose of the loans covered thereby is "To liquidate existing obligation,"
except for PN No. 34534, which stated for its purpose "personal investment."
Respondent secured her foregoing loans with petitioner Citibank by executing Deeds of Assignment of
her money market placements with petitioner FNCB Finance. On 2 March 1978, respondent executed in
favor of petitioner Citibank a Deed of Assignment
57
of PN No. 8169, which was issued by petitioner FNCB
Finance, to secure payment of the credit and banking facilities extended to her by petitioner Citibank, in
the aggregate principal amount of P500,000.00. On 9 March 1978, respondent executed in favor of
petitioner Citibank another Deed of Assignment,
58
this time, of PN No. 8167, also issued by petitioner
FNCB Finance, to secure payment of the credit and banking facilities extended to her by petitioner
Citibank, in the aggregate amount of P500,000.00. When PNs No. 8167 and 8169, representing
respondent's money market placements with petitioner FNCB Finance, matured and were rolled-over to
PNs No. 20138 and 20139, respondent executed new Deeds of Assignment,
59
in favor of petitioner
Citibank, on 25 August 1978. According to the more recent Deeds, respondent assigned PNs No. 20138
and 20139, representing her rolled-over money market placements with petitioner FNCB Finance, to
petitioner Citibank as security for the banking and credit facilities it extended to her, in the aggregate
principal amount ofP500,000.00 per Deed.
In addition to the Deeds of Assignment of her money market placements with petitioner FNCB Finance,
respondent also executed a Declaration of Pledge,
60
in which she supposedly pledged "[a]ll present and
future fiduciary placements held in my personal and/or joint name with Citibank, Switzerland," to secure
all claims the petitioner Citibank may have or, in the future, acquire against respondent. The petitioners'
copy of the Declaration of Pledge is undated, while that of the respondent, a copy certified by a
Citibank-Geneva officer, bore the date 24 September 1979.
61

When respondent failed to pay the second set of PNs upon their maturity, an exchange of letters ensued
between respondent and/or her representatives, on one hand, and the representatives of petitioners,
on the other.
The first letter
62
was dated 5 April 1979, addressed to respondent and signed by Mr. Tan, as the
manager of petitioner Citibank, which stated, in part, that
Despite our repeated requests and follow-up, we regret you have not granted us with any response or
payment.
We, therefore, have no alternative but to call your loan of P1,920,000.00 plus interests and other
charges due and demandable. If you still fail to settle this obligation by 4/27/79, we shall have no other
alternative but to refer your account to our lawyers for legal action to protect the interest of the bank.
Respondent sent a reply letter
63
dated 26 April 1979, printed on paper bearing the letterhead of
respondent's company, MC Adore International Palace, the body of which reads
This is in reply to your letter dated April 5, 1979 inviting my attention to my loan which has become due.
Pursuant to our representation with you over the telephone through Mr. F. A. Tan, you allow us to pay
the interests due for the meantime.
Please accept our Comtrust Check in the amount of P62,683.33.
Please bear with us for a little while, at most ninety days. As you know, we have a pending loan with the
Development Bank of the Philippines in the amount of P11-M. This loan has already been recommended
for approval and would be submitted to the Board of Governors. In fact, to further facilitate the early
release of this loan, we have presented and furnished Gov. J. Tengco a xerox copy of your letter.
You will be doing our corporation a very viable service, should you grant us our request for a little more
time.
A week later or on 3 May 1979, a certain C. N. Pugeda, designated as "Executive Secretary," sent a
letter
64
to petitioner Citibank, on behalf of respondent. The letter was again printed on paper bearing
the letterhead of MC Adore International Palace. The pertinent paragraphs of the said letter are
reproduced below
Per instructions of Mrs. Modesta R. Sabeniano, we would like to request for a re-computation of the
interest and penalty charges on her loan in the aggregate amount of P1,920,000.00 with maturity date
of all promissory notes at June 30, 1979. As she has personally discussed with you yesterday, this date
will more or less assure you of early settlement.
In this regard, please entrust to bearer, our Comtrust check for P62,683.33 to be replaced by another
check with amount resulting from the new computation. Also, to facilitate the processing of the same,
may we request for another set of promissory notes for the signature of Mrs. Sabeniano and to cancel
the previous ones she has signed and forwarded to you.
This was followed by a telegram,
65
dated 5 June 1979, and received by petitioner Citibank the following
day. The telegram was sent by a Dewey G. Soriano, Legal Counsel. The telegram acknowledged receipt
of the telegram sent by petitioner Citibank regarding the "re-past due obligation" of McAdore
International Palace. However, it reported that respondent, the President and Chairman of MC Adore
International Palace, was presently abroad negotiating for a big loan. Thus, he was requesting for an
extension of the due date of the obligation until respondent's arrival on or before 31 July 1979.
The next letter,
66
dated 21 June 1979, was signed by respondent herself and addressed to Mr. Bobby
Mendoza, a Manager of petitioner FNCB Finance. Respondent wrote therein
Re: PN No. 20138 for P500,000.00 & PN No. 20139 for P500,000.00 totalling P1 Million, both PNs will
mature on 9/3/1979.
This is to authorize you to release the accrued quarterly interests payment from my captioned
placements and forward directly to Citibank, Manila Attention: Mr. F. A. Tan, Manager, to apply to my
interest payable on my outstanding loan with Citibank.
Please note that the captioned two placements are continuously pledged/hypothecated to Citibank,
Manila to support my personal outstanding loan. Therefore, please do not release the captioned
placements upon maturity until you have received the instruction from Citibank, Manila.
On even date, respondent sent another letter
67
to Mr. Tan of petitioner Citibank, stating that
Re: S/A No. 25-225928
and C/A No. 484-946
This letter serves as an authority to debit whatever the outstanding balance from my captioned
accounts and credit the amount to my loan outstanding account with you.
Unlike respondent's earlier letters, both letters, dated 21 June 1979, are printed on plain paper, without
the letterhead of her company, MC Adore International Palace.
By 5 September 1979, respondent's outstanding and past due obligations to petitioner Citibank
totaledP2,123,843.20, representing the principal amounts plus interests. Relying on respondent's Deeds
of Assignment, petitioner Citibank applied the proceeds of respondent's money market placements with
petitioner FNCB Finance, as well as her deposit account with petitioner Citibank, to partly liquidate
respondent's outstanding loan balance,
68
as follows
Respondent's outstanding obligation (principal and interest) P2,123,843.20
Less: Proceeds from respondent's money market placements
with petitioner FNCB Finance (principal and interest) (1,022,916.66)
Deposits in respondent's bank accounts with petitioner
Citibank (31,079.14)
Balance of respondent's obligation P1,069,847.40
Mr. Tan of petitioner Citibank subsequently sent a letter,
69
dated 28 September 1979, notifying
respondent of the status of her loans and the foregoing compensation which petitioner Citibank
effected. In the letter, Mr. Tan informed respondent that she still had a remaining past-due obligation in
the amount of P1,069,847.40, as of 5 September 1979, and should respondent fail to pay the amount by
15 October 1979, then petitioner Citibank shall proceed to off-set the unpaid amount with respondent's
other collateral, particularly, a money market placement in Citibank-Hongkong.
On 5 October 1979, respondent wrote Mr. Tan of petitioner Citibank, on paper bearing the letterhead of
MC Adore International Palace, as regards the P1,920,000.00 loan account supposedly of MC Adore
Finance & Investment, Inc., and requested for a statement of account covering the principal and interest
of the loan as of 31 October 1979. She stated therein that the loan obligation shall be paid within 60
days from receipt of the statement of account.
Almost three weeks later, or on 25 October 1979, a certain Atty. Moises Tolentino dropped by the office
of petitioner Citibank, with a letter, dated 9 October 1979, and printed on paper with the letterhead of
MC Adore International Palace, which authorized the bearer thereof to represent the respondent in
settling the overdue account, this time, purportedly, of MC Adore International Palace Hotel. The letter
was signed by respondent as the President and Chairman of the Board.
Eventually, Atty. Antonio Agcaoili of Agcaoili & Associates, as counsel of petitioner Citibank, sent a letter
to respondent, dated 31 October 1979, informing her that petitioner Citibank had effected an off-set
using her account with Citibank-Geneva, in the amount of US$149,632.99, against her "outstanding,
overdue, demandable and unpaid obligation" to petitioner Citibank. Atty. Agcaoili claimed therein that
the compensation or off-set was made pursuant to and in accordance with the provisions of Articles
1278 through 1290 of the Civil Code. He further declared that respondent's obligation to petitioner
Citibank was now fully paid and liquidated.
Unfortunately, on 7 October 1987, a fire gutted the 7
th
floor of petitioner Citibank's building at Paseo de
Roxas St., Makati, Metro Manila. Petitioners submitted a Certification
70
to this effect, dated 17 January
1991, issued by the Chief of the Arson Investigation Section, Fire District III, Makati Fire Station,
Metropolitan Police Force. The 7
th
floor of petitioner Citibank's building housed its Control Division,
which was in charge of keeping the necessary documents for cases in which it was involved. After
compiling the documentary evidence for the present case, Atty. Renato J. Fernandez, internal legal
counsel of petitioner Citibank, forwarded them to the Control Division. The original copies of the MCs,
which supposedly represent the proceeds of the first set of PNs, as well as that of other documentary
evidence related to the case, were among those burned in the said fire.
71

Respondent's version of events
Respondent disputed petitioners' narration of the circumstances surrounding her loans with petitioner
Citibank and the alleged authority she gave for the off-set or compensation of her money market
placements and deposit accounts with petitioners against her loan obligation.
Respondent denied outright executing the first set of PNs, except for one (PN No. 34534 in particular).
Although she admitted that she obtained several loans from petitioner Citibank, these only amounted
to P1,150,000.00, and she had already paid them. She secured from petitioner Citibank two loans
of P500,000.00 each. She executed in favor of petitioner Citibank the corresponding PNs for the loans
and the Deeds of Assignment of her money market placements with petitioner FNCB Finance as
security.
72
To prove payment of these loans, respondent presented two provisional receipts of petitioner
Citibank No. 19471,
73
dated 11 August 1978, and No. 12723,
74
dated 10 November 1978 both signed
by Mr. Tan, and acknowledging receipt from respondent of several checks in the total amount
of P500,744.00 and P500,000.00, respectively, for "liquidation of loan."
She borrowed another P150,000.00 from petitioner Citibank for personal investment, and for which she
executed PN No. 34534, on 9 January 1979. Thus, she admitted to receiving the proceeds of this loan via
MC No. 228270. She invested the loan amount in another money market placement with petitioner
FNCB Finance. In turn, she used the very same money market placement with petitioner FNCB Finance
as security for her P150,000.00 loan from petitioner Citibank. When she failed to pay the loan when it
became due, petitioner Citibank allegedly forfeited her money market placement with petitioner FNCB
Finance and, thus, the loan was already paid.
75

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

Findings of this Court as to the existence of the loans
After going through the testimonial and documentary evidence presented by both sides to this case, it is
this Court's assessment that respondent did indeed have outstanding loans with petitioner Citibank at
the time it effected the off-set or compensation on 25 July 1979 (using respondent's savings deposit
with 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 Citibank-Geneva). The totality of petitioners' evidence as to the existence of the said
loans preponderates over respondent's. Preponderant evidence means that, as a whole, the evidence
adduced by one side outweighs that of the adverse party.
78

Respondent's outstanding obligation for P1,920,000.00 had been sufficiently documented by petitioner
Citibank.
The second set of PNs is a mere renewal of the prior loans originally covered by the first set of PNs,
except for PN No. 34534. The first set of PNs is supported, in turn, by the existence of the MCs that
represent the proceeds thereof received by the respondent.
It bears to emphasize that the proceeds of the loans were paid to respondent in MCs, with the
respondent specifically named as payee. MCs checks are drawn by the bank's manager upon the bank
itself and regarded to be as good as the money it represents.
79
Moreover, the MCs were crossed checks,
with the words "Payee's Account Only."
In general, a crossed check cannot be presented to the drawee bank for payment in cash. Instead, the
check can only be deposited with the payee's bank which, in turn, must present it for payment against
the drawee bank in the course of normal banking hours. The crossed check cannot be presented for
payment, but it can only be deposited and the drawee bank may only pay to another bank in the payee's
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

[T]he crossing of a check with the phrase "Payee's Account Only" is a warning that the check should be
deposited in the account of the payee. Thus, it is the duty of the collecting bank PCI Bank to ascertain
that the check be deposited in payee's account only. It is bound to scrutinize the check and to know its
depositors before it can make the clearing indorsement "all prior indorsements and/or lack of
indorsement guaranteed."
The crossed MCs presented by petitioner Bank were indeed deposited in several different bank accounts
and cleared by the Clearing Office of the Central Bank of the Philippines, as evidenced by the stamp
marks and notations on the said checks. The crossed MCs are already in the possession of petitioner
Citibank, the drawee bank, which was ultimately responsible for the payment of the amount stated in
the checks. Given that a check is more than just an instrument of credit used in commercial transactions
for it also serves as a receipt or evidence for the drawee bank of the cancellation of the said check due
to payment,
82
then, the possession by petitioner Citibank of the said MCs, duly stamped "Paid" gives rise
to the presumption that the said MCs were already paid out to the intended payee, who was in this
case, the respondent.
This Court finds applicable herein the presumptions that private transactions have been fair and
regular,
83
and that the ordinary course of business has been followed.
84
There is no question that the
loan transaction between petitioner Citibank and the respondent is a private transaction. The
transactions revolving around the crossed MCs from their issuance by petitioner Citibank to
respondent as payment of the proceeds of her loans; to its deposit in respondent's accounts with
several different banks; to the clearing of the MCs by an independent clearing house; and finally, to the
payment of the MCs by petitioner Citibank as the drawee bank of the said checks are all private
transactions which shall be presumed to have been fair and regular to all the parties concerned. In
addition, the banks involved in the foregoing transactions are also presumed to have followed the
ordinary course of business in the acceptance of the crossed MCs for deposit in respondent's accounts,
submitting them for clearing, and their eventual payment and cancellation.
The afore-stated presumptions are disputable, meaning, they are satisfactory if uncontradicted, but may
be contradicted and overcome by other evidence.
85
Respondent, however, was unable to present
sufficient and credible evidence to dispute these presumptions.
It should be recalled that out of the nine MCs presented by petitioner Citibank, respondent admitted to
receiving one as proceeds of a loan (MC No. 228270), denied receiving two (MCs No. 220701 and
226467), and admitted to receiving all the rest, but not as proceeds of her loans, but as return on the
principal amounts and interests from her money market placements.
Respondent admitted receiving MC No. 228270 representing the proceeds of her loan covered by PN
No. 34534. Although the principal amount of the loan is P150,000.00, respondent only
received P146,312.50, because the interest and handling fee on the loan transaction were already
deducted therefrom.
86
Stamps and notations at the back of MC No. 228270 reveal that it was deposited
at the Bank of the Philippine Islands (BPI), Cubao Branch, in Account No. 0123-0572-28.
87
The check also
bore the signature of respondent at the back.
88
And, although respondent would later admit that she did
sign PN No. 34534 and received MC No. 228270 as proceeds of the loan extended to her by petitioner
Citibank, she contradicted herself when, in an earlier testimony, she claimed that PN No. 34534 was
among the PNs she executed as simulated loans with petitioner Citibank.
89

Respondent denied ever receiving MCs No. 220701 and 226467. However, considering that the said
checks were crossed for payee's account only, and that they were actually deposited, cleared, and paid,
then the presumption would be that the said checks were properly deposited to the account of
respondent, who was clearly named the payee in the checks. Respondent's bare allegations that she did
not receive the two checks fail to convince this Court, for to sustain her, would be for this Court to
conclude that an irregularity had occurred somewhere from the time of the issuance of the said checks,
to their deposit, clearance, and payment, and which would have involved not only petitioner Citibank,
but also BPI, which accepted the checks for deposit, and the Central Bank of the Philippines, which
cleared the checks. It falls upon the respondent to overcome or dispute the presumption that the
crossed checks were issued, accepted for deposit, cleared, and paid for by the banks involved following
the ordinary course of their business.
The mere fact that MCs No. 220701 and 226467 do not bear respondent's signature at the back does not
negate deposit thereof in her account. The liability for the lack of indorsement on the MCs no longer fall
on petitioner Citibank, but on the bank who received the same for deposit, in this case, BPI Cubao
Branch. Once again, it must be noted that the MCs were crossed, for payee's account only, and the
payee named in both checks was none other than respondent. The crossing of the MCs was already a
warning to BPI to receive said checks for deposit only in respondent's account. It was up to BPI to verify
whether it was receiving the crossed MCs in accordance with the instructions on the face thereof. If,
indeed, the MCs were deposited in accounts other than respondent's, then the respondent would have
a cause of action against BPI.
90

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

Furthermore, respondent's bare and unsubstantiated denial of receipt of the MCs in question and their
deposit in her account is rendered suspect when MC No. 220701 was actually deposited in Account No.
0123-0572-28 of BPI Cubao Branch, the very same account in which MC No. 228270 (which respondent
admitted to receiving as proceeds of her loan from petitioner Citibank), and MCs No. 228203, 228357,
and 228400 (which respondent admitted to receiving as proceeds from her money market placements)
were deposited. Likewise, MC No. 226467 was deposited in Account No. 0121-002-43 of BPI Cubao
Branch, to which MCs No. 226285 and 226439 (which respondent admitted to receiving as proceeds
from her money market placements) were deposited. It is an apparent contradiction for respondent to
claim having received the proceeds of checks deposited in an account, and then deny receiving the
proceeds of another check deposited in the very same account.
Another inconsistency in respondent's denial of receipt of MC No. 226467 and her deposit of the same
in her account, is her presentation of Exhibit "HHH," a provisional receipt which was supposed to prove
that respondent turned over P500,000.00 to Mr. Tan of petitioner Citibank, that the said amount was
split into three money market placements, and that MC No. 226467 represented the return on her
investment from one of these placements.
94
Because of her Exhibit "HHH," respondent effectively
admitted receipt of MC No. 226467, although for reasons other than as proceeds of a loan.
Neither can this Court give credence to respondent's contention that the notations on the MCs, stating
that they were the proceeds of particular PNs, were not there when she received the checks and that
the notations appeared to be written by a typewriter different from that used to write the other
information on the checks. Once more, respondent's allegations were uncorroborated by any other
evidence. Her 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 considering that it constitutes a mere opinion on the appearance of the notation by a witness who
does not possess the necessary expertise on the matter. In addition, the notations on the MCs were
written using both capital and small letters, while the other information on the checks were written
using capital letters only, such difference could easily confuse an untrained eye and lead to a hasty
conclusion that they were written by different typewriters.
Respondent's testimony, that based on her experience transacting with banks, the MCs were not
supposed to include notations on the purpose for which the checks were issued, also deserves scant
consideration. While respondent may have extensive experience dealing with banks, it still does not
qualify her as a competent witness on banking procedures and practices. Her testimony on this matter is
even belied by the fact that the other MCs issued by petitioner Citibank (when it was still named First
National City Bank) and by petitioner FNCB Finance, the existence and validity of which were not
disputed by respondent, also bear similar notations that state the reason for which they were issued.
Respondent presented several more pieces of evidence to substantiate her claim that she received MCs
No. 226285, 226439, 226467, 226057, 228357, and 228400, not as proceeds of her loans from petitioner
Citibank, but as the return of the principal amounts and payment of interests from her money market
placements with petitioners. Part of respondent's exhibits were personal checks
95
drawn by respondent
on her account with Feati Bank & Trust Co., which she allegedly invested in separate money market
placements with both petitioners, the returns from which were paid to her via MCs No. 226285 and
228400. Yet, to this Court, the personal checks only managed to establish respondent's issuance thereof,
but there was nothing on the face of the checks that would reveal the purpose for which they were
issued and that they were actually invested in money market placements as respondent claimed.
Respondent further submitted handwritten notes that purportedly computed and presented the returns
on her money market placements, corresponding to the amount stated in the MCs she received from
petitioner Citibank. Exhibit "HHH-1"
96
was a handwritten note, which respondent attributed to Mr. Tan
of petitioner Citibank, showing the breakdown of her BPI Check for P500,000.00 into three different
money market placements with petitioner Citibank. This Court, however, noticed several factors which
render the note highly suspect. One, it was written on the reversed side of Provisional Receipt No.
12724 of petitioner Citibank which bore the initials of Mr. Tan acknowledging receipt of respondent's
BPI Check No. 120989 for P500,000.00; but the initials on the handwritten note appeared to be that of
Mr. Bobby Mendoza of petitioner FNCB Finance.
97
Second, according to Provisional Receipt No. 12724,
BPI Check No. 120989 for P500,000.00 was supposed to be invested in three money market placements
with petitioner Citibank for the period of 60 days. Since all these money market placements were made
through one check deposited on the same day, 10 November 1978, it made no sense that the
handwritten note at the back of Provisional Receipt No. 12724 provided for different dates of maturity
for each of the money market placements (i.e., 16 November 1978, 17 January 1979, and 21 November
1978), and such dates did not correspond to the 60 day placement period stated on the face of the
provisional receipt. And third, the principal amounts of the money market placements as stated in the
handwritten note P145,000.00, P145,000.00 andP242,000.00 totaled P532,000.00, and was
obviously in excess of the P500,000.00 acknowledged on the face of Provisional Receipt No. 12724.
Exhibits "III" and "III-1," the front and bank pages of a handwritten note of Mr. Bobby Mendoza of
petitioner FNCB Finance,
98
also did not deserve much evidentiary weight, and this Court cannot rely on
the truth and accuracy of the computations presented therein. Mr. Mendoza was not presented as a
witness during the trial before the RTC, so that the document was not properly authenticated nor its
contents sufficiently explained. No one was able to competently identify whether the initials as
appearing on the note were actually Mr. Mendoza's.
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 Citytrust
Checks; the MCs in question, including MC No. 228057, were issued by petitioner Citibank. Although
Citytrust (formerly Feati Bank & Trust Co.), petitioner FNCB Finance, and petitioner Citibank may be
affiliates of one another, they each remained separate and distinct corporations, each having its own
financial system and records. Thus, this Court cannot simply assume that one corporation, such as
petitioner Citibank or Citytrust, can issue a check to discharge an obligation of petitioner FNCB Finance.
It should be recalled that when petitioner FNCB Finance paid for respondent's money market
placements, covered by its PNs No. 8167 and 8169, as well as PNs No. 20138 and 20139, petitioner FNCB
Finance issued its own checks.
As a last point on this matter, if respondent truly had money market placements with petitioners, then
these would have been evidenced by PNs issued by either petitioner Citibank or petitioner FNCB
Finance, acknowledging the principal amounts of the investments, and stating the applicable interest
rates, as well as the dates of their of issuance and maturity. After respondent had so meticulously
reconstructed her other money market placements with petitioners and consolidated the documentary
evidence thereon, she came surprisingly short of offering similar details and substantiation for these
particular money market placements.
Since this Court is satisfied that respondent indeed received the proceeds of the first set of PNs, then it
proceeds to analyze her evidence of payment thereof.
In support of respondent's assertion that she had already paid whatever loans she may have had with
petitioner Citibank, she presented as evidence Provisional Receipts No. 19471, dated 11 August 1978,
and No. 12723, dated 10 November 1978, both of petitioner Citibank and signed by Mr. Tan, for the
amounts of P500,744.00 andP500,000.00, respectively. While these provisional receipts did state that
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
evidence that respondent had executed several PNs in the years 1978 and 1979 to cover the loans she
secured from the said bank. Petitioner Citibank did admit that respondent was able to pay for some of
these PNs, and what it identified as the first and second sets of PNs were only those which remained
unpaid. It thus became incumbent upon respondent to prove that the checks received by Mr. Tan were
actually applied to the PNs in either the first or second set; a fact that, unfortunately, cannot be
determined from the provisional receipts submitted by respondent since they only generally stated that
the checks received by Mr. Tan were payment for respondent's loans.
Mr. Tan, in his deposition, further explained that provisional receipts were issued when payment to the
bank was made using checks, since the checks would still be subject to clearing. The purpose for the
provisional receipts was merely to acknowledge the delivery of the checks to the possession of the bank,
but not yet of payment.
99
This bank practice finds legitimacy in the pronouncement of this Court that a
check, whether an MC or an ordinary check, is not legal tender and, therefore, cannot constitute valid
tender of payment. In Philippine Airlines, Inc. v. Court of Appeals,
100
this Court elucidated that:
Since a negotiable instrument is only a substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment (Sec. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil
Code; Bryan Landon Co. v. American Bank, 7 Phil. 255; Tan Sunco, v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61).
A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or
creditor. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is
not extinguished and remains suspended until the payment by commercial document is actually realized
(Art. 1249, Civil Code, par. 3).
In the case at bar, the issuance of an official receipt by petitioner Citibank would have been dependent
on whether the checks delivered by respondent were actually cleared and paid for by the drawee banks.
As for PN No. 34534, respondent asserted payment thereof at two separate instances by two different
means. In her formal offer of exhibits, respondent submitted a deposit slip of petitioner Citibank, dated
11 August 1978, evidencing the deposit of BPI Check No. 5785 for P150,000.00.
101
In her Formal Offer of
Documentary Exhibits, dated 7 July 1989, respondent stated that the purpose for the presentation of
the said deposit slip was to prove that she already paid her loan covered by PN No. 34534.
102
In her
testimony before the RTC three years later, on 28 November 1991, she changed her story. This time she
narrated that the loan covered by PN No. 34534 was secured by her money market placement with
petitioner FNCB Finance, and when she failed to pay the said PN when it became due, the security was
applied to the loan, therefore, the loan was considered paid.
103
Given the foregoing, respondent's
assertion of payment of PN No. 34534 is extremely dubious.
According to petitioner Citibank, the PNs in the second set, except for PN No. 34534, were mere
renewals of the unpaid PNs in the first set, which was why the PNs stated that they were for the
purpose of liquidating existing obligations. PN No. 34534, however, which was part of the first set, was
still valid and subsisting and so it was included in the second set without need for its renewal, and it still
being the original PN for that particular loan, its stated purpose was for personal
investment.
104
Respondent essentially admitted executing the second set of PNs, but they were only
meant to cover simulated loans. Mr. Tan supposedly convinced her that her pending loan application
with DBP would have a greater chance of being approved if they made it appear that respondent
urgently needed the money because petitioner Citibank was already demanding payment for her
simulated loans.
Respondent's defense of simulated loans to escape liability for the second set of PNs is truly a novel
one.1wphi1 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 PNs, that they were non-negotiable simulated notes, were admittedly made by
respondent herself and were, thus, self-serving. Equally self-serving was respondent's letter, written on
7 October 1985, or more than six years after the execution of the second set of PNs, in which she
demanded return of the simulated or fictitious PNs, together with the letters relating thereto, which Mr.
Tan purportedly asked her to execute. Respondent further failed to present any proof of her alleged
loan application with the DBP, and of any circumstance or correspondence wherein the simulated or
fictitious PNs were indeed used for their supposed purpose.
In contrast, petitioner Citibank, as supported by the testimonies of its officers and available
documentation, consistently treated the said PNs as regular loans accepted, approved, and paid in the
ordinary course of its business.
The PNs executed by the respondent in favor of petitioner Citibank to cover her loans were duly-filled
out and signed, including the disclosure statement found at the back of the said PNs, in adherence to
the Central Bank requirement to disclose the full finance charges to a loan granted to borrowers.
Mr. Tan, then an account officer with the Marketing Department of petitioner Citibank, testified that he
dealt directly with respondent; he facilitated the loans; and the PNs, at least in the second set, were
signed by respondent in his presence.
105

Mr. Pujeda, the officer who was previously in charge of loans and placements, confirmed that the
signatures on the PNs were verified against respondent's specimen signature with the bank.
106

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

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

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

Lastly, the exchange of letters between petitioner Citibank and respondent, as well as the letters sent by
other people working for respondent, had consistently recognized that respondent owed petitioner
Citibank money.
In consideration of the foregoing discussion, this Court finds that the preponderance of evidence
supports the existence of the respondent's loans, in the principal sum of P1,920,000.00, as of 5
September 1979. While it is well-settled that the term "preponderance of evidence" should not be
wholly dependent on the number of witnesses, there are certain instances when the number of
witnesses become the determining factor
The preponderance of evidence may be determined, under certain conditions, by the number of
witnesses testifying to a particular fact or state of facts. For instance, one or two witnesses may testify
to a given state of facts, and six or seven witnesses of equal candor, fairness, intelligence, and
truthfulness, and equally well corroborated by all the remaining evidence, who have no greater interest
in the result of the suit, testify against such state of facts. Then the preponderance of evidence is
determined by the number of witnesses. (Wilcox vs. Hines, 100 Tenn. 524, 66 Am. St. Rep., 761.)
112

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

The best evidence rule has been made part of the revised Rules of Court, Rule 130, Section 3, which
reads
SEC. 3. Original document must be produced; exceptions. When the subject of inquiry is the contents
of a document, no evidence shall be admissible other than the original document itself, except in the
following cases:
(a) When the original has been lost or destroyed, or cannot be produced in court, without bad faith on
the part of the offeror;
(b) When the original is in the custody or under the control of the party against whom the evidence is
offered, and the latter fails to produce it after reasonable notice;
(c) When the original consists of numerous accounts or other documents which cannot be examined in
court without great loss of time and the fact sought to be established from them is only the general
result of the whole; and
(d) When the original is a public record in the custody of a public officer or is recorded in a public office.
As the afore-quoted provision states, the best evidence rule applies only when the subject of the inquiry
is the contents of the document. The scope of the rule is more extensively explained thus
But even with respect to documentary evidence, the best evidence rule applies only when the content of
such document is the subject of the inquiry. Where the issue is only as to whether such document was
actually executed, or exists, or on the circumstances relevant to or surrounding its execution, the best
evidence rule does not apply and testimonial evidence is admissible (5 Moran, op. cit., pp. 76-66; 4
Martin, op. cit., p. 78). Any other substitutionary evidence is likewise admissible without need for
accounting for the original.
Thus, when a document is presented to prove its existence or condition it is offered not as documentary,
but as real, evidence. Parol evidence of the fact of execution of the documents is allowed (Hernaez, et
al. vs. McGrath, etc., et al., 91 Phil 565). x x x
115

In Estrada v. Desierto,
116
this Court had occasion to rule that
It is true that the Court relied not upon the original but only copy of the Angara Diary as published in the
Philippine Daily Inquirer on February 4-6, 2001. In doing so, the Court, did not, however, violate the best
evidence rule. Wigmore, in his book on evidence, states that:
"Production of the original may be dispensed with, in the trial court's discretion, whenever in the case in
hand the opponent does not bona fide dispute the contents of the document and no other useful
purpose will be served by requiring production.24
"x x x x
"In several Canadian provinces, the principle of unavailability has been abandoned, for certain
documents in which ordinarily no real dispute arised. This measure is a sensible and progressive one and
deserves universal adoption (post, sec. 1233). Its essential feature is that a copy may be used
unconditionally, if the opponent has been given an opportunity to inspect it." (Emphasis supplied.)
This Court did not violate the best evidence rule when it considered and weighed in evidence the
photocopies and microfilm copies of the PNs, MCs, and letters submitted by the petitioners to establish
the existence of 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
exception of PN No. 34534) never existed, while the PNs in the second set (again, excluding PN No.
34534) were merely executed to cover simulated loan transactions. As for the MCs representing the
proceeds of the loans, the respondent either denied receipt of certain MCs or admitted receipt of the
other MCs but for another purpose. Respondent further admitted the letters she wrote personally or
through her representatives to Mr. Tan of petitioner Citibank acknowledging the loans, except that she
claimed that these letters were just meant to keep up the ruse of the simulated loans. Thus, respondent
questioned the documents as to their existence or execution, or when the former is admitted, as to the
purpose for which the documents were executed, matters which are, undoubtedly, external to the
documents, and which had nothing to do with the contents thereof.
Alternatively, even if it is granted that the best evidence rule should apply to the evidence presented by
petitioners regarding the existence of respondent's loans, it should be borne in mind that the rule
admits of the following exceptions under Rule 130, Section 5 of the revised Rules of Court
SEC. 5. When the original document is unavailable. When the original document has been lost or
destroyed, or cannot be produced in court, the offeror, upon proof of its execution or existence and the
cause of its unavailability without bad faith on his part, may prove its contents by a copy, or by a recital
of its contents in some authentic document, or by the testimony of witnesses in the order stated.
The execution or existence of the original copies of the documents was established through the
testimonies of witnesses, such as Mr. Tan, before whom most of the documents were personally
executed by respondent. The original PNs also went through the whole loan booking system of
petitioner Citibank from the account officer in its Marketing Department, to the pre-processor, to the
signature verifier, back to the pre-processor, then to the processor for booking.
117
The original PNs were
seen by Ms. Dondoyano, the processor, who recorded them in the General Ledger. Mr. Pujeda
personally saw the original MCs, proving respondent's receipt of the proceeds of her loans from
petitioner Citibank, when he helped Attys. Cleofe and Fernandez, the bank's legal counsels, to
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
original MCs were subsequently turned over to the Control and Investigation Division of petitioner
Citibank.
118

It was only petitioner FNCB Finance who claimed that they lost the original copies of the PNs when it
moved to a new office. Citibank did not make a similar contention; instead, it explained that the original
copies of the PNs were returned to the borrower upon liquidation of the loan, either through payment
or roll-over. Petitioner Citibank proffered the excuse that they were still looking for the documents in
their storage or warehouse to explain the delay and difficulty in the retrieval thereof, but not their
absence or loss. The original documents in this case, such as the MCs and letters, were destroyed and,
thus, unavailable for presentation before the RTC only on 7 October 1987, when a fire broke out on the
7
th
floor of the office building of petitioner Citibank. There is no showing that the fire was intentionally
set. The fire destroyed relevant documents, not just of the present case, but also of other cases, since
the 7
th
floor housed the Control and Investigation Division, in charge of keeping the necessary
documents for cases in which petitioner Citibank was involved.
The foregoing would have been sufficient to allow the presentation of photocopies or microfilm copies
of the PNs, MCs, and letters by the petitioners as secondary evidence to establish the existence of
respondent's loans, as an exception to the best evidence rule.
The impact of the Decision of the Court of Appeals in the Dy case
In its assailed Decision, the Court of Appeals made the following pronouncement
Besides, We find the declaration and conclusions of this Court in CA-G.R. CV No. 15934 entitled Sps. Dr.
Ricardo L. Dy and Rosalind O. Dy vs. City Bank, N.A., et al, promulgated on 15 January 1990,
asdisturbing taking into consideration the similarities of the fraud, machinations, and deceits employed
by the defendant-appellant Citibank and its Account Manager Francisco Tan.
Worthy of note is the fact that Our declarations and conclusions against Citibank and the person of
Francisco Tan in CA-G.R. CV No. 15934 were affirmed in toto by the Highest Magistrate in a Minute
Resolution dated 22 August 1990 entitled Citibank, N.A., vs. Court of Appeals, G.R. 93350.
As the factual milieu of the present appeal created reasonable doubts as to whether the nine (9)
Promissory Notes were indeed executed with considerations, the doubts, coupled by the findings and
conclusions of this Court in CA-G.R. CV No. 15934 and the Supreme Court in G.R. No. 93350. should be
construed against herein defendants-appellants Citibank and FNCB Finance.
What this Court truly finds disturbing is the significance given by the Court of Appeals in its assailed
Decision to the Decision
119
of its Third Division in CA-G.R. CV No. 15934 (or the Dy case), when there is
an absolute lack of legal basis for doing such.
Although petitioner Citibank and its officer, Mr. Tan, were also involved in the Dy case, that is about the
only connection between the Dy case and the one at bar. Not only did the Dy case tackle transactions
between parties other than the parties presently before this Court, but the transactions are absolutely
independent and unrelated to those in the instant Petition.
In the Dy case, Severino Chua Caedo managed to obtain loans from herein petitioner Citibank
amounting toP7,000,000.00, secured to the extent of P5,000,000.00 by a Third Party Real Estate
Mortgage of the properties of Caedo's aunt, Rosalind Dy. It turned out that Rosalind Dy and her husband
were unaware of the said loans and the mortgage of their properties. The transactions were carried out
exclusively between Caedo and Mr. Tan of petitioner Citibank. The RTC found Mr. Tan guilty of fraud for
his participation in the questionable transactions, essentially because he allowed Caedo to take out the
signature cards, when these should have been signed by the Dy spouses personally before him.
Although the Dy spouses' signatures in the PNs and Third Party Real Estate Mortgage were forged, they
were approved by the signature verifier since the signature cards against which they were compared to
were also forged. Neither the RTC nor the Court of Appeals, however, categorically declared Mr. Tan
personally responsible for the forgeries, which, in the narration of the facts, were more likely committed
by Caedo.
In the Petition at bar, respondent dealt with Mr. Tan directly, there was no third party involved who
could have perpetrated any fraud or forgery in her loan transactions. Although respondent attempted to
raise suspicion as to the authenticity of her signatures on certain documents, these were nothing more
than naked allegations with no corroborating evidence; worse, even her own allegations were replete
with inconsistencies. She could not even establish in what manner or under what circumstances the
fraud or forgery was committed, or how Mr. Tan could have been directly responsible for the same.
While the Court of Appeals can take judicial notice of the Decision of its Third Division in the Dy case, it
should not have given the said case much weight when it rendered the assailed Decision, since the
former does not constitute a precedent. The Court of Appeals, in the challenged Decision, did not apply
any legal argument or principle established in the Dy case but, rather, adopted the findings therein of
wrongdoing or misconduct on the part of herein petitioner Citibank and Mr. Tan. Any finding of
wrongdoing or misconduct as against herein petitioners should be made based on the factual
background and pieces of evidence submitted in this case, not those in another case.
It is apparent that the Court of Appeals took judicial notice of the Dy case not as a legal precedent for
the present case, but rather as evidence of similar acts committed by petitioner Citibank and Mr. Tan. A
basic rule of evidence,however, states that, "Evidence that one did or did not do a certain thing at one
time is not admissible to prove that he did or did not do the same or similar thing at another time; but it
may be received to prove a specific intent or knowledge, identity, plan, system, scheme, habit, custom
or usage, and the like."
120
The rationale for the rule is explained thus
The rule is founded upon reason, public policy, justice and judicial convenience. The fact that a person
has committed the same or similar acts at some prior time affords, as a general rule, no logical guaranty
that he committed the act in question. This is so because, subjectively, a man's mind and even his
modes of life may change; and, objectively, the conditions under which he may find himself at a given
time may likewise change and thus induce him to act in a different way. Besides, if evidence of similar
acts are to be invariably admitted, they will give rise to a multiplicity of collateral issues and will subject
the defendant to surprise as well as confuse the court and prolong the trial.
121

The factual backgrounds of the two cases are so different and unrelated that the Dy case cannot be used
to prove specific intent, knowledge, identity, plan, system, scheme, habit, custom or usage on the part
of petitioner Citibank or its officer, Mr. Tan, to defraud respondent in the present case.
IV
The liquidation of respondent's outstanding loans were valid in so far as petitioner Citibank used
respondent's savings account with the bank and her money market placements with petitioner FNCB
Finance; but illegal and void in so far as petitioner Citibank used respondent's dollar accounts with
Citibank-Geneva.
Savings Account with petitioner Citibank
Compensation is a recognized mode of extinguishing obligations. Relevant provisions of the Civil Code
provides
Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and
debtors of each other.
Art. 1279. In order that compensation may be proper, it is necessary;
(1) That each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.
There is little controversy when it comes to the right of petitioner Citibank to compensate respondent's
outstanding loans with her deposit account. As already found by this Court, petitioner Citibank was the
creditor of respondent for her outstanding loans. At the same time, respondent was the creditor of
petitioner Citibank, as far as her deposit account was concerned, since bank deposits, whether fixed,
savings, or current, should be considered as simple loan or mutuum by the depositor to the banking
institution.
122
Both debts consist in sums of money. By June 1979, all of respondent's PNs in the second
set had matured and became demandable, while respondent's savings account was demandable
anytime. Neither was there any retention or controversy over the PNs and the deposit account
commenced by a third person and communicated in due time to the debtor concerned. Compensation
takes place by operation of law,
123
therefore, even in the absence of an expressed authority from
respondent, petitioner Citibank had the right to effect, on 25 June 1979, the partial compensation or off-
set of respondent's outstanding loans with her deposit account, amounting to P31,079.14.
Money market placements with FNCB Finance
Things though are not as simple and as straightforward as regards to the money market placements and
bank account used by petitioner Citibank to complete the compensation or off-set of respondent's
outstanding loans, which came from persons other than petitioner Citibank.
Respondent's money market placements were with petitioner FNCB Finance, and after several roll-
overs, they were ultimately covered by PNs No. 20138 and 20139, which, by 3 September 1979, the date
the check for the proceeds of the said PNs were issued, amounted to P1,022,916.66, inclusive of the
principal amounts and interests. As to these money market placements, respondent was the creditor
and petitioner FNCB Finance the debtor; while, as to the outstanding loans, petitioner Citibank was the
creditor and respondent the debtor. Consequently, legal compensation, under Article 1278 of the Civil
Code, would not apply since the first requirement for a valid compensation, that each one of the
obligors be bound principally, and that he be at the same time a principal creditor of the other, was not
met.
What petitioner Citibank actually did was to exercise its rights to the proceeds of respondent's money
market placements with petitioner FNCB Finance by virtue of the Deeds of Assignment executed by
respondent in its favor.
The Court of Appeals did not consider these Deeds of Assignment because of petitioners' failure to
produce the original copies thereof in violation of the best evidence rule. This Court again finds itself in
disagreement in the application of the best evidence rule by the appellate court.
To recall, the best evidence rule, in so far as documentary evidence is concerned, requires the
presentation of the original copy of the document only when the context thereof is the subject of
inquiry in the case. Respondent does not question the contents of the Deeds of Assignment. While she
admitted the existence and execution of the Deeds of Assignment, dated 2 March 1978 and 9 March
1978, covering PNs No. 8169 and 8167 issued by petitioner FNCB Finance, she claimed, as defense, that
the loans for which the said Deeds were executed as security, were already paid. She denied ever
executing both Deeds of Assignment, dated 25 August 1978, covering PNs No. 20138 and 20139. These
are again issues collateral to the contents of the documents involved, which could be proven by
evidence other than the original copies of the said documents.
Moreover, the Deeds of Assignment of the money market placements with petitioner FNCB Finance
were notarized documents, thus, admissible in evidence. Rule 132, Section 30 of the Rules of Court
provides that
SEC. 30. Proof of notarial documents. Every instrument duly acknowledged or proved and certified as
provided by law, may be presented in evidence without further proof, the certificate of
acknowledgement being prima facie evidence of the execution of the instrument or document involved.
Significant herein is this Court's elucidation in De Jesus v. Court of Appeals,
124
which reads
On the evidentiary value of these documents, it should be recalled that the notarization of a private
document converts it into a public one and renders it admissible in court without further proof of its
authenticity (Joson vs. Baltazar, 194 SCRA 114 [1991]). This is so because a public document duly
executed and entered in the proper registry is presumed to be valid and genuine until the contrary is
shown by clear and convincing proof (Asido vs. Guzman, 57 Phil. 652 [1918]; U.S. vs. Enriquez, 1 Phil 241
[1902];Favor vs. Court of Appeals, 194 SCRA 308 [1991]). As such, the party challenging the recital of the
document must prove his claim with clear and convincing evidence (Diaz vs. Court of Appeals, 145 SCRA
346 [1986]).
The rule on the evidentiary weight that must be accorded a notarized document is clear and
unambiguous. The certificate of acknowledgement in the notarized Deeds of Assignment
constituted prima facie evidence of the execution thereof. Thus, the burden of refuting this presumption
fell on respondent. She could have presented evidence of any defect or irregularity in the execution of
the said documents
125
or raised questions as to the verity of the notary public's acknowledgment and
certificate in the Deeds.
126
But again, respondent admitted executing the Deeds of Assignment, dated 2
March 1978 and 9 March 1978, although claiming that the loans for which they were executed as
security were already paid. And, she assailed the Deeds of Assignment, dated 25 August 1978, with
nothing more than her bare denial of execution thereof, hardly the clear and convincing evidence
required to trounce the presumption of due execution of a notarized document.
Petitioners not only presented the notarized Deeds of Assignment, but even secured certified literal
copies thereof from the National Archives.
127
Mr. Renato Medua, an archivist, working at the Records
Management and Archives Office of the National Library, testified that the copies of the Deeds
presented before the RTC were certified literal copies of those contained in the Notarial Registries of the
notary publics concerned, which were already in the possession of the National Archives. He also
explained that he could not bring to the RTC the Notarial Registries containing the original copies of the
Deeds of Assignment, because the Department of Justice (DOJ) Circular No. 97, dated 8 November 1968,
prohibits the bringing of original documents to the courts to prevent the loss of irreplaceable and
priceless documents.
128

Accordingly, this Court gives the Deeds of Assignment grave importance in establishing the authority
given by the respondent to petitioner Citibank to use as security for her loans her money her market
placements with petitioner FNCB Finance, represented by PNs No. 8167 and 8169, later to be rolled-
over as PNs No. 20138 and 20139. These Deeds of Assignment constitute the law between the parties,
and the obligations arising therefrom shall have the force of law between the parties and should be
complied with in good faith.
129
Standard clauses in all of the Deeds provide that
The ASSIGNOR and the ASSIGNEE hereby further agree as follows:
x x x x
2. In the event the OBLIGATIONS are not paid at maturity or upon demand, as the case may be, the
ASSIGNEE is fully authorized and empowered to collect and receive the PLACEMENT (or so much thereof
as may be necessary) and apply the same in payment of the OBLIGATIONS. Furthermore, the ASSIGNOR
agrees that at any time, and from time to time, upon request by the ASSIGNEE, the ASSIGNOR will
promptly execute and deliver any and all such further instruments and documents as may be necessary
to effectuate this Assignment.
x x x x
5. This Assignment shall be considered as sufficient authority to FNCB Finance to pay and deliver the
PLACEMENT or so much thereof as may be necessary to liquidate the OBLIGATIONS, to the ASSIGNEE in
accordance with terms and provisions hereof.
130

Petitioner Citibank was only acting upon the authority granted to it under the foregoing Deeds when it
finally used the proceeds of PNs No. 20138 and 20139, paid by petitioner FNCB Finance, to partly pay for
respondent's outstanding loans. Strictly speaking, it did not effect a legal compensation or off-set under
Article 1278 of the Civil Code, but rather, it partly extinguished respondent's obligations through the
application of the security given by the respondent for her loans. Although the pertinent documents
were entitled Deeds of Assignment, they were, in reality, more of a pledge by respondent to petitioner
Citibank of her credit due from petitioner FNCB Finance by virtue of her money market placements with
the latter. According to Article 2118 of the Civil Code
ART. 2118. If a credit has been pledged becomes due before it is redeemed, the pledgee may collect and
receive the amount due. He shall apply the same to the payment of his claim, and deliver the surplus,
should there be any, to the pledgor.
PNs No. 20138 and 20139 matured on 3 September 1979, without them being redeemed by respondent,
so that petitioner Citibank collected from petitioner FNCB Finance the proceeds thereof, which included
the principal amounts and interests earned by the money market placements, amounting
to P1,022,916.66, and applied the same against respondent's outstanding loans, leaving no surplus to be
delivered to respondent.
Dollar accounts with Citibank-Geneva
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
of P1,069,847.40. Petitioner Citibank then proceeded to applying respondent's dollar accounts with
Citibank-Geneva against her remaining loan balance, pursuant to a Declaration of Pledge supposedly
executed by respondent in its favor.
Certain principles of private international law should be considered herein because the property
pledged was in the possession of an entity in a foreign country, namely, Citibank-Geneva. In the absence
of any allegation and evidence presented by petitioners of the specific rules and laws governing the
constitution of a pledge in Geneva, Switzerland, they will be presumed to be the same as Philippine local
or domestic laws; this is known as processual presumption.
131

Upon closer scrutiny of the Declaration of Pledge, this Court finds the same exceedingly suspicious and
irregular.
First of all, it escapes this Court why petitioner Citibank took care to have the Deeds of Assignment of
the PNs notarized, yet left the Declaration of Pledge unnotarized. This Court would think that petitioner
Citibank would take greater cautionary measures with the preparation and execution of the Declaration
of Pledge because it involved respondent's "all present and future fiduciary placements" with a Citibank
branch in another country, specifically, in Geneva, Switzerland. While there is no express legal
requirement that the Declaration of Pledge had to be notarized to be effective, even so, it could not
enjoy the same prima facie presumption of due execution that is extended to notarized documents, and
petitioner Citibank must discharge the burden of proving due execution and authenticity of the
Declaration of Pledge.
Second, petitioner Citibank was unable to establish the date when the Declaration of Pledge was
actually executed. The photocopy of the Declaration of Pledge submitted by petitioner Citibank before
the RTC was undated.
132
It presented only a photocopy of the pledge because it already forwarded the
original copy thereof to Citibank-Geneva when it requested for the remittance of respondent's dollar
accounts pursuant thereto. Respondent, on the other hand, was able to secure a copy of the Declaration
of Pledge, certified by an officer of Citibank-Geneva, which bore the date 24 September
1979.
133
Respondent, however, presented her passport and plane tickets to prove that she was out of
the country on the said date and could not have signed the pledge. Petitioner Citibank insisted that the
pledge was signed before 24 September 1979, but could not provide an explanation as to how and why
the said date was written on the pledge. Although Mr. Tan testified that the Declaration of Pledge was
signed by respondent personally before him, he could not give the exact date when the said signing took
place. It is important to note that the copy of the Declaration of Pledge submitted by the respondent to
the RTC was certified by an officer of Citibank-Geneva, which had possession of the original copy of the
pledge. It is dated 24 September 1979, and this Court shall abide by the presumption that the written
document is truly dated.
134
Since it is undeniable that respondent was out of the country on 24
September 1979, then she could not have executed the pledge on the said date.
Third, the Declaration of Pledge was irregularly filled-out. The pledge was in a standard printed form. It
was constituted in favor of Citibank, N.A., otherwise referred to therein as the Bank. It should be noted,
however, that in the space which should have named the pledgor, the name of petitioner Citibank was
typewritten, to wit
The pledge right herewith constituted shall secure all claims which the Bank now has or in the future
acquires against Citibank, N.A., Manila (full name and address of the Debtor), regardless of the legal
cause or the transaction (for example current account, securities transactions, collections, credits,
payments, documentary credits and collections) which gives rise thereto, and including principal, all
contractual and penalty interest, commissions, charges, and costs.
The pledge, therefore, made no sense, the pledgor and pledgee being the same entity. Was a mistake
made by whoever filled-out the form? Yes, it could be a possibility. Nonetheless, considering the value
of such a document, the mistake as to a significant detail in the pledge could only be committed with
gross carelessness on the part of petitioner Citibank, and raised serious doubts as to the authenticity
and due execution of the same. The Declaration of Pledge had passed through the hands of several bank
officers in the country and abroad, yet, surprisingly and implausibly, no one noticed such a glaring
mistake.
Lastly, respondent denied that it was her signature on the Declaration of Pledge. She claimed that the
signature was a forgery. When a document is assailed on the basis of forgery, the best evidence rule
applies
Basic is the rule of evidence that when the subject of inquiry is the contents of a document, no evidence
is admissible other than the original document itself except in the instances mentioned in Section 3,
Rule 130 of the Revised Rules of Court. Mere photocopies of documents are inadmissible pursuant to
the best evidence rule. This is especially true when the issue is that of forgery.
As a rule, forgery cannot be presumed and must be proved by clear, positive and convincing evidence
and the burden of proof lies on the party alleging forgery. The best evidence of a forged signature in an
instrument is the instrument itself reflecting the alleged forged signature. The fact of forgery can only be
established by a comparison between the alleged forged signature and the authentic and genuine
signature of the person whose signature is theorized upon to have been forged. Without the original
document containing the alleged forged signature, one cannot make a definitive comparison which
would establish forgery. A comparison based on a mere xerox copy or reproduction of the document
under controversy cannot produce reliable results.
135

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

Without the Declaration of Pledge, petitioner Citibank had no authority to demand the remittance of
respondent's dollar accounts with Citibank-Geneva and to apply them to her outstanding loans. It
cannot effect legal compensation under Article 1278 of the Civil Code since, petitioner Citibank itself
admitted that Citibank-Geneva is a distinct and separate entity. As for the dollar accounts, respondent
was the creditor and Citibank-Geneva is the debtor; and as for the outstanding loans, petitioner Citibank
was the creditor and respondent was the debtor. The parties in these transactions were evidently not
the principal creditor of each other.
Therefore, this Court declares that the remittance of respondent's dollar accounts from Citibank-Geneva
and the application thereof to her outstanding loans with petitioner Citibank was illegal, and null and
void. Resultantly, petitioner Citibank is obligated to return to respondent the amount of US$149,632,99
from her Citibank-Geneva accounts, or its present equivalent value in Philippine currency; and, at the
same time, respondent continues to be obligated to petitioner Citibank for the balance of her
outstanding loans which, as of 5 September 1979, amounted to P1,069,847.40.
V
The parties shall be liable for interests on their monetary obligations to each other, as determined
herein.
In summary, petitioner Citibank is ordered by this Court to pay respondent the proceeds of her money
market placements, represented by PNs No. 23356 and 23357, amounting to P318,897.34
and P203,150.00, respectively, earning an interest of 14.5% per annum as stipulated in the
PNs,
139
beginning 17 March 1977, the date of the placements.
Petitioner Citibank is also ordered to refund to respondent the amount of US$149,632.99, or its
equivalent in Philippine currency, which had been remitted from her Citibank-Geneva accounts. These
dollar accounts, consisting of two fiduciary placements and current accounts with Citibank-Geneva shall
continue earning their respective stipulated interests from 26 October 1979, the date of their
remittance by Citibank-Geneva to petitioner Citibank in Manila and applied against respondent's
outstanding loans.
As for respondent, she is ordered to pay petitioner Citibank the balance of her outstanding loans, which
amounted to P1,069,847.40 as of 5 September 1979. These loans continue to earn interest, as stipulated
in the corresponding PNs, from the time of their respective maturity dates, since the supposed payment
thereof using respondent's dollar accounts from Citibank-Geneva is deemed illegal, null and void, and,
thus, ineffective.
VI
Petitioner Citibank shall be liable for damages to respondent.
Petitioners protest the award by the Court of Appeals of moral damages, exemplary damages, and
attorney's fees in favor of respondent. They argued that the RTC did not award any damages, and
respondent, in her appeal before the Court of Appeals, did not raise in issue the absence of such.
While it is true that the general rule is that only errors which have been stated in the assignment of
errors and properly argued in the brief shall be considered, this Court has also recognized exceptions to
the general rule, wherein it authorized the review of matters, even those not assigned as errors in the
appeal, if the consideration thereof is necessary in arriving at a just decision of the case, and there is a
close inter-relation between the omitted assignment of error and those actually assigned and discussed
by the appellant.
140
Thus, the Court of Appeals did not err in awarding the damages when it already
made findings that would justify and support the said award.
Although this Court appreciates the right of petitioner Citibank to effect legal compensation of
respondent's local deposits, as well as its right to the proceeds of PNs No. 20138 and 20139 by virtue of
the notarized Deeds of Assignment, to partly extinguish respondent's outstanding loans, it finds that
petitioner Citibank did commit wrong when it failed to pay and properly account for the proceeds of
respondent's money market placements, evidenced by PNs No. 23356 and 23357, and when it sought
the remittance of respondent's dollar accounts from Citibank-Geneva by virtue of a highly-suspect
Declaration of Pledge to be applied to the remaining balance of respondent's outstanding loans. It bears
to emphasize that banking is impressed with public interest and its fiduciary character requires high
standards of integrity and performance.
141
A bank is under the obligation to treat the accounts of its
depositors with meticulous care whether such accounts consist only of a few hundred pesos or of
millions of pesos.
142
The bank must record every single transaction accurately, down to the last centavo,
and as promptly as possible.
143
Petitioner Citibank evidently failed to exercise the required degree of
care and transparency in its transactions with respondent, thus, resulting in the wrongful deprivation of
her property.
Respondent had been deprived of substantial amounts of her investments and deposits for more than
two decades. During this span of years, respondent had found herself in desperate need of the amounts
wrongfully withheld from her. In her testimony
144
before the RTC, respondent narrated
Q By the way Mrs. Witness will you kindly tell us again, you said before that you are a businesswoman,
will you tell us again what are the businesses you are engaged into [sic]?
A I am engaged in real estate. I am the owner of the Modesta Village 1 and 2 in San Mateo, Rizal. I am
also the President and Chairman of the Board of Macador [sic] Co. and Business Inc. which operates the
Macador [sic] International Palace Hotel. I am also the President of the Macador [sic] International
Palace Hotel, and also the Treasures Home Industries, Inc. which I am the Chairman and president of the
Board and also operating affiliated company in the name of Treasures Motor Sales engaged in car
dealers [sic] like Delta Motors, we are the dealers of the whole Northern Luzon and I am the president of
the Disto Company, Ltd., based in Hongkong licensed in Honkong [sic] and now operating in Los Angeles,
California.
Q What is the business of that Disto Company Ltd.?
A Disto Company, Ltd., is engaged in real estate and construction.
Q Aside from those businesses are you a member of any national or community organization for social
and civil activities?
A Yes sir.
Q What are those?
A I am the Vice-President of thes [sic] Subdivision Association of the Philippines in 1976, I am also an
officer of the Chamber of Real Estate Business Association; I am also an officer of the Chatholic [sic]
Women's League and I am also a member of the CMLI, I forgot the definition.
Q How about any political affiliation or government position held if any?
A I was also a candidate for Mayo last January 30, 1980.
Q Where?
A In Dagupan City, Pangasinan.
Q What else?
A I also ran as an Assemblywoman last May, 1984, Independent party in Regional I, Pangasinan.
Q What happened to your businesses you mentioned as a result of your failure to recover you [sic]
investments and bank deposits from the defendants?
A They are not all operating, in short, I was hampered to push through the businesses that I have.
A [sic] Of all the businesses and enterprises that you mentioned what are those that are paralyzed and
what remain inactive?
A Of all the company [sic] that I have, only the Disto Company that is now operating in California.
Q How about your candidacy as Mayor of Dagupan, [sic] City, and later as Assemblywoman of Region I,
what happened to this?
A I won by voting but when election comes on [sic] the counting I lost and I protested this, it is still
pending and because I don't have financial resources I was not able to push through the case. I just have
it pending in the Comelec.
Q Now, do these things also affect your social and civic activities?
A Yes sir, definitely.
Q How?
A I was embarrassed because being a businesswoman I would like to inform the Honorable Court that I
was awarded as the most outstanding businesswoman of the year in 1976 but when this money was not
given back to me I was not able to comply with the commitments that I have promised to these
associations that I am engaged into [sic], sir.
For the mental anguish, serious anxiety, besmirched reputation, moral shock and social humiliation
suffered by the respondent, the award of moral damages is but proper. However, this Court reduces the
amount thereof toP300,000.00, for the award of moral damages is meant to compensate for the actual
injury suffered by the respondent, not to enrich her.
145

Having failed to exercise more care and prudence than a private individual in its dealings with
respondent, petitioner Citibank should be liable for exemplary damages, in the amount of P250,000.00,
in accordance with Article 2229
146
and 2234
147
of the Civil Code.
With the award of exemplary damages, then respondent shall also be entitled to an award of attorney's
fees.
148
Additionally, attorney's fees may be awarded when a party is compelled to litigate or to incur
expenses to protect his interest by reason of an unjustified act of the other party.
149
In this case, an
award of P200,000.00 attorney's fees shall be satisfactory.
In contrast, this Court finds no sufficient basis to award damages to petitioners.1wphi1 Respondent
was compelled to institute the present case in the exercise of her rights and in the protection of her
interests. In fact, although her Complaint before the RTC was not sustained in its entirety, it did raise
meritorious points and on which this Court rules in her favor. Any injury resulting from the exercise of
one's rights is damnum absque injuria.
150

IN VIEW OF THE FOREGOING, the instant Petition is PARTLY GRANTED. The assailed Decision of the
Court of Appeals in CA-G.R. No. 51930, dated 26 March 2002, as already modified by its Resolution,
dated 20 November 2002, is hereby AFFIRMED WITH MODIFICATION, as follows
1. PNs No. 23356 and 23357 are DECLARED subsisting and outstanding. Petitioner Citibank
is ORDEREDto return to respondent the principal amounts of the said PNs, amounting to Three Hundred
Eighteen Thousand Eight Hundred Ninety-Seven Pesos and Thirty-Four Centavos (P318,897.34) and Two
Hundred Three Thousand One Hundred Fifty Pesos (P203,150.00), respectively, plus the stipulated
interest of Fourteen and a half percent (14.5%) per annum, beginning 17 March 1977;
2. The remittance of One Hundred Forty-Nine Thousand Six Hundred Thirty Two US Dollars and Ninety-
Nine Cents (US$149,632.99) from respondent's Citibank-Geneva accounts to petitioner Citibank in
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
amount, or its equivalent in Philippine currency using the exchange rate at the time of payment, plus the
stipulated interest for each of the fiduciary placements and current accounts involved, beginning 26
October 1979;
3. Petitioner Citibank is ORDERED to pay respondent moral damages in the amount of Three Hundred
Thousand Pesos (P300,000.00); exemplary damages in the amount of Two Hundred Fifty Thousand
Pesos (P250,000.00); and attorney's fees in the amount of Two Hundred Thousand Pesos (P200,000.00);
and
4. Respondent is ORDERED to pay petitioner Citibank the balance of her outstanding loans, which, from
the respective dates of their maturity to 5 September 1979, was computed to be in the sum of One
Million Sixty-Nine Thousand Eight Hundred Forty-Seven Pesos and Forty Centavos (P1,069,847.40),
inclusive of interest. These outstanding loans shall continue to earn interest, at the rates stipulated in
the corresponding PNs, from 5 September 1979 until payment thereof.
SO ORDERED.