CITIBANK, N.A. (Formerly First National G.R. No.

156132
City Bank) and INVESTORS FINANCE
CORPORATION, doing business under the Present:
name and style of FNCB Finance,
Petitioners, PANGANIBAN, C.J.
Chairperson,
YNARES-SANTIAGO,
- versus- AUSTRIA-MARTINEZ,
CALLEJO, SR., and
CHICO-NAZARIO, JJ.
MODESTA R. SABENIANO,
Respondent. Promulgated:

October 16, 2006

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DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari,[1] under Rule 45 of the Revised
Rules of Court, of the Decision[2] of the Court of Appeals in CA-G.R. CV No. 51930, dated 26
March 2002, and the Resolution,[3] dated 20 November 2002, of the same court which, although
modifying its earlier Decision, still denied for the most part the Motion for Reconsideration of
herein petitioners.

Petitioner Citibank, N.A. (formerly known as the First National City Bank) is a banking
corporation duly authorized and existing under the laws of the United States of America and
licensed to do commercial banking activities and perform trust functions in the Philippines.

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

Respondent Modesta R. Sabeniano was a client of both petitioners Citibank and FNCB
Finance. Regrettably, the business relations among the parties subsequently went awry.

On 8 August 1985, respondent filed a Complaint [5] against petitioners, docketed as Civil
Case No. 11336, before the Regional Trial Court (RTC) of Makati City.Respondent claimed to
have substantial deposits and money market placements with the petitioners, as well as money
market placements with the Ayala Investment and Development Corporation (AIDC), the
proceeds of which were supposedly deposited automatically and directly to respondents accounts
with petitioner Citibank. Respondent alleged that petitioners refused to return her deposits and
the proceeds of her money market placements despite her repeated demands, thus, compelling
respondent to file Civil Case No. 11336 against petitioners for Accounting, Sum of Money and
Damages. Respondent eventually filed an Amended Complaint [6] on 9 October 1985 to include
additional claims to deposits and money market placements inadvertently left out from her
original Complaint.

In their joint Answer[7] and Answer to Amended Complaint,[8] filed on 12 September 1985
and 6 November 1985, respectively, petitioners admitted that respondent had deposits and money
market placements with them, including dollar accounts in the Citibank branch in Geneva,
Switzerland (Citibank-Geneva). Petitioners further alleged that the respondent later obtained
several loans from petitioner Citibank, for which she executed Promissory Notes (PNs), and
secured by (a) a Declaration of Pledge of her dollar accounts in Citibank-Geneva, and (b) Deeds
of Assignment of her money market placements with petitioner FNCB Finance. When
respondent failed to pay her loans despite repeated demands by petitioner Citibank, the latter
exercised its right to off-set or compensate respondents outstanding loans with her deposits and
money market placements, pursuant to the Declaration of Pledge and the Deeds of Assignment
executed by respondent in its favor. Petitioner Citibank supposedly informed respondent
Sabeniano of the foregoing compensation through letters, dated 28 September 1979 and 31
October 1979. Petitioners were therefore surprised when six years later, in 1985, respondent and
her counsel made repeated requests for the withdrawal of respondents deposits and money
market placements with petitioner Citibank, including her dollar accounts with Citibank-Geneva
and her money market placements with petitioner FNCB Finance. Thus, petitioners prayed for
the dismissal of the Complaint and for the award of actual, moral, and exemplary damages, and
attorneys fees.

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

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

as follows:

(1) Declaring as illegal, null and void the setoff effected by the defendant
Bank [petitioner Citibank] of plaintiffs [respondent Sabeniano] dollar deposit with
Citibank, Switzerland, in the amount of US$149,632.99, and ordering the said
defendant [petitioner Citibank] to refund the said amount to the plaintiff with
legal interest at the rate of twelve percent (12%) per annum, compounded yearly,
from 31 October 1979 until fully paid, or its peso equivalent at the time of
payment;
 (2) Declaring the plaintiff [respondent Sabeniano] indebted to the
defendant Bank [petitioner Citibank] in the amount of P1,069,847.40 as of 5
September 1979 and ordering the plaintiff [respondent Sabeniano] to pay said
amount, however, there shall be no interest and penalty charges from the time the
illegal setoff was effected on 31 October 1979;

(3) Dismissing all other claims and counterclaims interposed by the parties
against each other.

Costs against the defendant Bank.

All the parties appealed the foregoing Decision of the RTC to the Court of Appeals, docketed as
CA-G.R. CV No. 51930. Respondent questioned the findings of the RTC that she was still
indebted to petitioner Citibank, as well as the failure of the RTC to order petitioners to render an
accounting of respondents deposits and money market placements with them. On the other hand,
petitioners argued that petitioner Citibank validly compensated respondents outstanding loans
with her dollar accounts with Citibank-Geneva, in accordance with the Declaration of Pledge she
executed in its favor. Petitioners also alleged that the RTC erred in not declaring respondent
liable for damages and interest.

On 26 March 2002, the Court of Appeals rendered its Decision [12] affirming with modification the
RTC Decision in Civil Case No. 11336, dated 24 August 1995, and ruling entirely in favor of
respondent in this wise

Wherefore, premises considered, the assailed 24 August 1995 Decision of

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

appellant the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00) by
way of moral damages, FIVE HUNDRED THOUSAND PESOS (P500,000.00) as
exemplary damages, and ONE HUNDRED THOUSAND PESOS (P100,000.00)
as attorneys fees.

Apparently, the parties to the case, namely, the respondent, on one hand, and the petitioners, on
the other, made separate attempts to bring the aforementioned Decision of the Court of Appeals,
dated 26 March 2002, before this Court for review.

G.R. No. 152985

Respondent no longer sought a reconsideration of the Decision of the Court of Appeals in CA-
G.R. CV No. 51930, dated 26 March 2002, and instead, filed immediately with this Court on 3
May 2002 a Motion for Extension of Time to File a Petition for Review, [13] which, after payment
of the docket and other lawful fees, was assigned the docket number G.R. No. 152985. In the
said Motion, respondent alleged that she received a copy of the assailed Court of Appeals
Decision on 18 April 2002 and, thus, had 15 days therefrom or until 3 May 2002 within which to
file her Petition for Review. Since she informed her counsel of her desire to pursue an appeal of
the Court of Appeals Decision only on 29 April 2002, her counsel neither had enough time to file
a motion for reconsideration of the said Decision with the Court of Appeals, nor a Petition
for Certiorari with this Court. Yet, the Motion failed to state the exact extension period
respondent was requesting for.
 Since this Court did not act upon respondents Motion for Extension of Time to file her
Petition for Review, then the period for appeal continued to run and still expired on 3 May 2002.
[14]
Respondent failed to file any Petition for Review within the prescribed period for appeal and,
hence, this Court issued a Resolution,[15] dated 13 November 2002, in which it pronounced that

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

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

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

G.R. No. 156132

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

WHEREFORE, premises considered, the instant Motion for

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

The challenged 26 March 2002 Decision of the Court

is AFFIRMED with MODIFICATION.

Assailing the Decision and Resolution of the Court of Appeals in CA-G.R. CV No.
51930, dated 26 March 2002 and 20 November 2002, respectively, petitioners filed the present
Petition, docketed as G.R. No. 156132. The Petition was initially denied [17] by this Court for
failure of the petitioners to attach thereto a Certification against Forum Shopping. However,
upon petitioners Motion and compliance with the requirements, this Court resolved [18] to reinstate
the Petition.

The Petition presented fourteen (14) assignments of errors allegedly committed by the
Court of Appeals in its Decision, dated 26 March 2002, involving both questions of fact and
questions of law which this Court, for the sake of expediency, discusses jointly, whenever
possible, in the succeeding paragraphs.

The Resolution of this Court, dated 13 November

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

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

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

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

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

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

Respondent Sabeniano did not commit forum

shopping.

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

Petitioners contend that respondent committed forum shopping on the basis of the following
facts:

While petitioners Motion for Reconsideration of the Decision in CA-G.R. CV No. 51930,
dated 26 March 2002, was still pending before the Court of Appeals, respondent already filed
with this Court on 3 May 2002 her Motion for Extension of Time to File a Petition for Review of
the same Court of Appeals Decision, docketed as G.R. No. 152985. Thereafter, respondent
continued to participate in the proceedings before the Court of Appeals in CA-G.R. CV No.
51930 by filing her Comment, dated 17 July 2002, to petitioners Motion for Reconsideration;
and a Rejoinder, dated 23 September 2002, to petitioners Reply. Thus, petitioners argue that by
seeking relief concurrently from this Court and the Court of Appeals, respondent is undeniably
guilty of forum shopping, if not indirect contempt.

This Court, however, finds no sufficient basis to hold respondent liable for forum shopping.
Forum shopping has been defined as the filing of two or more suits involving the same parties
for the same cause of action, either simultaneously or successively, for the purpose of obtaining a
favorable judgment.[22] The test for determining forum shopping is whether in the two (or more)
cases pending, there is an identity of parties, rights or causes of action, and relief sought. [23] To
guard against this deplorable practice, Rule 7, Section 5 of the revised Rules of Court imposes
the following requirement

SEC. 5. Certification against forum shopping. The plaintiff or principal

party shall certify under oath in the complaint or other initiatory pleading
asserting a claim for relief, or in a sworn certification annexed thereto and
simultaneously filed therewith: (a) that he has not theretofore commenced any
action or filed any claim involving the same issues in any court, tribunal or quasi-
judicial agency and, to the best of his knowledge, no such other action or claim is
pending therein; (b) if there is such other pending action or claim, a complete
statement of the present status thereof; and (c) if he should thereafter learn that the
same or similar action or claim has been filed or is pending, he shall report that
fact within five (5) days therefrom to the court wherein his aforesaid complaint or
initiatory pleading has been filed.
 Failure to comply with the foregoing requirements shall not be curable by
mere amendment of the complaint or other initiatory pleading but shall be cause
for the dismissal of the case without prejudice, unless otherwise provided, upon
motion and after hearing. The submission of a false certification or non-
compliance with any of the undertakings therein shall constitute indirect contempt
of court, without prejudice to the corresponding administrative and criminal
actions. If the acts of the party or his counsel clearly constitute willful and
deliberate forum shopping, the same shall be ground for summary dismissal with
prejudice and shall constitute direct contempt, as well as cause for administrative
sanctions.

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

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

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

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

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

II

As an exception to the general rule, this Court

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

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

It is indubitable that the Court of Appeals made factual findings that are contrary to those
of the RTC,[25] thus, resulting in its substantial modification of the trial courts Decision, and a
ruling entirely in favor of the respondent. In addition, petitioners invoked in the instant Petition
for Review several exceptions that would justify this Courts review of the factual findings of the
Court of Appeals, i.e., the Court of Appeals made conflicting findings of fact; findings of fact
which went beyond the issues raised on appeal before it; as well as findings of fact premised on
the supposed absence of evidence and contradicted by the evidence on record.
On the basis of the foregoing, this Court shall proceed to reviewing and re-evaluating the
evidence on record in order to settle questions of fact raised in the Petition at bar.
The fact that the trial judge who rendered the
RTC Decision in Civil Case No. 11336, dated 24
August 1995, was not the same judge who heard
and tried the case, does not, by itself, render the
said Decision erroneous.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

This Court proceeds to making its own findings

of fact.

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

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

Deposit/Placement Amount
Dollar deposit with Citibank-Geneva $ 149,632.99
Money market placement with Citibank, evidenced by
Promissory Note (PN) No. 23356 (which cancels and
 supersedes PN No. 22526), earning 14.5% interest per
annum (p.a.) P 318,897.34
Money market placement with Citibank, evidenced by PN
No. 23357 (which cancels and supersedes PN No. 22528),
earning 14.5% interest p.a. P 203,150.00
Money market placement with FNCB Finance, evidenced
by PN No. 5757 (which cancels and supersedes PN No.
4952), earning 17% interest p.a. P 500,000.00
Money market placement with FNCB Finance, evidenced
by PN No. 5758 (which cancels and supersedes PN No.
2962), earning 17% interest p.a. P 500,000.00
This Court is tasked to determine whether petitioners are indeed liable to return the foregoing
amounts, together with the appropriate interests and penalties, to respondent. It shall trace
respondents transactions with petitioners, from her money market placements with petitioner
Citibank and petitioner FNCB Finance, to her savings and current accounts with petitioner
Citibank, and to her dollar accounts with Citibank-Geneva.

Money market placements with petitioner Citibank

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

Date Maturity Date

(mm/dd/yyyy) PN No. Cancels PN (mm/dd/yyyy) Amount Interest
No. (P) (p.a.)
12/06/1976 20773 None 01/13/1977 500,000.00 16%
01/14/1977 21686 20773 02/08/1977 508,444.44 15%
02/09/1977 22526 21686 03/16/1977 313,952.59 15-3/4%
22528 21686 03/16/1977 200,000.00 15-3/4%
03/17/1977 23356 22526 04/20/1977 318,897.34 14-1/2%
23357 22528 04/20/1977 203,150.00 14-1/2%

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

Petitioner Citibank did not deny the existence nor questioned the authenticity of PNs No.
23356 and 23357 it issued in favor of respondent for her money market placements. In fact, it
admitted the genuineness and due execution of the said PNs, but qualified that they were no
longer outstanding.[31] In Hibberd v. Rohde and McMillian,[32] this Court delineated the
consequences of such an admission

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

as provided in this section, is meant that the party whose signature it bears admits
that he signed it or that it was signed by another for him with his authority; that at
the time it was signed it was in words and figures exactly as set out in the
pleading of the party relying upon it; that the document was delivered; and that
any formal requisites required by law, such as a seal, an acknowledgment, or
revenue stamp, which it lacks, are waived by him. Hence, such defenses as that
the signature is a forgery (Puritan Mfg. Co. vs. Toti & Gradi, 14 N. M., 425;
Cox vs. Northwestern Stage Co., 1 Idaho, 376; Woollen vs. Whitacre, 73 Ind.,
198; Smith vs. Ehnert, 47 Wis., 479; Faelnar vs. Escao, 11 Phil. Rep., 92); or that
it was unauthorized, as in the case of an agent signing for his principal, or one
signing in behalf of a partnership (Country Bank vs. Greenberg, 127 Cal., 26;
Henshaw vs. Root, 60 Inc., 220; Naftzker vs. Lantz, 137 Mich., 441) or of a
corporation (Merchant vs. International Banking Corporation, 6 Phil Rep., 314;
Wanita vs. Rollins, 75 Miss., 253; Barnes vs. Spencer & Barnes Co., 162 Mich.,
509); or that, in the case of the latter, that the corporation was authorized under its
charter to sign the instrument (Merchant vs. International Banking
Corporation, supra); or that the party charged signed the instrument in some other
capacity than that alleged in the pleading setting it out (Payne vs. National Bank,
16 Kan., 147); or that it was never delivered (Hunt vs. Weir, 29 Ill., 83;
Elbring vs. Mullen, 4 Idaho, 199; Thorp vs. Keokuk Coal Co., 48 N.Y., 253; Fire
Association of Philadelphia vs. Ruby, 60 Neb., 216) are cut off by the admission
of its genuineness and due execution.

The effect of the admission is such that in the case of a promissory note a
prima facie case is made for the plaintiff which dispenses with the necessity of
evidence on his part and entitles him to a judgment on the pleadings unless a
special defense of new matter, such as payment, is interposed by the defendant
(Papa vs. Martinez, 12 Phil. Rep., 613; Chinese Chamber of Commerce vs. Pua To
Ching, 14 Phil. Rep., 222; Banco Espaol-Filipino vs. McKay & Zoeller, 27 Phil.
Rep., 183). x x x

Since the genuineness and due execution of PNs No. 23356 and 23357 are uncontested,
respondent was able to establish prima facie that petitioner Citibank is liable to her for the
amounts stated therein. The assertion of petitioner Citibank of payment of the said PNs is an
affirmative allegation of a new matter, the burden of proof as to such resting on petitioner
Citibank. Respondent having proved the existence of the obligation, the burden of proof was
upon petitioner Citibank to show that it had been discharged. [33] It has already been established
by this Court that

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

When the existence of a debt is fully established by the evidence contained

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

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

Petitioner Citibank presented the testimonies of two witnesses to support its contention of
payment: (1) That of Mr. Herminio Pujeda,[35] the officer-in-charge of loans and placements at the
time when the questioned transactions took place; and (2) that of Mr. Francisco Tan, [36] the
former Assistant Vice-President of Citibank, who directly dealt with respondent with regard to
her deposits and loans.

The relevant portion[37] of Mr. Pujedas testimony as to PNs No. 23356 and 23357
(referred to therein as Exhibits No. 47 and 48, respectively) is reproduced below

Atty. Mabasa:

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

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

Court:

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

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

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

A Based on documents, your Honor.

Court:

Are these documents still available now?

A Yes, your honor.

Court:

Better present the documents.

Atty. Mabasa:

Yes, your Honor, that is why your Honor.

Atty. Mabasa:

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

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

Q And you are saying time deposits with what bank?

A With First National Citibank.

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

A Yes, sir.

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

A In the amount of P500,000.00.

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

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

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

A Yes, sir.

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

A She funded it directly.

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

A That is right.

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

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

Mr. Tan : Yes, Sir.

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

Mr. Tan : Split into two time deposits.

Atty. Mabasa : Exhibits E and F?

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

Moreover, while there are documentary evidences to support and trace respondents
money market placements with petitioner Citibank, from the original PN No. 20773, rolled-over
several times to, finally, PNs No. 23356 and 23357, there is an evident absence of any
documentary evidence on the payment of these last two PNs and the use of the proceeds thereof
by respondent for opening TD accounts. The paper trail seems to have ended with the copies of
PNs No. 23356 and 23357. Although both Mr. Pujeda and Mr. Tan said that they based their
testimonies, not just on their memories but also on the documents on file, the supposed
documents on which they based those portions of their testimony on the payment of PNs No.
23356 and 23357 and the opening of the TD accounts from the proceeds thereof, were never
presented before the courts nor made part of the records of the case. Respondents money
market placements were of substantial amounts consisting of the principal amount
of P500,000.00, plus the interest it should have earned during the years of placement and it is
difficult for this Court to believe that petitioner Citibank would not have had documented the
payment thereof.
When Mr. Pujeda testified before the RTC on 6 February 1990, [39] petitioners counsel
attempted to present in evidence a document that would supposedly support the claim of
petitioner Citibank that the proceeds of PNs No. 23356 and 23357 were used by respondent to
open one of her two TD accounts in the amount of P500,000.00.Respondents counsel objected to
the presentation of the document since it was a mere xerox" copy, and was blurred and hardly
readable. Petitioners counsel then asked for a continuance of the hearing so that they can have
time to produce a better document, which was granted by the court. However, during the next
hearing and continuance of Mr. Pujedas testimony on 12 March 1990, petitioners counsel no
longer referred to the said document.
As respondent had established a prima facie case that petitioner Citibank is obligated to
her for the amounts stated in PNs No. 23356 and 23357, and as petitioner Citibank failed to
present sufficient proof of payment of the said PNs and the use by the respondent of the proceeds
thereof to open her TD accounts, this Court finds that PNs No. 23356 and 23357 are still
outstanding and petitioner Citibank is still liable to respondent for the amounts stated
therein.
The significance of this Courts declaration that PNs No. 23356 and 23357 are still outstanding
becomes apparent in the light of petitioners next contentions that respondent used the proceeds of
PNs No. 23356 and 23357, together with additional money, to open TD Accounts No. 17783 and
17784 with petitioner Citibank; and, subsequently, respondent pre-terminated these TD accounts
and transferred the proceeds thereof, amounting to P1,100,000.00, to petitioner FNCB Finance
for money market placements. While respondents money market placements with petitioner
FNCB Finance may be traced back with definiteness to TD Accounts No. 17783 and 17784,
there is only flimsy and unsubstantiated connection between the said TD accounts and the
supposed proceeds paid from PNs No. 23356 and 23357. With PNs No. 23356 and 23357 still
unpaid, then they represent an obligation of petitioner Citibank separate and distinct from the
obligation of petitioner FNCB Finance arising from respondents money market placements with
the latter.

Money market placements with petitioner FNCB Finance

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

Date Maturity Date

(mm/dd/yyyy) PN No. Cancels PN (mm/dd/yyyy) Amount Interest
No. (P) (p.a.)
04/29/1977 4952 None 06/01/1977 500,000.00 17%
4962 None 06/01/1977 600,000.00 17%
06/02/1977 5757 4952 08/31/1977 500,000.00 17%
5758 4962 08/31/1977 500,000.00 17%
08/31/1977 8167 5757 08/25/1978 500,000.00 14%
8169 5752 08/25/1978 500,000.00 14%
As presented by the petitioner FNCB Finance, respondent rolled-over only the principal amounts
of her money market placements as she chose to receive the interest income therefrom. Petitioner
FNCB Finance also pointed out that when PN No. 4962, with principal amount of P600,000.00,
matured on 1 June 1977, respondent received a partial payment of the principal which, together
with the interest, amounted to P102,633.33;[44] thus, only the amount of P500,000.00 from PN
No. 4962 was rolled-over to PN No. 5758.

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

Petitioner FNCB Finance presented four checks as proof of payment of the principal amounts
and interests of PNs No. 8167 and 8169 upon their maturity. All the checks were payable to
respondents savings account with petitioner Citibank, with the following details

Date of Issuance Amount

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

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

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

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

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

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

Savings and current accounts with petitioner Citibank

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

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

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

Dollar accounts with Citibank-Geneva

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

MODESTA SABENIANO &/OR

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

US$ 30000.-- Principal Fid. Placement

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

US$ 30244.06 Total proceeds on 25.10.1979

US$ 114000.-- Principal Fid. Placement

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

US$ 115317.33 Total proceeds on 25.10.1979

US$ 145561.39 Total proceeds of both placements on 25.10.1979

+ US$ 11381.31 total of both current accounts

US$ 156942.70 Total funds available

- US$ 149632.99 Transfer to Citibank Manila on 26.10.1979

(counter value of Pesos 1102944.78)

US$ 7309.71 Balance in current accounts

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

13, 1980

US$ 310.87 various charges including closing charges

According to the foregoing computation, by 25 October 1979, respondent had a total of
US$156,942.70, from which, US$149,632.99 was transferred by Citibank-Geneva to petitioner
Citibank in Manila, and was used by the latter to off-set respondents outstanding loans. The
balance of respondents accounts with Citibank-Geneva, after the remittance to petitioner
Citibank in Manila, amounted to US$7,309.71, which was subsequently expended by a transfer
to another account with Citibank-Zuerich, in the amount of US$6,998.84, and by payment of
various bank charges, including closing charges, in the amount of US$310.87. Rightly so, both
the RTC and the Court of Appeals gave more credence to the computation of Citibank-Geneva as
to the status of respondents accounts with the said bank, rather than the one prepared by
respondent herself, which was evidently self-serving. Once again, this Court shall limit itself to
determining whether or not respondent is entitled to the return of the amount of US$149,632.99
should the off-set thereof by petitioner Citibank against her alleged outstanding loans be found
invalid. Respondent cannot claim any greater amount since she did not perfect an appeal of the
Decision of the Court of Appeals, dated 26 March 2002, which found that she is entitled only to
the return of the said amount, as far as her accounts with Citibank-Geneva is concerned.

III
Petitioner Citibank was able to establish by
preponderance of evidence the existence of
respondents loans.

Petitioners version of events

In sum, the following amounts were used by petitioner Citibank to liquidate respondents
purported outstanding loans

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

Total P 2,156,940.58

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

Date of Date of Date of

PN Issuance Maturity Principal Release MC
No. (mm/dd/yyyy) (mm/dd/yyyy) Amount (mm/dd/yyyy) 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 P1,920,000.00
When respondent was unable to pay the first set of PNs upon their maturity, these were rolled-
over or renewed several times, necessitating the execution by respondent of new PNs in favor of
petitioner Citibank. As of 5 April 1979, respondent had the following outstanding PNs (second
set),[56] the principal amount of which remained at P1,920,000.00

Date of Issuance Date of Maturity

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

Total P 1,920,000.00

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

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

The first letter[62] was dated 5 April 1979, addressed to respondent and signed by Mr. Tan, as the
manager of petitioner Citibank, which stated, in part, that

Despite our repeated requests and follow-up, we regret you have not granted us
with any response or payment.

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

Respondent sent a reply letter[63] dated 26 April 1979, printed on paper bearing the letterhead of
respondents company, MC Adore International Palace, the body of which reads

This is in reply to your letter dated April 5, 1979 inviting my attention to my loan
which has become due. Pursuant to our representation with you over the
telephone through Mr. F. A. Tan, you allow us to pay the interests due for the
meantime.

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

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

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

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

Secretary, sent a letter[64] to petitioner Citibank, on behalf of respondent. The letter was again
printed on paper bearing the letterhead of MC Adore International Palace. The pertinent
paragraphs of the said letter are reproduced below

Per instructions of Mrs. Modesta R. Sabeniano, we would like to request for a re-
computation of the interest and penalty charges on her loan in the aggregate
amount of P1,920,000.00 with maturity date of all promissory notes at June 30,
1979. As she has personally discussed with you yesterday, this date will more or
less assure you of early settlement.
 In this regard, please entrust to bearer, our Comtrust check for P62,683.33 to be
replaced by another check with amount resulting from the new computation. Also,
to facilitate the processing of the same, may we request for another set of
promissory notes for the signature of Mrs. Sabeniano and to cancel the previous
ones she has signed and forwarded to you.

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

The next letter,[66] dated 21 June 1979, was signed by respondent herself and addressed to
Mr. Bobby Mendoza, a Manager of petitioner FNCB Finance. Respondent wrote therein

Re: PN No. 20138 for P500,000.00 & PN No. 20139

for P500,000.00 totalling P1 Million, both PNs will
mature on 9/3/1979.

This is to authorize you to release the accrued quarterly interests payment

from my captioned placements and forward directly to Citibank, Manila
Attention: Mr. F. A. Tan, Manager, to apply to my interest payable on my
outstanding loan with Citibank.

Please note that the captioned two placements are continuously

pledged/hypothecated to Citibank, Manila to support my personal outstanding
loan. Therefore, please do not release the captioned placements upon maturity
until you have received the instruction from Citibank, Manila.
On even date, respondent sent another letter[67] to Mr. Tan of petitioner Citibank, stating
that

Re: S/A No. 25-225928

and C/A No. 484-946

This letter serves as an authority to debit whatever the outstanding balance

from my captioned accounts and credit the amount to my loan outstanding
account with you.

Unlike respondents earlier letters, both letters, dated 21 June 1979, are printed on plain paper,
without the letterhead of her company, MC Adore International Palace.
By 5 September 1979, respondents outstanding and past due obligations to petitioner Citibank
totaled P2,123,843.20, representing the principal amounts plus interests. Relying on respondents
Deeds of Assignment, petitioner Citibank applied the proceeds of respondents money market
placements with petitioner FNCB Finance, as well as her deposit account with petitioner
Citibank, to partly liquidate respondents outstanding loan balance,[68] as follows

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

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

Balance of respondents obligation P 1,069,847.40

Mr. Tan of petitioner Citibank subsequently sent a letter,[69] dated 28 September 1979, notifying
respondent of the status of her loans and the foregoing compensation which petitioner Citibank
effected. In the letter, Mr. Tan informed respondent that she still had a remaining past-due
obligation in the amount of P1,069,847.40, as of 5 September 1979, and should respondent fail to
pay the amount by 15 October 1979, then petitioner Citibank shall proceed to off-set the unpaid
amount with respondents other collateral, particularly, a money market placement in Citibank-
Hongkong.

On 5 October 1979, respondent wrote Mr. Tan of petitioner Citibank, on paper bearing the
letterhead of MC Adore International Palace, as regards the P1,920,000.00 loan account
supposedly of MC Adore Finance & Investment, Inc., and requested for a statement of account
covering the principal and interest of the loan as of 31 October 1979. She stated therein that the
loan obligation shall be paid within 60 days from receipt of the statement of account.

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

Eventually, Atty. Antonio Agcaoili of Agcaoili & Associates, as counsel of petitioner Citibank,
sent a letter to respondent, dated 31 October 1979, informing her that petitioner Citibank had
effected an off-set using her account with Citibank-Geneva, in the amount of US$149,632.99,
against her outstanding, overdue, demandable and unpaid obligation to petitioner Citibank. Atty.
Agcaoili claimed therein that the compensation or off-set was made pursuant to and in
accordance with the provisions of Articles 1278 through 1290 of the Civil Code. He further
declared that respondents obligation to petitioner Citibank was now fully paid and liquidated.

Unfortunately, on 7 October 1987, a fire gutted the 7 th floor of petitioner Citibanks building at
Paseo de Roxas St., Makati, Metro Manila. Petitioners submitted a Certification[70] to this effect,
dated 17 January 1991, issued by the Chief of the Arson Investigation Section, Fire District III,
Makati Fire Station, Metropolitan Police Force.The 7 th floor of petitioner Citibanks building
housed its Control Division, which was in charge of keeping the necessary documents for cases
in which it was involved. After compiling the documentary evidence for the present case, Atty.
Renato J. Fernandez, internal legal counsel of petitioner Citibank, forwarded them to the Control
Division. The original copies of the MCs, which supposedly represent the proceeds of the first
set of PNs, as well as that of other documentary evidence related to the case, were among those
burned in the said fire.[71]

Respondents version of events

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

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

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

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

Findings of this Court as to the existence of the loans

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

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

petitioner Citibank.

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

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

In general, a crossed check cannot be presented to the drawee bank for payment in cash. Instead,
the check can only be deposited with the payees bank which, in turn, must present it for payment
against the drawee bank in the course of normal banking hours. The crossed check cannot be
presented for payment, but it can only be deposited and the drawee bank may only pay to another
bank in the payees or indorsers account. [80] The effect of crossing a check was described by this
Court in Philippine Commercial International Bank v. Court of Appeals[81]

[T]he crossing of a check with the phrase Payees Account Only is a warning that
the check should be deposited in the account of the payee. Thus, it is the duty of
the collecting bank PCI Bank to ascertain that the check be deposited in payees
account only. It is bound to scrutinize the check and to know its depositors before
it can make the clearing indorsement all prior indorsements and/or lack of
indorsement guaranteed.

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

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

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

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

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

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

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

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

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

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

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

Respondent presented several more pieces of evidence to substantiate her claim that she received
MCs No. 226285, 226439, 226467, 226057, 228357, and 228400, not as proceeds of her loans
from petitioner Citibank, but as the return of the principal amounts and payment of interests from
her money market placements with petitioners. Part of respondents exhibits were personal
checks[95] drawn by respondent on her account with Feati Bank & Trust Co., which she allegedly
invested in separate money market placements with both petitioners, the returns from which were
paid to her via MCs No. 226285 and 228400. Yet, to this Court, the personal checks only
managed to establish respondents issuance thereof, but there was nothing on the face of the
checks that would reveal the purpose for which they were issued and that they were actually
invested in money market placements as respondent claimed.
 Respondent further submitted handwritten notes that purportedly computed and presented
the returns on her money market placements, corresponding to the amount stated in the MCs she
received from petitioner Citibank. Exhibit HHH-1[96] was a handwritten note, which respondent
attributed to Mr. Tan of petitioner Citibank, showing the breakdown of her BPI Check
for P500,000.00 into three different money market placements with petitioner Citibank. This
Court, however, noticed several factors which render the note highly suspect. One, it was written
on the reversed side of Provisional Receipt No. 12724 of petitioner Citibank which bore the
initials of Mr. Tan acknowledging receipt of respondents BPI Check No. 120989
for P500,000.00; but the initials on the handwritten note appeared to be that of Mr. Bobby
Mendoza of petitioner FNCB Finance.[97]Second, according to Provisional Receipt No. 12724,
BPI Check No. 120989 for P500,000.00 was supposed to be invested in three money market
placements with petitioner Citibank for the period of 60 days. Since all these money market
placements were made through one check deposited on the same day, 10 November 1978, it
made no sense that the handwritten note at the back of Provisional Receipt No. 12724 provided
for different dates of maturity for each of the money market placements (i.e., 16 November 1978,
17 January 1979, and 21 November 1978), and such dates did not correspond to the 60 day
placement period stated on the face of the provisional receipt. And third, the principal amounts
of the money market placements as stated in the handwritten note P145,000.00, P145,000.00
and P242,000.00 totaled P532,000.00, and was obviously in excess of the P500,000.00
acknowledged on the face of Provisional Receipt No. 12724.

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

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

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

Since this Court is satisfied that respondent indeed received the proceeds of the first set of PNs,
then it proceeds to analyze her evidence of payment thereof.

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

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

Since a negotiable instrument is only a substitute for money and not

money, the delivery of such an instrument does not, by itself, operate as payment
(Sec. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan Landon Co. v.
American Bank, 7 Phil. 255; Tan Sunco, v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61).
A check, whether a manager's check or ordinary check, is not legal tender, and an
offer of a check in payment of a debt is not a valid tender of payment and may be
refused receipt by the obligee or creditor. Mere delivery of checks does not
discharge the obligation under a judgment. The obligation is not extinguished and
remains suspended until the payment by commercial document is actually realized
(Art. 1249, Civil Code, par. 3).

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

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

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

In contrast, petitioner Citibank, as supported by the testimonies of its officers and available
documentation, consistently treated the said PNs as regular loans accepted, approved, and paid in
the ordinary course of its business.

The PNs executed by the respondent in favor of petitioner Citibank to cover her loans were duly-
filled out and signed, including the disclosure statement found at the back of the said PNs, in
adherence to the Central Bank requirement to disclose the full finance charges to a loan granted
to borrowers.
 Mr. Tan, then an account officer with the Marketing Department of petitioner Citibank,
testified that he dealt directly with respondent; he facilitated the loans; and the PNs, at least in
the second set, were signed by respondent in his presence.[105]

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

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

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

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

In consideration of the foregoing discussion, this Court finds that the preponderance of
evidence supports the existence of the respondents loans, in the principal sum ofP1,920,000.00,
as of 5 September 1979. While it is well-settled that the term preponderance of evidence should
not be wholly dependent on the number of witnesses, there are certain instances when the
number of witnesses become the determining factor

The preponderance of evidence may be determined, under certain

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

Best evidence rule

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

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

SEC. 3. Original document must be produced; exceptions. When the

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

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

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

Thus, when a document is presented to prove its existence or condition it

is offered not as documentary, but as real, evidence. Parol evidence of the fact of
execution of the documents is allowed (Hernaez, et al. vs. McGrath, etc., et al.,
91 Phil 565). x x x [115]

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

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

xxxx

In several Canadian provinces, the principle of unavailability has been

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

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

SEC. 5. When the original document is unavailable. When the original

document has been lost or destroyed, or cannot be produced in court, the offeror,
upon proof of its execution or existence and the cause of its unavailability without
bad faith on his part, may prove its contents by a copy, or by a recital of its
contents in some authentic document, or by the testimony of witnesses in the
order stated.

The execution or existence of the original copies of the documents was established
through the testimonies of witnesses, such as Mr. Tan, before whom most of the documents were
personally executed by respondent. The original PNs also went through the whole loan booking
system of petitioner Citibank from the account officer in its Marketing Department, to the pre-
processor, to the signature verifier, back to the pre-processor, then to the processor for booking.
[117]
The original PNs were seen by Ms. Dondoyano, the processor, who recorded them in the
General Ledger. Mr. Pujeda personally saw the original MCs, proving respondents receipt of the
proceeds of her loans from petitioner Citibank, when he helped Attys. Cleofe and Fernandez, the
banks legal counsels, to reconstruct the records of respondents loans. The original MCs were
presented to Atty. Cleofe who used the same during the preliminary investigation of the case,
sometime in years 1986-1987. The original MCs were subsequently turned over to the Control
and Investigation Division of petitioner Citibank.[118]

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

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

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

Besides, We find the declaration and conclusions of this Court in CA-G.R.

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

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

As the factual milieu of the present appeal created reasonable doubts as to

whether the nine (9) Promissory Notes were indeed executed with
considerations, the doubts, coupled by the findings and conclusions of this Court
in CA-G.R. CV No. 15934 and the Supreme Court in G.R. No. 93350. should be
construed against herein defendants-appellants Citibank and FNCB Finance.
What this Court truly finds disturbing is the significance given by the Court of Appeals in its
assailed Decision to the Decision[119] of its Third Division in CA-G.R. CV No. 15934 (or the Dy
case), when there is an absolute lack of legal basis for doing such.

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

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

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

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

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

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

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

IV

The liquidation of respondents outstanding loans

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

Savings Account with petitioner Citibank

Compensation is a recognized mode of extinguishing obligations. Relevant provisions of the

Civil Code provides

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

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

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

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

Money market placements with FNCB Finance

Things though are not as simple and as straightforward as regards to the money market
placements and bank account used by petitioner Citibank to complete the compensation or off-set
of respondents outstanding loans, which came from persons other than petitioner Citibank.

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

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

The Court of Appeals did not consider these Deeds of Assignment because of petitioners
failure to produce the original copies thereof in violation of the best evidence rule. This Court
again finds itself in disagreement in the application of the best evidence rule by the appellate
court.

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

Moreover, the Deeds of Assignment of the money market placements with petitioner
FNCB Finance were notarized documents, thus, admissible in evidence. Rule 132, Section 30 of
the Rules of Court provides that

SEC. 30. Proof of notarial documents. Every instrument duly

acknowledged or proved and certified as provided by law, may be presented in
evidence without further proof, the certificate of acknowledgement being prima
facie evidence of the execution of the instrument or document involved.
Significant herein is this Courts elucidation in De Jesus v. Court of Appeals,[124] which
reads

On the evidentiary value of these documents, it should be recalled that the

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

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

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

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

The ASSIGNOR and the ASSIGNEE hereby further agree as follows:

xxxx

2. In the event the OBLIGATIONS are not paid at maturity or upon

demand, as the case may be, the ASSIGNEE is fully authorized and empowered
to collect and receive the PLACEMENT (or so much thereof as may be
necessary) and apply the same in payment of the OBLIGATIONS. Furthermore,
the ASSIGNOR agrees that at any time, and from time to time, upon request by
the ASSIGNEE, the ASSIGNOR will promptly execute and deliver any and all
such further instruments and documents as may be necessary to effectuate this
Assignment.

xxxx

5. This Assignment shall be considered as sufficient authority to FNCB

Finance to pay and deliver the PLACEMENT or so much thereof as may be
necessary to liquidate the OBLIGATIONS, to the ASSIGNEE in accordance with
terms and provisions hereof.[130]

Petitioner Citibank was only acting upon the authority granted to it under the foregoing Deeds
when it finally used the proceeds of PNs No. 20138 and 20139, paid by petitioner FNCB
Finance, to partly pay for respondents outstanding loans. Strictly speaking, it did not effect a
legal compensation or off-set under Article 1278 of the Civil Code, but rather, it partly
extinguished respondents obligations through the application of the security given by the
respondent for her loans. Although the pertinent documents were entitled Deeds of Assignment,
they were, in reality, more of a pledge by respondent to petitioner Citibank of her credit due from
petitioner FNCB Finance by virtue of her money market placements with the latter. According to
Article 2118 of the Civil Code
 ART. 2118. If a credit has been pledged becomes due before it is
redeemed, the pledgee may collect and receive the amount due. He shall apply the
same to the payment of his claim, and deliver the surplus, should there be any, to
the pledgor.

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

Dollar accounts with Citibank-Geneva

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

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

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

First of all, it escapes this Court why petitioner Citibank took care to have the Deeds of
Assignment of the PNs notarized, yet left the Declaration of Pledge unnotarized. This Court
would think that petitioner Citibank would take greater cautionary measures with the preparation
and execution of the Declaration of Pledge because it involved respondents all present and future
fiduciary placements with a Citibank branch in another country, specifically, in Geneva,
Switzerland. While there is no express legal requirement that the Declaration of Pledge had to be
notarized to be effective, even so, it could not enjoy the same prima facie presumption of due
execution that is extended to notarized documents, and petitioner Citibank must discharge the
burden of proving due execution and authenticity of the Declaration of Pledge.

Second, petitioner Citibank was unable to establish the date when the Declaration of Pledge was
actually executed. The photocopy of the Declaration of Pledge submitted by petitioner Citibank
before the RTC was undated.[132] It presented only a photocopy of the pledge because it already
forwarded the original copy thereof to Citibank-Geneva when it requested for the remittance of
respondents dollar accounts pursuant thereto. Respondent, on the other hand, was able to secure
a copy of the Declaration of Pledge, certified by an officer of Citibank-Geneva, which bore the
date 24 September 1979.[133] Respondent, however, presented her passport and plane tickets to
prove that she was out of the country on the said date and could not have signed the
pledge. Petitioner Citibank insisted that the pledge was signed before 24 September 1979, but
could not provide an explanation as to how and why the said date was written on the
pledge. Although Mr. Tan testified that the Declaration of Pledge was signed by respondent
personally before him, he could not give the exact date when the said signing took place. It is
important to note that the copy of the Declaration of Pledge submitted by the respondent to the
RTC was certified by an officer of Citibank-Geneva, which had possession of the original copy
of the pledge. It is dated 24 September 1979, and this Court shall abide by the presumption that
the written document is truly dated.[134] Since it is undeniable that respondent was out of the
country on 24 September 1979, then she could not have executed the pledge on the said date.

Third, the Declaration of Pledge was irregularly filled-out. The pledge was in a standard printed
form. It was constituted in favor of Citibank, N.A., otherwise referred to therein as the Bank. It
should be noted, however, that in the space which should have named the pledgor, the name of
petitioner Citibank was typewritten, to wit

The pledge right herewith constituted shall secure all claims which the Bank now
has or in the future acquires against Citibank, N.A., Manila (full name and
address of the Debtor), regardless of the legal cause or the transaction (for
example current account, securities transactions, collections, credits, payments,
documentary credits and collections) which gives rise thereto, and including
principal, all contractual and penalty interest, commissions, charges, and costs.

The pledge, therefore, made no sense, the pledgor and pledgee being the same entity. Was a
mistake made by whoever filled-out the form? Yes, it could be a possibility.Nonetheless,
considering the value of such a document, the mistake as to a significant detail in the pledge
could only be committed with gross carelessness on the part of petitioner Citibank, and raised
serious doubts as to the authenticity and due execution of the same. The Declaration of Pledge
had passed through the hands of several bank officers in the country and abroad, yet, surprisingly
and implausibly, no one noticed such a glaring mistake.

Lastly, respondent denied that it was her signature on the Declaration of Pledge. She claimed that
the signature was a forgery. When a document is assailed on the basis of forgery, the best
evidence rule applies

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

As a rule, forgery cannot be presumed and must be proved by clear,

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

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

Without the Declaration of Pledge, petitioner Citibank had no authority to demand the
remittance of respondents dollar accounts with Citibank-Geneva and to apply them to her
outstanding loans. It cannot effect legal compensation under Article 1278 of the Civil Code
since, petitioner Citibank itself admitted that Citibank-Geneva is a distinct and separate
entity. As for the dollar accounts, respondent was the creditor and Citibank-Geneva is the debtor;
and as for the outstanding loans, petitioner Citibank was the creditor and respondent was the
debtor. The parties in these transactions were evidently not the principal creditor of each other.

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

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

Petitioner Citibank is also ordered to refund to respondent the amount of US$149,632.99,

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

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

VI

Petitioner Citibank shall be liable for damages to

respondent.

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

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

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

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

A I am engaged in real estate. I am the owner of the Modesta Village 1 and 2 in

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

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

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

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

A Yes sir.

Q What are those?

A I am the Vice-President of thes [sic] Subdivision Association of the Philippines

in 1976, I am also an officer of the Chamber of Real Estate Business
Association; I am also an officer of the Chatholic [sic] Womens League
and I am also a member of the CMLI, I forgot the definition.
Q How about any political affiliation or government position held if any?

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

Q Where?

A In Dagupan City, Pangasinan.

Q What else?

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

I, Pangasinan.

Q What happened to your businesses you mentioned as a result of your failure to

recover you [sic] investments and bank deposits from the defendants?

A They are not all operating, in short, I was hampered to push through the
businesses that I have.

A [sic] Of all the businesses and enterprises that you mentioned what are those
that are paralyzed and what remain inactive?

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

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

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

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

A Yes sir, definitely.

Q How?

A I was embarrassed because being a businesswoman I would like to inform the

Honorable Court that I was awarded as the most outstanding
businesswoman of the year in 1976 but when this money was not given
back to me I was not able to comply with the commitments that I have
promised to these associations that I am engaged into [sic], sir.
For the mental anguish, serious anxiety, besmirched reputation, moral shock and social
humiliation suffered by the respondent, the award of moral damages is but proper.However, this
Court reduces the amount thereof to P300,000.00, for the award of moral damages is meant to
compensate for the actual injury suffered by the respondent, not to enrich her.[145]

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

With the award of exemplary damages, then respondent shall also be entitled to an award of
attorneys fees.[148] Additionally, attorney's fees may be awarded when a party is compelled to
litigate or to incur expenses to protect his interest by reason of an unjustified act of the other
party.[149] In this case, an award of P200,000.00 attorneys fees shall be satisfactory.

In contrast, this Court finds no sufficient basis to award damages to petitioners. Respondent was
compelled to institute the present case in the exercise of her rights and in the protection of her
interests. In fact, although her Complaint before the RTC was not sustained in its entirety, it did
raise meritorious points and on which this Court rules in her favor. Any injury resulting from the
exercise of ones rights is damnum absque injuria.[150]

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

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

1. PNs No. 23356 and 23357 are DECLARED subsisting and outstanding. Petitioner
Citibank is ORDERED to return to respondent the principal amounts of the said PNs, amounting
to Three Hundred Eighteen Thousand Eight Hundred Ninety-Seven Pesos and Thirty-Four
Centavos (P318,897.34) and Two Hundred Three Thousand One Hundred Fifty Pesos
(P203,150.00), respectively, plus the stipulated interest of Fourteen and a half percent (14.5%)
per annum, beginning 17 March 1977;

2. The remittance of One Hundred Forty-Nine Thousand Six Hundred Thirty Two US
Dollars and Ninety-Nine Cents (US$149,632.99) from respondents Citibank-Geneva accounts to
petitioner Citibank in Manila, and the application of the same against respondents outstanding
loans with the latter, is DECLARED illegal, null and void. Petitioner Citibank is ORDERED to
refund to respondent the said amount, or its equivalent in Philippine currency using the exchange
rate at the time of payment, plus the stipulated interest for each of the fiduciary placements and
current accounts involved, beginning 26 October 1979;

3. Petitioner Citibank is ORDERED to pay respondent moral damages in the amount of

Three Hundred Thousand Pesos (P300,000.00); exemplary damages in the amount of Two
Hundred Fifty Thousand Pesos (P250,000.00); and attorneys fees in the amount of Two Hundred
Thousand Pesos (P200,000.00); and
 4. Respondent is ORDERED to pay petitioner Citibank the balance of her outstanding
loans, which, from the respective dates of their maturity to 5 September 1979, was computed to
be in the sum of One Million Sixty-Nine Thousand Eight Hundred Forty-Seven Pesos and Forty
Centavos (P1,069,847.40), inclusive of interest. These outstanding loans shall continue to earn
interest, at the rates stipulated in the corresponding PNs, from 5 September 1979 until payment
thereof.
SO ORDERED.

NATIONAL POWER CORPORATION, G.R. No. 170491

Petitioner,

Present:
- versus -

YNARES-SANTIAGO, J.,
Chairperson,
HON. RAMON G. CODILLA, JR.,
Presiding Judge, RTC of Cebu, Br. 19,
AUSTRIA-MARTINEZ,
BANGPAI SHIPPING COMPANY, and
CALLEJO, SR.,
WALLEM SHIPPING,
CHICO-NAZARIO, and
INCORPORATED,
NACHURA, JJ.
Respondents.
Promulgated:

April 4, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

Before Us is a Petition for Review on Certiorari under Rule 45 of the Rules of Civil
Procedure, assailing the Decision[1] of the Court of Appeals in CA-G.R. CEB-SP No. 00848,
dated 9 November 2005, which dismissed the Petition for Certiorari filed by the National Power
Corporation seeking to set aside the Order [2] issued by the Regional Trial Court (RTC) of Cebu,
Branch 19 dated 16 November 2004, denying admission and excluding from the records
plaintiffs (herein petitioner) Exhibits A, C, D, E, H and its sub-markings, I, J, and its sub-
markings, K, L, M and its sub-markings, N and its sub-markings, O, P and its sub-markings, Q
and its sub-markings, R and S and its sub-markings.
 On 20 April 1996, M/V Dibena Win, a vessel of foreign registry owned and operated by
private respondent Bangpai Shipping, Co., allegedly bumped and damaged petitioners Power
Barge 209 which was then moored at the Cebu International Port. Thus, on 26 April 1996,
petitioner filed before the Cebu RTC a complaint for damages against private
respondent Bangpai Shipping Co., for the alleged damages caused on petitioners power barges.

Thereafter, petitioner filed an Amended Complaint dated 8 July 1996 impleading herein
private respondent Wallem Shipping, Inc., as additional defendant, contending that the latter is a
ship agent of Bangpai Shipping Co. On 18 September 1996, Wallem Shipping, Inc. filed a
Motion to Dismiss which was subsequently denied by public respondent Judge in an Order
dated 20 October 1998. Bangpai Shipping Co. likewise filed a Motion to Dismiss which was
also denied by public respondent Judge in an Order issued on 24 January 2003.

Petitioner, after adducing evidence during the trial of the case, filed a formal offer of
evidence before the lower court on 2 February 2004 consisting of Exhibits A to V together with
the sub-marked portions thereof. Consequently, private respondents Bangpai Shipping Co.
and Wallem Shipping, Inc. filed their respective objections to petitioners formal offer of
evidence.

On 16 November 2004, public respondent judge issued the assailed order denying the
admission and excluding from the records petitioners Exhibits A, C, D, E, H and its sub-
markings, I, J and its sub-markings, K, L, M and its sub-markings, N and its sub-markings, O, P
and its sub-markings, Q and its sub-markings, R and S and its sub-markings.According to the
court a quo:

The Court finds merit in the objections raised and the motion to strike out
filed respectively by the defendants. The record shows that the plaintiff has been
given every opportunity to present the originals of the Xerox or photocopies of
the documents it offered. It never produced the originals. The plaintiff attempted
to justify the admission of the photocopies by contending that the photocopies
offered are equivalent to the original of the document on the basis of the
Electronic Evidence (Comment to Defendant Wallem Philippines Objections and
Motion to Strike). But as rightly pointed out in defendant Wallems Reply to the
Comment of Plaintiff, the Xerox copies do not constitute the electronic evidence
defined in Section 1 of Rule 2 of the Rules on Electronic Evidence as follows:

(h) Electronic document refers to information or the

representation of information, data, figures, symbols or other
models of written expression, described or however represented,
by which a right is established or an obligation extinguished, or by
which a fact may be proved and affirmed, which is received,
recorded, transmitted, stored, processed, retrieved or produced
electronically. It includes digitally signed documents and any
printout, readable by sight or other means which accurately reflects
the electronic data message or electronic document. For the
 purpose of these Rules, the term electronic document may be used
interchangeably with electronic data message.

The information in those Xerox or photocopies was not received, recorded,

retrieved or produced electronically. Moreover, such electronic evidence must be
authenticated (Sections 1 and 2, Rule 5, Rules on Electronic Evidence), which the
plaintiff failed to do. Finally, the required Affidavit to prove the admissibility and
evidentiary weight of the alleged electronic evidence (Sec. 1, Rule 9, Ibid) was
not executed, much less presented in evidence.

The Xerox or photocopies offered should, therefore, be stricken off the

record. Aside from their being not properly identified by any competent witness,
the loss of the principals thereof was not established by any competent proof.

xxxx

WHEREFORE, plaintiffs Exhibits A, C, D, E, H and its sub-markings, I, J,

and its sub-markings, K, L, M and its sub-markings, N and its sub-markings, O, P
and its sub-markings, Q and its sub-markings, and R are hereby DENIED
admission and excluded from the records. However, these excluded evidence
should be attached to the records of this case to enable the appellate court to pass
upon them should an appeal be taken from the decision on the merits to be
rendered upon the termination of the trial of this case.

Exhibits S and its sub-markings are also DENIED admission for lack of
proper identification since the witness who brought these pictures expressly
admitted that he was not present when the photos were taken and had not
knowledge when the same where taken.[3]
Upon denial of petitioners Motion for Reconsideration in an Order dated 20 April 2005,
petitioner filed a Petition for Certiorari under Rule 65 of the Rules of Civil Procedure before the
Court of Appeals maintaining that public respondent Judge acted with grave abuse of discretion
amounting to lack or excess of jurisdiction in denying the admission of its Exhibits A, C, D, E, H
and its sub-markings, I, J and its sub-markings, K, L, M and its sub-markings, N and its sub-
markings, O, P and its sub-markings, Q and its sub-markings, R, and S and its sub-markings.

On 9 November 2005, the appellate court issued a Decision dismissing petitioners

petition for certiorari, the pertinent portions of which elucidate:

After a judicious scrutiny of the record of the case on hand, together with
the rules and jurisprudence which are applicable in the premises, we have come
up with a finding that the petition for certiorari filed in this case is not
meritorious.

It appears that there is no sufficient showing by the petitioner that the

respondent judge acted with grave abuse of discretion in issuing the assailed
orders in Civil Case No. CEB-18662.As what our jurisprudence tells us, grave
abuse of discretion is meant such capricious and whimsical exercise of judgment
as would be equivalent to lack of jurisdiction x x x.

In the case at bench, what has been shown to the contrary by the totality of
the record on hand is that the respondent judge acted correctly and within the pale
of his sound discretion in issuing the assailed order, dated November 16, 2004, in
Civil Case No. CEB-18662.

Indeed, it appears that the pieces of petitioners documentary evidence

which were denied admission by the respondent judge were not properly
identified by any competent witness. As pointed out by the
respondent Bangpai Shipping Company in its comment on the petition filed in this
case which reproduces some excerpts of the testimonies in the court a quo of
Atty. Marianito De Los Santos, Engr. Nestor Enriquez, Jr. and
Mr. Rodulfo I. Pagaling, the said witnesses did not have personal knowledge of
and participation in the preparation and making of the pieces of documentary
evidence denied admission by respondent judge x x x. In other words, there was
lack of proper identification of said pieces of documentary evidence. x x x.

Then another ground for denying admission of petitioners Exhibits A, C,

D, E, H, I, J, K, L, M, N, O, P, Q, R, and S by the respondent judge is that said
pieces of documentary evidence were merely photocopies of purported documents
or papers. There is no gainsaying the fact that the respondent judge acted within
the pale of his discretion when he denied admission of said documentary
evidence. Section 3 of Rule 130 of the Rules of Court of the Philippines is very
explicit in providing that, when the subject of inquiry are the contents of
documents, no evidence shall be admissible other than the original documents
themselves, except in certain cases specifically so enumerated therein, and the
petitioner has not shown that the non-presentation or non-production of its
original documentary pieces of evidence falls under such exceptions. As aptly
pointed out by the respondent judge in the order issued by him on November 16,
2004:

x x x The record shows that the plaintiff (petitioner herein)

has been given every opportunity to present the originals of the
Xerox or photocopies of the documents it offered. It never
produced said originals.

So, the petitioner has only itself to blame for the respondent judges denial
of admission of its aforementioned documentary evidence.

Of course, the petitioner tries to contend that the photocopies of

documents offered by it are equivalent to the original documents that it sought to
offer in evidence, based on the Rules on Electronic Evidence which were in force
and effect since August 1, 2001. However, such a contention is devoid of
merit. The pieces of documentary evidence offered by the petitioner in Civil Case
 CEB-18662 which were denied admission by the respondent judge do not actually
constitute as electronic evidence as defined in the Rules on Electronic
Evidence. The informationstherein were not received, retrieved or produced
electronically. The petitioner has not adequately established that its documentary
evidence were electronic evidence. it has not properly authenticated such
evidence as electronic documents, assuming arguendo that they are. Lastly, the
petitioner has not properly established by affidavit pursuant to Rule 9 of the Rules
on Electronic Evidence the admissibility and evidentiary weight of said
documentary evidence.

Thus, by any legal yardstick, it is manifest that the respondent judge did
not commit grave abuse of discretion in denying admission of the aforementioned
documentary evidence of petitioner.

But even if it be granted just for the sake of argument that the respondent
judge committed an error in denying the aforementioned documentary evidence of
the petitioner, still the petition for certiorari filed in this case must fail. Such error
would at most be only an error of law and not an error of jurisdiction. In Lee vs.
People, 393 SCRA 397, the Supreme Court of the Philippines said that certiorari
will not lie in case of an error of law. x x x.

WHEREFORE, in view of the foregoing premises, judgment is hereby

rendered by us DISMISSING the petition filed in this case and AFFIRMING the
assailed orders issued by respondent judge in Civil Case No. CEB-18662.[4]

Aggrieved by the aforequoted decision, petitioner filed the instant petition.

The focal point of this entire controversy is petitioners obstinate contention that the
photocopies it offered as formal evidence before the trial court are the functional equivalent of
their original based on its inimitable interpretation of the Rules on Electronic Evidence.

Petitioner insists that, contrary to the rulings of both the trial court and the appellate
court, the photocopies it presented as documentary evidence actually constitute electronic
evidence based on its own premise that an electronic document as defined under Section 1(h),
Rule 2 of the Rules on Electronic Evidence is not limited to information that is received,
recorded, retrieved or produced electronically. Rather, petitioner maintains that an electronic
document can also refer to other modes of written expression that is produced electronically,
such as photocopies, as included in the sections catch-all proviso: any print-out or output,
readable by sight or other means.

We do not agree.

In order to shed light to the issue of whether or not the photocopies are indeed electronic
documents as contemplated in Republic Act No. 8792 or the Implementing Rules and
Regulations of the Electronic Commerce Act, as well as the Rules on Electronic Evidence, we
shall enumerate the following documents offered as evidence by the petitioner, to wit:
1. Exhibit A is a photocopy of a letter manually signed by a certain Jose C. Troyo, with
RECEIVED stamped thereon, together with a handwritten date;

2. Exhibit C is a photocopy of a list of estimated cost of damages of petitioners power

barges 207 and 209 prepared by Hopewell Mobile Power Systems Corporation and
manually signed by Messrs. Rex Malaluan and Virgilio Asprer;

3. Exhibit D is a photocopy of a letter manually signed by a certain Nestor G. Enriquez, Jr.,

with RECEIVED stamped thereon, together with a handwritten notation of the date it was
received;

4. Exhibit E is a photocopy of a Standard Marine Protest Form which was filled up and
accomplished by Rex Joel C. Malaluan in his own handwriting and signed by
him. Portions of the Jurat were handwritten, and manually signed by the Notary Public;

5. Exhibit H is a photocopy of a letter manually signed by Mr. Nestor G. Enriquez, Jr. with
RECEIVED stamped thereon, together with a handwritten notation of the date it was
received;

6. Exhibit I is a photocopy of a computation of the estimated energy loss allegedly suffered

by petitioner which was manually signed by Mr. Nestor G. Enriquez, Jr.;

7. Exhibit J is a photocopy of a letter containing the breakdown of the cost estimate,

manually signed by Mr. Nestor G. Enriquez, Jr., with RECEIVED stamped thereon,
together with a handwritten notation of the date it was received, and other handwritten
notations;

8. Exhibit K is a photocopy of the Subpoena Duces Tecum Ad Testificandum written using

a manual typewriter, signed manually by Atty. Ofelia Polo-De Los Reyes, with a
handwritten notation when it was received by the party;

9. Exhibit L is a photocopy of a portion of the electricity supply and operation and

maintenance agreement between petitioner and Hopewell, containing handwritten
notations and every page containing three unidentified manually placed signatures;

10. Exhibit M is a photocopy of the Notice of Termination with attachments addressed to Rex
Joel C. Malaluan, manually signed by Jaime S. Patinio, with a handwritten notation of the
date it was received. The sub-markings also contain manual signatures and/or
handwritten notations;

11. Exhibit N is a photocopy of a letter of termination with attachments addressed

to VIrgilio Asprer and manually signed by Jaime S. Patino. The sub-markings contain
manual signatures and/or handwritten notations;

12. Exhibit O is the same photocopied document marked as Annex C;

 13. Exhibit P is a photocopy of an incident report manually signed by Messrs. Malaluan and
Bautista and by the Notary Public, with other handwritten notations;

14. Exhibit Q is a photocopy of a letter manually signed by Virgilio Asprer and by a Notary
Public, together with other handwritten notations.

On the other hand, an electronic document refers to information or the representation

of information, data, figures, symbols or other models of written expression, described or
however represented, by which a right is established or an obligation extinguished, or by which
a fact may be proved and affirmed, which is received, recorded, transmitted, stored,
processed, retrieved or produced electronically.[5] It includes digitally signed documents and
any printout, readable by sight or other means which accurately reflects the electronic data
message or electronic document.[6]

The rules use the word information to define an electronic document received, recorded,
transmitted, stored, processed, retrieved or produced electronically. This would suggest that an
electronic document is relevant only in terms of the information contained therein, similar to any
other document which is presented in evidence as proof of its contents. [7] However, what
differentiates an electronic document from a paper-based document is the manner by which the
information is processed; clearly, the information contained in an electronic document is
received, recorded, transmitted, stored, processed, retrieved or produced electronically.

A perusal of the information contained in the photocopies submitted by petitioner will

reveal that not all of the contents therein, such as the signatures of the persons who purportedly
signed the documents, may be recorded or produced electronically. By no stretch of the
imagination can a persons signature affixed manually be considered as information
electronically received, recorded, transmitted, stored, processed, retrieved or produced. Hence,
the argument of petitioner that since these paper printouts were produced through an electronic
process, then these photocopies are electronic documents as defined in the Rules on Electronic
Evidence is obviously an erroneous, if not preposterous, interpretation of the law. Having thus
declared that the offered photocopies are not tantamount to electronic documents, it is
consequential that the same may not be considered as the functional equivalent of their original
as decreed in the law.

Furthermore, no error can be ascribed to the court a quo in denying admission and
excluding from the records petitioners Exhibits A, C, D, E, H and its sub-markings, I, J and its
sub-markings, K, L, M and its sub-markings, N and its sub-markings, O, P and its sub-markings,
Q and its sub-markings, and R. The trial court was correct in rejecting these photocopies as they
violate the best evidence rule and are therefore of no probative value being incompetent pieces
of evidence. Before the onset of liberal rules of discovery, and modern technique of electronic
copying, the best evidence rule was designed to guard against incomplete or fraudulent proof
and the introduction of altered copies and the withholding of the originals. [8] But the modern
justification for the rule has expanded from the prevention of fraud to a recognition that writings
occupy a central position in the law.[9] The importance of the precise terms of writings in the
world of legal relations, the fallibility of the human memory as reliable evidence of the terms,
and the hazards of inaccurate or incomplete duplicate are the concerns addressed by the best
evidence rule.[10]
Moreover, as mandated under Section 2, Rule 130 of the Rules of Court:
"SECTION 2. Original writing must be produced; exceptions. There can be no
evidence of a writing the contents of which is the subject of inquiry, other than the
original writing itself, except in the following cases:
(a) When the original has been lost, destroyed, or cannot be produced in court;
(b) When the original is in the possession of the party against whom the evidence
is offered, and the latter fails to produce it after reasonable notice;
(c) When the original is a record or other document in the custody of a public
officer;
(d) When the original has been recorded in an existing record a certified copy of
which is made evidence by law;
(e) 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."
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. [11] The offeror of
secondary evidence is burdened to prove the predicates thereof: (a) the loss or destruction of the
original without bad faith on the part of the proponent/offeror which can be shown by
circumstantial evidence of routine practices of destruction of documents; [12] (b) the proponent
must prove by a fair preponderance of evidence as to raise a reasonable inference of the loss or
destruction of the original copy; and (c) it must be shown that a diligent and bona fide but
unsuccessful search has been made for the document in the proper place or places. [13] However,
in the case at bar, though petitioner insisted in offering the photocopies as documentary
evidence, it failed to establish that such offer was made in accordance with the exceptions as
enumerated under the abovequoted rule. Accordingly, we find no error in the Order of the
court a quodenying admissibility of the photocopies offered by petitioner as documentary
evidence.

Finally, it perplexes this Court why petitioner continued to obdurately disregard the
opportunities given by the trial court for it to present the originals of the photocopies it presented
yet comes before us now praying that it be allowed to present the originals of the exhibits that
were denied admission or in case the same are lost, to lay the predicate for the admission of
secondary evidence. Had petitioner presented the originals of the documents to the court instead
of the photocopies it obstinately offered as evidence, or at the very least laid the predicate for the
admission of said photocopies, this controversy would not have unnecessarily been brought
before the appellate court and finally to this Court for adjudication. Had it not been for
petitioners intransigence, the merits of petitioners complaint for damages would have been
decided upon by the trial court long ago.As aptly articulated by the Court of Appeals, petitioner
has only itself to blame for the respondent judges denial of admission of its aforementioned
documentary evidence and consequently, the denial of its prayer to be given another opportunity
to present the originals of the documents that were denied admission nor to lay the predicate for
the admission of secondary evidence in case the same has been lost.

WHEREFORE, premises considered, the instant petition is hereby DENIED. The

Decision of the Court of Appeals in CA-G.R. CEB-SP No. 00848, dated 9 November 2005 is
hereby AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. 109293 August 18, 1993

HOME INSURANCE CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS, FORMER 7th DIVISION and MABUHAY
BROKERAGE CO., INC., respondents.
Quasha, Asperilla, Ancheta Law Office for petitioner.
Gonzales & Ysip Law Office for private respondent.

CRUZ, J.:
Filipro Phil. now known as Nestle Phil., was the consignee of two hydraulic engines shipped on
April 25, 1979, by INREDECO from the United States on the M/S Oriental Satesman. The cargo
arrived in Manila on May 17, 1979, on board the M/S Pacific Conveyor. It was turned over to E.
Razon Arrastre, which retained custody until July 20, 1979. The cargo was later hauled by
Mabuhay Brokerage Co. to its warehouse, where it stayed until July 26, 1979. On this date it was
delivered to the consignee.
When the skidded plywood cases were opened by the consignee, one of the engines was found to
be damaged. Its fan cover was broken and misaligned and its cap deformed. The consignee
refused to accept the unit.
Nestle subsequently filed a claim against E. Razon, Mabuhay, the Port Authority, and its insurer,
the Home Insurance Corporation, for P49,170.00. When the other companies denied liability,
Home Insurance paid the claim and was issued a subrogation receipt for $6,070.00. 1
Mabuhay alone was sued by Home Insurance for the recovery of the amount it had paid to
Nestle. Mabuhay again denied liability. After trial, the Regional Trial Court of Manila rendered
judgment dismissing the complaint. 2Judge Lorenzo B. Veneracion declared that the plaintiff
failed to establish the legal and factual bases for its claim.
The decision noted that the insurance contract between the corporation and the consignee was
not presented and that the other supporting documents were all only photocopies. No explanation
was given for the failure of the plaintiffs to submit the originals. The trial court also observed
that the crates of the shipment did not comply with the accepted international standards, taking
into consideration the length of the voyage and the transshipment of the cargo. Its conlusion was
that whatever damage was sustained by the engine must have occurred while it was at sea, for
which Mabuhay could not be held liable.
The judgment was affirmed on appeal. 3 In addition, the respondent court held that the appellant
had failed to establish a valid subrogation, which could not be presumed, 4 and to prove the
amount Home had paid to Nestle. There was no evidence either of what happened to the
damaged engine, which still retained value despite its defects.
The Court of Appeals stressed that the petitioner could be excused from presenting the original
of the insurance contract only if there was proof that this had been lost. The unrebutted claim,
however, is that the original was in its possession all the time. 5 The respondent court added that
even if a valid subrogation could be established, Mabuhay was nevertheless not an absolute
insurer against all risks of the transport of the goods. In any case, it appeared that Mabuhay had
exercised extraordinary diligence for the safe delivery of the cargo.
The challenged decision, however, deleted the award of P8,000.00 for litigation expenses for
lack of legal or equitable justification.
In the present petition, it is argued that: (1) the subrogation receipt proves the existence of the
insurance contract between Nestle and the Home Insurance and the amount paid by the latter to
the former; and (2) the law or presumption of negligence operates against the carrier.
The petition has no merit.
Home's section against Mabuhay supposedly arose from its contract of insurance with Nestle.
Having paid the consignee the damages it sustained during the shipment, Home now claims it is
rightfully subrogated under such contract to the rights of the consignee. But the problem is
what rights? And against whom?
The insurance contract has not been presented. It may be assumed for the sake of argument that
the subrogation receipt may nevertheless be used to establish the relationship between the
petitioner and the consignee and the amount paid to settle the claim. But that is all the document
can do. By itself alone, the subrogation receipt is not sufficient to prove the petitioner's claim
holding the respondent liable for the damage to the engine.
The shipment of the cargo passed through several stages: first, from the shipper to the port of
departure; second, from the port of departure to the M/S Oriental Statesman; third, from the M/S
Oriental Statesman; third, from the M/S Pacific Conveyor to the port of arrival; fifth, from the
port of arrival to the operator; sixth, from the arrastre operator to the hauler; and lastly, from the
hauler to the consignee.
In the absence of proof of stipulations to the contrary, the hauler can be liable only to any
damage that occurred from the time it received the cargo until it finally delivered it to the
consignee. It cannot be held responsible for handling of the cargo before it actually received it,
particularly since there was no indication from the external appearance of the crates, which
Mabuhay did not open, that the engined was damaged.
As a mere subrogee of Nestle, Home can exercise only such rights against the parties handling
the cargo as were granted to Nestle under the insurance contract. The insurance contract would
have clearly indicated the scope of the coverage but there is no evidence of this. It cannot simply
be supposed that the hauling was included in the coverage; it is possible that the coverage ended
with the arrastre. In other words, then rights transferred to Home by Nestle still assuming
there was a valid subrogation might not include the right to sue Mabuhay.
The petitioner cites Article 1735 of the Civil Code reading as follows:
Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the
preceding article, if the goods are lost, destroyed or deteriorated, common carriers
 are presumed to have been at fault or to have acted negligently unless they proved
that they observed extraordinary diligence as required in Article 1733.
This presumption is applicable only if the shipper or consignee has, to begin with, a right of
action against the carrier. It has not been shown in the case at bar that Home, as the supposed
subrogee of Nestle, has acquired such a right against Mabuhay.
The insurance contract might have proved that it covered the hauling portion of the shipment and
was not limited to the transport of the cargo while at sea, if that were really the case. It could
have shown that the agreement was not only a marine transportation insurance but covered all
phases of the cargo's shipment, from the time the cargo was loaded on the vessel in the United
States until it was delivered to the consignee in the Philippines. But there is no acceptable
evidence of these stipulations because the original contract of insurance has not been presented.
Rule 130, Section 3, of the Rules of Court is quite clear:
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.
It is curious that the petitioner disregarded this rule, knowing that the best evidence of the
insurance contract was its original copy, which was presumably in the possession of Home itself.
Failure to present this original (or even a copy of it), for reasons the Court cannot comprehend,
must prove fatal to this petition.
WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so Ordered.
ANTONIO LIM TANHU, DY OCHAY, ALFONSO LEONARDO NG SUA and CO
OYO, petitioners,
vs.
HON. JOSE R. RAMOLETE as Presiding Judge, Branch III, CFI, Cebu and TAN
PUT, respondents.
Zosa, Zosa, Castillo, Alcudia & Koh for petitioners.
Fidel Manalo and Florido & Associates for respondents.

BARREDO, J.:
Petition for (1) certiorari to annul and set aside certain actuations of respondent Court of First
Instance of Cebu Branch III in its Civil Case No. 12328, an action for accounting of properties
and money totalling allegedly about P15 million pesos filed with a common cause of action
against six defendants, in which after declaring four of the said defendants herein petitioners, in
default and while the trial as against the two defendants not declared in default was in progress,
said court granted plaintiff's motion to dismiss the case in so far as the non-defaulted defendants
were concerned and thereafter proceeded to hear ex-parte the rest of the plaintiffs evidence and
subsequently rendered judgment by default against the defaulted defendants, with the
particularities that notice of the motion to dismiss was not duly served on any of the defendants,
who had alleged a compulsory counterclaim against plaintiff in their joint answer, and the
judgment so rendered granted reliefs not prayed for in the complaint, and (2) prohibition to
enjoin further proceedings relative to the motion for immediate execution of the said judgment.
Originally, this litigation was a complaint filed on February 9, 1971 by respondent Tan Put only
against the spouses-petitioners Antonio Lim Tanhu and Dy Ochay. Subsequently, in an amended
complaint dated September 26, 1972, their son Lim Teck Chuan and the other spouses-petitioners
Alfonso Leonardo Ng Sua and Co Oyo and their son Eng Chong Leonardo were included as
defendants. In said amended complaint, respondent Tan alleged that she "is the widow of Tee
Hoon Lim Po Chuan, who was a partner in the commercial partnership, Glory Commercial
Company ... with Antonio Lim Tanhu and Alfonso Ng Sua that "defendant Antonio Lim Tanhu,
Alfonso Leonardo Ng Sua, Lim Teck Chuan, and Eng Chong Leonardo, through fraud and
machination, took actual and active management of the partnership and although Tee Hoon Lim
Po Chuan was the manager of Glory Commercial Company, defendants managed to use the
funds of the partnership to purchase lands and building's in the cities of Cebu, Lapulapu,
Mandaue, and the municipalities of Talisay and Minglanilla, some of which were hidden, but the
description of those already discovered were as follows: (list of properties) ...;" and that:
13. (A)fter the death of Tee Hoon Lim Po Chuan, the defendants, without
liquidation continued the business of Glory Commercial Company by purportedly
organizing a corporation known as the Glory Commercial Company,
Incorporated, with paid up capital in the sum of P125,000.00, which money and
other assets of the said Glory Commercial Company, Incorporated are actually
the assets of the defunct Glory Commercial Company partnership, of which the
plaintiff has a share equivalent to one third (/ 3) thereof;
14. (P)laintiff, on several occasions after the death of her husband, has asked
defendants of the above-mentioned properties and for the liquidation of the
business of the defunct partnership, including investments on real estate in Hong
Kong, but defendants kept on promising to liquidate said properties and just told
plaintiff to
15. (S)ometime in the month of November, 1967, defendants, Antonio Lim Tanhu,
by means of fraud deceit and misrepresentations did then and there, induce and
convince the plaintiff to execute a quitclaim of all her rights and interests, in the
assets of the partnership of Glory Commercial Company, which is null and void,
executed through fraud and without any legal effect. The original of said
quitclaim is in the possession of the adverse party defendant Antonio Lim Tanhu.
 16. (A)s a matter of fact, after the execution of said quitclaim, defendant Antonio
Lim Tanhu offered to pay the plaintiff the amount P65,000.00 within a period of
one (1) month, for which plaintiff was made to sign a receipt for the amount of
P65,000.00 although no such amount was given and plaintiff was not even given
a copy of said document;
17. (T)hereafter, in the year 1968-69, the defendants who had earlier promised to
liquidate the aforesaid properties and assets in favor among others of plaintiff and
until the middle of the year 1970 when the plaintiff formally demanded from the
defendants the accounting of real and personal properties of the Glory
Commercial Company, defendants refused and stated that they would not give the
share of the plaintiff. (Pp. 36-37, Record.)
She prayed as follows:
WHEREFORE, it is most respectfully prayed that judgment be rendered:
a) Ordering the defendants to render an accounting of the real and personal
properties of the Glory Commercial Company including those registered in the
names of the defendants and other persons, which properties are located in the
Philippines and in Hong Kong;
b) Ordering the defendants to deliver to the plaintiff after accounting, one third
(/ 3) of the total value of all the properties which is approximately P5,000,000.00
representing the just share of the plaintiff;
c) Ordering the defendants to pay the attorney of the plaintiff the sum of Two
Hundred Fifty Thousand Pesos (P250,000.00) by way of attorney's fees and
damages in the sum of One Million Pesos (P1,000,000.00).
This Honorable Court is prayed for other remedies and reliefs consistent with law
and equity and order the defendants to pay the costs. (Page 38, Record.)
The admission of said amended complaint was opposed by defendants upon the ground that there
were material modifications of the causes of action previously alleged, but respondent judge
nevertheless allowed the amendment reasoning that:
The present action is for accounting of real and personal properties as well as for
the recovery of the same with damages.
An objective consideration of pars. 13 and 15 of the amended complaint pointed
out by the defendants to sustain their opposition will show that the allegations of
facts therein are merely to amplify material averments constituting the cause of
action in the original complaint. It likewise include necessary and indispensable
defendants without whom no final determination can be had in the action and in
order that complete relief is to be accorded as between those already parties.
Considering that the amendments sought to be introduced do not change the main
causes of action in the original complaint and the reliefs demanded and to allow
amendments is the rule, and to refuse them the exception and in order that the real
question between the parties may be properly and justly threshed out in a single
proceeding to avoid multiplicity of actions. (Page 40, Record.)
In a single answer with counterclaim, over the signature of their common counsel, defendants
denied specifically not only the allegation that respondent Tan is the widow of Tee Hoon
because, according to them, his legitimate wife was Ang Siok Tin still living and with whom he
had four (4) legitimate children, a twin born in 1942, and two others born in 1949 and 1965, all
presently residing in Hongkong, but also all the allegations of fraud and conversion quoted
above, the truth being, according to them, that proper liquidation had been regularly made of the
business of the partnership and Tee Hoon used to receive his just share until his death, as a result
of which the partnership was dissolved and what corresponded to him were all given to his wife
and children. To quote the pertinent portions of said answer:
AND BY WAY OF SPECIAL AND AFFIRMATIVE DEFENSES,
defendants hereby incorporate all facts averred and alleged in the answer, and
further most respectfully declare:
1. That in the event that plaintiff is filing the present complaint as an heir of Tee
Hoon Lim Po Chuan, then, she has no legal capacity to sue as such, considering
that the legitimate wife, namely: Ang Siok Tin, together with their children are
still alive. Under Sec. 1, (d), Rule 16 of the Revised Rules of Court, lack of legal
capacity to sue is one of the grounds for a motion to dismiss and so defendants
prays that a preliminary hearing be conducted as provided for in Sec. 5, of the
same rule;
2. That in the alternative case or event that plaintiff is filing the present case under
Art. 144 of the Civil Code, then, her claim or demand has been paid, waived
abandoned or otherwise extinguished as evidenced by the 'quitclaim' Annex 'A'
hereof, the ground cited is another ground for a motion to dismiss (Sec. 1, (h),
Rule 16) and hence defendants pray that a preliminary hearing be made in
connection therewith pursuant to Section 5 of the aforementioned rule;
3. That Tee Hoon Lim Po Chuan was legally married to Ang Siok Tin and were
blessed with the following children, to wit: Ching Siong Lim and Ching Hing Lim
(twins) born on February 16, 1942; Lim Shing Ping born on March 3, 1949 and
Lim Eng Lu born on June 25, 1965 and presently residing in Hongkong;
4. That even before the death of Tee Hoon Lim Po Chuan, the plaintiff was no
longer his common law wife and even though she was not entitled to anything left
by Tee Hoon Lim Po Chuan, yet, out of the kindness and generosity on the part of
the defendants, particularly Antonio Lain Tanhu, who, was inspiring to be monk
and in fact he is now a monk, plaintiff was given a substantial amount evidenced
by the 'quitclaim' (Annex 'A');
5. That the defendants have acquired properties out of their own personal fund
and certainly not from the funds belonging to the partnership, just as Tee Hoon
Lim Po Chuan had acquired properties out of his personal fund and which are
now in the possession of the widow and neither the defendants nor the partnership
have anything to do about said properties;
6. That it would have been impossible to buy properties from funds belonging to
the partnership without the other partners knowing about it considering that the
 amount taken allegedly is quite big and with such big amount withdrawn the
partnership would have been insolvent;
7. That plaintiff and Tee Hoon Lim Po Chuan were not blessed with children who
would have been lawfully entitled to succeed to the properties left by the latter
together with the widow and legitimate children;
8. That despite the fact that plaintiff knew that she was no longer entitled to
anything of the shares of the late Tee Hoon Lim Po Chuan, yet, this suit was filed
against the defendant who have to interpose the following
C O U N T E R C LAI M
A. That the defendants hereby reproduced, by way of reference, all the allegations
and foregoing averments as part of this counterclaim; .
B. That plaintiff knew and was aware she was merely the common-law wife of
Tee Hoon Lim Po Chuan and that the lawful and legal is still living, together with
the legitimate children, and yet she deliberately suppressed this fact, thus showing
her bad faith and is therefore liable for exemplary damages in an amount which
the Honorable Court may determine in the exercise of its sound judicial
discretion. In the event that plaintiff is married to Tee Hoon Lim Po Chuan, then,
her marriage is bigamous and should suffer the consequences thereof;
C. That plaintiff was aware and had knowledge about the 'quitclaim', even though
she was not entitled to it, and yet she falsely claimed that defendants refused even
to see her and for filing this unfounded, baseless, futile and puerile complaint,
defendants suffered mental anguish and torture conservatively estimated to be not
less than P3,000.00;
D. That in order to defend their rights in court, defendants were constrained to
engage the services of the undersigned counsel, obligating themselves to pay
P500,000.00 as attorney's fees;
E. That by way of litigation expenses during the time that this case will be before
this Honorable Court and until the same will be finally terminated and
adjudicated, defendants will have to spend at least P5,000.00. (Pp. 44-47.
Record.)
After unsuccessfully trying to show that this counterclaim is merely permissive and should be
dismissed for non-payment of the corresponding filing fee, and after being overruled by the
court, in due time, plaintiff answered the same, denying its material allegations.
On February 3, 1973, however, the date set for the pre-trial, both of the two defendants-spouses
the Lim Tanhus and Ng Suas, did not appear, for which reason, upon motion of plaintiff dated
February 16, 1973, in an order of March 12, 1973, they were all "declared in DEFAULT as of
February 3, 1973 when they failed to appear at the pre-trial." They sought to hive this order lifted
thru a motion for reconsideration, but the effort failed when the court denied it. Thereafter, the
trial started, but at the stage thereof where the first witness of the plaintiff by the name of
Antonio Nuez who testified that he is her adopted son, was up for re-cross-examination, said
plaintiff unexpectedly filed on October 19, 1974 the following simple and unreasoned
 MOTION TO DROP DEFENDANTS LIM TECK
CHUAN AND ENG CHONG LEONARDO
COMES now plaintiff, through her undersigned counsel, unto the Honorable
Court most respectfully moves to drop from the complaint the defendants Lim
Teck Chuan and Eng Chong Leonardo and to consider the case dismissed insofar
as said defendants Lim Teck Chuan and Eng Chong Leonardo are concerned.
WHEREFORE, it is most respectfully prayed of the Honorable Court to drop
from the complaint the defendants Lim Teck Chuan and Eng Chong Leonardo and
to dismiss the case against them without pronouncement as to costs. (Page 50,
Record.)
which she set for hearing on December 21, 1974. According to petitioners, none
of the defendants declared in default were notified of said motion, in violation of
Section 9 of Rule 13, since they had asked for the lifting of the order of default,
albeit unsuccessfully, and as regards the defendants not declared in default, the
setting of the hearing of said motion on October 21, 1974 infringed the three-day
requirement of Section 4 of Rule 15, inasmuch as Atty. Adelino Sitoy of Lim Teck
Chuan was served with a copy of the motion personally only on October 19, 1974,
while Atty. Benjamin Alcudia of Eng Chong Leonardo was served by registered
mail sent only on the same date.
Evidently without even verifying the notices of service, just as simply as plaintiff
had couched her motion, and also without any legal grounds stated, respondent
court granted the prayer of the above motion thus:
ORDER
Acting on the motion of the plaintiff praying for the dismissal of the complaint as
against defendants Lim Teck Chuan and Eng Chong Leonardo.
The same is hereby GRANTED. The complaint as against defendant Lim Teck
Chuan and Eng Chong Leonardo is hereby ordered DISMISSED without
pronouncement as to costs.
Simultaneously, the following order was also issued:
Considering that defendants Antonio Lim Tanhu and his spouse Dy Ochay as well
as defendants Alfonso Ng Sua and his spouse Co Oyo have been declared in
default for failure to appear during the pre-trial and as to the other defendants the
complaint had already been ordered dismissed as against them.
Let the hearing of the plaintiff's evidence ex-parte be set on November 20, 1974,
at 8:30 A.M. before the Branch Clerk of Court who is deputized for the purpose,
to swear in witnesses and to submit her report within ten (10) days thereafter.
Notify the plaintiff.
SO ORDERED.
Cebu City, Philippines, October 21, 1974. (Page 52, Record.)
But, in connection with this last order, the scheduled ex-parte reception of evidence did not take
place on November 20, 1974, for on October 28, 1974, upon verbal motion of plaintiff, the court
issued the following self-explanatory order: .
 Acting favorably on the motion of the plaintiff dated October 18, 1974, the Court
deputized the Branch Clerk of Court to receive the evidence of the plaintiff ex-
parte to be made on November 20, 1974. However, on October 28, 1974, the
plaintiff, together with her witnesses, appeared in court and asked, thru counsel,
that she be allowed to present her evidence.
Considering the time and expenses incurred by the plaintiff in bringing her
witnesses to the court, the Branch Clerk of Court is hereby authorized to receive
immediately the evidence of the plaintiff ex-parte.
SO ORDERED.
Cebu City, Philippines, October 28, 1974. (Page 53. Record.)
Upon learning of these orders on October 23, 1973, the defendant Lim Teck Cheng, thru counsel,
Atty. Sitoy, filed a motion for reconsideration thereof, and on November 1, 1974, defendant Eng
Chong Leonardo, thru counsel Atty. Alcudia, filed also his own motion for reconsideration and
clarification of the same orders. These motions were denied in an order dated December 6, 1974
but received by the movants only on December 23, 1974. Meanwhile, respondent court rendered
the impugned decision on December 20, 1974. It does not appear when the parties were served
copies of this decision.
Subsequently, on January 6, 1975, all the defendants, thru counsel, filed a motion to quash the
order of October 28, 1974. Without waiting however for the resolution thereof, on January 13,
1974, Lim Teck Chuan and Eng Chong Leonardo went to the Court of Appeals with a petition for
certiorari seeking the annulment of the above-mentioned orders of October 21, 1974 and October
28, 1974 and decision of December 20, 1974. By resolution of January 24, 1975, the Court of
Appeals dismissed said petition, holding that its filing was premature, considering that the
motion to quash the order of October 28, 1974 was still unresolved by the trial court. This
holding was reiterated in the subsequent resolution of February 5, 1975 denying the motion for
reconsideration of the previous dismissal.
On the other hand, on January 20, 1975, the other defendants, petitioners herein, filed their notice
of appeal, appeal bond and motion for extension to file their record on appeal, which was
granted, the extension to expire after fifteen (15) days from January 26 and 27, 1975, for
defendants Lim Tanhu and Ng Suas, respectively. But on February 7, 1975, before the perfection
of their appeal, petitioners filed the present petition with this Court. And with the evident intent
to make their procedural position clear, counsel for defendants, Atty. Manuel Zosa, filed with
respondent court a manifestation dated February 14, 1975 stating that "when the non-defaulted
defendants Eng Chong Leonardo and Lim Teck Chuan filed their petition in the Court of
Appeals, they in effect abandoned their motion to quash the order of October 28, 1974," and that
similarly "when Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and Co Oyo, filed
their petition for certiorari and prohibition ... in the Supreme Court, they likewise abandoned
their motion to quash." This manifestation was acted upon by respondent court together with
plaintiffs motion for execution pending appeal in its order of the same date February 14, 1975
this wise:
ORDER
 When these incidents, the motion to quash the order of October 28, 1974 and the
motion for execution pending appeal were called for hearing today, counsel for
the defendants-movants submitted their manifestation inviting the attention of this
Court that by their filing for certiorari and prohibition with preliminary injunction
in the Court of Appeals which was dismissed and later the defaulted defendants
filed with the Supreme Court certiorari with prohibition they in effect abandoned
their motion to quash.
IN VIEW HEREOF, the motion to quash is ordered ABANDONED. The
resolution of the motion for execution pending appeal shall be resolved after the
petition for certiorari and prohibition shall have been resolved by the Supreme
Court.
SO ORDERED.
Cebu City, Philippines, February 14, 1975. (Page 216, Record.)
Upon these premises, it is the position of petitioners that respondent court acted illegally, in
violation of the rules or with grave abuse of discretion in acting on respondent's motion to
dismiss of October 18, 1974 without previously ascertaining whether or not due notice thereof
had been served on the adverse parties, as, in fact, no such notice was timely served on the non-
defaulted defendants Lim Teck Chuan and Eng Chong Leonardo and no notice at all was ever
sent to the other defendants, herein petitioners, and more so, in actually ordering the dismissal of
the case by its order of October 21, 1974 and at the same time setting the case for further hearing
as against the defaulted defendants, herein petitioners, actually hearing the same ex-parte and
thereafter rendering the decision of December 20, 1974 granting respondent Tan even reliefs not
prayed for in the complaint. According to the petitioners, to begin with, there was compulsory
counterclaim in the common answer of the defendants the nature of which is such that it cannot
be decided in an independent action and as to which the attention of respondent court was duly
called in the motions for reconsideration. Besides, and more importantly, under Section 4 of Rule
18, respondent court had no authority to divide the case before it by dismissing the same as
against the non-defaulted defendants and thereafter proceeding to hear it ex-parte and
subsequently rendering judgment against the defaulted defendants, considering that in their view,
under the said provision of the rules, when a common cause of action is alleged against several
defendants, the default of any of them is a mere formality by which those defaulted are not
allowed to take part in the proceedings, but otherwise, all the defendants, defaulted and not
defaulted, are supposed to have but a common fate, win or lose. In other words, petitioners posit
that in such a situation, there can only be one common judgment for or against all the defendant,
the non-defaulted and the defaulted. Thus, petitioners contend that the order of dismissal of
October 21, 1974 should be considered also as the final judgment insofar as they are concerned,
or, in the alternative, it should be set aside together with all the proceedings and decision held
and rendered subsequent thereto, and that the trial be resumed as of said date, with the
defendants Lim Teck Chuan and Eng Chong Leonardo being allowed to defend the case for all
the defendants.
On the other hand, private respondent maintains the contrary view that inasmuch as petitioners
had been properly declared in default, they have no personality nor interest to question the
dismissal of the case as against their non-defaulted co-defendants and should suffer the
consequences of their own default. Respondent further contends, and this is the only position
discussed in the memorandum submitted by her counsel, that since petitioners have already made
or at least started to make their appeal, as they are in fact entitled to appeal, this special civil
action has no reason for being. Additionally, she invokes the point of prematurity upheld by the
Court of Appeals in regard to the above-mentioned petition therein of the non-defaulted
defendants Lim Teck Chuan and Eng Chong Leonardo. Finally, she argues that in any event, the
errors attributed to respondent court are errors of judgment and may be reviewed only in an
appeal.
After careful scrutiny of all the above-related proceedings, in the court below and mature
deliberation, the Court has arrived at the conclusion that petitioners should be granted relief, if
only to stress emphatically once more that the rules of procedure may not be misused and abused
as instruments for the denial of substantial justice. A review of the record of this case
immediately discloses that here is another demonstrative instance of how some members of the
bar, availing of their proficiency in invoking the letter of the rules without regard to their real
spirit and intent, succeed in inducing courts to act contrary to the dictates of justice and equity,
and, in some instances, to wittingly or unwittingly abet unfair advantage by ironically
camouflaging their actuations as earnest efforts to satisfy the public clamor for speedy
disposition of litigations, forgetting all the while that the plain injunction of Section 2 of Rule 1
is that the "rules shall be liberally construed in order to promote their object and to assist the
parties in obtaining not only 'speedy' but more imperatively, "just ... and inexpensive
determination of every action and proceeding." We cannot simply pass over the impression that
the procedural maneuvers and tactics revealed in the records of the case at bar were deliberately
planned with the calculated end in view of depriving petitioners and their co-defendants below of
every opportunity to properly defend themselves against a claim of more than substantial
character, considering the millions of pesos worth of properties involved as found by respondent
judge himself in the impugned decision, a claim that appears, in the light of the allegations of the
answer and the documents already brought to the attention of the court at the pre-trial, to be
rather dubious. What is most regrettable is that apparently, all of these alarming circumstances
have escaped respondent judge who did not seem to have hesitated in acting favorably on the
motions of the plaintiff conducive to the deplorable objective just mentioned, and which motions,
at the very least, appeared to be 'of highly controversial' merit, considering that their obvious
tendency and immediate result would be to convert the proceedings into a one-sided affair, a
situation that should be readily condemnable and intolerable to any court of justice.
Indeed, a seeming disposition on the part of respondent court to lean more on the contentions of
private respondent may be discerned from the manner it resolved the attempts of defendants Dy
Ochay and Antonio Lim Tanhu to have the earlier order of default against them lifted.
Notwithstanding that Dy Ochay's motion of October 8, 1971, co-signed by her with their
counsel, Atty. Jovencio Enjambre (Annex 2 of respondent answer herein) was over the jurat of
the notary public before whom she took her oath, in the order of November 2, 1971, (Annex
3 id.) it was held that "the oath appearing at the bottom of the motion is not the one contemplated
by the abovequoted pertinent provision (See. 3, Rule 18) of the rules. It is not even a verification.
(See. 6, Rule 7.) What the rule requires as interpreted by the Supreme Court is that the motion
must have to be accompanied by an affidavit of merits that the defendant has a meritorious
defense, thereby ignoring the very simple legal point that the ruling of the Supreme Court in Ong
Peng vs. Custodio, 1 SCRA 781, relied upon by His Honor, under which a separate affidavit of
merit is required refers obviously to instances where the motion is not over oath of the party
concerned, considering that what the cited provision literally requires is no more than a "motion
under oath." Stated otherwise, when a motion to lift an order of default contains the reasons for
the failure to answer as well as the facts constituting the prospective defense of the defendant and
it is sworn to by said defendant, neither a formal verification nor a separate affidavit of merit is
necessary.
What is worse, the same order further held that the motion to lift the order of default "is an
admission that there was a valid service of summons" and that said motion could not amount to a
challenge against the jurisdiction of the court over the person of the defendant. Such a
rationalization is patently specious and reveals an evident failure to grasp the import of the legal
concepts involved. A motion to lift an order of default on the ground that service of summons has
not been made in accordance with the rules is in order and is in essence verily an attack against
the jurisdiction of the court over the person of the defendant, no less than if it were worded in a
manner specifically embodying such a direct challenge.
And then, in the order of February 14, 1972 (Annex 6, id.) lifting at last the order of default as
against defendant Lim Tanhu, His Honor posited that said defendant "has a defense (quitclaim)
which renders the claim of the plaintiff contentious." We have read defendants' motion for
reconsideration of November 25, 1971 (Annex 5, id.), but We cannot find in it any reference to a
"quitclaim". Rather, the allegation of a quitclaim is in the amended complaint (Pars. 15-16,
Annex B of the petition herein) in which plaintiff maintains that her signature thereto was
secured through fraud and deceit. In truth, the motion for reconsideration just mentioned, Annex
5, merely reiterated the allegation in Dy Ochay's earlier motion of October 8, 1971, Annex 2, to
set aside the order of default, that plaintiff Tan could be but the common law wife only of Tee
Hoon, since his legitimate wife was still alive, which allegation, His Honor held in the order of
November 2, 1971, Annex 3, to be "not good and meritorious defense". To top it all, whereas, as
already stated, the order of February 19, 1972, Annex 6, lifted the default against Lim Tanhu
because of the additional consideration that "he has a defense (quitclaim) which renders the
claim of the plaintiff contentious," the default of Dy Ochay was maintained notwithstanding that
exactly the same "contentions" defense as that of her husband was invoked by her.
Such tenuous, if not altogether erroneous reasonings and manifest inconsistency in the legal
postures in the orders in question can hardly convince Us that the matters here in issue were
accorded due and proper consideration by respondent court. In fact, under the circumstances
herein obtaining, it seems appropriate to stress that, having in view the rather substantial value of
the subject matter involved together with the obviously contentious character of plaintiff's claim,
which is discernible even on the face of the complaint itself, utmost care should have been taken
to avoid the slightest suspicion of improper motivations on the part of anyone concerned. Upon
the considerations hereunder to follow, the Court expresses its grave concern that much has to be
done to dispel the impression that herein petitioners and their co-defendants are being railroaded
out of their rights and properties without due process of law, on the strength of procedural
technicalities adroitly planned by counsel and seemingly unnoticed and undetected by
respondent court, whose orders, gauged by their tenor and the citations of supposedly pertinent
provisions and jurisprudence made therein, cannot be said to have proceeded from utter lack of
juridical knowledgeability and competence.
1
The first thing that has struck the Court upon reviewing the record is the seeming alacrity with
which the motion to dismiss the case against non-defaulted defendants Lim Teck Chuan and Eng
Chong Leonardo was disposed of, which definitely ought not to have been the case. The trial was
proceeding with the testimony of the first witness of plaintiff and he was still under re-cross-
examination. Undoubtedly, the motion to dismiss at that stage and in the light of the declaration
of default against the rest of the defendants was a well calculated surprise move, obviously
designed to secure utmost advantage of the situation, regardless of its apparent unfairness. To say
that it must have been entirely unexpected by all the defendants, defaulted and non-defaulted , is
merely to rightly assume that the parties in a judicial proceeding can never be the victims of any
procedural waylaying as long as lawyers and judges are imbued with the requisite sense of equity
and justice.
But the situation here was aggravated by the indisputable fact that the adverse parties who were
entitled to be notified of such unanticipated dismissal motion did not get due notice thereof.
Certainly, the non-defaulted defendants had the right to the three-day prior notice required by
Section 4 of Rule 15. How could they have had such indispensable notice when the motion was
set for hearing on Monday, October 21, 1974, whereas the counsel for Lim Teck Chuan, Atty.
Sitoy was personally served with the notice only on Saturday, October 19, 1974 and the counsel
for Eng Chong Leonardo, Atty. Alcudia, was notified by registered mail which was posted only
that same Saturday, October 19, 1974? According to Chief Justice Moran, "three days at least
must intervene between the date of service of notice and the date set for the hearing, otherwise
the court may not validly act on the motion." (Comments on the Rules of Court by Moran, Vol. 1,
1970 ed. p. 474.) Such is the correct construction of Section 4 of Rule 15. And in the instant case,
there can be no question that the notices to the non-defaulted defendants were short of the
requirement of said provision.
We can understand the over-anxiety of counsel for plaintiff, but what is incomprehensible is the
seeming inattention of respondent judge to the explicit mandate of the pertinent rule, not to speak
of the imperatives of fairness, considering he should have realized the far-reaching implications,
specially from the point of view he subsequently adopted, albeit erroneously, of his favorably
acting on it. Actually, he was aware of said consequences, for simultaneously with his order of
dismissal, he immediately set the case for the ex-parte hearing of the evidence against the
defaulted defendants, which, incidentally, from the tenor of his order which We have quoted
above, appears to have been done by him motu propio As a matter of fact, plaintiff's motion also
quoted above did not pray for it.
Withal, respondent court's twin actions of October 21, 1974 further ignores or is inconsistent
with a number of known juridical principles concerning defaults, which We will here take
occasion to reiterate and further elucidate on, if only to avoid a repetition of the unfortunate
errors committed in this case. Perhaps some of these principles have not been amply projected
and elaborated before, and such paucity of elucidation could be the reason why respondent judge
must have acted as he did. Still, the Court cannot but express its vehement condemnation of any
judicial actuation that unduly deprives any party of the right to be heard without clear and
specific warrant under the terms of existing rules or binding jurisprudence. Extreme care must be
the instant reaction of every judge when confronted with a situation involving risks that the
proceedings may not be fair and square to all the parties concerned. Indeed, a keen sense of
fairness, equity and justice that constantly looks for consistency between the letter of the
adjective rules and these basic principles must be possessed by every judge, If substance is to
prevail, as it must, over form in our courts. Literal observance of the rules, when it is conducive
to unfair and undue advantage on the part of any litigant before it, is unworthy of any court of
justice and equity. Withal, only those rules and procedure informed, with and founded on public
policy deserve obedience in accord with their unequivocal language or words..
Before proceeding to the discussion of the default aspects of this case, however, it should not be
amiss to advert first to the patent incorrectness, apparent on the face of the record, of the
aforementioned order of dismissal of October 21, 1974 of the case below as regards non-
defaulted defendants Lim and Leonardo. While it is true that said defendants are not petitioners
herein, the Court deems it necessary for a full view of the outrageous procedural strategy
conceived by respondent's counsel and sanctioned by respondent court to also make reference to
the very evident fact that in ordering said dismissal respondent court disregarded completely the
existence of defendant's counterclaim which it had itself earlier held if indirectly, to be
compulsory in nature when it refused to dismiss the same on the ground alleged by respondent
Tan that he docketing fees for the filing thereof had not been paid by defendants.
Indeed, that said counterclaim is compulsory needs no extended elaboration. As may be noted in
the allegations hereof aforequoted, it arose out of or is necessarily connected with the occurrence
that is the subject matter of the plaintiff's claim, (Section 4, Rule 9) namely, plaintiff's allegedly
being the widow of the deceased Tee Hoon entitled, as such, to demand accounting of and to
receive the share of her alleged late husband as partner of defendants Antonio Lim Tanhu and
Alfonso Leonardo Ng Sua in Glory Commercial Company, the truth of which allegations all the
defendants have denied. Defendants maintain in their counterclaim that plaintiff knew of the
falsity of said allegations even before she filed her complaint, for she had in fact admitted her
common-law relationship with said deceased in a document she had jointly executed with him by
way of agreement to terminate their illegitimate relationship, for which she received P40,000
from the deceased, and with respect to her pretended share in the capital and profits in the
partnership, it is also defendants' posture that she had already quitclaimed, with the assistance of
able counsel, whatever rights if any she had thereto in November, 1967, for the sum of P25,000
duly receipted by her, which quitclaim was, however, executed, according to respondent herself
in her amended complaint, through fraud. And having filed her complaint knowing, according to
defendants, as she ought to have known, that the material allegations thereof are false and
baseless, she has caused them to suffer damages. Undoubtedly, with such allegations, defendants'
counterclaim is compulsory, not only because the same evidence to sustain it will also refute the
cause or causes of action alleged in plaintiff's complaint, (Moran, supra p. 352) but also because
from its very nature, it is obvious that the same cannot "remain pending for independent
adjudication by the court." (Section 2, Rule 17.)
The provision of the rules just cited specifically enjoins that "(i)f a counterclaim has been
pleaded by a defendant prior to the service upon him of the plaintiff's motion to dismiss, the
action shall not be dismissed against the defendant's objection unless the counterclaim can
remain pending for independent adjudication by the court." Defendants Lim and Leonardo had
no opportunity to object to the motion to dismiss before the order granting the same was issued,
for the simple reason that they were not opportunity notified of the motion therefor, but the
record shows clearly that at least defendant Lim immediately brought the matter of their
compulsory counterclaim to the attention of the trial court in his motion for reconsideration of
October 23, 1974, even as the counsel for the other defendant, Leonardo, predicated his motion
on other grounds. In its order of December 6, 1974, however, respondent court not only upheld
the plaintiffs supposed absolute right to choose her adversaries but also held that the
counterclaim is not compulsory, thereby virtually making unexplained and inexplicable 180-
degree turnabout in that respect.
There is another equally fundamental consideration why the motion to dismiss should not have
been granted. As the plaintiff's complaint has been framed, all the six defendants are charged
with having actually taken part in a conspiracy to misappropriate, conceal and convert to their
own benefit the profits, properties and all other assets of the partnership Glory Commercial
Company, to the extent that they have allegedly organized a corporation, Glory Commercial
Company, Inc. with what they had illegally gotten from the partnership. Upon such allegations,
no judgment finding the existence of the alleged conspiracy or holding the capital of the
corporation to be the money of the partnership is legally possible without the presence of all the
defendants. The non-defaulted defendants are alleged to be stockholders of the corporation and
any decision depriving the same of all its assets cannot but prejudice the interests of said
defendants. Accordingly, upon these premises, and even prescinding from the other reasons to be
discussed anon it is clear that all the six defendants below, defaulted and non-defaulted, are
indispensable parties. Respondents could do no less than grant that they are so on page 23 of
their answer. Such being the case, the questioned order of dismissal is exactly the opposite of
what ought to have been done. Whenever it appears to the court in the course of a proceeding
that an indispensable party has not been joined, it is the duty of the court to stop the trial and to
order the inclusion of such party. (The Revised Rules of Court, Annotated & Commented by
Senator Vicente J. Francisco, Vol. 1, p. 271, 1973 ed. See also Cortez vs. Avila, 101 Phil. 705.)
Such an order is unavoidable, for the "general rule with reference to the making of parties in a
civil action requires the joinder of all necessary parties wherever possible, and the joinder of all
indispensable parties under any and all conditions, the presence of those latter being a sine qua
non of the exercise of judicial power." (Borlasa vs. Polistico, 47 Phil. 345, at p. 347.) It is
precisely " when an indispensable party is not before the court (that) the action should be
dismissed." (People v. Rodriguez, 106 Phil. 325, at p. 327.) The absence of an indispensable
party renders all subsequent actuations of the court null and void, for want of authority to act, not
only as to the absent parties but even as to those present. In short, what respondent court did here
was exactly the reverse of what the law ordains it eliminated those who by law should
precisely be joined.
As may he noted from the order of respondent court quoted earlier, which resolved the motions
for reconsideration of the dismissal order filed by the non-defaulted defendants, His Honor
rationalized his position thus:
It is the rule that it is the absolute prerogative of the plaintiff to choose, the theory
upon which he predicates his right of action, or the parties he desires to sue,
without dictation or imposition by the court or the adverse party. If he makes a
mistake in the choice of his right of action, or in that of the parties against whom
he seeks to enforce it, that is his own concern as he alone suffers therefrom. The
plaintiff cannot be compelled to choose his defendants, He may not, at his own
expense, be forced to implead anyone who, under the adverse party's theory, is to
answer for defendant's liability. Neither may the Court compel him to furnish the
means by which defendant may avoid or mitigate their liability. (Vao vs. Alo, 95
Phil. 495-496.)
This being the rule this court cannot compel the plaintiff to continue prosecuting
her cause of action against the defendants-movants if in the course of the trial she
believes she can enforce it against the remaining defendants subject only to the
limitation provided in Section 2, Rule 17 of the Rules of Court. ... (Pages 6263,
Record.)
Noticeably, His Honor has employed the same equivocal terminology as in plaintiff's motion of
October 18, 1974 by referring to the action he had taken as being "dismissal of the complaint
against them or their being dropped therefrom", without perceiving that the reason for the
evidently intentional ambiguity is transparent. The apparent idea is to rely on the theory that
under Section 11 of Rule 3, parties may be dropped by the court upon motion of any party at any
stage of the action, hence "it is the absolute right prerogative of the plaintiff to choosethe
parties he desires to sue, without dictation or imposition by the court or the adverse party." In
other words, the ambivalent pose is suggested that plaintiff's motion of October 18, 1974 was not
predicated on Section 2 of Rule 17 but more on Section 11 of Rule 3. But the truth is that nothing
can be more incorrect. To start with, the latter rule does not comprehend whimsical and irrational
dropping or adding of parties in a complaint. What it really contemplates is erroneous or
mistaken non-joinder and misjoinder of parties. No one is free to join anybody in a complaint in
court only to drop him unceremoniously later at the pleasure of the plaintiff. The rule
presupposes that the original inclusion had been made in the honest conviction that it was proper
and the subsequent dropping is requested because it has turned out that such inclusion was a
mistake. And this is the reason why the rule ordains that the dropping be "on such terms as are
just" just to all the other parties. In the case at bar, there is nothing in the record to legally
justify the dropping of the non-defaulted defendants, Lim and Leonardo. The motion of October
18, 1974 cites none. From all appearances, plaintiff just decided to ask for it, without any
relevant explanation at all. Usually, the court in granting such a motion inquires for the reasons
and in the appropriate instances directs the granting of some form of compensation for the
trouble undergone by the defendant in answering the complaint, preparing for or proceeding
partially to trial, hiring counsel and making corresponding expenses in the premises. Nothing of
these, appears in the order in question. Most importantly, His Honor ought to have considered
that the outright dropping of the non-defaulted defendants Lim and Leonardo, over their
objection at that, would certainly be unjust not only to the petitioners, their own parents, who
would in consequence be entirely defenseless, but also to Lim and Leonardo themselves who
would naturally correspondingly suffer from the eventual judgment against their parents.
Respondent court paid no heed at all to the mandate that such dropping must be on such terms as
are just" meaning to all concerned with its legal and factual effects.
Thus, it is quite plain that respondent court erred in issuing its order of dismissal of October 21,
1974 as well as its order of December 6, 1974 denying reconsideration of such dismissal. As We
make this ruling, We are not oblivious of the circumstance that defendants Lim and Leonardo are
not parties herein. But such consideration is inconsequential. The fate of the case of petitioners is
inseparably tied up with said order of dismissal, if only because the order of ex-parte hearing of
October 21, 1974 which directly affects and prejudices said petitioners is predicated thereon.
Necessarily, therefore, We have to pass on the legality of said order, if We are to decide the case
of herein petitioners properly and fairly.
The attitude of the non-defaulted defendants of no longer pursuing further their questioning of
the dismissal is from another point of view understandable. On the one hand, why should they
insist on being defendants when plaintiff herself has already release from her claims? On the
other hand, as far as their respective parents-co-defendants are concerned, they must have
realized that they (their parents) could even be benefited by such dismissal because they could
question whether or not plaintiff can still prosecute her case against them after she had secured
the order of dismissal in question. And it is in connection with this last point that the true and
correct concept of default becomes relevant.
At this juncture, it may also be stated that the decision of the Court of Appeals of January 24,
1975 in G. R. No. SP-03066 dismissing the petition for certiorari of non-defaulted defendants
Lim and Leonardo impugning the order of dismissal of October 21, 1974, has no bearing at all in
this case, not only because that dismissal was premised by the appellate court on its holding that
the said petition was premature inasmuch as the trial court had not yet resolved the motion of the
defendants of October 28, 1974 praying that said disputed order be quashed, but principally
because herein petitioners were not parties in that proceeding and cannot, therefore, be bound by
its result. In particular, We deem it warranted to draw the attention of private respondent's
counsel to his allegations in paragraphs XI to XIV of his answer, which relate to said decision of
the Court of Appeals and which have the clear tendency to make it appear to the Court that the
appeals court had upheld the legality and validity of the actuations of the trial court being
questioned, when as a matter of indisputable fact, the dismissal of the petition was based solely
and exclusively on its being premature without in any manner delving into its merits. The Court
must and does admonish counsel that such manner of pleading, being deceptive and lacking in
candor, has no place in any court, much less in the Supreme Court, and if We are adopting a
passive attitude in the premises, it is due only to the fact that this is counsel's first offense. But
similar conduct on his part in the future will definitely be dealt with more severely. Parties and
counsel would be well advised to avoid such attempts to befuddle the issues as invariably then
will be exposed for what they are, certainly unethical and degrading to the dignity of the law
profession. Moreover, almost always they only betray the inherent weakness of the cause of the
party resorting to them.
2
Coming now to the matter itself of default, it is quite apparent that the impugned orders must
have proceeded from inadequate apprehension of the fundamental precepts governing such
procedure under the Rules of Court. It is time indeed that the concept of this procedural device
were fully understood by the bench and bar, instead of being merely taken for granted as being
that of a simple expedient of not allowing the offending party to take part in the proceedings, so
that after his adversary shall have presented his evidence, judgment may be rendered in favor of
such opponent, with hardly any chance of said judgment being reversed or modified.
The Rules of Court contain a separate rule on the subject of default, Rule 18. But said rule is
concerned solely with default resulting from failure of the defendant or defendants to answer
within the reglementary period. Referring to the simplest form of default, that is, where there is
only one defendant in the action and he fails to answer on time, Section 1 of the rule provides
that upon "proof of such failure, (the court shall) declare the defendant in default. Thereupon the
court shall proceed to receive the plaintiff's evidence and render judgment granting him such
relief as the complaint and the facts proven may warrant." This last clause is clarified by Section
5 which says that "a judgment entered against a party in default shall not exceed the amount or
be different in kind from that prayed for."
Unequivocal, in the literal sense, as these provisions are, they do not readily convey the full
import of what they contemplate. To begin with, contrary to the immediate notion that can be
drawn from their language, these provisions are not to be understood as meaning that default or
the failure of the defendant to answer should be "interpreted as an admission by the said
defendant that the plaintiff's cause of action find support in the law or that plaintiff is entitled to
the relief prayed for." (Moran, supra, p. 535 citing Macondary & Co. v. Eustaquio, 64 Phil. 466,
citing with approval Chaffin v. McFadden, 41 Ark. 42; Johnson v. Pierce, 12 Ark. 599; Mayden
v. Johnson, 59 Ga. 105; People v. Rust, 292 111. 328; Ken v. Leopold 21 111. A. 163; Chicago,
etc. Electric R. Co. v. Krempel 116 111. A. 253.)
Being declared in default does not constitute a waiver of rights except that of being heard and of
presenting evidence in the trial court. According to Section 2, "except as provided in Section 9 of
Rule 13, a party declared in default shall not be entitled to notice of subsequent proceedings, nor
to take part in the trial." That provision referred to reads: "No service of papers other than
substantially amended pleadings and final orders or judgments shall be necessary on a party in
default unless he files a motion to set aside the order of default, in which event he shall be
entitled to notice of all further proceedings regardless of whether the order of default is set aside
or not." And pursuant to Section 2 of Rule 41, "a party who has been declared in default may
likewise appeal from the judgment rendered against him as contrary to the evidence or to the law,
even if no petition for relief to set aside the order of default has been presented by him in
accordance with Rule 38.".
In other words, a defaulted defendant is not actually thrown out of court. While in a sense it may
be said that by defaulting he leaves himself at the mercy of the court, the rules see to it that any
judgment against him must be in accordance with law. The evidence to support the plaintiff's
cause is, of course, presented in his absence, but the court is not supposed to admit that which is
basically incompetent. Although the defendant would not be in a position to object, elementary
justice requires that, only legal evidence should be considered against him. If the evidence
presented should not be sufficient to justify a judgment for the plaintiff, the complaint must be
dismissed. And if an unfavorable judgment should be justifiable, it cannot exceed in amount or
be different in kind from what is prayed for in the complaint.
Incidentally, these considerations argue against the present widespread practice of trial judges, as
was done by His Honor in this case, of delegating to their clerks of court the reception of the
plaintiff's evidence when the defendant is in default. Such a Practice is wrong in principle and
orientation. It has no basis in any rule. When a defendant allows himself to be declared in
default, he relies on the faith that the court would take care that his rights are not unduly
prejudiced. He has a right to presume that the law and the rules will still be observed. The
proceedings are held in his forced absence, and it is but fair that the plaintiff should not be
allowed to take advantage of the situation to win by foul or illegal means or with inherently
incompetent evidence. Thus, in such instances, there is need for more attention from the court,
which only the judge himself can provide. The clerk of court would not be in a position much
less have the authority to act in the premises in the manner demanded by the rules of fair play
and as contemplated in the law, considering his comparably limited area of discretion and his
presumably inferior preparation for the functions of a judge. Besides, the default of the defendant
is no excuse for the court to renounce the opportunity to closely observe the demeanor and
conduct of the witnesses of the plaintiff, the better to appreciate their truthfulness and credibility.
We therefore declare as a matter of judicial policy that there being no imperative reason for
judges to do otherwise, the practice should be discontinued.
Another matter of practice worthy of mention at this point is that it is preferable to leave enough
opportunity open for possible lifting of the order of default before proceeding with the reception
of the plaintiff's evidence and the rendition of the decision. "A judgment by default may amount
to a positive and considerable injustice to the defendant; and the possibility of such serious
consequences necessitates a careful and liberal examination of the grounds upon which the
defendant may seek to set it aside." (Moran, supra p. 534, citing Coombs vs. Santos, 24 Phil.
446; 449-450.) The expression, therefore, in Section 1 of Rule 18 aforequoted which says that
"thereupon the court shall proceed to receive the plaintiff's evidence etc." is not to be taken
literally. The gain in time and dispatch should the court immediately try the case on the very day
of or shortly after the declaration of default is far outweighed by the inconvenience and
complications involved in having to undo everything already done in the event the defendant
should justify his omission to answer on time.
The foregoing observations, as may be noted, refer to instances where the only defendant or all
the defendants, there being several, are declared in default. There are additional rules embodying
more considerations of justice and equity in cases where there are several defendants against
whom a common cause of action is averred and not all of them answer opportunely or are in
default, particularly in reference to the power of the court to render judgment in such situations.
Thus, in addition to the limitation of Section 5 that the judgment by default should not be more
in amount nor different in kind from the reliefs specifically sought by plaintiff in his complaint,
Section 4 restricts the authority of the court in rendering judgment in the situations just
mentioned as follows:
Sec. 4. Judgment when some defendants answer, and other make difficult.
When a complaint states a common cause of action against several defendant
some of whom answer, and the others fail to do so, the court shall try the case
against all upon the answer thus filed and render judgment upon the evidence
presented. The same proceeding applies when a common cause of action is
pleaded in a counterclaim, cross-claim and third-party claim.
Very aptly does Chief Justice Moran elucidate on this provision and the controlling jurisprudence
explanatory thereof this wise:
Where a complaint states a common cause of action against several defendants
and some appear to defend the case on the merits while others make default, the
defense interposed by those who appear to litigate the case inures to the benefit of
those who fail to appear, and if the court finds that a good defense has been made,
all of the defendants must be absolved. In other words, the answer filed by one or
some of the defendants inures to the benefit of all the others, even those who have
not seasonably filed their answer. (Bueno v. Ortiz, L-22978, June 27, 1968, 23
SCRA 1151.) The proper mode of proceeding where a complaint states a common
cause of action against several defendants, and one of them makes default, is
simply to enter a formal default order against him, and proceed with the cause
upon the answers of the others. The defaulting defendant merely loses his
standing in court, he not being entitled to the service of notice in the cause, nor to
appear in the suit in any way. He cannot adduce evidence; nor can he be heard at
the final hearing, (Lim Toco v. Go Fay, 80 Phil. 166.) although he may appeal the
judgment rendered against him on the merits. (Rule 41, sec. 2.) If the case is
finally decided in the plaintiff's favor, a final decree is then entered against all the
defendants; but if the suit should be decided against the plaintiff, the action will
be dismissed as to all the defendants alike. (Velez v. Ramas, 40 Phil. 787-792;
Frow v. de la Vega, 15 Wal. 552,21 L. Ed. 60.) In other words the judgment will
affect the defaulting defendants either favorably or adversely. (Castro v. Pea, 80
Phil. 488.)
Defaulting defendant may ask execution if judgment is in his favor. (Castro v.
Pea, supra.) (Moran, Rules of Court, Vol. 1, pp. 538-539.)
In Castro vs. Pea, 80 Phil. 488, one of the numerous cases cited by Moran, this
Court elaborated on the construction of the same rule when it sanctioned the
execution, upon motion and for the benefit of the defendant in default, of a
judgment which was adverse to the plaintiff. The Court held:
As above stated, Emilia Matanguihan, by her counsel, also was a movant in the
petition for execution Annex 1. Did she have a right to be such, having been
declared in default? In Frow vs. De la Vega, supra, cited as authority in Velez vs.
Ramas, supra, the Supreme Court of the United States adopted as ground for its
own decision the following ruling of the New York Court of Errors in Clason vs.
Morris, 10 Jons., 524:
It would be unreasonable to hold that because one defendant had made default,
the plaintiff should have a decree even against him, where the court is satisfied
from the proofs offered by the other, that in fact the plaintiff is not entitled to a
decree. (21 Law, ed., 61.)
The reason is simple: justice has to be consistent. The complaint stating a
common cause of action against several defendants, the complainant's rights or
lack of them in the controversy have to be the same, and not different, as
against all the defendant's although one or some make default and the other or
others appear, join issue, and enter into trial. For instance, in the case of Clason
vs. Morris above cited, the New York Court of Errors in effect held that in such a
case if the plaintiff is not entitled to a decree, he will not be entitled to it, not only
as against the defendant appearing and resisting his action but also as against the
one who made default. In the case at bar, the cause of action in the plaintiff's
complaint was common against the Mayor of Manila, Emilia Matanguihan, and
the other defendants in Civil Case No. 1318 of the lower court. The Court of First
Instance in its judgment found and held upon the evidence adduced by the
plaintiff and the defendant mayor that as between said plaintiff and defendant
Matanguihan the latter was the one legally entitled to occupy the stalls; and it
decreed, among other things, that said plaintiff immediately vacate them.
Paraphrasing the New York Court of Errors, it would be unreasonable to hold now
that because Matanguihan had made default, the said plaintiff should be declared,
as against her, legally entitled to the occupancy of the stalls, or to remain therein,
although the Court of First Instance was so firmly satisfied, from the proofs
offered by the other defendant, that the same plaintiff was not entitled to such
occupancy that it peremptorily ordered her to vacate the stalls. If in the cases
of Clason vs. Morris, supra, Frow vs. De la Vega, supra, and Velez vs. Ramas,
supra the decrees entered inured to the benefit of the defaulting defendants, there
 is no reason why that entered in said case No. 1318 should not be held also to
have inured to the benefit of the defaulting defendant Matanguihan and the
doctrine in said three cases plainly implies that there is nothing in the law
governing default which would prohibit the court from rendering judgment
favorable to the defaulting defendant in such cases. If it inured to her benefit, it
stands to reason that she had a right to claim that benefit, for it would not be a
benefit if the supposed beneficiary were barred from claiming it; and if the benefit
necessitated the execution of the decree, she must be possessed of the right to ask
for the execution thereof as she did when she, by counsel, participated in the
petition for execution Annex 1.
Section 7 of Rule 35 would seem to afford a solid support to the above
considerations. It provides that when a complaint states a common cause of action
against several defendants, some of whom answer, and the others make default,
'the court shall try the case against all upon the answer thus filed and render
judgment upon the evidence presented by the parties in court'. It is obvious that
under this provision the case is tried jointly not only against the defendants
answering but also against those defaulting, and the trial is held upon the answer
filed by the former; and the judgment, if adverse, will prejudice the defaulting
defendants no less than those who answer. In other words, the defaulting
defendants are held bound by the answer filed by their co-defendants and by the
judgment which the court may render against all of them. By the same token, and
by all rules of equity and fair play, if the judgment should happen to be favorable,
totally or partially, to the answering defendants, it must correspondingly benefit
the defaulting ones, for it would not be just to let the judgment produce effects as
to the defaulting defendants only when adverse to them and not when favorable.
In Bueno vs. Ortiz, 23 SCRA 1151, the Court applied the provision under discussion in the
following words:
In answer to the charge that respondent Judge had committed a grave abuse of
discretion in rendering a default judgment against the PC, respondents allege that,
not having filed its answer within the reglementary period, the PC was in default,
so that it was proper for Patanao to forthwith present his evidence and for
respondent Judge to render said judgment. It should be noted, however, that in
entering the area in question and seeking to prevent Patanao from continuing his
logging operations therein, the PC was merely executing an order of the Director
of Forestry and acting as his agent. Patanao's cause of action against the other
respondents in Case No. 190, namely, the Director of Forestry, the District
Forester of Agusan, the Forest Officer of Bayugan, Agusan, and the Secretary of
Agriculture and Natural Resources. Pursuant to Rule 18, Section 4, of the Rules of
Court, 'when a complaint states a common cause of action against several
defendants some of whom answer and the others fail to do so, the court shall try
the case against all upon the answer thus filed (by some) and render judgment
 upon the evidence presented.' In other words, the answer filed by one or some of
the defendants inures to the benefit of all the others, even those who have not
seasonably filed their answer.
Indeed, since the petition in Case No. 190 sets forth a common cause of action
against all of the respondents therein, a decision in favor of one of them would
necessarily favor the others. In fact, the main issue, in said case, is whether
Patanao has a timber license to undertake logging operations in the disputed area.
It is not possible to decide such issue in the negative, insofar as the Director of
Forestry, and to settle it otherwise, as regards the PC, which is merely acting as
agent of the Director of Forestry, and is, therefore, his alter ego, with respect to
the disputed forest area.
Stated differently, in all instances where a common cause of action is alleged against several
defendants, some of whom answer and the others do not, the latter or those in default acquire a
vested right not only to own the defense interposed in the answer of their co- defendant or co-
defendants not in default but also to expect a result of the litigation totally common with them in
kind and in amount whether favorable or unfavorable. The substantive unity of the plaintiff's
cause against all the defendants is carried through to its adjective phase as ineluctably demanded
by the homogeneity and indivisibility of justice itself. Indeed, since the singleness of the cause of
action also inevitably implies that all the defendants are indispensable parties, the court's power
to act is integral and cannot be split such that it cannot relieve any of them and at the same time
render judgment against the rest. Considering the tenor of the section in question, it is to be
assumed that when any defendant allows himself to be declared in default knowing that his
defendant has already answered, he does so trusting in the assurance implicit in the rule that his
default is in essence a mere formality that deprives him of no more than the right to take part in
the trial and that the court would deem anything done by or for the answering defendant as done
by or for him. The presumption is that otherwise he would not -have seen to that he would not be
in default. Of course, he has to suffer the consequences of whatever the answering defendant
may do or fail to do, regardless of possible adverse consequences, but if the complaint has to be
dismissed in so far as the answering defendant is concerned it becomes his inalienable right that
the same be dismissed also as to him. It does not matter that the dismissal is upon the evidence
presented by the plaintiff or upon the latter's mere desistance, for in both contingencies, the lack
of sufficient legal basis must be the cause. The integrity of the common cause of action against
all the defendants and the indispensability of all of them in the proceedings do not permit any
possibility of waiver of the plaintiff's right only as to one or some of them, without including all
of them, and so, as a rule, withdrawal must be deemed to be a confession of weakness as to all.
This is not only elementary justice; it also precludes the concomitant hazard that plaintiff might
resort to the kind of procedural strategem practiced by private respondent herein that resulted in
totally depriving petitioners of every opportunity to defend themselves against her claims which,
after all, as will be seen later in this opinion, the record does not show to be invulnerable, both in
their factual and legal aspects, taking into consideration the tenor of the pleadings and the
probative value of the competent evidence which were before the trial court when it rendered its
assailed decision where all the defendants are indispensable parties, for which reason the absence
of any of them in the case would result in the court losing its competency to act validly, any
compromise that the plaintiff might wish to make with any of them must, as a matter of correct
procedure, have to await until after the rendition of the judgment, at which stage the plaintiff
may then treat the matter of its execution and the satisfaction of his claim as variably as he might
please. Accordingly, in the case now before Us together with the dismissal of the complaint
against the non-defaulted defendants, the court should have ordered also the dismissal thereof as
to petitioners.
Indeed, there is more reason to apply here the principle of unity and indivisibility of the action
just discussed because all the defendants here have already joined genuine issues with plaintiff.
Their default was only at the pre-trial. And as to such absence of petitioners at the pre-trial, the
same could be attributed to the fact that they might not have considered it necessary anymore to
be present, since their respective children Lim and Leonardo, with whom they have common
defenses, could take care of their defenses as well. Anything that might have had to be done by
them at such pre-trial could have been done for them by their children, at least initially, specially
because in the light of the pleadings before the court, the prospects of a compromise must have
appeared to be rather remote. Such attitude of petitioners is neither uncommon nor totally
unjustified. Under the circumstances, to declare them immediately and irrevocably in default was
not an absolute necessity. Practical considerations and reasons of equity should have moved
respondent court to be more understanding in dealing with the situation. After all, declaring them
in default as respondent court did not impair their right to a common fate with their children.
3
Another issue to be resolved in this case is the question of whether or not herein petitioners were
entitled to notice of plaintiff's motion to drop their co-defendants Lim and Leonardo, considering
that petitioners had been previously declared in default. In this connection, the decisive
consideration is that according to the applicable rule, Section 9, Rule 13, already quoted above,
(1) even after a defendant has been declared in default, provided he "files a motion to set aside
the order of default, he shall be entitled to notice of all further proceedings regardless of
whether the order of default is set aside or not" and (2) a party in default who has not filed such a
motion to set aside must still be served with all "substantially amended or supplemented
pleadings." In the instant case, it cannot be denied that petitioners had all filed their motion for
reconsideration of the order declaring them in default. Respondents' own answer to the petition
therein makes reference to the order of April 3, 1973, Annex 8 of said answer, which denied said
motion for reconsideration. On page 3 of petitioners' memorandum herein this motion is referred
to as "a motion to set aside the order of default." But as We have not been favored by the parties
with a copy of the said motion, We do not even know the excuse given for petitioners' failure to
appear at the pre-trial, and We cannot, therefore, determine whether or not the motion complied
with the requirements of Section 3 of Rule 18 which We have held to be controlling in cases of
default for failure to answer on time. (The Philippine-British Co. Inc. etc. et al. vs. The Hon.
Walfrido de los Angeles etc. et al., 63 SCRA 50.)
We do not, however, have here, as earlier noted, a case of default for failure to answer but one
for failure to appear at the pre-trial. We reiterate, in the situation now before Us, issues have
already been joined. In fact, evidence had been partially offered already at the pre-trial and more
of it at the actual trial which had already begun with the first witness of the plaintiff undergoing
re-cross-examination. With these facts in mind and considering that issues had already been
joined even as regards the defaulted defendants, it would be requiring the obvious to pretend that
there was still need for an oath or a verification as to the merits of the defense of the defaulted
defendants in their motion to reconsider their default. Inasmuch as none of the parties had asked
for a summary judgment there can be no question that the issues joined were genuine, and
consequently, the reason for requiring such oath or verification no longer holds. Besides, it may
also be reiterated that being the parents of the non-defaulted defendants, petitioners must have
assumed that their presence was superfluous, particularly because the cause of action against
them as well as their own defenses are common. Under these circumstances, the form of the
motion by which the default was sought to be lifted is secondary and the requirements of Section
3 of Rule 18 need not be strictly complied with, unlike in cases of default for failure to answer.
We can thus hold as We do hold for the purposes of the revival of their right to notice under
Section 9 of Rule 13, that petitioner's motion for reconsideration was in substance legally
adequate regardless of whether or not it was under oath.
In any event, the dropping of the defendants Lim and Leonardo from plaintiff's amended
complaint was virtually a second amendment of plaintiffs complaint. And there can be no doubt
that such amendment was substantial, for with the elimination thereby of two defendants
allegedly solidarily liable with their co-defendants, herein petitioners, it had the effect of
increasing proportionally what each of the remaining defendants, the said petitioners, would have
to answer for jointly and severally. Accordingly, notice to petitioners of the plaintiff's motion of
October 18, 1974 was legally indispensable under the rule above-quoted. Consequently,
respondent court had no authority to act on the motion, to dismiss, pursuant to Section 6 of Rule
15, for according to Senator Francisco, "(t) he Rules of Court clearly provide that no motion
shall be acted upon by the Court without the proof of service of notice thereof, together with a
copy of the motion and other papers accompanying it, to all parties concerned at least three days
before the hearing thereof, stating the time and place for the hearing of the motion. (Rule 26,
section 4, 5 and 6, Rules of Court (now Sec. 15, new Rules). When the motion does not comply
with this requirement, it is not a motion. It presents no question which the court could decide.
And the Court acquires no jurisdiction to consider it. (Roman Catholic Bishop of Lipa vs.
Municipality of Unisan 44 Phil., 866; Manakil vs. Revilla, 42 Phil., 81.) (Laserna vs. Javier, et
al., CA-G.R. No. 7885, April 22, 1955; 21 L.J. 36, citing Roman Catholic Bishop of Lipa vs.
Municipality of Unisan 44 Phil., 866; Manakil vs. Revilla, 42 Phil., 81.) (Francisco. The Revised
Rules of Court in the Philippines, pp. 861-862.) Thus, We see again, from a different angle, why
respondent court's order of dismissal of October 21, 1974 is fatally ineffective.
4
The foregoing considerations notwithstanding, it is respondents' position that certiorari is not the
proper remedy of petitioners. It is contended that inasmuch as said petitioners have in fact made
their appeal already by filing the required notice of appeal and appeal bond and a motion for
extension to file their record on appeal, which motion was granted by respondent court, their
only recourse is to prosecute that appeal. Additionally, it is also maintained that since petitioners
have expressly withdrawn their motion to quash of January 4, 1975 impugning the order of
October 28, 1974, they have lost their right to assail by certiorari the actuations of respondent
court now being questioned, respondent court not having been given the opportunity to correct
any possible error it might have committed.
We do not agree. As already shown in the foregoing discussion, the proceedings in the court
below have gone so far out of hand that prompt action is needed to restore order in the entangled
situation created by the series of plainly illegal orders it had issued. The essential purpose
of certiorari is to keep the proceedings in lower judicial courts and tribunals within legal bounds,
so that due process and the rule of law may prevail at all times and arbitrariness, whimsicality
and unfairness which justice abhors may immediately be stamped out before graver injury,
juridical and otherwise, ensues. While generally these objectives may well be attained in an
ordinary appeal, it is undoubtedly the better rule to allow the special remedy of certiorari at the
option of the party adversely affected, when the irregularity committed by the trial court is so
grave and so far reaching in its consequences that the long and cumbersome procedure of appeal
will only further aggravate the situation of the aggrieved party because other untoward actuations
are likely to materialize as natural consequences of those already perpetrated. If the law were
otherwise, certiorari would have no reason at all for being.
No elaborate discussion is needed to show the urgent need for corrective measures in the case at
bar. Verily, this is one case that calls for the exercise of the Supreme Court's inherent power of
supervision over all kinds of judicial actions of lower courts. Private respondent's procedural
technique designed to disable petitioners to defend themselves against her claim which appears
on the face of the record itself to be at least highly controversial seems to have so fascinated
respondent court that none would be surprised should her pending motion for immediate
execution of the impugned judgment receive similar ready sanction as her previous motions
which turned the proceedings into a one-sided affair. The stakes here are high. Not only is the
subject matter considerably substantial; there is the more important aspect that not only the spirit
and intent of the rules but even the basic rudiments of fair play have been disregarded. For the
Court to leave unrestrained the obvious tendency of the proceedings below would be nothing
short of wittingly condoning inequity and injustice resulting from erroneous construction and
unwarranted application of procedural rules.
5
The sum and total of all the foregoing disquisitions is that the decision here in question is legally
anomalous. It is predicated on two fatal malactuations of respondent court namely (1) the
dismissal of the complaint against the non-defaulted defendants Lim and Leonardo and (2)
the ex-parte reception of the evidence of the plaintiff by the clerk of court, the subsequent using
of the same as basis for its judgment and the rendition of such judgment.
For at least three reasons which We have already fully discussed above, the order of dismissal of
October 21, 1974 is unworthy of Our sanction: (1) there was no timely notice of the motion
therefor to the non-defaulted defendants, aside from there being no notice at all to herein
petitioners; (2) the common answer of the defendants, including the non-defaulted, contained a
compulsory counterclaim incapable of being determined in an independent action; and (3) the
immediate effect of such dismissal was the removal of the two non-defaulted defendants as
parties, and inasmuch as they are both indispensable parties in the case, the court consequently
lost the" sine qua non of the exercise of judicial power", per Borlasa vs. Polistico, supra. This is
not to mention anymore the irregular delegation to the clerk of court of the function of receiving
plaintiff's evidence. And as regards the ex-parte reception of plaintiff's evidence and subsequent
rendition of the judgment by default based thereon, We have seen that it was violative of the right
of the petitioners, under the applicable rules and principles on default, to a common and single
fate with their non-defaulted co-defendants. And We are not yet referring, as We shall do this
anon to the numerous reversible errors in the decision itself.
It is to be noted, however, that the above-indicated two fundamental flaws in respondent court's
actuations do not call for a common corrective remedy. We cannot simply rule that all the
impugned proceedings are null and void and should be set aside, without being faced with the
insurmountable obstacle that by so doing We would be reviewing the case as against the two
non-defaulted defendants who are not before Us not being parties hereto. Upon the other hand,
for Us to hold that the order of dismissal should be allowed to stand, as contended by
respondents themselves who insist that the same is already final, not only because the period for
its finality has long passed but also because allegedly, albeit not very accurately, said 'non-
defaulted defendants unsuccessfully tried to have it set aside by the Court of Appeals whose
decision on their petition is also already final, We would have to disregard whatever evidence
had been presented by the plaintiff against them and, of course, the findings of respondent court
based thereon which, as the assailed decision shows, are adverse to them. In other words,
whichever of the two apparent remedies the Court chooses, it would necessarily entail some kind
of possible juridical imperfection. Speaking of their respective practical or pragmatic effects, to
annul the dismissal would inevitably prejudice the rights of the non-defaulted defendants whom
We have not heard and who even respondents would not wish to have anything anymore to do
with the case. On the other hand, to include petitioners in the dismissal would naturally set at
naught every effort private respondent has made to establish or prove her case thru means
sanctioned by respondent court. In short, We are confronted with a legal para-dilemma. But one
thing is certain this difficult situations has been brought about by none other than private
respondent who has quite cynically resorted to procedural maneuvers without realizing that the
technicalities of the adjective law, even when apparently accurate from the literal point of view,
cannot prevail over the imperatives of the substantive law and of equity that always underlie
them and which have to be inevitably considered in the construction of the pertinent procedural
rules.
All things considered, after careful and mature deliberation, the Court has arrived at the
conclusion that as between the two possible alternatives just stated, it would only be fair,
equitable and proper to uphold the position of petitioners. In other words, We rule that the order
of dismissal of October 21, 1974 is in law a dismissal of the whole case of the plaintiff, including
as to petitioners herein. Consequently, all proceedings held by respondent court subsequent
thereto including and principally its decision of December 20, 1974 are illegal and should be set
aside.
This conclusion is fully justified by the following considerations of equity:
1. It is very clear to Us that the procedural maneuver resorted to by private respondent in
securing the decision in her favor was ill-conceived. It was characterized by that which every
principle of law and equity disdains taking unfair advantage of the rules of procedure in order
to unduly deprive the other party of full opportunity to defend his cause. The idea of "dropping"
the non-defaulted defendants with the end in view of completely incapacitating their co-
defendants from making any defense, without considering that all of them are indispensable
parties to a common cause of action to which they have countered with a common defense
readily connotes an intent to secure a one-sided decision, even improperly. And when, in this
connection, the obvious weakness of plaintiff's evidence is taken into account, one easily
understands why such tactics had to be availed of. We cannot directly or indirectly give Our
assent to the commission of unfairness and inequity in the application of the rules of procedure,
particularly when the propriety of reliance thereon is not beyond controversy.
2. The theories of remedial law pursued by private respondents, although approved by His
Honor, run counter to such basic principles in the rules on default and such elementary rules on
dismissal of actions and notice of motions that no trial court should be unaware of or should be
mistaken in applying. We are at a loss as to why His Honor failed to see through counsel's
inequitous strategy, when the provisions (1) on the three-day rule on notice of motions, Section 4
of Rule 15, (2) against dismissal of actions on motion of plaintiff when there is a compulsory
counterclaim, Section 2, Rule 17, (3) against permitting the absence of indispensable parties,
Section 7, Rule 3, (4) on service of papers upon defendants in default when there are substantial
amendments to pleadings, Section 9, Rule 13, and (5) on the unity and integrity of the fate of
defendants in default with those not in default where the cause of action against them and their
own defenses are common, Section 4, Rule 18, are so plain and the jurisprudence declaratory of
their intent and proper construction are so readily comprehensible that any error as to their
application would be unusual in any competent trial court.
3. After all, all the malactuations of respondent court are traceable to the initiative of private
respondent and/or her counsel. She cannot, therefore, complain that she is being made to
unjustifiably suffer the consequences of what We have found to be erroneous orders of
respondent court. It is only fair that she should not be allowed to benefit from her own frustrated
objective of securing a one-sided decision.
4. More importantly, We do not hesitate to hold that on the basis of its own recitals, the decision
in question cannot stand close scrutiny. What is more, the very considerations contained therein
reveal convincingly the inherent weakness of the cause of the plaintiff. To be sure, We have been
giving serious thought to the idea of merely returning this case for a resumption of trial by
setting aside the order of dismissal of October 21, 1974, with all its attendant difficulties on
account of its adverse effects on parties who have not been heard, but upon closer study of the
pleadings and the decision and other circumstances extant in the record before Us, We are now
persuaded that such a course of action would only lead to more legal complications incident to
attempts on the part of the parties concerned to desperately squeeze themselves out of a bad
situation. Anyway, We feel confident that by and large, there is enough basis here and now for Us
to rule out the claim of the plaintiff.
Even a mere superficial reading of the decision would immediately reveal that it is littered on its
face with deficiencies and imperfections which would have had no reason for being were there
less haste and more circumspection in rendering the same. Recklessness in jumping to
unwarranted conclusions, both factual and legal, is at once evident in its findings relative
precisely to the main bases themselves of the reliefs granted. It is apparent therein that no effort
has been made to avoid glaring inconsistencies. Where references are made to codal provisions
and jurisprudence, inaccuracy and inapplicability are at once manifest. It hardly commends itself
as a deliberate and consciencious adjudication of a litigation which, considering the substantial
value of the subject matter it involves and the unprecedented procedure that was followed by
respondent's counsel, calls for greater attention and skill than the general run of cases would.
Inter alia, the following features of the decision make it highly improbable that if We took
another course of action, private respondent would still be able to make out any case against
petitioners, not to speak of their co-defendants who have already been exonerated by respondent
herself thru her motion to dismiss:
1. According to His Honor's own statement of plaintiff's case, "she is the widow of the late Tee
Hoon Po Chuan (Po Chuan, for short) who was then one of the partners in the commercial
partnership, Glory Commercial Co. with defendants Antonio Lim Tanhu (Lim Tanhu, for short)
and Alfonso Leonardo Ng Sua (Ng Sua, for short) as co-partners; that after the death of her
husband on March 11, 1966 she is entitled to share not only in the capital and profits of the
partnership but also in the other assets, both real and personal, acquired by the partnership with
funds of the latter during its lifetime."
Relatedly, in the latter part of the decision, the findings are to the following effect: .
That the herein plaintiff Tan Put and her late husband Po Chuan married at the
Philippine Independent Church of Cebu City on December, 20, 1949; that Po
Chuan died on March 11, 1966; that the plaintiff and the late Po Chuan were
childless but the former has a foster son Antonio Nuez whom she has reared
since his birth with whom she lives up to the present; that prior to the marriage of
the plaintiff to Po Chuan the latter was already managing the partnership Glory
Commercial Co. then engaged in a little business in hardware at Manalili St.,
Cebu City; that prior to and just after the marriage of the plaintiff to Po Chuan she
was engaged in the drugstore business; that not long after her marriage, upon the
suggestion of Po Chuan the plaintiff sold her drugstore for P125,000.00 which
amount she gave to her husband in the presence of defendant Lim Tanhu and was
invested in the partnership Glory Commercial Co. sometime in 1950; that after
the investment of the above-stated amount in the partnership its business
flourished and it embarked in the import business and also engaged in the
wholesale and retail trade of cement and GI sheets and under huge profits;
 xxx xxx xxx
That the late Po Chuan was the one who actively managed the business of the
partnership Glory Commercial Co. he was the one who made the final decisions
and approved the appointments of new personnel who were taken in by the
partnership; that the late Po Chuan and defendants Lim Tanhu and Ng Sua are
brothers, the latter two (2) being the elder brothers of the former; that defendants
Lim Tanhu and Ng Sua are both naturalized Filipino citizens whereas the late Po
Chuan until the time of his death was a Chinese citizen; that the three (3) brothers
were partners in the Glory Commercial Co. but Po Chuan was practically the
owner of the partnership having the controlling interest; that defendants Lim
Tanhu and Ng Sua were partners in name but they were mere employees of Po
Chuan .... (Pp. 89-91, Record.)
How did His Honor arrive at these conclusions? To start with, it is not clear in the decision
whether or not in making its findings of fact the court took into account the allegations in the
pleadings of the parties and whatever might have transpired at the pre-trial. All that We can
gather in this respect is that references are made therein to pre-trial exhibits and to Annex A of
the answer of the defendants to plaintiff's amended complaint. Indeed, it was incumbent upon the
court to consider not only the evidence formally offered at the trial but also the admissions,
expressed or implied, in the pleadings, as well as whatever might have been placed before it or
brought to its attention during the pre-trial. In this connection, it is to be regretted that none of
the parties has thought it proper to give Us an idea of what took place at the pre-trial of the
present case and what are contained in the pre-trial order, if any was issued pursuant to Section 4
of Rule 20.
The fundamental purpose of pre-trial, aside from affording the parties every opportunity to
compromise or settle their differences, is for the court to be apprised of the unsettled issues
between the parties and of their respective evidence relative thereto, to the end that it may take
corresponding measures that would abbreviate the trial as much as possible and the judge may be
able to ascertain the facts with the least observance of technical rules. In other words whatever is
said or done by the parties or their counsel at the pre- trial serves to put the judge on notice of
their respective basic positions, in order that in appropriate cases he may, if necessary in the
interest of justice and a more accurate determination of the facts, make inquiries about or require
clarifications of matters taken up at the pre-trial, before finally resolving any issue of fact or of
law. In brief, the pre-trial constitutes part and parcel of the proceedings, and hence, matters dealt
with therein may not be disregarded in the process of decision making. Otherwise, the real
essence of compulsory pre-trial would be insignificant and worthless.
Now, applying these postulates to the findings of respondent court just quoted, it will be
observed that the court's conclusion about the supposed marriage of plaintiff to the deceased Tee
Hoon Lim Po Chuan is contrary to the weight of the evidence brought before it during the trial
and the pre-trial.
Under Article 55 of the Civil Code, the declaration of the contracting parties that they take each
other as husband and wife "shall be set forth in an instrument" signed by the parties as well as by
their witnesses and the person solemnizing the marriage. Accordingly, the primary evidence of a
marriage must be an authentic copy of the marriage contract. While a marriage may also be
proved by other competent evidence, the absence of the contract must first be satisfactorily
explained. Surely, the certification of the person who allegedly solemnized a marriage is not
admissible evidence of such marriage unless proof of loss of the contract or of any other
satisfactory reason for its non-production is first presented to the court. In the case at bar, the
purported certification issued by a Mons. Jose M. Recoleto, Bishop, Philippine Independent
Church, Cebu City, is not, therefore, competent evidence, there being absolutely no showing as
to unavailability of the marriage contract and, indeed, as to the authenticity of the signature of
said certifier, the jurat allegedly signed by a second assistant provincial fiscal not being
authorized by law, since it is not part of the functions of his office. Besides, inasmuch as the
bishop did not testify, the same is hearsay.
As regards the testimony of plaintiff herself on the same point and that of her witness Antonio
Nuez, there can be no question that they are both self-serving and of very little evidentiary
value, it having been disclosed at the trial that plaintiff has already assigned all her rights in this
case to said Nuez, thereby making him the real party in interest here and, therefore, naturally as
biased as herself. Besides, in the portion of the testimony of Nuez copied in Annex C of
petitioner's memorandum, it appears admitted that he was born only on March 25, 1942, which
means that he was less than eight years old at the supposed time of the alleged marriage. If for
this reason alone, it is extremely doubtful if he could have been sufficiently aware of such event
as to be competent to testify about it.
Incidentally, another Annex C of the same memorandum purports to be the certificate of birth of
one Antonio T. Uy supposed to have been born on March 23, 1937 at Centro Misamis, Misamis
Occidental, the son of one Uy Bien, father, and Tan Put, mother. Significantly, respondents have
not made any adverse comment on this document. It is more likely, therefore, that the witness is
really the son of plaintiff by her husband Uy Kim Beng. But she testified she was childless. So
which is which? In any event, if on the strength of this document, Nuez is actually the
legitimate son of Tan Put and not her adopted son, he would have been but 13 years old in 1949,
the year of her alleged marriage to Po Chuan, and even then, considering such age, his testimony
in regard thereto would still be suspect.
Now, as against such flimsy evidence of plaintiff, the court had before it, two documents of great
weight belying the pretended marriage. We refer to (1) Exhibit LL, the income tax return of the
deceased Tee Hoon Lim Po Chuan indicating that the name of his wife was Ang Sick Tin and (2)
the quitclaim, Annex A of the answer, wherein plaintiff Tan Put stated that she had been living
with the deceased without benefit of marriage and that she was his "common-law wife". Surely,
these two documents are far more reliable than all the evidence of the plaintiff put together.
Of course, Exhibit LL is what might be termed as pre-trial evidence. But it is evidence offered to
the judge himself, not to the clerk of court, and should have at least moved him to ask plaintiff to
explain if not rebut it before jumping to the conclusion regarding her alleged marriage to the
deceased, Po Chuan. And in regard to the quitclaim containing the admission of a common-law
relationship only, it is to be observed that His Honor found that "defendants Lim Tanhu and Ng
Sua had the plaintiff execute a quitclaim on November 29, 1967 (Annex "A", Answer) where
they gave plaintiff the amount of P25,000 as her share in the capital and profits of the business of
Glory Commercial Co. which was engaged in the hardware business", without making mention
of any evidence of fraud and misrepresentation in its execution, thereby indicating either that no
evidence to prove that allegation of the plaintiff had been presented by her or that whatever
evidence was actually offered did not produce persuasion upon the court. Stated differently, since
the existence of the quitclaim has been duly established without any circumstance to detract from
its legal import, the court should have held that plaintiff was bound by her admission therein that
she was the common-law wife only of Po Chuan and what is more, that she had already
renounced for valuable consideration whatever claim she might have relative to the partnership
Glory Commercial Co.
And when it is borne in mind that in addition to all these considerations, there are mentioned and
discussed in the memorandum of petitioners (1) the certification of the Local Civil Registrar of
Cebu City and (2) a similar certification of the Apostolic Prefect of the Philippine Independent
Church, Parish of Sto. Nio, Cebu City, that their respective official records corresponding to
December 1949 to December 1950 do not show any marriage between Tee Hoon Lim Po Chuan
and Tan Put, neither of which certifications have been impugned by respondent until now, it
stands to reason that plaintiff's claim of marriage is really unfounded. Withal, there is still
another document, also mentioned and discussed in the same memorandum and unimpugned by
respondents, a written agreement executed in Chinese, but purportedly translated into English by
the Chinese Consul of Cebu, between Tan Put and Tee Hoon Lim Po Chuan to the following
effect:
CONSULATE OF THE REPUBLIC OF CHINA Cebu City, Philippines
T R AN S LAT I O N
This is to certify that 1, Miss Tan Ki Eng Alias Tan Put, have lived with Mr. Lim
Po Chuan alias TeeHoon since 1949 but it recently occurs that we are
incompatible with each other and are not in the position to keep living together
permanently. With the mutual concurrence, we decided to terminate the existing
relationship of common law-marriage and promised not to interfere each other's
affairs from now on. The Forty Thousand Pesos (P40,000.00) has been given to
me by Mr. Lim Po Chuan for my subsistence.
Witnesses:
Mr. Lim Beng Guan Mr. Huang Sing Se
Signed on the 10 day of the 7th month of the 54th year of the Republic of China
(corresponding to the year 1965).
(SGD) TAN KI ENG
Verified from the records. JORGE TABAR (Pp. 283-284, Record.)
Indeed, not only does this document prove that plaintiff's relation to the deceased was that of a
common-law wife but that they had settled their property interests with the payment to her of
P40,000.
In the light of all these circumstances, We find no alternative but to hold that plaintiff Tan Put's
allegation that she is the widow of Tee Hoon Lim Po Chuan has not been satisfactorily
established and that, on the contrary, the evidence on record convincingly shows that her relation
with said deceased was that of a common-law wife and furthermore, that all her claims against
the company and its surviving partners as well as those against the estate of the deceased have
already been settled and paid. We take judicial notice of the fact that the respective counsel who
assisted the parties in the quitclaim, Attys. H. Hermosisima and Natalio Castillo, are members in
good standing of the Philippine Bar, with the particularity that the latter has been a member of
the Cabinet and of the House of Representatives of the Philippines, hence, absent any credible
proof that they had allowed themselves to be parties to a fraudulent document His Honor did
right in recognizing its existence, albeit erring in not giving due legal significance to its contents.
2. If, as We have seen, plaintiff's evidence of her alleged status as legitimate wife of Po Chuan is
not only unconvincing but has been actually overcome by the more competent and weighty
evidence in favor of the defendants, her attempt to substantiate her main cause of action that
defendants Lim Tanhu and Ng Sua have defrauded the partnership Glory Commercial Co. and
converted its properties to themselves is even more dismal. From the very evidence summarized
by His Honor in the decision in question, it is clear that not an iota of reliable proof exists of
such alleged misdeeds.
Of course, the existence of the partnership has not been denied, it is actually admitted impliedly
in defendants' affirmative defense that Po Chuan's share had already been duly settled with and
paid to both the plaintiff and his legitimate family. But the evidence as to the actual participation
of the defendants Lim Tanhu and Ng Sua in the operation of the business that could have enabled
them to make the extractions of funds alleged by plaintiff is at best confusing and at certain
points manifestly inconsistent.
In her amended complaint, plaintiff repeatedly alleged that as widow of Po Chuan she is entitled
to / 3 share of the assets and properties of the partnership. In fact, her prayer in said complaint is,
among others, for the delivery to her of such / 3 share. His Honor's statement of the case as well
as his findings and judgment are all to that same effect. But what did she actually try to prove at
the ex- parte hearing?
According to the decision, plaintiff had shown that she had money of her own when she
"married" Po Chuan and "that prior to and just after the marriage of the plaintiff to Po Chuan, she
was engaged in the drugstore business; that not long after her marriage, upon the suggestion of
Po Chuan, the plaintiff sold her drugstore for P125,000 which amount she gave to her husband in
the presence of Tanhu and was invested in the partnership Glory Commercial Co. sometime in
1950; that after the investment of the above-stated amount in the partnership, its business
flourished and it embarked in the import business and also engaged in the wholesale and retail
trade of cement and GI sheets and under (sic) huge profits." (pp. 25-26, Annex L, petition.)
To begin with, this theory of her having contributed of P125,000 to the capital of the partnership
by reason of which the business flourished and amassed all the millions referred to in the
decision has not been alleged in the complaint, and inasmuch as what was being rendered was a
judgment by default, such theory should not have been allowed to be the subject of any evidence.
But inasmuch as it was the clerk of court who received the evidence, it is understandable that he
failed to observe the rule. Then, on the other hand, if it was her capital that made the partnership
flourish, why would she claim to be entitled to only to / 3 of its assets and profits? Under her
theory found proven by respondent court, she was actually the owner of everything, particularly
because His Honor also found "that defendants Lim Tanhu and Ng Sua were partners in the name
but they were employees of Po Chuan that defendants Lim Tanhu and Ng Sua had no means of
livelihood at the time of their employment with the Glory Commercial Co. under the
management of the late Po Chuan except their salaries therefrom; ..." (p. 27, id.) Why then does
she claim only / 3 share? Is this an indication of her generosity towards defendants or of a
concocted cause of action existing only in her confused imagination engendered by the death of
her common-law husband with whom she had settled her common-law claim for recompense of
her services as common law wife for less than what she must have known would go to his
legitimate wife and children?
Actually, as may be noted from the decision itself, the trial court was confused as to the
participation of defendants Lim Tanhu and Ng Sua in Glory Commercial Co. At one point, they
were deemed partners, at another point mere employees and then elsewhere as partners-
employees, a newly found concept, to be sure, in the law on partnership. And the confusion is
worse comfounded in the judgment which allows these "partners in name" and "partners-
employees" or employees who had no means of livelihood and who must not have contributed
any capital in the business, "as Po Chuan was practically the owner of the partnership having the
controlling interest", / 3 each of the huge assets and profits of the partnership. Incidentally, it
may be observed at this juncture that the decision has made Po Chuan play the inconsistent role
of being "practically the owner" but at the same time getting his capital from the P125,000 given
to him by plaintiff and from which capital the business allegedly "flourished."
Anent the allegation of plaintiff that the properties shown by her exhibits to be in the names of
defendants Lim Tanhu and Ng Sua were bought by them with partnership funds, His Honor
confirmed the same by finding and holding that "it is likewise clear that real properties together
with the improvements in the names of defendants Lim Tanhu and Ng Sua were acquired with
partnership funds as these defendants were only partners-employees of deceased Po Chuan in the
Glory Commercial Co. until the time of his death on March 11, 1966." (p. 30, id.) It Is Our
considered view, however, that this conclusion of His Honor is based on nothing but pure
unwarranted conjecture. Nowhere is it shown in the decision how said defendants could have
extracted money from the partnership in the fraudulent and illegal manner pretended by plaintiff.
Neither in the testimony of Nuez nor in that of plaintiff, as these are summarized in the
decision, can there be found any single act of extraction of partnership funds committed by any
of said defendants. That the partnership might have grown into a multi-million enterprise and
that the properties described in the exhibits enumerated in the decision are not in the names of Po
Chuan, who was Chinese, but of the defendants who are Filipinos, do not necessarily prove that
Po Chuan had not gotten his share of the profits of the business or that the properties in the
names of the defendants were bought with money of the partnership. In this connection, it is
decisively important to consider that on the basis of the concordant and mutually cumulative
testimonies of plaintiff and Nuez, respondent court found very explicitly that, and We reiterate:
xxx xxx xxx
 That the late Po Chuan was the one who actively managed the business of the
partnership Glory Commercial Co. he was the one who made the final decisions
and approved the appointments of new Personnel who were taken in by the
partnership; that the late Po Chuan and defendants Lim Tanhu and Ng Sua are
brothers, the latter to (2) being the elder brothers of the former; that defendants
Lim Tanhu and Ng Sua are both naturalized Filipino citizens whereas the late Po
Chuan until the time of his death was a Chinese citizen; that the three (3) brothers
were partners in the Glory Commercial Co. but Po Chuan was practically the
owner of the partnership having the controlling interest; that defendants Lim
Tanhu and Ng Sua were partners in name but they were mere employees of Po
Chuan; .... (Pp. 90-91, Record.)
If Po Chuan was in control of the affairs and the running of the partnership, how could the
defendants have defrauded him of such huge amounts as plaintiff had made his Honor believe?
Upon the other hand, since Po Chuan was in control of the affairs of the partnership, the more
logical inference is that if defendants had obtained any portion of the funds of the partnership for
themselves, it must have been with the knowledge and consent of Po Chuan, for which reason no
accounting could be demanded from them therefor, considering that Article 1807 of the Civil
Code refers only to what is taken by a partner without the consent of the other partner or
partners. Incidentally again, this theory about Po Chuan having been actively managing the
partnership up to his death is a substantial deviation from the allegation in the amended
complaint to the effect that "defendants Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim
Teck Chuan and Eng Chong Leonardo, through fraud and machination, took actual and active
management of the partnership and although Tee Hoon Lim Po Chuan was the manager of Glory
Commercial Co., defendants managed to use the funds of the partnership to purchase lands and
buildings etc. (Par. 4, p. 2 of amended complaint, Annex B of petition) and should not have been
permitted to be proven by the hearing officer, who naturally did not know any better.
Moreover, it is very significant that according to the very tax declarations and land titles listed in
the decision, most if not all of the properties supposed to have been acquired by the defendants
Lim Tanhu and Ng Sua with funds of the partnership appear to have been transferred to their
names only in 1969 or later, that is, long after the partnership had been automatically dissolved
as a result of the death of Po Chuan. Accordingly, defendants have no obligation to account to
anyone for such acquisitions in the absence of clear proof that they had violated the trust of Po
Chuan during the existence of the partnership. (See Hanlon vs. Hansserman and. Beam, 40 Phil.
796.)
There are other particulars which should have caused His Honor to readily disbelieve plaintiffs'
pretensions. Nuez testified that "for about 18 years he was in charge of the GI sheets and
sometimes attended to the imported items of the business of Glory Commercial Co." Counting
18 years back from 1965 or 1966 would take Us to 1947 or 1948. Since according to Exhibit LL,
the baptismal certificate produced by the same witness as his birth certificate, shows he was born
in March, 1942, how could he have started managing Glory Commercial Co. in 1949 when he
must have been barely six or seven years old? It should not have escaped His Honor's attention
that the photographs showing the premises of Philippine Metal Industries after its organization "a
year or two after the establishment of Cebu Can Factory in 1957 or 1958" must have been taken
after 1959. How could Nuez have been only 13 years old then as claimed by him to have been
his age in those photographs when according to his "birth certificate", he was born in 1942? His
Honor should not have overlooked that according to the same witness, defendant Ng Sua was
living in Bantayan until he was directed to return to Cebu after the fishing business thereat
floundered, whereas all that the witness knew about defendant Lim Teck Chuan's arrival from
Hongkong and the expenditure of partnership money for him were only told to him allegedly by
Po Chuan, which testimonies are veritably exculpatory as to Ng Sua and hearsay as to Lim Teck
Chuan. Neither should His Honor have failed to note that according to plaintiff herself, "Lim
Tanhu was employed by her husband although he did not go there always being a mere employee
of Glory Commercial Co." (p. 22, Annex the decision.)
The decision is rather emphatic in that Lim Tanhu and Ng Sua had no known income except their
salaries. Actually, it is not stated, however, from what evidence such conclusion was derived in
so far as Ng Sua is concerned. On the other hand, with respect to Lim Tanhu, the decision itself
states that according to Exhibit NN-Pre trial, in the supposed income tax return of Lim Tanhu for
1964, he had an income of P4,800 as salary from Philippine Metal Industries alone and had a
total assess sable net income of P23,920.77 that year for which he paid a tax of P4,656.00. (p. 14.
Annex L, id.) And per Exhibit GG-Pretrial in the year, he had a net income of P32,000 for which
be paid a tax of P3,512.40. (id.) As early as 1962, "his fishing business in Madridejos Cebu was
making money, and he reported "a net gain from operation (in) the amount of P865.64" (id., per
Exhibit VV-Pre-trial.) From what then did his Honor gather the conclusion that all the properties
registered in his name have come from funds malversed from the partnership?
It is rather unusual that His Honor delved into financial statements and books of Glory
Commercial Co. without the aid of any accountant or without the same being explained by any
witness who had prepared them or who has knowledge of the entries therein. This must be the
reason why there are apparent inconsistencies and inaccuracies in the conclusions His Honor
made out of them. In Exhibit SS-Pre-trial, the reported total assets of the company amounted to
P2,328,460.27 as of December, 1965, and yet, Exhibit TT-Pre-trial, according to His Honor,
showed that the total value of goods available as of the same date was P11,166,327.62. On the
other hand, per Exhibit XX-Pre-trial, the supposed balance sheet of the company for 1966, "the
value of inventoried merchandise, both local and imported", as found by His Honor, was
P584,034.38. Again, as of December 31, 1966, the value of the company's goods available for
sale was P5,524,050.87, per Exhibit YY and YY-Pre-trial. Then, per Exhibit II-3-Pre-trial, the
supposed Book of Account, whatever that is, of the company showed its "cash analysis" was
P12,223,182.55. We do not hesitate to make the observation that His Honor, unless he is a
certified public accountant, was hardly qualified to read such exhibits and draw any definite
conclusions therefrom, without risk of erring and committing an injustice. In any event, there is
no comprehensible explanation in the decision of the conclusion of His Honor that there were
P12,223,182.55 cash money defendants have to account for, particularly when it can be very
clearly seen in Exhibits 11-4, 11-4- A, 11-5 and 11-6-Pre-trial, Glory Commercial Co. had
accounts payable as of December 31, 1965 in the amount of P4,801,321.17. (p. 15, id.) Under the
circumstances, We are not prepared to permit anyone to predicate any claim or right from
respondent court's unaided exercise of accounting knowledge.
Additionally, We note that the decision has not made any finding regarding the allegation in the
amended complaint that a corporation denominated Glory Commercial Co., Inc. was organized
after the death of Po Chuan with capital from the funds of the partnership. We note also that there
is absolutely no finding made as to how the defendants Dy Ochay and Co Oyo could in any way
be accountable to plaintiff, just because they happen to be the wives of Lim Tanhu and Ng Sua,
respectively. We further note that while His Honor has ordered defendants to deliver or pay
jointly and severally to the plaintiff P4,074,394.18 or / 3 of the P12,223,182.55, the supposed
cash belonging to the partnership as of December 31, 1965, in the same breath, they have also
been sentenced to partition and give / 3 share of the properties enumerated in the dispositive
portion of the decision, which seemingly are the very properties allegedly purchased from the
funds of the partnership which would naturally include the P12,223,182.55 defendants have to
account for. Besides, assuming there has not yet been any liquidation of the partnership, contrary
to the allegation of the defendants, then Glory Commercial Co. would have the status of a
partnership in liquidation and the only right plaintiff could have would be to what might result
after such liquidation to belong to the deceased partner, and before this is finished, it is
impossible to determine, what rights or interests, if any, the deceased had (Bearneza vs. Dequilla
43 Phil. 237). In other words, no specific amounts or properties may be adjudicated to the heir or
legal representative of the deceased partner without the liquidation being first terminated.
Indeed, only time and the fear that this decision would be much more extended than it is already
prevent us from further pointing out the inexplicable deficiencies and imperfections of the
decision in question. After all, what have been discussed should be more than sufficient to
support Our conclusion that not only must said decision be set aside but also that the action of
the plaintiff must be totally dismissed, and, were it not seemingly futile and productive of other
legal complications, that plaintiff is liable on defendants' counterclaims. Resolution of the other
issues raised by the parties albeit important and perhaps pivotal has likewise become
superfluous.
IN VIEW OF ALL THE FOREGOING, the petition is granted. All proceedings held in
respondent court in its Civil Case No. 12328 subsequent to the order of dismissal of October 21,
1974 are hereby annulled and set aside, particularly the ex-parte proceedings against petitioners
and the decision on December 20, 1974. Respondent court is hereby ordered to enter an order
extending the effects of its order of dismissal of the action dated October 21, 1974 to herein
petitioners Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and Co Oyo. And
respondent court is hereby permanently enjoined from taking any further action in said civil case
gave and except as herein indicated. Costs against private respondent.
AIR FRANCE, petitioner,
vs.
RAFAEL CARRASCOSO and the HONORABLE COURT OF APPEALS, respondents.
Lichauco, Picazo and Agcaoili for petitioner.
Bengzon Villegas and Zarraga for respondent R. Carrascoso.

SANCHEZ, J.:
The Court of First Instance of Manila 1 sentenced petitioner to pay respondent Rafael Carrascoso
P25,000.00 by way of moral damages; P10,000.00 as exemplary damages; P393.20 representing
the difference in fare between first class and tourist class for the portion of the trip Bangkok-
Rome, these various amounts with interest at the legal rate, from the date of the filing of the
complaint until paid; plus P3,000.00 for attorneys' fees; and the costs of suit.
On appeal,2 the Court of Appeals slightly reduced the amount of refund on Carrascoso's plane
ticket from P393.20 to P383.10, and voted to affirm the appealed decision "in all other respects",
with costs against petitioner.
The case is now before us for review on certiorari.
The facts declared by the Court of Appeals as " fully supported by the evidence of record", are:
Plaintiff, a civil engineer, was a member of a group of 48 Filipino pilgrims that left
Manila for Lourdes on March 30, 1958.
On March 28, 1958, the defendant, Air France, through its authorized agent, Philippine
Air Lines, Inc., issued to plaintiff a "first class" round trip airplane ticket from Manila to
Rome. From Manila to Bangkok, plaintiff travelled in "first class", but at Bangkok, the
Manager of the defendant airline forced plaintiff to vacate the "first class" seat that he
was occupying because, in the words of the witness Ernesto G. Cuento, there was a
"white man", who, the Manager alleged, had a "better right" to the seat. When asked to
vacate his "first class" seat, the plaintiff, as was to be expected, refused, and told
defendant's Manager that his seat would be taken over his dead body; a commotion
ensued, and, according to said Ernesto G. Cuento, "many of the Filipino passengers got
nervous in the tourist class; when they found out that Mr. Carrascoso was having a hot
discussion with the white man [manager], they came all across to Mr. Carrascoso and
pacified Mr. Carrascoso to give his seat to the white man" (Transcript, p. 12, Hearing of
May 26, 1959); and plaintiff reluctantly gave his "first class" seat in the plane.3
1. The trust of the relief petitioner now seeks is that we review "all the findings" 4 of respondent
Court of Appeals. Petitioner charges that respondent court failed to make complete findings of
fact on all the issues properly laid before it. We are asked to consider facts favorable to
petitioner, and then, to overturn the appellate court's decision.
Coming into focus is the constitutional mandate that "No decision shall be rendered by any court
of record without expressing therein clearly and distinctly the facts and the law on which it is
based". 5 This is echoed in the statutory demand that a judgment determining the merits of the
case shall state "clearly and distinctly the facts and the law on which it is based"; 6 and that
"Every decision of the Court of Appeals shall contain complete findings of fact on all issues
properly raised before it". 7
A decision with absolutely nothing to support it is a nullity. It is open to direct attack. 8 The law,
however, solely insists that a decision state the "essential ultimate facts" upon which the court's
conclusion is drawn. 9 A court of justice is not hidebound to write in its decision every bit and
piece of evidence 10 presented by one party and the other upon the issues raised. Neither is it to
be burdened with the obligation "to specify in the sentence the facts" which a party "considered
as proved". 11 This is but a part of the mental process from which the Court draws the essential
ultimate facts. A decision is not to be so clogged with details such that prolixity, if not confusion,
may result. So long as the decision of the Court of Appeals contains the necessary facts to
warrant its conclusions, it is no error for said court to withhold therefrom "any specific finding of
facts with respect to the evidence for the defense". Because as this Court well observed, "There
is no law that so requires". 12 Indeed, "the mere failure to specify (in the decision) the contentions
of the appellant and the reasons for refusing to believe them is not sufficient to hold the same
contrary to the requirements of the provisions of law and the Constitution". It is in this setting
that in Manigque, it was held that the mere fact that the findings "were based entirely on the
evidence for the prosecution without taking into consideration or even mentioning the appellant's
side in the controversy as shown by his own testimony", would not vitiate the judgment. 13 If the
court did not recite in the decision the testimony of each witness for, or each item of evidence
presented by, the defeated party, it does not mean that the court has overlooked such testimony or
such item of evidence. 14 At any rate, the legal presumptions are that official duty has been
regularly performed, and that all the matters within an issue in a case were laid before the court
and passed upon by it. 15
Findings of fact, which the Court of Appeals is required to make, maybe defined as "the written
statement of the ultimate facts as found by the court ... and essential to support the decision and
judgment rendered thereon". 16They consist of the court's "conclusions" with respect to the
determinative facts in issue". 17 A question of law, upon the other hand, has been declared as "one
which does not call for an examination of the probative value of the evidence presented by the
parties." 18
2. By statute, "only questions of law may be raised" in an appeal by certiorari from a judgment of
the Court of Appeals. 19 That judgment is conclusive as to the facts. It is not appropriately the
business of this Court to alter the facts or to review the questions of fact. 20
With these guideposts, we now face the problem of whether the findings of fact of the Court of
Appeals support its judgment.
3. Was Carrascoso entitled to the first class seat he claims?
It is conceded in all quarters that on March 28, 1958 he paid to and received from petitioner a
first class ticket. But petitioner asserts that said ticket did not represent the true and complete
intent and agreement of the parties; that said respondent knew that he did not have confirmed
reservations for first class on any specific flight, although he had tourist class protection; that,
accordingly, the issuance of a first class ticket was no guarantee that he would have a first class
ride, but that such would depend upon the availability of first class seats.
These are matters which petitioner has thoroughly presented and discussed in its brief before the
Court of Appeals under its third assignment of error, which reads: "The trial court erred in
finding that plaintiff had confirmed reservations for, and a right to, first class seats on the
"definite" segments of his journey, particularly that from Saigon to Beirut". 21
And, the Court of Appeals disposed of this contention thus:
 Defendant seems to capitalize on the argument that the issuance of a first-class ticket was
no guarantee that the passenger to whom the same had been issued, would be
accommodated in the first-class compartment, for as in the case of plaintiff he had yet to
make arrangements upon arrival at every station for the necessary first-class reservation.
We are not impressed by such a reasoning. We cannot understand how a reputable firm
like defendant airplane company could have the indiscretion to give out tickets it never
meant to honor at all. It received the corresponding amount in payment of first-class
tickets and yet it allowed the passenger to be at the mercy of its employees. It is more in
keeping with the ordinary course of business that the company should know whether or
riot the tickets it issues are to be honored or not.22
Not that the Court of Appeals is alone. The trial court similarly disposed of petitioner's
contention, thus:
On the fact that plaintiff paid for, and was issued a "First class" ticket, there can be no question.
Apart from his testimony, see plaintiff's Exhibits "A", "A-1", "B", "B-1," "B-2", "C" and "C-1",
and defendant's own witness, Rafael Altonaga, confirmed plaintiff's testimony and testified as
follows:
Q. In these tickets there are marks "O.K." From what you know, what does this OK
mean?
A. That the space is confirmed.
Q. Confirmed for first class?
A. Yes, "first class". (Transcript, p. 169)
xxx xxx xxx
Defendant tried to prove by the testimony of its witnesses Luis Zaldariaga and Rafael Altonaga
that although plaintiff paid for, and was issued a "first class" airplane ticket, the ticket was
subject to confirmation in Hongkong. The court cannot give credit to the testimony of said
witnesses. Oral evidence cannot prevail over written evidence, and plaintiff's Exhibits "A", "A-
l", "B", "B-l", "C" and "C-1" belie the testimony of said witnesses, and clearly show that the
plaintiff was issued, and paid for, a first class ticket without any reservation whatever.
Furthermore, as hereinabove shown, defendant's own witness Rafael Altonaga testified that the
reservation for a "first class" accommodation for the plaintiff was confirmed. The court cannot
believe that after such confirmation defendant had a verbal understanding with plaintiff that the
"first class" ticket issued to him by defendant would be subject to confirmation in Hongkong. 23
We have heretofore adverted to the fact that except for a slight difference of a few pesos in the
amount refunded on Carrascoso's ticket, the decision of the Court of First Instance was affirmed
by the Court of Appeals in all other respects. We hold the view that such a judgment of
affirmance has merged the judgment of the lower court. 24Implicit in that affirmance is a
determination by the Court of Appeals that the proceeding in the Court of First Instance was free
from prejudicial error and "all questions raised by the assignments of error and all questions that
might have been raised are to be regarded as finally adjudicated against the appellant". So also,
the judgment affirmed "must be regarded as free from all error". 25 We reached this policy
construction because nothing in the decision of the Court of Appeals on this point would suggest
that its findings of fact are in any way at war with those of the trial court. Nor was said
affirmance by the Court of Appeals upon a ground or grounds different from those which were
made the basis of the conclusions of the trial court. 26
If, as petitioner underscores, a first-class-ticket holder is not entitled to a first class seat,
notwithstanding the fact that seat availability in specific flights is therein confirmed, then an air
passenger is placed in the hollow of the hands of an airline. What security then can a passenger
have? It will always be an easy matter for an airline aided by its employees, to strike out the very
stipulations in the ticket, and say that there was a verbal agreement to the contrary. What if the
passenger had a schedule to fulfill? We have long learned that, as a rule, a written document
speaks a uniform language; that spoken word could be notoriously unreliable. If only to achieve
stability in the relations between passenger and air carrier, adherence to the ticket so issued is
desirable. Such is the case here. The lower courts refused to believe the oral evidence intended to
defeat the covenants in the ticket.
The foregoing are the considerations which point to the conclusion that there are facts upon
which the Court of Appeals predicated the finding that respondent Carrascoso had a first class
ticket and was entitled to a first class seat at Bangkok, which is a stopover in the Saigon to Beirut
leg of the flight. 27 We perceive no "welter of distortions by the Court of Appeals of petitioner's
statement of its position", as charged by petitioner. 28 Nor do we subscribe to petitioner's
accusation that respondent Carrascoso "surreptitiously took a first class seat to provoke an
issue". 29 And this because, as petitioner states, Carrascoso went to see the Manager at his office
in Bangkok "to confirm my seat and because from Saigon I was told again to see the
Manager". 30 Why, then, was he allowed to take a first class seat in the plane at Bangkok, if he
had no seat? Or, if another had a better right to the seat?
4. Petitioner assails respondent court's award of moral damages. Petitioner's trenchant claim is
that Carrascoso's action is planted upon breach of contract; that to authorize an award for moral
damages there must be an averment of fraud or bad faith;31 and that the decision of the Court of
Appeals fails to make a finding of bad faith. The pivotal allegations in the complaint bearing on
this issue are:
3. That ... plaintiff entered into a contract of air carriage with the Philippine Air Lines for
a valuable consideration, the latter acting as general agents for and in behalf of the
defendant, under which said contract, plaintiff was entitled to, as defendant agreed to
furnish plaintiff, First Class passage on defendant's plane during the entire duration of
plaintiff's tour of Europe with Hongkong as starting point up to and until plaintiff's return
trip to Manila, ... .
4. That, during the first two legs of the trip from Hongkong to Saigon and from Saigon to
Bangkok, defendant furnished to the plaintiff First Class accommodation but only after
protestations, arguments and/or insistence were made by the plaintiff with defendant's
employees.
5. That finally, defendant failed to provide First Class passage, but instead furnished
plaintiff only Tourist Class accommodations from Bangkok to Teheran and/or
Casablanca, ... the plaintiff has been compelled by defendant's employees to leave the
First Class accommodation berths at Bangkok after he was already seated.
 6. That consequently, the plaintiff, desiring no repetition of the inconvenience and
embarrassments brought by defendant's breach of contract was forced to take a Pan
American World Airways plane on his return trip from Madrid to Manila.32
xxx xxx xxx
2. That likewise, as a result of defendant's failure to furnish First Class accommodations
aforesaid, plaintiff suffered inconveniences, embarrassments, and humiliations, thereby causing
plaintiff mental anguish, serious anxiety, wounded feelings, social humiliation, and the like
injury, resulting in moral damages in the amount of P30,000.00. 33
xxx xxx xxx
The foregoing, in our opinion, substantially aver: First, That there was a contract to furnish
plaintiff a first class passage covering, amongst others, the Bangkok-Teheran leg; Second, That
said contract was breached when petitioner failed to furnish first class transportation at Bangkok;
and Third, that there was bad faith when petitioner's employee compelled Carrascoso to leave his
first class accommodation berth "after he was already, seated" and to take a seat in the tourist
class, by reason of which he suffered inconvenience, embarrassments and humiliations, thereby
causing him mental anguish, serious anxiety, wounded feelings and social humiliation, resulting
in moral damages. It is true that there is no specific mention of the term bad faith in the
complaint. But, the inference of bad faith is there, it may be drawn from the facts and
circumstances set forth therein. 34 The contract was averred to establish the relation between the
parties. But the stress of the action is put on wrongful expulsion.
Quite apart from the foregoing is that (a) right the start of the trial, respondent's counsel placed
petitioner on guard on what Carrascoso intended to prove: That while sitting in the plane in
Bangkok, Carrascoso was ousted by petitioner's manager who gave his seat to a white
man; 35 and (b) evidence of bad faith in the fulfillment of the contract was presented without
objection on the part of the petitioner. It is, therefore, unnecessary to inquire as to whether or not
there is sufficient averment in the complaint to justify an award for moral damages. Deficiency
in the complaint, if any, was cured by the evidence. An amendment thereof to conform to the
evidence is not even required. 36 On the question of bad faith, the Court of Appeals declared:
That the plaintiff was forced out of his seat in the first class compartment of the plane
belonging to the defendant Air France while at Bangkok, and was transferred to the
tourist class not only without his consent but against his will, has been sufficiently
established by plaintiff in his testimony before the court, corroborated by the
corresponding entry made by the purser of the plane in his notebook which notation reads
as follows:
"First-class passenger was forced to go to the tourist class against his will, and
that the captain refused to intervene",
and by the testimony of an eye-witness, Ernesto G. Cuento, who was a co-passenger. The
captain of the plane who was asked by the manager of defendant company at Bangkok to
intervene even refused to do so. It is noteworthy that no one on behalf of defendant ever
contradicted or denied this evidence for the plaintiff. It could have been easy for
defendant to present its manager at Bangkok to testify at the trial of the case, or yet to
secure his disposition; but defendant did neither. 37
The Court of appeals further stated
Neither is there evidence as to whether or not a prior reservation was made by the white
man. Hence, if the employees of the defendant at Bangkok sold a first-class ticket to him
when all the seats had already been taken, surely the plaintiff should not have been
picked out as the one to suffer the consequences and to be subjected to the humiliation
and indignity of being ejected from his seat in the presence of others. Instead of
explaining to the white man the improvidence committed by defendant's employees, the
manager adopted the more drastic step of ousting the plaintiff who was then safely
ensconsced in his rightful seat. We are strengthened in our belief that this probably was
what happened there, by the testimony of defendant's witness Rafael Altonaga who, when
asked to explain the meaning of the letters "O.K." appearing on the tickets of plaintiff,
said "that the space is confirmed for first class. Likewise, Zenaida Faustino, another
witness for defendant, who was the chief of the Reservation Office of defendant, testified
as follows:
"Q How does the person in the ticket-issuing office know what reservation the
passenger has arranged with you?
A They call us up by phone and ask for the confirmation." (t.s.n., p. 247, June 19,
1959)
In this connection, we quote with approval what the trial Judge has said on this point:
Why did the, using the words of witness Ernesto G. Cuento, "white man" have a
"better right" to the seat occupied by Mr. Carrascoso? The record is silent. The
defendant airline did not prove "any better", nay, any right on the part of the
"white man" to the "First class" seat that the plaintiff was occupying and for
which he paid and was issued a corresponding "first class" ticket.
If there was a justified reason for the action of the defendant's Manager in
Bangkok, the defendant could have easily proven it by having taken the testimony
of the said Manager by deposition, but defendant did not do so; the presumption is
that evidence willfully suppressed would be adverse if produced [Sec. 69, par (e),
Rules of Court]; and, under the circumstances, the Court is constrained to find, as
it does find, that the Manager of the defendant airline in Bangkok not merely
asked but threatened the plaintiff to throw him out of the plane if he did not give
up his "first class" seat because the said Manager wanted to accommodate, using
the words of the witness Ernesto G. Cuento, the "white man".38
It is really correct to say that the Court of Appeals in the quoted portion first transcribed
did not use the term "bad faith". But can it be doubted that the recital of facts therein
points to bad faith? The manager not only prevented Carrascoso from enjoying his right
to a first class seat; worse, he imposed his arbitrary will; he forcibly ejected him from his
seat, made him suffer the humiliation of having to go to the tourist class compartment -
just to give way to another passenger whose right thereto has not been established.
Certainly, this is bad faith. Unless, of course, bad faith has assumed a meaning different
from what is understood in law. For, "bad faith" contemplates a "state of mind
 affirmatively operating with furtive design or with some motive of self-interest or will or
for ulterior purpose." 39
And if the foregoing were not yet sufficient, there is the express finding of bad faith in
the judgment of the Court of First Instance, thus:
The evidence shows that the defendant violated its contract of transportation with
plaintiff in bad faith, with the aggravating circumstances that defendant's Manager
in Bangkok went to the extent of threatening the plaintiff in the presence of many
passengers to have him thrown out of the airplane to give the "first class" seat that
he was occupying to, again using the words of the witness Ernesto G. Cuento, a
"white man" whom he (defendant's Manager) wished to accommodate, and the
defendant has not proven that this "white man" had any "better right" to occupy
the "first class" seat that the plaintiff was occupying, duly paid for, and for which
the corresponding "first class" ticket was issued by the defendant to him.40
5. The responsibility of an employer for the tortious act of its employees need not be essayed. It
is well settled in law. 41 For the willful malevolent act of petitioner's manager, petitioner, his
employer, must answer. Article 21 of the Civil Code says:
ART. 21. Any person who willfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the
damage.
In parallel circumstances, we applied the foregoing legal precept; and, we held that upon the
provisions of Article 2219 (10), Civil Code, moral damages are recoverable. 42
6. A contract to transport passengers is quite different in kind and degree from any other
contractual relation. 43And this, because of the relation which an air-carrier sustains with the
public. Its business is mainly with the travelling public. It invites people to avail of the comforts
and advantages it offers. The contract of air carriage, therefore, generates a relation attended with
a public duty. Neglect or malfeasance of the carrier's employees, naturally, could give ground for
an action for damages.
Passengers do not contract merely for transportation. They have a right to be treated by the
carrier's employees with kindness, respect, courtesy and due consideration. They are entitled to
be protected against personal misconduct, injurious language, indignities and abuses from such
employees. So it is, that any rule or discourteous conduct on the part of employees towards a
passenger gives the latter an action for damages against the carrier. 44
Thus, "Where a steamship company 45 had accepted a passenger's check, it was a breach of
contract and a tort, giving a right of action for its agent in the presence of third persons to falsely
notify her that the check was worthless and demand payment under threat of ejection, though the
language used was not insulting and she was not ejected." 46 And this, because, although the
relation of passenger and carrier is "contractual both in origin and nature" nevertheless "the act
that breaks the contract may be also a tort". 47 And in another case, "Where a passenger on a
railroad train, when the conductor came to collect his fare tendered him the cash fare to a point
where the train was scheduled not to stop, and told him that as soon as the train reached such
point he would pay the cash fare from that point to destination, there was nothing in the conduct
of the passenger which justified the conductor in using insulting language to him, as by calling
him a lunatic," 48 and the Supreme Court of South Carolina there held the carrier liable for the
mental suffering of said passenger.1awphl.nt
Petitioner's contract with Carrascoso is one attended with public duty. The stress of Carrascoso's
action as we have said, is placed upon his wrongful expulsion. This is a violation of public duty
by the petitioner air carrier a case of quasi-delict. Damages are proper.
7. Petitioner draws our attention to respondent Carrascoso's testimony, thus
Q You mentioned about an attendant. Who is that attendant and purser?
A When we left already that was already in the trip I could not help it. So one of
the flight attendants approached me and requested from me my ticket and I said, What
for? and she said, "We will note that you transferred to the tourist class". I said, "Nothing
of that kind. That is tantamount to accepting my transfer." And I also said, "You are not
going to note anything there because I am protesting to this transfer".
Q Was she able to note it?
A No, because I did not give my ticket.
Q About that purser?
A Well, the seats there are so close that you feel uncomfortable and you don't have
enough leg room, I stood up and I went to the pantry that was next to me and the purser
was there. He told me, "I have recorded the incident in my notebook." He read it and
translated it to me because it was recorded in French "First class passenger was
forced to go to the tourist class against his will, and that the captain refused to intervene."
Mr. VALTE
I move to strike out the last part of the testimony of the witness because the best evidence
would be the notes. Your Honor.
COURT
I will allow that as part of his testimony. 49
Petitioner charges that the finding of the Court of Appeals that the purser made an entry in his
notebook reading "First class passenger was forced to go to the tourist class against his will, and
that the captain refused to intervene" is predicated upon evidence [Carrascoso's testimony above]
which is incompetent. We do not think so. The subject of inquiry is not the entry, but the ouster
incident. Testimony on the entry does not come within the proscription of the best evidence rule.
Such testimony is admissible. 49a
Besides, from a reading of the transcript just quoted, when the dialogue happened, the impact of
the startling occurrence was still fresh and continued to be felt. The excitement had not as yet
died down. Statements then, in this environment, are admissible as part of the res gestae. 50 For,
they grow "out of the nervous excitement and mental and physical condition of the
declarant". 51 The utterance of the purser regarding his entry in the notebook was spontaneous,
and related to the circumstances of the ouster incident. Its trustworthiness has been
guaranteed. 52 It thus escapes the operation of the hearsay rule. It forms part of the res gestae.
At all events, the entry was made outside the Philippines. And, by an employee of petitioner. It
would have been an easy matter for petitioner to have contradicted Carrascoso's testimony. If it
were really true that no such entry was made, the deposition of the purser could have cleared up
the matter.
We, therefore, hold that the transcribed testimony of Carrascoso is admissible in evidence.
8. Exemplary damages are well awarded. The Civil Code gives the court ample power to grant
exemplary damages in contracts and quasi- contracts. The only condition is that defendant
should have "acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner." 53 The
manner of ejectment of respondent Carrascoso from his first class seat fits into this legal precept.
And this, in addition to moral damages.54
9. The right to attorney's fees is fully established. The grant of exemplary damages justifies a
similar judgment for attorneys' fees. The least that can be said is that the courts below felt that it
is but just and equitable that attorneys' fees be given. 55 We do not intend to break faith with the
tradition that discretion well exercised as it was here should not be disturbed.
10. Questioned as excessive are the amounts decreed by both the trial court and the Court of
Appeals, thus: P25,000.00 as moral damages; P10,000.00, by way of exemplary damages, and
P3,000.00 as attorneys' fees. The task of fixing these amounts is primarily with the trial
court. 56 The Court of Appeals did not interfere with the same. The dictates of good sense suggest
that we give our imprimatur thereto. Because, the facts and circumstances point to the
reasonableness thereof.57
On balance, we say that the judgment of the Court of Appeals does not suffer from reversible
error. We accordingly vote to affirm the same. Costs against petitioner. So ordered.