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I. Loans in general
1.) Republic of the Philippines February 20, 1918, the Legislature passed Act No. 2747, entitled "An Act to
SUPREME COURT amend in certain particulars Act Numbered Twenty-six hundred and twelve,
Manila entitled 'An Act creating the Philippine National Bank,' which provides:"
G.R. No. L-18535 August 15, 1922 In order to explain certain provisions, increase the stability of the institution,
THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee, and extend its powers, Act Numbered Twenty-six hundred and twelve,
vs. entitled "An Act creating the Philippine National Bank," is hereby amended
VENANCIO CONCEPCION, defendant-appellant. in certain particulars, so that hereafter the said Act shall read as follows:
Hartigan and Welch, and Recaredo M.a Calvo for appellant.
Section 35 of which provides:
Attorney-General Villa-Real for appellee.
STATEMENT The National Bank shall not, directly or indirectly, grant loans to any of the
members of the board of directors of the bank nor to agents of the branch
February 4, 1916, the Legislature of the Philippine Islands passed Act No.
2612, known as the charter of the Philippine National Bank, under which it
was organized with plenary powers and a capital stock of P20,000,000 Section 49:
divided into 200,000 shares of the par value of P100 each, 101,000 of which
to be subscribed, owned and held by the Government, and the remainder by Any person who shall violate any of the provisions of this Act shall be
private persons. punished by a fine not to exceed ten thousand pesos, or by imprisonment not
to exceed five years, or by both such fine and imprisonment.
Section 37 provides:
January 30, 1921, the Legislature passed Act No. 2938 entitled "An Act to
The National Bank shall never at any time, under any circumstances, directly amend Act Numbered Twenty-six hundred and twelve, entitled 'An Act
or indirectly grant to any individual, company of individuals, firm, creating the Philippine National Bank,' as amended by Act Numbered
corporation, Insular, provincial or municipal government any real estate Twenty-seven hundred and forty-seven."
mortgage loan exceeding the sum of fifty thousand pesos, or any other loan
exceeding the sum of three hundred thousand pesos. It also provides:
Section 38 provides: Act Numbered Twenty-six hundred and twelve, entitled "An Act creating the
Philippine National Bank, as amended by Act Numbered Twenty-seven
The National Bank shall not directly or indirectly grant loans to any of the hundred and forty-seven, is hereby amended in certain particulars, so that
members of the board of directors of the bank nor to agents of the branch hereafter the said Act shall read as follows:
banks. Said National Bank is hereby prohibited from making any loan
directly or indirectly in excess of one thousand pesos to any member of the The National Bank shall not, directly or indirectly, grant loans to any of the
Philippine Legislature or to any official or employee of the Insular, members of the board of directors, the general manager, assistant general
provincial, or municipal governments except upon satisfactory real estate manager, and employees of the bank, nor to agents or employees of the
security. branch banks, and no loan shall be granted to a corporation, partnership or
company wherein any member of the board of directors is a shareholder,
Section 53: agent or employee in any manner, except by the unanimous vote of the
members of the board, excluding the member interested: Provided, That the
Any person who shall violate any of the provisions of this Act shall be
total liabilities to the Bank of any corporation wherein any of the members of
punished by a fine not to exceed ten thousand pesos, or by imprisonment not
the board of directors is a shareholder, agent or employee in any manner,
to exceed five years, or by both such fine and imprisonment.
shall at no time exceed ten per centum of the surplus and paid-up capital of
the Bank.

I. Loans in general
All Acts or parts of Acts inconsistent or incompatible with the provisions of Luzuriaga 20 per cent. Concurrent therewith, the three entered into another
this Act are hereby repealed. agreement with Salvador Serra for the sale and purchase of his business
known as central and hacienda "Palma" at an agreed price of P1,500,000,
Section 43: P150,000 of which was to be paid on or before June 30, 1920, when the
property was to be actually conveyed, and to assume a mortgage on the
Any member of the board of directors of the National Bank who knowingly property for P600,000, the remainder to be paid in three installments of
violates or knowingly permits any of the officers, agents, or servants of the P250,000 each, respectively, on or before June 30, 1921, 1922, and 1923.
Bank to violate any of the provisions of this Act, and any officer, employee, January 29, 1920, this contract was duly signed by all of the respective
agent, or servant of the Bank who violates any of the provisions of this Act parties, and was duly witnessed and acknowledged before a notary public.
and any person aiding and abetting the violations of any of the provisions of
this Act, shall be punished by a fine not to exceed ten thousand pesos or by On January 10, 1919, Salvador Serra executed a mortgage upon all of this
imprisonment not to exceed five years or by both such fine and property in favor of the Philippine National Bank for P600,000, which was
imprisonment. then owned and held by the bank, and in full force and effect.
At all of the material times hereinafter stated, the defendant, Venancio On July 17, 1920, in the office of the Philippine National Bank and in the
Concepcion, was the duly elected, qualified and acting President of the presence of the defendant and Whitaker, and in accord with the terms and
Philippine National Bank, which was organized and continued to exist under provisions of the instrument of January 29, 1920, Salvador Serra made,
the respective legislative acts. executed and delivered a deed of conveyance of the property described in the
contract of January 29, 1920, and at the same time and place, and as a part of
June, 1918, what is known in the record as the Binalbagan Estate, Inc., was the transaction, Whitaker delivered to Salvador Serra the check of the
organized by the agriculturists in the provinces of Occidental Negros and Binalbagan Estate drawn upon the Philippine National Bank for P750,000,
Iloilo, with a capital stock of P10,000. Its primary purpose was to foster the which was honored and paid by the bank, and out of which it satisfied the
manufacture and refinement of centrifugal sugar and its by-products. Only mortgage, which it then held on the "Palma" hacienda, for P600,000 with
P2,500 of the capital stock was paid, and, for a long time, little, if anything, accrued interest amounting to P26,218.66, and gave Salvador Serra credit in
was done. In 1920 its corporate interests were acquired by Phil. C. Whitaker his current account in its branch at Iloilo for P123,781.34, making a total of
and the defendant, who reorganized the company with a capital stock of P750,000, which the defendant and his associates had agreed to pay under
P500,000 divided into 5,000 shares of the par value of P100 each, out of the contract of January 29, 1920, thus consummating the deal.
which Whitaker was issued a certificate for 1,865 shares and the defendant
1,615 shares, and the firm of Puno, Concepcion and Co. a certificate for 250 On July 17, 1920, the Binalbagan Estate was indebted to the Philippine
shares, and the remainder to other and different persons. In the month of National Bank more than P3,000,000, and did not have the money with
November, 1910, the capital stock was increased to P1,500,000, and 6,053 which to pay the check of P750,000. To provide the necessary funds, it
shares of stock were issued to the defendant, portions of which he transferred executed its promissory note payable on sight for that amount to the
to other persons, among whom were his immediate relatives. Philippine National Bank, which was presented to Vicente Gaskell, then in
Notwithstanding the fact that the original capital stock was for P10,000, and charge of loans and discounts, who in turn presented the note to the
that it was increased to P500,000 and again to P1,500,000, there is no defendant for his approval, and the defendant then and there approved the
registered document in the Bureau of Commerce and Industry in either case loan to the estate, and initialed the note "V. C." which was his customary and
showing the increase of the capital stock of the estate. usual method of approving loans, and after the defendant approved the loan,
the check of the Binalbagan Estate for P750,000 was honored by the bank,
January 30, 1920, Whitaker, Luzuriaga, and the defendant entered into an and the account of the Binalbagan Estate was then credited with the amount
agreement as partners to acquire and operate what is known as the "Palma" of P750,000.
sugar central and hacienda in the municipality of Ilog, Occidental Negros, a
short distance from the property of the Binalbagan Estate. Under this In his weekly report of July 22, it appears that Gaskell made a report of the
agreement, Whitaker and the defendant were to each have 40 per cent and P750,000 loan to the Binalbagan Estate, but that no specific mention was

I. Loans in general
made of the loan by the defendant in his report, and that no record of the loan V. The trial court likewise erred in declaring that about the first months of
was made in the corporate minutes of the Board of Directors as of July 23, the year, 1920, a great portion of the interests of the Binalbagan Estate, Inc.,
1920. was acquired by Phil. C. Whitaker and the accused, V. Concepcion.

By the provisions of Act No. 2938, the capital stock of the bank was VI. The lower court likewise erred in declaring that the firm of Puno,
increased from P20,000,000 to P50,000,000. Concepcion and Co., Ltd., is exclusively composed of the accused and the
members of his family.
Following an investigation, an information was filed in the Court of First
Instance against the defendant, which was later amended, charging him, as VII. The lower court also erred in declaring that the writing executed on
President of the Bank, with a violation of the provisions of section 35 as it January 29, 1920, by Salvador Serran, the owner of the hacienda and the
relates to section 49 of Act No. 2747 of the Philippine Legislature above central "Palma" in favor of Whitaker, Concepcion, and Luzuriaga was an
quoted. In substance, and to the effect that, through the commission of such option and not a purchase and sale.
acts and in the making of the loan of P750,000 to the Binalbagan Estate, the
defendant was guilty of a violation of section 35, and should be punished VII. The lower court likewise erred in declaring that at the time in which the
under section 49 of Act No. 2747. Upon this charge, he was arraigned, tried, Binalbagan Estate, Inc., drew the check for P750,000 in favor of Salvador
convicted and sentenced to two years of imprisonment and to pay a fine of Serran, the same had obtained from the National Bank, under the signature
P5,000 and costs, from which the defendant appeals and assigns the and authorization of its president, the accused herein, several credits,
following errors: overdrafts and loans, which amounted to several millions of pesos.

I. The trial court erred in overruling the demurrer interposed by the defense IX. The lower court likewise erred in declaring that the limit of the credit
on the ground that the facts alleged in the complaint do not constitute a allowed by the National Bank to the Binalbagan Estates, Inc., in the week
violation of Act No. 2747. which terminated on the 22d of July, 1920, was P3,660,000.

II. The trial court likewise erred in overruling the motion for dismissal, X. The lower court likewise erred in declaring that the Binalbagan Estate,
interposed by the defense, on the ground that the prosecution has not proved Inc., had been obtaining credits from the Philippine National Bank for
the essential facts alleged in the complaint. various amounts, against which it was obtaining loans for amounts which at
times were included in the total sum of the credit allowed, and at times
III. The trial court likewise erred in not ordering the striking out of the exceeded the limit of said credit.
hearsay testimony of the witnesses for the prosecution, notwithstanding the
petition of the defense, as well as in permitting the fiscal to ask leading XI. The lower court likewise erred in not declaring that the concession by the
questions on incompetent, immaterial and irrelevant facts, to the witnesses Philippine National Bank to the Binalbagan Estate, Inc., of P750,000 on July
for the prosecution, and the latter to answer said questions which were 17, 1920, has been made with the unanimous consent of the members of the
objected to by the defense. Board of Directors of the bank.

IV. The court likewise erred in admitting as proof Exhibits B, C, D, E, F, F- XII. The lower court likewise erred in declaring contrary to section 10 of Act
1, G, H, K, L, P, V-15, X, Y, Y-1, AA, BB, CC, DD, FF, GG, GG-1, HH, No. 2612, as amended by Act No. 2938, that the obligations contracted with
HH-1 to HH-12, JJ, JJ-1, and JJ-2 of the prosecution, notwithstanding that the National Bank by virtue of the discount of negotiable papers, bills of
they were objected to by the defense as being incompetent, irrelevant, and exchange, and promissory notes, are loans.
immaterial, for they are not the best proof and not having been duly
authenticated. XIII. The lower court also erred in declaring that the opinion of the Insular
Auditor, the ex-officio Auditor of the Bank, cannot in any manner serve as a
standard of conduct for the officers of the bank.

I. Loans in general
XIV. The lower court likewise erred in declaring that the sum of P750,000 Section 35 of Act No. 2747 provides:
given to the Binalbagan Estate, Inc., by the National Bank on July 17, 1920,
was a loan granted on said date and not on the date on which the credit The National Bank shall not, directly or indirectly, grant loans to any of the
contract was perfected. members of the board of directors of the bank nor to agents of the branch
XV. The lower court lastly erred in finding the accused guilty of the violation
with which he is charged in the complaint, sentencing him to two years of Section 37 of Act No. 2612, above quoted, limits the amount of any real
imprisonment, and to pay a fine of P5,000 and costs of the action. estate mortgage loan to P50,000 or any other loan to P300,000. There is no
such limitation in Act No. 2747, and in so far as it is material to this opinion,
section 38 of Act No. 2612 is identical with section 35 of Act No. 2747.

Defendant's counsel ably and adroitly contend that the limitation provided for
JOHNS, J.: in the act is upon the bank itself, and that it does not apply to the defendant,
as President of the Bank.
There is a clear and correct analysis of the facts in the exhaustive opinion of
the trial court, and there is but little, if any, dispute about any of the material The bank is a corporation organized by special act of the Legislature, and it
facts. The testimony is conclusive that the defendant either owned or could only act or operate through its officers and board of directors. While
controlled about 40 per cent of the capital stock of the Binalbagan Estate, the corporation itself might be made subject to a fine for a criminal offense, it
which, at the time of the above transaction, was indebted to the Philippine could not be imprisoned, and it will be noted that section 53 of the original
National Bank more than P3,000,000. That the bank then owned and held a Act, which is identical with the other two Acts, says:
first mortgage lien upon the "Palma" property for P600,000, which it
satisfied and discharged out of the proceeds of the check of Binalbagan Any person who shall violate any of the provisions of this Act shall be
Estate for P750,00. That is to say, as a result of the transaction, the bank punished by a fine not to exceed ten thousand pesos, or by imprisonment not
satisfied its mortgage lien for P600,000 with accrued interest, and in lieu to exceed five years, or by both such fine and imprisonment.
thereof took and accepted the unsecured promissory note of Binalbagan
Estate for P750,000, and, including the amount of that note, the total The limitation in Section 35 of Act No. 2747 says:
indebtedness to the bank then amounted to P3,952,672.77. The National Bank shall not, directly or indirectly, grant loans to any of the
The testimony is also conclusive that the P750,00 loan was personally members of the board of directors of the bank not to agents of the branch
approved by the defendant, and was made upon his personal responsibility, banks.
and that, so far as it appears in the record, no other officer or director was And section 53 of Act No. 2612 says:
ever consulted about the transaction or the making of the loan at any time
prior to its consummation. Any person who shall violate any of the provisions of this Act, etc.," and
provides for a fine or imprisonment or both, and it must be conceded that the
The testimony is also conclusive that on the very day that the note was bank itself could not be imprisoned for a violation of section 35.
presented to the bank by the Binalbagan Estate, the loan was consummated,
and the amount of it was placed to the credit of the Binalbagan Estate, which It is very apparent that section 35 was intended to prohibit the making of any
in turn drew its check for the full amount of the loan, which was honored by loan by the bank to an officer or director of the bank.
the bank when presented.
It is also claimed that the loan to the defendant within the meaning of section
In this connection, it will be noted that the capital stock of the bank was then 35. He was the President and active Manager of the Bank, and was the owner
P20,000,00, and the total amount of the indebtedness of Binalbagan Estate to and had under his control about 40 per cent of the capital stock of the
the bank was P3,952,672.77. Binalbagan Estate, which was also a corporation, which was then indebted to

I. Loans in general
the bank more than 15 per cent of the capital stock of the bank. With . . . The Banking Law should be construed in accordance with the obvious
P750,000 loan, its idebtedness to the bank amounted to very little less than intention of the legislature so as to permit flexibility and to prevent looseness
20 per cent of the capital stock of the bank. in doing business. The prime object is to protect the public, including
depositors, and after that to enable the stockholders to secure a fair return
Upon that question, the case of People vs. Knapp (132 N.Y. Supp., 747), is from their investment. Banking institutions are not created for the benefit of
square in point. There, third count of the indictment charged the defendant the directors. While directors have great powers as directors, they have no
with violating subdivision 11 of section 186 of the banking law in the making special privileges as individuals. They cannot use the assets of the bank for
of a loan to him as director by a loaning of the money to the copartnership of their own benefit except as permitted by law. Stringent restrictions are placed
which he was a member, and that it was done through the direction, about them so that when acting both for the bank and for one of themselves
permission, advice, and procurement of the defendant. at the same time, they must keep within certain prescribed lines regarded by
the legislature as essential to safety in the banking business.
The court said:
The only difference as to the facts is that, there, the money was loaned to a
We are of opinion the statute forbade the loan to his copartnership firm as copartnership of which the defendant was a member, and, here it is loaned to
well as to himself directly. The loan was made indirectly to him through his a corporation of which the defendant was one of the heaviest stockholders.
firm. . . . Here, good faith on the part of the defendant and sound banking would not
An appeal was taken, and the lower court was affirmed in (206 N. Y. 373), permit the personal satisfaction by him, as President of the Bank, of a first
and the case is reported in 11 Am. Ann. Cases, p. 243, in which the syllabus mortgage loan of P600,000, and the taking in lieu thereof, and as a substitute
says: therefor, of the unsecured promissory note of the Binalbagan Estate in which
he owned and controlled at least 40 per cent of its capital stock and it is very
The prohibition in a statute forbidding a corporation to do an act extends to apparent that the defendant would never have authorized the loan of
the board of directors and to each director separately and individually. P750,000, or satisfied the mortgage of P600,000, if he had not been a heavy
stockholder in the Binalbagan Estate. The fact that he was such a stockholder
And the opinion says: was one of the main inducements and the primary consideration for his
approval of the transaction.
As to the remaining counts the defendant insists that the command that a
corporation shall not do a certain act is not a command that he directors shall It will be noted that section 35 of Act No. 2747 does not contain any
not do the act. A corporation, however, is a mere conception of the exception or proviso, and that section 29 of Act No. 2938, which was enacted
legislative mind. It exists only on paper through the command of the in 1921, says:
legislature that its mental conception shall be clothed with power. All its
power resides in the directors. Inanimate and incapable of thought, action or The National Bank shall not, directly or indirectly, grant loans to any of the
neglect, it cannot hear or obey the voice of the legislature except through its members of the board of directors, the general manager, assistant general
directors. It can neither act nor omit to act except through them. Hence a manager, and employees of the Bank, nor to agents or employees of the
command addressed to a corporation would be idle and vain unless the branch banks, and no loan shall be granted to a corporation, partnership or
legislature in directing the corporate body, acting wholly by its directors, to company wherein any member of the board of directors is a shareholder,
do a thing required or not to do a thing prohibited, meant that the directors agent or employee in any manner, except by the unanimous vote of the
should not make or cause the corporation to do what was forbidden, or omit members of the board, excluding the member interested: Provided, That the
to do what was directed. We think, as the appellate division held, that when total liabilities to the Bank of any corporation wherein any of the members of
the corporation itself is forbidden to do an act, the prohibitions extends to the other board of directors is a shareholder, agent or employee in any manner,
board of directors and to each director, separately and individually. shall at no time exceed ten per centum of the surplus and paid-up capital of
the bank.

I. Loans in general
This section was enacted in 1921, and section 35 above quoted was enacted of the law, it would not aid the defendant. He was occupying a position of
in 1918, and section 42 of Act No. 2938 expressly provides that: special trust and confidence, and was the president and head of the most
important financial institution in the whole Philippine Islands. His powers
All Acts or parts of Acts inconsistent or incompatible with the provisions of and duties were defined and described in the corporate charter of the bank. It
this Act are hereby repealed. was organized under a special act, and the Government itself subscribed for,
and was the owner of, the majority of its capital stock. It was the purpose and
Defendant's counsel vigorously contend that the P750,000 loan to intent to make it a conservative, strong and safe bank, and numerous
Banalbagan Estate was reported to, and approved by, the Board of Directors; provisions were made in the Act for its safety an stability, among which was
that section 35 of Act No. 2747 was repealed, and that section 29 of Act No. section 35 of Act No. 2747.
2939 is the law under which the defendant should be prosecuted.
Here, you have the President of the Bank upon his own initiative and his sole
Construing section 29, the record here is conclusive that the defendant, acting approval authorizing, making and perfecting a loan of P750,000 to a
and representing the bank, personally made and consummated the loan, and corporation in which he owned and controlled 40 per cent of its capital stock.
that upon his personal advice and instructions, the check was paid, and that It was never the purpose or intent of the corporate charter that any officer of
personally, as President, he satisfied the mortgage for P600,000. He not only the bank should have, assume or exercise any such arbitrary or autocratic
authorized the making of the loan, but made the loan himself without the power.
consent or the authority of the Board of Directors, and the loan was
consummated, and the bank parted with the money without the knowledge of It is worthy of note that the material provisions of the law prohibiting a loan
the Board of Directors. It was a completed transaction. There is a marked to an officer of the bank are almost identical in each legislative act. Also, that
difference between the authority of the president of the bank to promise or the punishment for a violation is the same in each Act.
negotiate a loan and the making of the loan itself.
Hence, we must assume that at all times, it was the purpose and intent of the
Section 29 of Act No. 2938 contemplates that no loan shall ever be made to Legislature that no loan should ever be made by the bank to any officer or
any officer o the bank until such time as it is submitted to, and approved by, director, except under the express provisions of the law.
the unanimous vote of the Board of Directors, excluding the applicant for the
loan. But, here, the loan was consummated and the transaction was The loan was maid while Act No. 2747 was in force and effect and before the
completed several days before it was ever brought to the knowledge or passage of Act No. 2938, and appellant's counsel vigorously contend that Act
attention of the directors, and, even assuming that they did ratify a loan of No. 2747 was repealed by Act No. 2938, and appellant's counsel vigorously
that character, it would not constitute a defense. The law was violated in the contend that Act No. 2747 was repealed by Act No. 2938, and that the repeal
making and consummation of the loan without the knowledge or consent of of the one and the enactment of the other operated as a release and discharge
the Board of Directors. If the Binalbagan Estate had applied to the defendant, of all crime which were committed prior to the passage of Act No. 2938. In
as President of the Bank, for the loan in question, and if, upon its receipt, he other words, that the Act of the Legislature released the defendant of any
had submitted the application to the Board of Directors recommending the crime which he may have committed prior to January, 1921.
loan, and acting upon his advice the Board had approved the loan, and the
loan had been made after such approval by the board, another and different We do not believe that it was ever the purpose or intention of the Legislature
question would have been presented, and there would have been merit in to release anyone from a crime committed under either one of the Acts, and,
such a defense, but that is not this case. in particular, as to the offense described in the information. As stated upon
the question here involved, each one of the legislative acts expressly
Even under section 29, the consent and approval of the Board of Directors prohibits the bank from loaning any of its money to an officer or director,
was a condition precedent to the making of the loan in question, and the fact and the only difference is found in the latter portion of section 29 of Act No.
that the Board of Directors a few days after the offense was committed may 2938, which, upon the undisputed facts, is not material to the question
have approved it would not be a defense to the commission of the crime. In involved here.
other words, assuming that the Board of Directors did approve of a violation

I. Loans in general
Section 42 of Act No. 2938 says: Section 35 says:

All Acts or parts of Acts inconsistent or incompatible with the provisions The National Bank shall not, directly or indirectly, grant loans to any of the
of this Act are hereby repealed. members, etc.

Upon the disputed facts, there is nothing inconsistent or incompatible with Appellant contends that the transaction involved here was a discount of the
either section 37 of Act No. 2612, or section 35 of Act No. 2747, as note of the estate as distinguished from a loan, and, hence, that it was not a
construed with section 29 of Act No. 2938. Each section expressly prohibits violation of the law. Suffice it to say that, in enacting the law, the Legislature
the making of a loan by the Bank to an officer, and the only difference is the was not dealing with, and knew but very little, if anything, of, the subtle
proviso in section 29, which does not apply to the facts here. There is nothing distinction between loans and discounts. Section 35 was intended to prohibit
in section 37 or in section 35 which is inconsistent or incompatible with any officer of the bank from borrowing or using any money of the bank for
section 29. Each of them was intended to prohibit the Bank from loaning any purpose. Again, an analysis of the facts clearly shows that the transaction
money to an officer of the bank. was a loan, and that it did not have any of the elements of a discount.

Much stress is laid upon article 22 of the Penal Code, which says: The face value of the original mortgage, which the bank held on the
"Palma" hacienda, was P600,000, and the accrued interest was P26,218.66,
Penal laws shall have a retroactive effect in so far as they favor the person and the amount of the check, which the bank gave to Salvador Serra was
guilty of a felony or misdemeanor, although at the time of the publication of P123,781.34, the amount of the check, which the bank gave to Salvador
such laws a final sentence has been pronounced and the convict is serving Serra was P123,781.34, the total amount of which was P750,000, which is
same. the identical amount of the note which was executed by the Binalbagan
Estate to the bank at the time the deal was closed, hence, the evidence is
For the reason that the bank here was incorporated under a special Act, that conclusive that it was a loan as distinguished from a discount.
article should be construed as it relates to article 7, which says:
In August, 1916, a question arose as to the construction which should be
Offenses punishable under special laws are not subject to the provisions of placed upon sections 37 and 38 of Act No. 2612, and an opinion of the then
this code. Insular Auditor was rendered, which apparently gave color to the legal right
This was construed in United States vs. Cuna (12 Phil., 241), in which this of the Bank to defeat the purpose and intent of those sections, and the
court held: defendant claims that he was justified in his conduct through the previous
acts and the established custom of the bank, and it is true that, in the ordinary
Where an Act of the Commission or of the Philippine Legislature which course of business, but little attention was paid to the provisions of those
penalizes an offense repeals a former Act which penalizes the same offense, sections. The Auditor was not the legal adviser of the Bank.
such repeal does not have the effect of thereafter depriving the courts of
jurisdiction to try, convict, and sentence offenders charged with violations of Section 25 of the original act expressly provides that:
the old law prior to its repeal. The Attorney-General of the Philippine Islands shall be attorney for said
Article 22 was further construed and applied in United States vs. Parrone (24 National Bank: Provided, however, That the Board of Directors of said bank
Phil., 29). shall have power to employ other attorneys in special cases.

But, in the instant case, there is no change in the law for the punishment of Hence, it must follow that the Attorney-General was the legal adviser of the
the crime, and section 42 of Act No. 2938 limits the repeal to such portions bank, and there is nothing to show that he was ever requested to, or that he
only of the previous law as are inconsistent or incompatible with Act No. ever did, render a legal opinion upon the construction which should be placed
2938. upon sections 37 and 38 of Act No. 2612. But giving the Auditor's opinion its
broadest construction, it would not justify the commission by the defendant

I. Loans in general
of the acts shown in the record. It might tend to mitigate, but it would not which he was one of its heaviest stockholders, and that the loan was
legalize the offense. consummated and the money paid over without the knowledge of the Board
of Directors, and that it was made to the prejudice and injury of the bank, and
The record further shows that on September 15, 1916, Mr. Ferguson, as to further and promote his own personal interests, and that, as President of
Acting President of the Bank, addressed a letter to Mr. Dexter, as Acting the Bank, he personally released the mortgage of the bank upon the property
Insular Auditor, in which he says: which his corporation acquired through the deal, and that upon the
undisputed facts, it was done in violation not only of section 35 of Act No.
We can readily see where loans directly made to Directors would be very 2747, but also of section 38 of Act No. 2612, and of section 29 of Act No.
harmful, and it is a wise provision in the Act which makes this impossible, 2938.
but there is a wide difference between loaning money to a Director, and
discounting the single name paper or Bills receivable of a business house, Criticism is made of the penal clause, and its validity is attacked. It will be
with whom such a Director might be interested. noted that it is the same in each act, and that a large discretion is given to the
trial court, varying from a minimum fine to P10,000, or imprisonment not to
As we have pointed out, the transaction here was a loan and not a discount. exceed five years, or both fine and imprisonment. Its purpose was to prohibit
Again, any mitigation of the offense is more than offset by the subsequent a violation of any provision of the bank's charter, and to make the penalty
conduct of the defendant. correspond to the gravity of the offense, and that question was left to the
discretion of the court.
August 3, 1920, the defendant wrote a letter to the Governor-General in
which he complains of official treatment, and clearly points out the serious The judgement of the lower court is affirmed, with costs. So ordered.
financial condition of the Bank, in which, among other things, he says:

If this Bank is compelled to adopt drastic measures as to the liquidation of its

loans we would be placed in the position of having to shirk the responsibility
for any serious consequences that may arise, and to point to the Department
of Finance for insisting on such a policy.

The policy of contraction which is now in force in the operations of the

Bank and with the party payments on our loans to sugar central, our cash
reserve will be up to the requirements next year aside from our ability to
replenish our cash reserve in substantial amounts.

The whole tenor of the letter clearly reveals that the defendant realized and
was very uneasy about the condition of the bank, and yet seventeen days
before that letter was written, he personally made an unsecured loan to the
Binalbagan Estate for P750,000, because of the very apparent reason that he
was one of its heaviest stockholders.

We have given this case the careful consideration which its importance
demands, and have examined each of the numerous assignments of error.

Defendant's case was skillfully presented in an exhaustive brief by able

counsel, but in the final analysis, the stubborn, undisputed fact remains that
the defendant did personally make a large unsecured loan to a corporation in

I. Loans in general
2.) Republic of the Philippines real estate mortgage over several real properties in favor of DBP as security
SUPREME COURT for the repayment of the loan. On May 17, 1977, Guaria Corporation
Manila\ executed a chattel mortgage over the personal properties existing at the resort
complex and those yet to be acquired out of the proceeds of the loan, also to
FIRST DIVISION secure the performance of the obligation.5 Prior to the release of the loan,
DBP required Guaria Corporation to put up a cash equity of 1,470,951.00
G.R. No. 160758 January 15, 2014 for the construction of the buildings and other improvements on the resort
vs. The loan was released in several instalments, and Guaria Corporation used
GUARIA AGRICULTURAL AND REALTY DEVELOPMENT the proceeds to defray the cost of additional improvements in the resort
CORPORATION, Respondent. complex. In all, the amount released totalled 3,003,617.49, from which
DBP withheld 148,102.98 as interest.6
BERSAMIN, J.: Guaria Corporation demanded the release of the balance of the loan, but
DBP refused. Instead, DBP directly paid some suppliers of Guaria
The foreclosure of a mortgage prior to the mortgagor's default on the Corporation over the latter's objection. DBP found upon inspection of the
principal obligation is premature, and should be undone for being void and resort project, its developments and improvements that Guaria Corporation
ineffectual. The mortgagee who has been meanwhile given possession of the had not completed the construction works.7 In a letter dated February 27,
mortgaged property by virtue of a writ of possession issued to it as the 1978,8 and a telegram dated June 9, 1978,9 DBP thus demanded that Guaria
purchaser at the foreclosure sale may be required to restore the possession of Corporation expedite the completion of the project, and warned that it would
the property to the mortgagor and to pay reasonable rent for the use of the initiate foreclosure proceedings should Guaria Corporation not do so.10
property during the intervening period.
Unsatisfied with the non-action and objection of Guaria Corporation, DBP
The Case initiated extrajudicial foreclosure proceedings. A notice of foreclosure sale
was sent to Guaria Corporation. The notice was eventually published,
In this appeal, Development Bank of the Philippines (DBP) seeks the leading the clients and patrons of Guaria Corporation to think that its
reversal of the adverse decision promulgated on March 26, 2003 in C.A.- business operation had slowed down, and that its resort had already closed. 11
G.R. CV No. 59491,1 whereby the Court of Appeals (CA) upheld the
judgment rendered on January 6, 1998 2 by the Regional Trial Court, Branch On January 6, 1979, Guaria Corporation sued DBP in the RTC to demand
25, in Iloilo City (RTC) annulling the extra-judicial foreclosure of the real specific performance of the latter's obligations under the loan agreement, and
estate and chattel mortgages at the instance of DBP because the debtor- to stop the foreclosure of the mortgages (Civil Case No. 12707).12However,
mortgagor, Guaria Agricultural and Realty Development Corporation DBP moved for the dismissal of the complaint, stating that the mortgaged
(Guaria Corporation), had not yet defaulted on its obligations in favor of properties had already been sold to satisfy the obligation of Guaria
DBP. Corporation at a public auction held on January 15, 1979 at the Costa Mario
Resort Beach Resort in Oton, Iloilo.13 Due to this, Guaria Corporation
Antecedents amended the complaint on February 6, 197914 to seek the nullification of the
foreclosure proceedings and the cancellation of the certificate of sale. DBP
In July 1976, Guaria Corporation applied for a loan from DBP to finance filed its answer on December 17, 1979,15 and trial followed upon the
the development of its resort complex situated in Trapiche, Oton, Iloilo. The termination of the pre-trial without any agreement being reached by the
loan, in the amount of 3,387,000.00, was approved on August 5, parties.16
1976.3Guaria Corporation executed a promissory note that would be due on
November 3, 1988.4 On October 5, 1976, Guaria Corporation executed a

I. Loans in general
In the meantime, DBP applied for the issuance of a writ of possession by the THE TRIAL COURT ERRED AND COMMITTED REVERSIBLE ERROR
RTC. At first, the RTC denied the application but later granted it upon DBP's IN DECLARING DBP'S FORECLOSURE OF THE MORTGAGED
motion for reconsideration. Aggrieved, Guaria Corporation assailed the PROPERTIES AS INVALID AND UNCALLED FOR.
granting of the application before the CA on certiorari (C.A.-G.R. No.
12670-SP entitled Guaria Agricultural and Realty Development Corporation II
v. Development Bank of the Philippines). After the CA dismissed the petition
for certiorari, DBP sought the implementation of the order for the issuance of THE TRIAL COURT GRIEVOUSLY ERRED IN HOLDING THE
the writ of possession. Over Guaria Corporation's opposition, the RTC GROUNDS INVOKED BY DBP TO JUSTIFY FORECLOSURE AS "NOT
issued the writ of possession on June 16, 1982.17 SUFFICIENT." ON THE CONTRARY, THE MORTGAGE WAS
On January 6, 1998, the RTC rendered its judgment in Civil Case No. 12707, BACK OF THE FIRST PAGE OF THE MORTGAGE CONRACT.
disposing as follows:
WHEREFORE, premises considered, the court hereby resolves that the extra-
judicial sales of the mortgaged properties of the plaintiff by the Office of the THE TRIAL COURT ERRED IN HOLDING THE SALES OF THE
Provincial Sheriff of Iloilo on January 15, 1979 are null and void, so with the MORTGAGED PROPERTIES TO DBP AS INVALID UNDER ARTICLES
consequent issuance of certificates of sale to the defendant of said properties, 2113 AND 2141 OF THE CIVIL CODE.
the registration thereof with the Registry of Deeds and the issuance of the
transfer certificates of title involving the real property in its name. IV

It is also resolved that defendant give back to the plaintiff or its THE TRIAL COURT GRAVELY ERRED AND COMMITTED
representative the actual possession and enjoyment of all the properties [REVERSIBLE] ERROR IN ORDERING DBP TO RETURN TO
foreclosed and possessed by it. To pay the plaintiff the reasonable rental for PLAINTIFF THE ACTUAL POSSESSION AND ENJOYMENT OF ALL
the use of its beach resort during the period starting from the time it THE FORECLOSED PROPERTIES AND TO PAY PLAINTIFF
(defendant) took over its occupation and use up to the time possession is REASONABLE RENTAL FOR THE USE OF THE FORECLOSED
actually restored to the plaintiff. BEACH RESORT.

And, on the part of the plaintiff, to pay the defendant the loan it obtained as V
soon as it takes possession and management of the beach resort and resume THE TRIAL COURT ERRED IN AWARDING ATTORNEY'S FEES
Furthermore, defendant is ordered to pay plaintiff's attorney's fee of THE MORTGAGE CONTRACT.19
50,000.00. In its decision promulgated on March 26, 2003,20 however, the CA sustained
So ORDERED.18 the RTC's judgment but deleted the award of attorney's fees, decreeing:

Decision of the CA WHEREFORE, in view of the foregoing, the Decision dated January 6, 1998,
rendered by the Regional Trial Court of Iloilo City, Branch 25 in Civil Case
On appeal (C.A.-G.R. CV No. 59491), DBP challenged the judgment of the No. 12707 for Specific Performance with Preliminary Injunction is hereby
RTC, and insisted that: AFFIRMED with MODIFICATION, in that the award for attorney's fees is

I. Loans in general
SO ORDERED.21 Guaria Corporation counters that it did not violate the terms of the
promissory note and the mortgage contracts because DBP had fully collected
DBP timely filed a motion for reconsideration, but the CA denied its motion the interest notwithstanding that the principal obligation did not yet fall due
on October 9, 2003. and become demandable.25
Hence, this appeal by DBP. The submissions of DBP lack merit and substance.
Issues The agreement between DBP and Guaria Corporation was a loan. Under the
law, a loan requires the delivery of money or any other consumable object by
DBP submits the following issues for consideration, namely: one party to another who acquires ownership thereof, on the condition that
WHETHER OR NOT THE DECISION OF THE COURT OF APPEALS the same amount or quality shall be paid.26 Loan is a reciprocal obligation, as
DATED MARCH 26, 2003 AND ITS RESOLUTION DATED OCTOBER it arises from the same cause where one party is the creditor, and the other
9, DENYING PETITIONER'S MOTION FOR RECONSIDERATION the debtor.27 The obligation of one party in a reciprocal obligation is
WERE ISSUED IN ACCORDANCE WITH LAW, PREVAILING dependent upon the obligation of the other, and the performance should
JURISPRUDENTIAL DECISION AND SUPPORTED BY EVIDENCE; ideally be simultaneous. This means that in a loan, the creditor should release
the full loan amount and the debtor repays it when it becomes due and
DECIDING C.A.-G.R. CV NO. 59491 AND THEREFORE IN In its assailed decision, the CA found and held thusly:
Ruling x x x It is undisputed that appellee obtained a loan from appellant, and as
The appeal lacks merit. security, executed real estate and chattel mortgages. However, it was never
established that appellee was already in default. Appellant, in a telegram to
1. the appellee reminded the latter to make good on its construction works,
Findings of the CA were supported by the otherwise, it would foreclose the mortgage it executed. It did not mention
evidence as well as by law and jurisprudence that appellee was already in default. The records show that appellant did not
make any demand for payment of the promissory note. It appears that the
DBP submits that the loan had been granted under its supervised credit basis of the foreclosure was not a default on the loan but appellee's failure to
financing scheme for the development of a beach resort, and the releases of complete the project in accordance with appellant's standards. In fact,
the proceeds would be subject to conditions that included the verification of appellant refused to release the remaining balance of the approved loan after
the progress of works in the project to forestall diversion of the loan it found that the improvements introduced by appellee were below appellant's
proceeds; and that under Stipulation No. 26 of the mortgage contract, further expectations.
loan releases would be terminated and the account would be considered due
and demandable in the event of a deviation from the purpose of the The loan agreement between the parties is a reciprocal obligation. Appellant
loan,23 including the failure to put up the required equity and the diversion of in the instant case bound itself to grant appellee the loan amount of
the loan proceeds to other purposes.24 It assails the declaration by the CA that 3,387,000.00 condition on appellee's payment of the amount when it falls
Guaria Corporation had not yet been in default in its obligations despite due. Furthermore, the loan was evidenced by the promissory note which was
violations of the terms of the mortgage contract securing the promissory secured by real estate mortgage over several properties and additional chattel
note. mortgage. Reciprocal obligations are those which arise from the same cause,
and in which each party is a debtor and a creditor of the other, such that the
obligation of one is dependent upon the obligation of the other (Areola vs.

I. Loans in general
Court of Appeals, 236 SCRA 643). They are to be performed simultaneously be placed on the right to litigate (Pimentel vs. Court of Appeals, et al., 307
such that the performance of one is conditioned upon the simultaneous SCRA 38).29
fulfilment of the other (Jaime Ong vs. Court of Appeals, 310 SCRA 1). The
promise of appellee to pay the loan upon due date as well as to execute xxxx
sufficient security for said loan by way of mortgage gave rise to a reciprocal
obligation on the part of appellant to release the entire approved loan amount. We uphold the CA.
Thus, appellees are entitled to receive the total loan amount as agreed upon To start with, considering that the CA thereby affirmed the factual findings
and not an incomplete amount. of the RTC, the Court is bound to uphold such findings, for it is axiomatic
The appellant did not release the total amount of the approved loan. that the trial court's factual findings as affirmed by the CA are binding on
Appellant therefore could not have made a demand for payment of the loan appeal due to the Court not being a trier of facts.
since it had yet to fulfil its own obligation. Moreover, the fact that appellee Secondly, by its failure to release the proceeds of the loan in their entirety,
was not yet in default rendered the foreclosure proceedings premature and DBP had no right yet to exact on Guaria Corporation the latter's compliance
improper. with its own obligation under the loan. Indeed, if a party in a reciprocal
The properties which stood as security for the loan were foreclosed without contract like a loan does not perform its obligation, the other party cannot be
any demand having been made on the principal obligation. For an obligation obliged to perform what is expected of it while the other's obligation remains
to become due, there must generally be a demand. Default generally begins unfulfilled.30 In other words, the latter party does not incur delay.31
from the moment the creditor demands the performance of the obligation. Still, DBP called upon Guaria Corporation to make good on the
Without such demand, judicial or extrajudicial, the effects of default will not construction works pursuant to the acceleration clause written in the
arise (Namarco vs. Federation of United Namarco Distributors, Inc., 49 mortgage contract (i.e., Stipulation No. 26),32 or else it would foreclose the
SCRA 238; Borje vs. CFI of Misamis Occidental, 88 SCRA 576). mortgages.
xxxx DBP's actuations were legally unfounded. It is true that loans are often
Appellant also admitted in its brief that it indeed failed to release the full secured by a mortgage constituted on real or personal property to protect the
amount of the approved loan. As a consequence, the real estate mortgage of creditor's interest in case of the default of the debtor. By its nature, however,
appellee becomes unenforceable, as it cannot be entirely foreclosed to satisfy a mortgage remains an accessory contract dependent on the principal
appellee's total debt to appellant (Central Bank of the Philippines vs. Court of obligation,33 such that enforcement of the mortgage contract will depend on
Appeals, 139 SCRA 46). whether or not there has been a violation of the principal obligation. While a
creditor and a debtor could regulate the order in which they should comply
Since the foreclosure proceedings were premature and unenforceable, it only with their reciprocal obligations, it is presupposed that in a loan the lender
follows that appellee is still entitled to possession of the foreclosed should perform its obligation - the release of the full loan amount - before it
properties. However, appellant took possession of the same by virtue of a could demand that the borrower repay the loaned amount. In other words,
writ of possession issued in its favor during the pendency of the case. Thus, Guaria Corporation would not incur in delay before DBP fully performed its
the trial court correctly ruled when it ordered appellant to return actual reciprocal obligation.34
possession of the subject properties to appellee or its representative and to
pay appellee reasonable rents. Considering that it had yet to release the entire proceeds of the loan, DBP
could not yet make an effective demand for payment upon Guaria
However, the award for attorney's fees is deleted. As a rule, the award of Corporation to perform its obligation under the loan. According to
attorney's fees is the exception rather than the rule and counsel's fees are not Development Bank of the Philippines v. Licuanan,35 it would only be when a
to be awarded every time a party wins a suit. Attorney's fees cannot be demand to pay had been made and was subsequently refused that a borrower
recovered as part of damages because of the policy that no premium should could be considered in default, and the lender could obtain the right to collect

I. Loans in general
the debt or to foreclose the mortgage.1wphi1 Hence, Guaria Corporation Guaria Corporation counters that the ruling in C.A.-G.R. No. 12670-SP did
would not be in default without the demand. not constitute the law of the case because C.A.-G.R. No. 12670-SP
concerned the issue of possession by DBP as the winning bidder in the
Assuming that DBP could already exact from the latter its compliance with foreclosure sale, and had no bearing whatsoever to the legal issues presented
the loan agreement, the letter dated February 27, 1978 that DBP sent would in C.A.-G.R. CV No. 59491.
still not be regarded as a demand to render Guaria Corporation in default
under the principal contract because DBP was only thereby requesting the Law of the case has been defined as the opinion delivered on a former
latter "to put up the deficiency in the value of improvements."36 appeal, and means, more specifically, that whatever is once irrevocably
established as the controlling legal rule of decision between the same parties
Under the circumstances, DBP's foreclosure of the mortgage and the sale of in the same case continues to be the law of the case, whether correct on
the mortgaged properties at its instance were premature, and, therefore, void general principles or not, so long as the facts on which such decision was
and ineffectual.37 predicated continue to be the facts of the case before the court. 40
Being a banking institution, DBP owed it to Guaria Corporation to exercise The concept of law of the case is well explained in Mangold v. Bacon, 41 an
the highest degree of diligence, as well as to observe the high standards of American case, thusly:
integrity and performance in all its transactions because its business was
imbued with public interest.38 The high standards were also necessary to The general rule, nakedly and boldly put, is that legal conclusions announced
ensure public confidence in the banking system, for, according to Philippine on a first appeal, whether on the general law or the law as applied to the
National Bank v. Pike:39 "The stability of banks largely depends on the concrete facts, not only prescribe the duty and limit the power of the trial
confidence of the people in the honesty and efficiency of banks." Thus, DBP court to strict obedience and conformity thereto, but they become and remain
had to act with great care in applying the stipulations of its agreement with the law of the case in all other steps below or above on subsequent appeal.
Guaria Corporation, lest it erodes such public confidence. Yet, DBP failed The rule is grounded on convenience, experience, and reason. Without the
in its duty to exercise the highest degree of diligence by prematurely rule there would be no end to criticism, reagitation, reexamination, and
foreclosing the mortgages and unwarrantedly causing the foreclosure sale of reformulation. In short, there would be endless litigation. It would be
the mortgaged properties despite Guaria Corporation not being yet in intolerable if parties litigants were allowed to speculate on changes in the
default. DBP wrongly relied on Stipulation No. 26 as its basis to accelerate personnel of a court, or on the chance of our rewriting propositions once
the obligation of Guaria Corporation, for the stipulation was relevant to an gravely ruled on solemn argument and handed down as the law of a given
Omnibus Agricultural Loan, to Guaria Corporation's loan which was case. An itch to reopen questions foreclosed on a first appeal would result in
intended for a project other than agricultural in nature. the foolishness of the inquisitive youth who pulled up his corn to see how it
grew. Courts are allowed, if they so choose, to act like ordinary sensible
Even so, Guaria Corporation did not elevate the actionability of DBP's persons. The administration of justice is a practical affair. The rule is a
negligence to the CA, and did not also appeal the CA's deletion of the award practical and a good one of frequent and beneficial use.
of attorney's fees allowed by the RTC.1wphi1 With the decision of the CA
consequently becoming final and immutable as to Guaria Corporation, we The doctrine of law of the case simply means, therefore, that when an
will not delve any further on DBP's actionable actuations. appellate court has once declared the law in a case, its declaration continues
to be the law of that case even on a subsequent appeal, notwithstanding that
2. the rule thus laid down may have been reversed in other cases. 42 For practical
The doctrine of law of the case considerations, indeed, once the appellate court has issued a pronouncement
did not apply herein on a point that was presented to it with full opportunity to be heard having
been accorded to the parties, the pronouncement should be regarded as the
DBP insists that the decision of the CA in C.A.-G.R. No. 12670-SP already law of the case and should not be reopened on remand of the case to
constituted the law of the case. Hence, the CA could not decide the appeal in determine other issues of the case, like damages.43 But the law of the case, as
C.A.-G.R. CV No. 59491 differently.

I. Loans in general
the name implies, concerns only legal questions or issues thereby adjudicated
in the former appeal.

The foregoing understanding of the concept of the law of the case exposes
DBP's insistence to be unwarranted.

To start with, the ex parte proceeding on DBP's application for the issuance
of the writ of possession was entirely independent from the judicial demand
for specific performance herein. In fact, C.A.-G.R. No. 12670-SP, being the
interlocutory appeal concerning the issuance of the writ of possession while
the main case was pending, was not at all intertwined with any legal issue
properly raised and litigated in C.A.-G.R. CV No. 59491, which was the
appeal to determine whether or not DBP's foreclosure was valid and
effectual. And, secondly, the ruling in C.A.-G.R. No. 12670-SP did not settle
any question of law involved herein because this case for specific
performance was not a continuation of C.A.-G.R. No. 12670-SP (which was
limited to the propriety of the issuance of the writ of possession in favor of
DBP), and vice versa.

Guarifia Corporation is legally entitled to the
restoration of the possession of the resort complex
and payment of reasonable rentals by DBP

Having found and pronounced that the extrajudicial foreclosure by DBP was
premature, and that the ensuing foreclosure sale was void and ineffectual, the
Court affirms the order for the restoration of possession to Guarifia
Corporation and the payment of reasonable rentals for the use of the resort.
The CA properly held that the premature and invalid foreclosure had unjustly
dispossessed Guarifia Corporation of its properties. Consequently, the
restoration of possession and the payment of reasonable rentals were in
accordance with Article 561 of the Civil Code, which expressly states that
one who recovers, according to law, possession unjustly lost shall be deemed
for all purposes which may redound to his benefit to have enjoyed it without

WHEREFORE, the Court AFFIRMS the decision promulgated on March 26,

2003; and ORDERS the petitioner to pay the costs of suit.


I. Loans in general
3.) Republic of the Philippines of which she asked the court to absolve her of the complaint with the cost
SUPREME COURT against the plaintiff.
EN BANC By a writing dated the 11th of December, 1906, Attorney Jose Felix Martinez
G.R. No. L-4150 February 10, 1910 notified the defendant and her counsel, Matias Hilado, that he had made an
FELIX DE LOS SANTOS, plaintiff-appelle, agreement with the plaintiff to the effect that the latter would not
vs. compromise the controversy without his consent, and that as fees for his
AGUSTINA JARRA, administratrix of the estate of Magdaleno professional services he was to receive one half of the amount allowed in the
Jimenea, deceased, defendant-appellant. judgment if the same were entered in favor of the plaintiff.
Matias Hilado, for appellant. The case came up for trial, evidence was adduced by both parties, and either
Jose Felix Martinez, for appellee. exhibits were made of record. On the 10th of January, 1907, the court below
TORRES, J.: entered judgment sentencing Agustina Jarra, as administratrix of the estate of
On the 1st of September, 1906, Felix de los Santos brought suit against Magdaleno Jimenea, to return to the plaintiff, Felix de los Santos, the
Agustina Jarra, the administratrix of the estate of Magdaleno Jimenea, remaining six second and third class carabaos, or the value thereof at the rate
alleging that in the latter part of 1901 Jimenea borrowed and obtained from of P120 each, or a total of P720 with the costs.
the plaintiff ten first-class carabaos, to be used at the animal-power mill of Counsel for the defendant excepted to the foregoing judgment, and, by a
his hacienda during the season of 1901-2, without recompense or writing dated January 19, moved for anew trial on the ground that the
remuneration whatever for the use thereof, under the sole condition that they findings of fact were openly and manifestly contrary to the weight of the
should be returned to the owner as soon as the work at the mill was evidence. The motion was overruled, the defendant duly excepted, and in due
terminated; that Magdaleno Jimenea, however, did not return the carabaos, course submitted the corresponding bill of exceptions, which was approved
notwithstanding the fact that the plaintiff claimed their return after the work and submitted to this court.
at the mill was finished; that Magdaleno Jimenea died on the 28th of
October, 1904, and the defendant herein was appointed by the Court of First The defendant has admitted that Magdaleno Jimenea asked the plaintiff for
Instance of Occidental Negros administratrix of his estate and she took over the loan of ten carabaos which are now claimed by the latter, as shown by
the administration of the same and is still performing her duties as such two letters addressed by the said Jimenea to Felix de los Santos; but in her
administratrix; that the plaintiff presented his claim to the commissioners of answer the said defendant alleged that the late Jimenea only obtained three
the estate of Jimenea, within the legal term, for the return of the said ten second-class carabaos, which were subsequently sold to him by the owner,
carabaos, but the said commissioners rejected his claim as appears in their Santos; therefore, in order to decide this litigation it is indispensable that
report; therefore, the plaintiff prayed that judgment be entered against the proof be forthcoming that Jimenea only received three carabaos from his son-
defendant as administratrix of the estate of the deceased, ordering her to in-law Santos, and that they were sold by the latter to him.
return the ten first-class carabaos loaned to the late Jimenea, or their present
value, and to pay the costs. The record discloses that it has been fully proven from the testimony of a
sufficient number of witnesses that the plaintiff, Santos, sent in charge of
The defendant was duly summoned, and on the 25th of September, 1906, she various persons the ten carabaos requested by his father-in-law, Magdaleno
demurred in writing to the complaint on the ground that it was vague; but on Jimenea, in the two letters produced at the trial by the plaintiff, and that
the 2d of October of the same year, in answer to the complaint, she said that Jimenea received them in the presence of some of said persons, one being a
it was true that the late Magdaleno Jimenea asked the plaintiff to loan him brother of said Jimenea, who saw the animals arrive at the hacienda where it
ten carabaos, but that he only obtained three second-class animals, which was proposed to employ them. Four died of rinderpest, and it is for this
were afterwards transferred by sale by the plaintiff to the said Jimenea; that reason that the judgment appealed from only deals with six surviving
she denied the allegations contained in paragraph 3 of the complaint; for all carabaos.

I. Loans in general
The alleged purchase of three carabaos by Jimenea from his son-in-law ART. 1741. The bailee acquires retains the ownership of the thing loaned.
Santos is not evidenced by any trustworthy documents such as those of The bailee acquires the use thereof, but not its fruits; if any compensation is
transfer, nor were the declarations of the witnesses presented by the involved, to be paid by the person requiring the use, the agreement ceases to
defendant affirming it satisfactory; for said reason it can not be considered be a commodatum.
that Jimenea only received three carabaos on loan from his son-in-law, and
that he afterwards kept them definitely by virtue of the purchase. ART. 1742. The obligations and rights which arise from the commodatum
pass to the heirs of both contracting parties, unless the loan has been in
By the laws in force the transfer of large cattle was and is still made by consideration for the person of the bailee, in which case his heirs shall not
means of official documents issued by the local authorities; these documents have the right to continue using the thing loaned.
constitute the title of ownership of the carabao or horse so acquired.
Furthermore, not only should the purchaser be provided with a new The carabaos delivered to be used not being returned by the defendant upon
certificate or credential, a document which has not been produced in demand, there is no doubt that she is under obligation to indemnify the owner
evidence by the defendant, nor has the loss of the same been shown in the thereof by paying him their value.
case, but the old documents ought to be on file in the municipality, or they
should have been delivered to the new purchaser, and in the case at bar Article 1101 of said code reads:
neither did the defendant present the old credential on which should be stated Those who in fulfilling their obligations are guilty of fraud, negligence, or
the name of the previous owner of each of the three carabaos said to have delay, and those who in any manner whatsoever act in contravention of the
been sold by the plaintiff. stipulations of the same, shall be subjected to indemnify for the losses and
From the foregoing it may be logically inferred that the carabaos loaned or damages caused thereby.
given on commodatum to the now deceased Magdaleno Jimenea were ten in The obligation of the bailee or of his successors to return either the thing
number; that they, or at any rate the six surviving ones, have not been loaned or its value, is sustained by the supreme tribunal of Sapin. In its
returned to the owner thereof, Felix de los Santos, and that it is not true that decision of March 21, 1895, it sets out with precision the legal doctrine
the latter sold to the former three carabaos that the purchaser was already touching commodatum as follows:
using; therefore, as the said six carabaos were not the property of the
deceased nor of any of his descendants, it is the duty of the administratrix of Although it is true that in a contract of commodatum the bailor retains the
the estate to return them or indemnify the owner for their value. ownership of the thing loaned, and at the expiration of the period, or after the
use for which it was loaned has been accomplished, it is the imperative duty
The Civil Code, in dealing with loans in general, from which generic of the bailee to return the thing itself to its owner, or to pay him damages if
denomination the specific one of commodatum is derived, establishes through the fault of the bailee the thing should have been lost or injured, it is
prescriptions in relation to the last-mentioned contract by the following clear that where public securities are involved, the trial court, in deferring to
articles: the claim of the bailor that the amount loaned be returned him by the bailee
ART. 1740. By the contract of loan, one of the parties delivers to the other, in bonds of the same class as those which constituted the contract, thereby
either anything not perishable, in order that the latter may use it during a properly applies law 9 of title 11 of partida 5.
certain period and return it to the former, in which case it is called With regard to the third assignment of error, based on the fact that the
commodatum, or money or any other perishable thing, under the condition to plaintiff Santos had not appealed from the decision of the commissioners
return an equal amount of the same kind and quality, in which case it is rejecting his claim for the recovery of his carabaos, it is sufficient to estate
merely called a loan. that we are not dealing with a claim for the payment of a certain sum, the
Commodatum is essentially gratuitous. collection of a debt from the estate, or payment for losses and damages (sec.
119, Code of Civil Procedure), but with the exclusion from the inventory of
A simple loan may be gratuitous, or made under a stipulation to pay interest.

I. Loans in general
the property of the late Jimenea, or from his capital, of six carabaos which
did not belong to him, and which formed no part of the inheritance.

The demand for the exclusion of the said carabaos belonging to a third party
and which did not form part of the property of the deceased, must be the
subject of a direct decision of the court in an ordinary action, wherein the
right of the third party to the property which he seeks to have excluded from
the inheritance and the right of the deceased has been discussed, and
rendered in view of the result of the evidence adduced by the administrator of
the estate and of the claimant, since it is so provided by the second part of
section 699 and by section 703 of the Code of Civil Procedure; the refusal of
the commissioners before whom the plaintiff unnecessarily appeared can not
affect nor reduce the unquestionable right of ownership of the latter,
inasmuch as there is no law nor principle of justice authorizing the
successors of the late Jimenea to enrich themselves at the cost and to the
prejudice of Felix de los Santos.

For the reasons above set forth, by which the errors assigned to the judgment
appealed from have been refuted, and considering that the same is in
accordance with the law and the merits of the case, it is our opinion that it
should be affirmed and we do hereby affirm it with the costs against the
appellant. So ordered.

I. Loans in general
4.) Republic of the Philippines For construction of factory building P250,000.00
Manila For payment of the balance of purchase
EN BANC price of machinery and equipment 240,900.00
G.R. No. L-24968 April 27, 1972
SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee, For working capital 9,100.00
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant. T O T A L P500,000.00
Mabanag, Eliger and Associates and Saura, Magno and Associates for
plaintiff-appellee. 4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy
Jesus A. Avancea and Hilario G. Orsolino for defendant-appellant. and Gregoria Estabillo and China Engineers, Ltd. shall sign the promissory
notes jointly with the borrower-corporation;
5. That release shall be made at the discretion of the Rehabilitation Finance
In Civil Case No. 55908 of the Court of First Instance of Manila, judgment Corporation, subject to availability of funds, and as the construction of the
was rendered on June 28, 1965 sentencing defendant Development Bank of factory buildings progresses, to be certified to by an appraiser of this
the Philippines (DBP) to pay actual and consequential damages to plaintiff Corporation;"
Saura Import and Export Co., Inc. in the amount of P383,343.68, plus
Saura, Inc. was officially notified of the resolution on January 9, 1954. The
interest at the legal rate from the date the complaint was filed and attorney's
day before, however, evidently having otherwise been informed of its
fees in the amount of P5,000.00. The present appeal is from that judgment.
approval, Saura, Inc. wrote a letter to RFC, requesting a modification of the
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the terms laid down by it, namely: that in lieu of having China Engineers, Ltd.
Rehabilitation Finance Corporation (RFC), before its conversion into DBP, (which was willing to assume liability only to the extent of its stock
for an industrial loan of P500,000.00, to be used as follows: P250,000.00 for subscription with Saura, Inc.) sign as co-maker on the corresponding
the construction of a factory building (for the manufacture of jute sacks); promissory notes, Saura, Inc. would put up a bond for P123,500.00, an
P240,900.00 to pay the balance of the purchase price of the jute mill amount equivalent to such subscription; and that Maria S. Roca would be
machinery and equipment; and P9,100.00 as additional working capital. substituted for Inocencia Arellano as one of the other co-makers, having
acquired the latter's shares in Saura, Inc.
Parenthetically, it may be mentioned that the jute mill machinery had already
been purchased by Saura on the strength of a letter of credit extended by the In view of such request RFC approved Resolution No. 736 on February 4,
Prudential Bank and Trust Co., and arrived in Davao City in July 1953; and 1954, designating of the members of its Board of Governors, for certain
that to secure its release without first paying the draft, Saura, Inc. executed a reasons stated in the resolution, "to reexamine all the aspects of this approved
trust receipt in favor of the said bank. loan ... with special reference as to the advisability of financing this
particular project based on present conditions obtaining in the operations of
On January 7, 1954 RFC passed Resolution No. 145 approving the loan jute mills, and to submit his findings thereon at the next meeting of the
application for P500,000.00, to be secured by a first mortgage on the factory Board."
building to be constructed, the land site thereof, and the machinery and
equipment to be installed. Among the other terms spelled out in the On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had
resolution were the following: again agreed to act as co-signer for the loan, and asked that the necessary
documents be prepared in accordance with the terms and conditions specified
1. That the proceeds of the loan shall be utilized exclusively for the following in Resolution No. 145. In connection with the reexamination of the project to
purposes: be financed with the loan applied for, as stated in Resolution No. 736, the
parties named their respective committees of engineers and technical men to

I. Loans in general
meet with each other and undertake the necessary studies, although in P300,000.00 ... in view of a notification ... from the China Engineers Ltd.,
appointing its own committee Saura, Inc. made the observation that the same expressing their desire to consider the loan insofar as they are concerned."
"should not be taken as an acquiescence on (its) part to novate, or accept new
conditions to, the agreement already) entered into," referring to its On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan
acceptance of the terms and conditions mentioned in Resolution No. 145. and informed RFC that China Engineers, Ltd. "will at any time reinstate their
signature as co-signer of the note if RFC releases to us the P500,000.00
On April 13, 1954 the loan documents were executed: the promissory note, originally approved by you.".
with F.R. Halling, representing China Engineers, Ltd., as one of the co-
signers; and the corresponding deed of mortgage, which was duly registered On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan
on the following April 17. to the original amount of P500,000.00, "it appearing that China Engineers,
Ltd. is now willing to sign the promissory notes jointly with the borrower-
It appears, however, that despite the formal execution of the loan agreement corporation," but with the following proviso:
the reexamination contemplated in Resolution No. 736 proceeded. In a
meeting of the RFC Board of Governors on June 10, 1954, at which Ramon That in view of observations made of the shortage and high cost of imported
Saura, President of Saura, Inc., was present, it was decided to reduce the loan raw materials, the Department of Agriculture and Natural Resources shall
from P500,000.00 to P300,000.00. Resolution No. 3989 was approved as certify to the following:
1. That the raw materials needed by the borrower-corporation to carry out its
RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & operation are available in the immediate vicinity; and
Export Co., Inc. under Resolution No. 145, C.S., from P500,000.00 to
P300,000.00. Pursuant to Bd. Res. No. 736, c.s., authorizing the re- 2. That there is prospect of increased production thereof to provide
examination of all the various aspects of the loan granted the Saura Import & adequately for the requirements of the factory."
Export Co. under Resolution No. 145, c.s., for the purpose of financing the The action thus taken was communicated to Saura, Inc. in a letter of RFC
manufacture of jute sacks in Davao, with special reference as to the dated December 22, 1954, wherein it was explained that the certification by
advisability of financing this particular project based on present conditions the Department of Agriculture and Natural Resources was required "as the
obtaining in the operation of jute mills, and after having heard Ramon E. intention of the original approval (of the loan) is to develop the manufacture
Saura and after extensive discussion on the subject the Board, upon of sacks on the basis of locally available raw materials." This point is
recommendation of the Chairman, RESOLVED that the loan granted the important, and sheds light on the subsequent actuations of the parties. Saura,
Saura Import & Export Co. be REDUCED from P500,000 to P300,000 and Inc. does not deny that the factory he was building in Davao was for the
that releases up to P100,000 may be authorized as may be necessary from manufacture of bags from local raw materials. The cover page of its brochure
time to time to place the factory in actual operation: PROVIDED that all (Exh. M) describes the project as a "Joint venture by and between the
terms and conditions of Resolution No. 145, c.s., not inconsistent herewith, Mindanao Industry Corporation and the Saura Import and Export Co., Inc. to
shall remain in full force and effect." finance, manage and operate a Kenaf mill plant, to manufacture copra and
On June 19, 1954 another hitch developed. F.R. Halling, who had signed the corn bags, runners, floor mattings, carpets, draperies; out of 100% local raw
promissory note for China Engineers Ltd. jointly and severally with the other materials, principal kenaf." The explanatory note on page 1 of the same
RFC that his company no longer to of the loan and therefore considered the brochure states that, the venture "is the first serious attempt in this country to
same as cancelled as far as it was concerned. A follow-up letter dated July 2 use 100% locally grown raw materials notably kenaf which is presently
requested RFC that the registration of the mortgage be withdrawn. grown commercially in theIsland of Mindanao where the proposed jutemill is
located ..."
In the meantime Saura, Inc. had written RFC requesting that the loan of
P500,000.00 be granted. The request was denied by RFC, which added in its This fact, according to defendant DBP, is what moved RFC to approve the
letter-reply that it was "constrained to consider as cancelled the loan of loan application in the first place, and to require, in its Resolution No. 9083,

I. Loans in general
a certification from the Department of Agriculture and Natural Resources as With respect to our requirement that the Department of Agriculture and
to the availability of local raw materials to provide adequately for the Natural Resources certify that the raw materials needed are available in the
requirements of the factory. Saura, Inc. itself confirmed the defendant's stand immediate vicinity and that there is prospect of increased production thereof
impliedly in its letter of January 21, 1955: (1) stating that according to a to provide adequately the requirements of the factory, we wish to reiterate
special study made by the Bureau of Forestry "kenaf will not be available in that the basis of the original approval is to develop the manufacture of sacks
sufficient quantity this year or probably even next year;" (2) requesting on the basis of the locally available raw materials. Your statement that you
"assurances (from RFC) that my company and associates will be able to will have to rely on the importation of jute and your request that we give you
bring in sufficient jute materials as may be necessary for the full operation of assurance that your company will be able to bring in sufficient jute materials
the jute mill;" and (3) asking that releases of the loan be made as follows: as may be necessary for the operation of your factory, would not be in line
with our principle in approving the loan.
a) For the payment of the receipt for jute mill
machineries with the Prudential Bank & With the foregoing letter the negotiations came to a standstill. Saura, Inc. did
not pursue the matter further. Instead, it requested RFC to cancel the
Trust Company P250,000.00 mortgage, and so, on June 17, 1955 RFC executed the corresponding deed of
cancellation and delivered it to Ramon F. Saura himself as president of
(For immediate release) Saura, Inc.
b) For the purchase of materials and equip- It appears that the cancellation was requested to make way for the
ment per attached list to enable the jute registration of a mortgage contract, executed on August 6, 1954, over the
mill to operate 182,413.91 same property in favor of the Prudential Bank and Trust Co., under which
c) For raw materials and labor 67,586.09 contract Saura, Inc. had up to December 31 of the same year within which to
pay its obligation on the trust receipt heretofore mentioned. It appears further
1) P25,000.00 to be released on the open- that for failure to pay the said obligation the Prudential Bank and Trust Co.
ing of the letter of credit for raw jute sued Saura, Inc. on May 15, 1955.
for $25,000.00.
On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was
2) P25,000.00 to be released upon arrival cancelled at the request of Saura, Inc., the latter commenced the present suit
of raw jute. for damages, alleging failure of RFC (as predecessor of the defendant DBP)
to comply with its obligation to release the proceeds of the loan applied for
3) P17,586.09 to be released as soon as the and approved, thereby preventing the plaintiff from completing or paying
mill is ready to operate. contractual commitments it had entered into, in connection with its jute mill
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
The trial court rendered judgment for the plaintiff, ruling that there was a
Dear Sirs: perfected contract between the parties and that the defendant was guilty of
breach thereof. The defendant pleaded below, and reiterates in this appeal:
This is with reference to your letter of January 21, 1955, regarding the
(1) that the plaintiff's cause of action had prescribed, or that its claim had
release of your loan under consideration of P500,000. As stated in our letter
been waived or abandoned; (2) that there was no perfected contract; and (3)
of December 22, 1954, the releases of the loan, if revived, are proposed to be
that assuming there was, the plaintiff itself did not comply with the terms
made from time to time, subject to availability of funds towards the end that
the sack factory shall be placed in actual operating status. We shall be able to
act on your request for revised purpose and manner of releases upon re- We hold that there was indeed a perfected consensual contract, as recognized
appraisal of the securities offered for the loan. in Article 1934 of the Civil Code, which provides:

I. Loans in general
ART. 1954. An accepted promise to deliver something, by way of cancelled, which was done on June 15, 1955. The action thus taken by both
commodatum or simple loan is binding upon the parties, but the parties was in the nature cf mutual desistance what Manresa terms "mutuo
commodatum or simple loan itself shall not be perferted until the delivery of disenso"1 which is a mode of extinguishing obligations. It is a concept that
the object of the contract. derives from the principle that since mutual agreement can create a contract,
mutual disagreement by the parties can cause its extinguishment. 2
There was undoubtedly offer and acceptance in this case: the application of
Saura, Inc. for a loan of P500,000.00 was approved by resolution of the The subsequent conduct of Saura, Inc. confirms this desistance. It did not
defendant, and the corresponding mortgage was executed and registered. But protest against any alleged breach of contract by RFC, or even point out that
this fact alone falls short of resolving the basic claim that the defendant failed the latter's stand was legally unjustified. Its request for cancellation of the
to fulfill its obligation and the plaintiff is therefore entitled to recover mortgage carried no reservation of whatever rights it believed it might have
damages. against RFC for the latter's non-compliance. In 1962 it even applied with
DBP for another loan to finance a rice and corn project, which application
It should be noted that RFC entertained the loan application of Saura, Inc. on was disapproved. It was only in 1964, nine years after the loan agreement
the assumption that the factory to be constructed would utilize locally grown had been cancelled at its own request, that Saura, Inc. brought this action for
raw materials, principally kenaf. There is no serious dispute about this. It was damages.All these circumstances demonstrate beyond doubt that the said
in line with such assumption that when RFC, by Resolution No. 9083 agreement had been extinguished by mutual desistance and that on the
approved on December 17, 1954, restored the loan to the original amount of initiative of the plaintiff-appellee itself.
P500,000.00. it imposed two conditions, to wit: "(1) that the raw materials
needed by the borrower-corporation to carry out its operation are available in With this view we take of the case, we find it unnecessary to consider and
the immediate vicinity; and (2) that there is prospect of increased production resolve the other issues raised in the respective briefs of the parties.
thereof to provide adequately for the requirements of the factory." The
imposition of those conditions was by no means a deviation from the terms WHEREFORE, the judgment appealed from is reversed and the complaint
of the agreement, but rather a step in its implementation. There was nothing dismissed, with costs against the plaintiff-appellee.
in said conditions that contradicted the terms laid down in RFC Resolution
No. 145, passed on January 7, 1954, namely "that the proceeds of the loan
shall be utilized exclusively for the following purposes: for construction of
factory building P250,000.00; for payment of the balance of purchase
price of machinery and equipment P240,900.00; for working capital
P9,100.00." Evidently Saura, Inc. realized that it could not meet the
conditions required by RFC, and so wrote its letter of January 21, 1955,
stating that local jute "will not be able in sufficient quantity this year or
probably next year," and asking that out of the loan agreed upon the sum of
P67,586.09 be released "for raw materials and labor." This was a deviation
from the terms laid down in Resolution No. 145 and embodied in the
mortgage contract, implying as it did a diversion of part of the proceeds of
the loan to purposes other than those agreed upon.

When RFC turned down the request in its letter of January 25, 1955 the
negotiations which had been going on for the implementation of the
agreement reached an impasse. Saura, Inc. obviously was in no position to
comply with RFC's conditions. So instead of doing so and insisting that the
loan be released as agreed upon, Saura, Inc. asked that the mortgage be

I. Loans in general
5.) [G.R. No. 118375. October 3, 2003] Upon presentment on its maturity date, the Security Bank check was
dishonored for insufficiency of funds. On the following day, 12 September
CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS and 1980, Queao requested Security Bank to stop payment of her postdated
AURORA QUEAO, respondents. check, but the bank rejected the request pursuant to its policy not to honor
such requests if the check is drawn against insufficient funds. [6]
On 16 October 1980, Queao received a letter from Naguiats lawyer,
TINGA, J.: demanding settlement of the loan. Shortly thereafter, Queao and one Ruby
Before us is a Petition for Review on Certiorari under Rule 45, assailing the Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the meeting, Queao told
decision of the Sixteenth Division of the respondent Court of Appeals Naguiat that she did not receive the proceeds of the loan, adding that the
promulgated on 21 December 1994 [1], which affirmed in toto the decision checks were retained by Ruebenfeldt, who purportedly was Naguiats agent. [7]
handed down by the Regional Trial Court (RTC) of Pasay City.[2] Naguiat applied for the extrajudicial foreclosure of the mortgage with the
The case arose when on 11 August 1981, private respondent Aurora Queao Sheriff of Rizal Province, who then scheduled the foreclosure sale on 14
(Queao) filed a complaint before the Pasay City RTC for cancellation of August 1981. Three days before the scheduled sale, Queao filed the case
a Real Estate Mortgage she had entered into with petitioner Celestina before the Pasay City RTC,[8] seeking the annulment of the mortgage
Naguiat (Naguiat). The RTC rendered a decision, declaring the deed. The trial court eventually stopped the auction sale.[9]
questioned Real Estate Mortgage void, which Naguiat appealed to the Court On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real
of Appeals. After the Court of Appeals upheld the RTC decision, Naguiat Estate Mortgage null and void, and ordering Naguiat to return to Queao the
instituted the present petition. owners duplicates of her titles to the mortgaged lots.[10] Naguiat appealed the
The operative facts follow: decision before the Court of Appeals, making no less than eleven
assignments of error. The Court of Appeals promulgated the decision now
Queao applied with Naguiat for a loan in the amount of Two Hundred assailed before us that affirmed in toto the RTC decision. Hence, the present
Thousand Pesos (P200,000.00), which Naguiat granted. On 11 August 1980, petition.
Naguiat indorsed to Queao Associated Bank Check No. 090990 (dated 11
August 1980) for the amount of Ninety Five Thousand Pesos (P95,000.00), Naguiat questions the findings of facts made by the Court of Appeals,
which was earlier issued to Naguiat by the Corporate Resources Financing especially on the issue of whether Queao had actually received the loan
Corporation. She also issued her own Filmanbank Check No. 065314, to the proceeds which were supposed to be covered by the two checks Naguiat had
order of Queao, also dated 11 August 1980 and for the amount of Ninety issued or indorsed. Naguiat claims that being a notarial instrument or public
Five Thousand Pesos (P95,000.00). The proceeds of these checks were to document, the mortgage deed enjoys the presumption that the recitals therein
constitute the loan granted by Naguiat to Queao.[3] are true. Naguiat also questions the admissibility of various representations
and pronouncements of Ruebenfeldt, invoking the rule on the non-binding
To secure the loan, Queao executed a Deed of Real Estate Mortgage dated 11 effect of the admissions of third persons.[11]
August 1980 in favor of Naguiat, and surrendered to the latter the owners
duplicates of the titles covering the mortgaged properties. [4] On the same day, The resolution of the issues presented before this Court by Naguiat involves
the mortgage deed was notarized, and Queao issued to Naguiat a promissory the determination of facts, a function which this Court does not exercise in an
note for the amount of TWO HUNDRED THOUSAND PESOS appeal by certiorari. Under Rule 45 which governs appeal by certiorari, only
(P200,000.00), with interest at 12% per annum, payable on 11 September questions of law may be raised[12] as the Supreme Court is not a trier of
1980.[5] Queao also issued a Security Bank and Trust Company check, facts.[13] The resolution of factual issues is the function of lower courts,
postdated 11 September 1980, for the amount of TWO HUNDRED whose findings on these matters are received with respect and are in fact
THOUSAND PESOS (P200,000.00) and payable to the order of Naguiat. generally binding on the Supreme Court.[14] A question of law which the
Court may pass upon must not involve an examination of the probative value

I. Loans in general
of the evidence presented by the litigants.[15] There is a question of law in a proof, it follows that the checks were not encashed or credited to Queaos
given case when the doubt or difference arises as to what the law is on a account.
certain state of facts; there is a question of fact when the doubt or difference
arises as to the truth or the falsehood of alleged facts. [16] Naguiat questions the admissibility of the various written representations
made by Ruebenfeldt on the ground that they could not bind her following
Surely, there are established exceptions to the rule on the conclusiveness of the res inter alia acta alteri nocere non debet rule. The Court of Appeals
the findings of facts of the lower courts.[17] But Naguiats case does not fall rejected the argument, holding that since Ruebenfeldt was an authorized
under any of the exceptions. In any event, both the decisions of the appellate representative or agent of Naguiat the situation falls under a recognized
and trial courts are supported by the evidence on record and the applicable exception to the rule.[22] Still, Naguiat insists that Ruebenfeldt was not her
laws. agent.

Against the common finding of the courts below, Naguiat vigorously insists Suffice to say, however, the existence of an agency relationship between
that Queao received the loan proceeds. Capitalizing on the status of the Naguiat and Ruebenfeldt is supported by ample evidence. As correctly
mortgage deed as a public document, she cites the rule that a public pointed out by the Court of Appeals, Ruebenfeldt was not a stranger or an
document enjoys the presumption of validity and truthfulness of its unauthorized person. Naguiat instructed Ruebenfeldt to withhold from Queao
contents. The Court of Appeals, however, is correct in ruling that the the checks she issued or indorsed to Queao, pending delivery by the latter of
presumption of truthfulness of the recitals in a public document was defeated additional collateral. Ruebenfeldt served as agent of Naguiat on the loan
by the clear and convincing evidence in this case that pointed to the absence application of Queaos friend, Marilou Farralese, and it was in connection
of consideration.[18] This Court has held that the presumption of truthfulness with that transaction that Queao came to know Naguiat.[23] It was also
engendered by notarized documents is rebuttable, yielding as it does to clear Ruebenfeldt who accompanied Queao in her meeting with Naguiat and on
and convincing evidence to the contrary, as in this case.[19] that occasion, on her own and without Queao asking for it, Reubenfeldt
actually drew a check for the sum of P220,000.00 payable to Naguiat, to
On the other hand, absolutely no evidence was submitted by Naguiat that the cover for Queaos alleged liability to Naguiat under the loan agreement. [24]
checks she issued or endorsed were actually encashed or deposited. The mere
issuance of the checks did not result in the perfection of the contract of The Court of Appeals recognized the existence of an agency by
loan. For the Civil Code provides that the delivery of bills of exchange and estoppel[25] citing Article 1873 of the Civil Code.[26] Apparently, it considered
mercantile documents such as checks shall produce the effect of payment that at the very least, as a consequence of the interaction between Naguiat
only when they have been cashed.[20] It is only after the checks have and Ruebenfeldt, Queao got the impression that Ruebenfeldt was the agent of
produced the effect of payment that the contract of loan may be deemed Naguiat, but Naguiat did nothing to correct Queaos impression. In that
perfected. Art. 1934 of the Civil Code provides: situation, the rule is clear. One who clothes another with apparent authority
as his agent, and holds him out to the public as such, cannot be permitted to
An accepted promise to deliver something by way of commodatum or simple deny the authority of such person to act as his agent, to the prejudice of
loan is binding upon the parties, but the commodatum or simple loan itself innocent third parties dealing with such person in good faith, and in the
shall not be perfected until the delivery of the object of the contract. honest belief that he is what he appears to be.[27] The Court of Appeals is
correct in invoking the said rule on agency by estoppel.
A loan contract is a real contract, not consensual, and, as such, is perfected
only upon the delivery of the object of the contract. [21] In this case, the More fundamentally, whatever was the true relationship between Naguiat
objects of the contract are the loan proceeds which Queao would enjoy only and Ruebenfeldt is irrelevant in the face of the fact that the checks issued or
upon the encashment of the checks signed or indorsed by Naguiat. If indeed indorsed to Queao were never encashed or deposited to her account of
the checks were encashed or deposited, Naguiat would have certainly Naguiat.
presented the corresponding documentary evidence, such as the returned
checks and the pertinent bank records. Since Naguiat presented no such All told, we find no compelling reason to disturb the finding of the courts a
quo that the lender did not remit and the borrower did not receive the

I. Loans in general
proceeds of the loan. That being the case, it follows that the mortgage which
is supposed to secure the loan is null and void. The consideration of the
mortgage contract is the same as that of the principal contract from which it
receives life, and without which it cannot exist as an independent
contract.[28] A mortgage contract being a mere accessory contract, its validity
would depend on the validity of the loan secured by it. [29]

WHEREFORE, the petition is denied and the assailed decision is

affirmed. Costs against petitioner.


I. Loans in general
6.) FIRST DIVISION According to petitioner, respondent failed to pay the principal amounts of the
loans (US$100,000 and P500,000) when they fell due. Thus, on February 22,
CAROLYN M. GARCIA, G.R. No. 154878 1996, petitioner filed a complaint for sum of money and damages in the RTC
Petitioner, of Makati City, Branch 58 against respondent, seeking to collect the sums of
Present: US$100,000, with interest thereon at 3% a month from October 26, 1995
and P500,000, with interest thereon at 4% a month from November 5, 1995,
PUNO, C.J., Chairperson, plus attorneys fees and actual damages.[12]
- v e r s u s - CORONA, Petitioner alleged that on February 24, 1995, respondent borrowed from her
AZCUNA and the amount of US$100,000 with interest thereon at the rate of 3% per month,
GARCIA, JJ. which loan would mature on October 26, 1995.[13] The amount of this loan
was covered by the first check. On June 29, 1995, respondent again borrowed
RICA MARIE S. THIO, the amount of P500,000 at an agreed monthly interest of 4%, the maturity
Respondent. Promulgated: date of which was on November 5, 1995.[14] The amount of this loan was
covered by the second check. For both loans, no promissory note was
March 16, 2007 executed since petitioner and respondent were close friends at the
time.[15] Respondent paid the stipulated monthly interest for both loans but on
DECISION their maturity dates, she failed to pay the principal amounts despite repeated
Respondent denied that she contracted the two loans with petitioner and
countered that it was Marilou Santiago to whom petitioner lent the money.
She claimed she was merely asked by petitioner to give the crossed checks
Assailed in this petition for review on certiorari[1] are the June 19, to Santiago.[17] She issued the checks for P76,000 and P20,000 not as
2002 decision[2] and August 20, 2002 resolution[3] of the Court of Appeals payment of interest but to accommodate petitioners request that respondent
(CA) in CA-G.R. CV No. 56577 which set aside the February 28, use her own checks instead of Santiagos.[18]
1997 decision of the Regional Trial Court (RTC) of Makati City, Branch 58.

Sometime in February 1995, respondent Rica Marie S. Thio received from

petitioner Carolyn M. Garcia a crossed check[4] dated February 24, 1995 in In a decision dated February 28, 1997, the RTC ruled in favor of
the amount of US$100,000 payable to the order of a certain Marilou petitioner.[19] It found that respondent borrowed from petitioner the amounts
Santiago.[5] Thereafter, petitioner received from respondent every month of US$100,000 with monthly interest of 3% and P500,000 at a monthly
(specifically, on March 24, April 26, June 26 and July 26, all in 1995) the interest of 4%:[20]
amount of US$3,000[6] and P76,500[7] on July 26,[8] August 26, September 26
and October 26, 1995.
WHEREFORE, finding preponderance of evidence to sustain the instant
complaint, judgment is hereby rendered in favor of [petitioner], sentencing
In June 1995, respondent received from petitioner another crossed [respondent] to pay the former the amount of:
check[9] dated June 29, 1995 in the amount of P500,000, also payable to the
order of Marilou Santiago.[10] Consequently, petitioner received from 1. [US$100,000.00] or its peso equivalent with
respondent the amount of P20,000 every month on August 5, September 5, interest thereon at 3% per month from October 26, 1995 until fully paid;
October 5 and November 5, 1995.[11]

I. Loans in general
not the person who could take the checks as a holder, i.e., as a payee or
2. P500,000.00 with interest thereon at 4% per indorsee thereof, with intent to transfer title thereto. Neither could she be
month from November 5, 1995 until fully paid. deemed as an agent of Marilou Santiago with respect to the checks because
she was merely facilitating the transactions between the former and
3. P100,000.00 as and for attorneys fees; and [petitioner].
4. P50,000.00 as and for actual damages.

For lack of merit, [respondents] counterclaim is perforce dismissed.

With the foregoing circumstances, it may be fairly inferred that there were
With costs against [respondent]. really no contracts of loan that existed between the parties. x x x (emphasis
IT IS SO ORDERED.[21] Hence this petition.[23]

As a rule, only questions of law may be raised in a petition for review on

On appeal, the CA reversed the decision of the RTC and ruled that there was certiorari under Rule 45 of the Rules of Court. However, this case falls under
no contract of loan between the parties: one of the exceptions, i.e., when the factual findings of the CA (which held
that there were no contracts of loan between petitioner and respondent) and
the RTC (which held that there were contracts of loan) are contradictory.[24]
A perusal of the record of the case shows that [petitioner] failed to
substantiate her claim that [respondent] indeed borrowed money from The petition is impressed with merit.
her. There is nothing in the record that shows that [respondent] received
money from [petitioner]. What is evident is the fact that [respondent] A loan is a real contract, not consensual, and as such is perfected only upon
received a MetroBank [crossed] check dated February 24, 1995 in the sum of the delivery of the object of the contract.[25] This is evident in Art. 1934 of
US$100,000.00, payable to the order of Marilou Santiago and a CityTrust the Civil Code which provides:
[crossed] check dated June 29, 1995 in the amount of P500,000.00, again
payable to the order of Marilou Santiago, both of which were issued by An accepted promise to deliver something by way of commodatum or simple
[petitioner]. The checks received by [respondent], being crossed, may not loan is binding upon the parties, but the commodatum or simple loan itself
be encashed but only deposited in the bank by the payee thereof, that is, shall not be perfected until the delivery of the object of the
by Marilou Santiago herself. contract. (Emphasis supplied)

Upon delivery of the object of the contract of loan (in this case the money
received by the debtor when the checks were encashed) the debtor acquires
It must be noted that crossing a check has the following effects: (a) the check ownership of such money or loan proceeds and is bound to pay the creditor
may not be encashed but only deposited in the bank; (b) the check may be an equal amount.[26]
negotiated only onceto one who has an account with the bank; (c) and the act
of crossing the check serves as warning to the holder that the check has been It is undisputed that the checks were delivered to respondent. However, these
issued for a definite purpose so that he must inquire if he has received the checks were crossed and payable not to the order of respondent but to the
check pursuant to that purpose, otherwise, he is not a holder in due course. order of a certain Marilou Santiago.Thus the main question to be answered
is: who borrowed money from petitioner respondent or Santiago?

Consequently, the receipt of the [crossed] check by [respondent] is not the

issuance and delivery to the payee in contemplation of law since the latter is

I. Loans in general
Petitioner insists that it was upon respondents instruction that both checks would replace the checks with cash.[36] Her explanation is simply
were made payable to Santiago.[27] She maintains that it was also upon incredible. It is difficult to believe that respondent would put herself in a
respondents instruction that both checks were delivered to her (respondent) position where she would be compelled to pay interest, from her own funds,
so that she could, in turn, deliver the same to Santiago.[28] Furthermore, she for loans she allegedly did not contract. We declared in one case that:
argues that once respondent received the checks, the latter had possession
and control of them such that she had the choice to either forward them to In the assessment of the testimonies of witnesses, this Court is guided by the
Santiago (who was already her debtor), to retain them or to return them to rule that for evidence to be believed, it must not only proceed from the mouth
petitioner.[29] of a credible witness, but must be credible in itself such as the common
experience of mankind can approve as probable under the circumstances. We
have no test of the truth of human testimony except its conformity to our
knowledge, observation, and experience. Whatever is repugnant to these
We agree with petitioner. Delivery is the act by which the res or substance belongs to the miraculous, and is outside of juridical cognizance.[37]
thereof is placed within the actual or constructive possession or control of
another.[30] Although respondent did not physically receive the proceeds of Fourth, in the petition for insolvency sworn to and filed by Santiago, it was
the checks, these instruments were placed in her control and possession respondent, not petitioner, who was listed as one of her (Santiagos)
under an arrangement whereby she actually re-lent the amounts to Santiago. creditors.[38]

Several factors support this conclusion. Last, respondent inexplicably never presented Santiago as a witness to
corroborate her story.[39] The presumption is that evidence willfully
First, respondent admitted that petitioner did not personally suppressed would be adverse if produced.[40]Respondent was not able to
know Santiago.[31] It was highly improbable that petitioner would grant two overturn this presumption.
loans to a complete stranger without requiring as much as promissory notes
or any written acknowledgment of the debt considering that the amounts We hold that the CA committed reversible error when it ruled that
involved were quite big. Respondent, on the other hand, already had respondent did not borrow the amounts of US$100,000 and P500,000 from
transactions with Santiago at that time.[32] petitioner. We instead agree with the ruling of the RTC making respondent
liable for the principal amounts of the loans.
Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose
name appeared in both parties list of witnesses) testified that respondents We do not, however, agree that respondent is liable for the 3% and 4%
plan was for petitioner to lend her money at a monthly interest rate of 3%, monthly interest for the US$100,000 and P500,000 loans respectively. There
after which respondent would lend the same amount to Santiago at a higher was no written proof of the interest payable except for the verbal agreement
rate of 5% and realize a profit of 2%.[33] This explained why respondent that the loans would earn 3% and 4% interest per month. Article 1956 of the
instructed petitioner to make the checks payable to Santiago. Respondent has Civil Code provides that [n]o interest shall be due unless it has been
not shown any reason why Ruiz testimony should not be believed. expressly stipulated in writing.

Third, for the US$100,000 loan, respondent admitted issuing her own checks Be that as it may, while there can be no stipulated interest, there can be legal
in the amount of P76,000 each (peso equivalent of US$3,000) for eight interest pursuant to Article 2209 of the Civil Code. It is well-settled that:
months to cover the monthly interest. For the P500,000 loan, she also issued
her own checks in the amount of P20,000 each for four months.[34] According When the obligation is breached, and it consists in the payment of a sum of
to respondent, she merely accommodated petitioners request for her to issue money, i.e., a loan or forbearance of money, the interest due should be that
her own checks to cover the interest payments since petitioner was not which may have been stipulated in writing. Furthermore, the interest due
personally acquainted with Santiago.[35] She claimed, however, that Santiago shall itself earn legal interest from the time it is judicially demanded. In the

I. Loans in general
absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code. [41]

Hence, respondent is liable for the payment of legal interest per annum to be
computed from November 21, 1995, the date when she received petitioners
demand letter.[42] From the finality of the decision until it is fully paid, the
amount due shall earn interest at 12% per annum, the interim period being
deemed equivalent to a forbearance of credit.[43]

The award of actual damages in the amount of P50,000 and P100,000

attorneys fees is deleted since the RTC decision did not explain the factual
bases for these damages.

WHEREFORE, the petition is hereby GRANTED and the June 19, 2002
decision and August 20, 2002 resolution of the Court of Appeals in CA-G.R.
CV No. 56577 are REVERSED andSET ASIDE. The February 28, 1997
decision of the Regional Trial Court in Civil Case No. 96-266
is AFFIRMED with the MODIFICATION that respondent is directed to
pay petitioner the amounts of US$100,000 and P500,000 at
12% per annum interest from November 21, 1995 until the finality of the
decision. The total amount due as of the date of finality will earn interest of
12% per annum until fully paid. The award of actual damages and attorneys
fees is deleted.


I. Loans in general
7.) Republic of the Philippines Ten minutes later, the store clerk informed Pantaleon that his AmexCard had
SUPREME COURT not yet been approved. His son, who had already boarded the tour bus, soon
Manila returned to Coster and informed the other members of the Pantaleon family
that the entire tour group was waiting for them. As it was already 9:40 a.m.,
SECOND DIVISION and he was already worried about further inconveniencing the tour group,
Pantaleon asked the store clerk to cancel the sale. The store manager though
G.R. No. 174269 May 8, 2009 asked plaintiff to wait a few more minutes. After 15 minutes, the store
manager informed Pantaleon that respondent had demanded bank references.
POLO S. PANTALEON, Petitioner,
Pantaleon supplied the names of his depositary banks, then instructed his
daughter to return to the bus and apologize to the tour group for the delay.
At around 10:00 a.m, or around 45 minutes after Pantaleon had presented his
AmexCard, and 30 minutes after the tour group was supposed to have left the
TINGA, J.: store, Coster decided to release the items even without respondents approval
of the purchase. The spouses Pantaleon returned to the bus. It is alleged that
The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna their offers of apology were met by their tourmates with stony silence. 4 The
Regina and son Adrian Roberto, joined an escorted tour of Western Europe tour groups visible irritation was aggravated when the tour guide announced
organized by Trafalgar Tours of Europe, Ltd., in October of 1991. The tour that the city tour of Amsterdam was to be canceled due to lack of remaining
group arrived in Amsterdam in the afternoon of 25 October 1991, the second time, as they had to catch a 3:00 p.m. ferry at Calais, Belgium to
to the last day of the tour. As the group had arrived late in the city, they London.5 Mrs. Pantaleon ended up weeping, while her husband had to take a
failed to engage in any sight-seeing. Instead, it was agreed upon that they tranquilizer to calm his nerves.
would start early the next day to see the entire city before ending the tour.
It later emerged that Pantaleons purchase was first transmitted for approval
The following day, the last day of the tour, the group arrived at the Coster to respondents Amsterdam office at 9:20 a.m., Amsterdam time, then
Diamond House in Amsterdam around 10 minutes before 9:00 a.m. The referred to respondents Manila office at 9:33 a.m, then finally approved at
group had agreed that the visit to Coster should end by 9:30 a.m. to allow 10:19 a.m., Amsterdam time.6 The Approval Code was transmitted to
enough time to take in a guided city tour of Amsterdam. The group was respondents Amsterdam office at 10:38 a.m., several minutes after petitioner
ushered into Coster shortly before 9:00 a.m., and listened to a lecture on the had already left Coster, and 78 minutes from the time the purchases were
art of diamond polishing that lasted for around ten minutes. 1 Afterwards, the electronically transmitted by the jewelry store to respondents Amsterdam
group was led to the stores showroom to allow them to select items for office.
purchase. Mrs. Pantaleon had already planned to purchase even before the
tour began a 2.5 karat diamond brilliant cut, and she found a diamond close After the star-crossed tour had ended, the Pantaleon family proceeded to the
enough in approximation that she decided to buy.2 Mrs. Pantaleon also United States before returning to Manila on 12 November 1992. While in the
selected for purchase a pendant and a chain,3 all of which totaled U.S. United States, Pantaleon continued to use his AmEx card, several times
$13,826.00. without hassle or delay, but with two other incidents similar to the
Amsterdam brouhaha. On 30 October 1991, Pantaleon purchased golf
To pay for these purchases, Pantaleon presented his American Express credit equipment amounting to US $1,475.00 using his AmEx card, but he
card together with his passport to the Coster sales clerk. This occurred at cancelled his credit card purchase and borrowed money instead from a
around 9:15 a.m., or 15 minutes before the tour group was slated to depart friend, after more than 30 minutes had transpired without the purchase
from the store. The sales clerk took the cards imprint, and asked Pantaleon having been approved. On 3 November 1991, Pantaleon used the card to
to sign the charge slip. The charge purchase was then referred electronically purchase childrens shoes worth $87.00 at a store in Boston, and it took 20
to respondents Amsterdam office at 9:20 a.m. minutes before this transaction was approved by respondent.

I. Loans in general
On 4 March 1992, after coming back to Manila, Pantaleon sent a effect the approval" of the purchases, which were "not in accordance with the
letter7 through counsel to the respondent, demanding an apology for the charge pattern" petitioner had established for himself, as exemplified by the
"inconvenience, humiliation and embarrassment he and his family thereby fact that at Coster, he was "making his very first single charge purchase of
suffered" for respondents refusal to provide credit authorization for the US$13,826," and "the record of [petitioner]s past spending with
aforementioned purchases.8 In response, respondent sent a letter dated 24 [respondent] at the time does not favorably support his ability to pay for such
March 1992,9 stating among others that the delay in authorizing the purchase purchase."17
from Coster was attributable to the circumstance that the charged purchase of
US $13,826.00 "was out of the usual charge purchase pattern On the premise that there was an obligation on the part of respondent "to
established."10 Since respondent refused to accede to Pantaleons demand for approve or disapprove with dispatch the charge purchase," petitioner argues
an apology, the aggrieved cardholder instituted an action for damages with that the failure to timely approve or disapprove the purchase constituted mora
the Regional Trial Court (RTC) of Makati City, Branch 145.11 Pantaleon solvendi on the part of respondent in the performance of its obligation. For
prayed that he be awarded 2,000,000.00, as moral damages; 500,000.00, its part, respondent characterizes the depiction by petitioner of its obligation
as exemplary damages; 100,000.00, as attorneys fees; and 50,000.00 as to him as "to approve purchases instantaneously or in a matter of seconds."
litigation expenses.12
Petitioner correctly cites that under mora solvendi, the three requisites for a
On 5 August 1996, the Makati City RTC rendered a decision in favor of finding of default are that the obligation is demandable and liquidated; the
Pantaleon, awarding him 500,000.00 as moral damages, 300,000.00 as debtor delays performance; and the creditor judicially or extrajudicially
exemplary damages, 100,000.00 as attorneys fees, and 85,233.01 as requires the debtors performance.18 Petitioner asserts that the Court of
expenses of litigation. Respondent filed a Notice of Appeal, while Pantaleon Appeals had wrongly applied the principle of mora accipiendi, which relates
moved for partial reconsideration, praying that the trial court award the to delay on the part of the obligee in accepting the performance of the
increased amount of moral and exemplary damages he had prayed for.14 The obligation by the obligor. The requisites of mora accipiendi are: an offer of
RTC denied Pantaleons motion for partial reconsideration, and thereafter performance by the debtor who has the required capacity; the offer must be
gave due course to respondents Notice of Appeal. 15 to comply with the prestation as it should be performed; and the creditor
refuses the performance without just cause.19 The error of the appellate court,
On 18 August 2006, the Court of Appeals rendered a decision16 reversing the argues petitioner, is in relying on the invocation by respondent of "just
award of damages in favor of Pantaleon, holding that respondent had not cause" for the delay, since while just cause is determinative of mora
breached its obligations to petitioner. Hence, this petition. accipiendi, it is not so with the case of mora solvendi.

The key question is whether respondent, in connection with the We can see the possible source of confusion as to which type of mora to
aforementioned transactions, had committed a breach of its obligations to appreciate. Generally, the relationship between a credit card provider and its
Pantaleon. In addition, Pantaleon submits that even assuming that respondent card holders is that of creditor-debtor,20 with the card company as the
had not been in breach of its obligations, it still remained liable for damages creditor extending loans and credit to the card holder, who as debtor is
under Article 21 of the Civil Code. obliged to repay the creditor. This relationship already takes exception to the
general rule that as between a bank and its depositors, the bank is deemed as
The RTC had concluded, based on the testimonial representations of the debtor while the depositor is considered as the creditor.21 Petitioner is
Pantaleon and respondents credit authorizer, Edgardo Jaurigue, that the asking us, not baselessly, to again shift perspectives and again see the credit
normal approval time for purchases was "a matter of seconds." Based on that card company as the debtor/obligor, insofar as it has the obligation to the
standard, respondent had been in clear delay with respect to the three subject customer as creditor/obligee to act promptly on its purchases on credit.
transactions. As it appears, the Court of Appeals conceded that there had
been delay on the part of respondent in approving the purchases. However, it Ultimately, petitioners perspective appears more sensible than if we were to
made two critical conclusions in favor of respondent. First, the appellate still regard respondent as the creditor in the context of this cause of action. If
court ruled that the delay was not attended by bad faith, malice, or gross there was delay on the part of respondent in its normal role as creditor to the
negligence. Second, it ruled that respondent "had exercised diligent efforts to cardholder, such delay would not have been in the acceptance of the

I. Loans in general
performance of the debtors obligation (i.e., the repayment of the debt), but it relayed its approval to Coster at 10:38 a.m., Amsterdam time, or 2:38,
would be delay in the extension of the credit in the first place. Such delay Phoenix time, or a total time lapse of one hour and [18] minutes. And even
would not fall under mora accipiendi, which contemplates that the obligation then, the approval was conditional as it directed in computerese [sic]
of the debtor, such as the actual purchases on credit, has already been "Positive Identification of Card holder necessary further charges require bank
constituted. Herein, the establishment of the debt itself (purchases on credit information due to high exposure. By Jack Manila."
of the jewelry) had not yet been perfected, as it remained pending the
approval or consent of the respondent credit card company. The delay in the processing is apparent to be undue as shown from the frantic
successive queries of Amexco Amsterdam which reads: "US$13,826.
Still, in order for us to appreciate that respondent was in mora solvendi, we Cardmember buying jewels. ID seen. Advise how long will this take?" They
will have to first recognize that there was indeed an obligation on the part of were sent at 01:33, 01:37, 01:40, 01:45, 01:52 and 02:08, all times Phoenix.
respondent to act on petitioners purchases with "timely dispatch," or for the Manila Amexco could be unaware of the need for speed in resolving the
purposes of this case, within a period significantly less than the one hour it charge purchase referred to it, yet it sat on its hand, unconcerned.
apparently took before the purchase at Coster was finally approved.
The findings of the trial court, to our mind, amply established that the
tardiness on the part of respondent in acting on petitioners purchase at To repeat, the Credit Authorization System (CAS) record on the Amsterdam
Coster did constitute culpable delay on its part in complying with its transaction shows how Amexco Netherlands viewed the delay as unusually
obligation to act promptly on its customers purchase request, whether such frustrating. In sequence expressed in Phoenix time from 01:20 when the
action be favorable or unfavorable. We quote the trial court, thus: charge purchased was referred for authorization, defendants own record
As to the first issue, both parties have testified that normal approval time for
purchases was a matter of seconds. 01:22 the authorization is referred to Manila Amexco

Plaintiff testified that his personal experience with the use of the card was 01:32 Netherlands gives information that the identification of the
that except for the three charge purchases subject of this case, approvals of cardmember has been presented and he is buying jewelries worth US
his charge purchases were always obtained in a matter of seconds. $13,826.

Defendants credit authorizer Edgardo Jaurique likewise testified: 01:33 Netherlands asks "How long will this take?"

Q. You also testified that on normal occasions, the normal approval time 02:08 Netherlands is still asking "How long will this take?"
for charges would be 3 to 4 seconds?
The Court is convinced that defendants delay constitute[s] breach of its
A. Yes, Maam. contractual obligation to act on his use of the card abroad "with special
handling."22 (Citations omitted)
Both parties likewise presented evidence that the processing and approval of
plaintiffs charge purchase at the Coster Diamond House was way beyond xxx
the normal approval time of a "matter of seconds".
Notwithstanding the popular notion that credit card purchases are approved
Plaintiff testified that he presented his AmexCard to the sales clerk at Coster, "within seconds," there really is no strict, legally determinative point of
at 9:15 a.m. and by the time he had to leave the store at 10:05 a.m., no demarcation on how long must it take for a credit card company to approve
approval had yet been received. In fact, the Credit Authorization System or disapprove a customers purchase, much less one specifically contracted
(CAS) record of defendant at Phoenix Amex shows that defendants upon by the parties. Yet this is one of those instances when "youd know it
Amsterdam office received the request to approve plaintiffs charge purchase when youd see it," and one hour appears to be an awfully long, patently
at 9:20 a.m., Amsterdam time or 01:20, Phoenix time, and that the defendant unreasonable length of time to approve or disapprove a credit card purchase.

I. Loans in general
It is long enough time for the customer to walk to a bank a kilometer away, accepted quickly. Such right was not accorded to plaintiff in the instances
withdraw money over the counter, and return to the store. complained off for reasons known only to defendant at that time. This, to the
Courts mind, amounts to a wanton and deliberate refusal to comply with its
Notably, petitioner frames the obligation of respondent as "to approve or contractual obligations, or at least abuse of its rights, under the contract. 24
disapprove" the purchase "in timely dispatch," and not "to approve the
purchase instantaneously or within seconds." Certainly, had respondent xxx
disapproved petitioners purchase "within seconds" or within a timely
manner, this particular action would have never seen the light of day. The delay committed by defendant was clearly attended by unjustified
Petitioner and his family would have returned to the bus without delay neglect and bad faith, since it alleges to have consumed more than one hour
internally humiliated perhaps over the rejection of his card yet spared the to simply go over plaintiffs past credit history with defendant, his payment
shame of being held accountable by newly-made friends for making them record and his credit and bank references, when all such data are already
miss the chance to tour the city of Amsterdam. stored and readily available from its computer. This Court also takes note of
the fact that there is nothing in plaintiffs billing history that would warrant
We do not wish do dispute that respondent has the right, if not the obligation, the imprudent suspension of action by defendant in processing the purchase.
to verify whether the credit it is extending upon on a particular purchase was Defendants witness Jaurique admits:
indeed contracted by the cardholder, and that the cardholder is within his
means to make such transaction. The culpable failure of respondent herein is Q. But did you discover that he did not have any outstanding account?
not the failure to timely approve petitioners purchase, but the more
elemental failure to timely act on the same, whether favorably or A. Nothing in arrears at that time.
unfavorably. Even assuming that respondents credit authorizers did not have Q. You were well aware of this fact on this very date?
sufficient basis on hand to make a judgment, we see no reason why
respondent could not have promptly informed petitioner the reason for the A. Yes, sir.
delay, and duly advised him that resolving the same could take some time. In
that way, petitioner would have had informed basis on whether or not to Mr. Jaurique further testified that there were no "delinquencies" in plaintiffs
pursue the transaction at Coster, given the attending circumstances. Instead, account.25
petitioner was left uncomfortably dangling in the chilly autumn winds in a
foreign land and soon forced to confront the wrath of foreign folk. It should be emphasized that the reason why petitioner is entitled to damages
is not simply because respondent incurred delay, but because the delay, for
Moral damages avail in cases of breach of contract where the defendant acted which culpability lies under Article 1170, led to the particular injuries under
fraudulently or in bad faith, and the court should find that under the Article 2217 of the Civil Code for which moral damages are
circumstances, such damages are due. The findings of the trial court are remunerative.26 Moral damages do not avail to soothe the plaints of the
ample in establishing the bad faith and unjustified neglect of respondent, simply impatient, so this decision should not be cause for relief for those who
attributable in particular to the "dilly-dallying" of respondents Manila credit time the length of their credit card transactions with a stopwatch. The
authorizer, Edgardo Jaurique.23 Wrote the trial court: somewhat unusual attending circumstances to the purchase at Coster that
there was a deadline for the completion of that purchase by petitioner before
While it is true that the Cardmembership Agreement, which defendant any delay would redound to the injury of his several traveling companions
prepared, is silent as to the amount of time it should take defendant to grant gave rise to the moral shock, mental anguish, serious anxiety, wounded
authorization for a charge purchase, defendant acknowledged that the normal feelings and social humiliation sustained by the petitioner, as concluded by
time for approval should only be three to four seconds. Specially so with the RTC.27 Those circumstances are fairly unusual, and should not give rise
cards used abroad which requires "special handling", meaning with priority. to a general entitlement for damages under a more mundane set of facts.
Otherwise, the object of credit or charge cards would be lost; it would be so
inconvenient to use that buyers and consumers would be better off carrying We sustain the amount of moral damages awarded to petitioner by the RTC.
bundles of currency or travellers checks, which can be delivered and There is no hard-and-fast rule in determining what would be a fair and

I. Loans in general
reasonable amount of moral damages, since each case must be governed by
its own peculiar facts, however, it must be commensurate to the loss or injury
suffered.28 Petitioners original prayer for 5,000,000.00 for moral damages
is excessive under the circumstances, and the amount awarded by the trial
court of 500,000.00 in moral damages more seemly.1avvphi1

Likewise, we deem exemplary damages available under the circumstances,

and the amount of 300,000.00 appropriate. There is similarly no cause
though to disturb the determined award of 100,000.00 as attorneys fees,
and 85,233.01 as expenses of litigation.

WHEREFORE, the petition is GRANTED. The assailed Decision of the

Court of Appeals is REVERSED and SET ASIDE. The Decision of the
Regional Trial Court of Makati, Branch 145 in Civil Case No. 92-1665 is
hereby REINSTATED. Costs against respondent.


I. Loans in general
8.) FIRST DIVISION They would aver, in their complaint until this petition, that their default in
payment is attributable to PNB whose representatives and officers made
G.R. No. 194515, September 16, 2015 them believe that their Php5,800,000.00 loan application would be approved
and directed them to proceed with their expansion plans. To that end and
SPOUSES OSCAR AND GINA with the full knowledge of the PNB's officers and representatives, the
GIRONELLA, Petitioners, v. PHILIPPINE NATIONAL Spouses Gironella used the income generated by the hotel for the
BANK, Respondent. construction of the restaurant bar and purchase of the generator set while the
Php5,800,000.00 loan was pending and still being processed. In their
Complaint, the Spouses Gironella alleged:
[PNB's] officers and representatives, gave their assurance to the [Spouses
We have here a Petition for Review on Certiorari under Rule 45 of the Rules Gironella] that the said loan will be approved by [PNB] and even directed the
of Court assailing the Decision1 dated 27 August 2010 of the Court of [Spouses Gironella] to make use of the- funds being generated by Dagupan
Appeals (CA) in CA-G.R. CV No. 83870 which reversed and set aside the Village Hotel for the said purposes, which the [Spouses Gironella] did, but
Decision2 of the Regional Trial Court (RTC), Branch 44, Dagupan City in seriously affected the servicing of their first loan. [The Spouses Gironella]
Civil Case No. 2000-0099-D. The RTC granted the complaint of petitioners, then proposed a restructuring of their first loan and after a series of meetings,
the Spouses Oscar and Gina Gironella (Spouses Gironella), against offers and counter offers, the [Spouses Gironella] accepted the offer of
respondent Philippine National Bank (PNB) for: (1) the proper construction [PNB] to their proposed program (sic) to restructure the loan which for all
of events between the parties relative to the proposed Restructuring intents and purposes was already perfected.3
Agreement; (2) fraud, gross negligence, and/or at the very least, abuse of
right under Article 19, 20 and 21 of the Civil Code; and (3) corollary thereto, From the period of February 1993 to 2 October 1995, the Spouses Gironella
payment of actual and compensatory damages, moral damages, attorney's paid a total of Php4,219,000.00 on their first two loans of Php9,500,000.00.
In January and April 1998, the Spouses Gironella likewise paid PNB
fees and litigation expenses.
Php1,000,000.00 and Php1,650,000.00. They maintain that all these
First, the bare and undisputed facts. payments were made to effect the restructuring of their loans with PNB.

Meanwhile, in separate instances, on 29 May 1996 and 17 April 1998, while

In separate Credit Agreements respectively dated 11 November 1991 and 16
the parties were negotiating and discussing the restructuring of the Spouses
January 1992, the Spouses Gironella obtained two (2) loans from PNB in the
amounts of Php7,500,000.00 and Php2,000,000.00 for the construction of the Gironella's loans, PNB made a couple of attempts to foreclose the mortgaged
Dagupan Village Hotel and Sports Complex. The loans were co-terminus, property. It filed a Petition for the Extra-Judicial Foreclosure thereof and
subsequently, a Notice of Extra-Judicial Foreclosure Sale. However, the final
both payable on installments and secured by the same real estate mortgage
foreclosure of the mortgaged property was stalled because of the continuing
over a parcel of land covered by Transfer Certificate of Title (TCT) No.
56059 in favor of the creditor, PNB. negotiations between the parties for the restructuring of the loans.

By the year 2000, negotiations for the restructuring of the Spouses

In May 1992, seeking to expand their hotel operations, the Spouses Gironella
Gironella's loans was still ongoing and remained indefinite. On 25 January
again applied for another loan with PNB in the amount of Php5,800,000.00
for the construction of a restaurant bar and the purchase of a generator set. 2000, after several exchange of correspondence, PNB wrote the Spouses
Gironella and proposed, thus:
From these front events, the dealings between the parties turned into the May we now have your written final conformity with the proposed
present case. restructuring of your account by way of:
The Spouses Gironella began to default in paying their prior two (2) loans.

I. Loans in general
Capitalization of the P9,485,620.00, part of the accrued interest as of
December 14, 1999 for consolidation with the outstanding P9,500,000.00 Subsequently, the RTC granted the Complaint of the Spouses Gironella
unpaid principal to aggregate P14,380,000.00;ChanRoblesVirtualawlibrary ruling that there was a perfected and binding restructured credit agreement,
the terms contained in the 25 January 2000 and 7 February 2000 written
Restructuring of this P14,380,000.00 into a fully secured 10 year term loan exchanges of the parties:
payable quarterly under the following scheme;ChanRoblesVirtualawlibrary
WHEREFORE, judgment is rendered in favor of [petitioners] Oscar
- grace period on the payment of the principal only for Eight (8) quarters. Gironella and Gina F. Gironella and against [respondent] Philippine National
- amortization for the 1st to 8th quarters be based on accrued interest due. Bank, as follows:chanRoblesvirtualLawlibrary
- amortization from the 9th up to the 39th quarter to be based on a 15-year
payment scheme with balloon payment on the 40th quarter. 1. On the first and third causes of action, judgment is rendered ordering
[PNB] to pay [the Spouses Gironella], the
Restructuring of P8,120,000.00, the other part of the accrued interest as of following:chanRoblesvirtualLawlibrary
December 14, 2000, on clean basis to be payable quarterly for five (5) years
with amortization from 1st to 19th quarters based on a 15-year payment a) P5,000,000.00 and P100,000.00 a month as actual and compensatory
scheme and balloon payment on the 20th quarter. damages;ChanRoblesVirtualawlibrary

Interest, net of capitalization, to be paid from December 14. 1999 up to date b) P2,000,000.00 as moral damages;ChanRoblesVirtualawlibrary
of implementation,
c) P500,000.00 as and for Attorney's fees, plus P10,000.00 for every
This proposed restructuring is still subject for evaluation and approval conference or hearing as Appearance Fees; and
of higher management and therefore tentative in nature. 4 (Emphasis
Supplied) d) P250,000.00 as litigation expenses.

In a letter dated 7 February 2000, the Spouses Gironella gave a qualified 2. On the second cause of action, the [c]ourt declares the restructuring of the
acceptance of PNB's proposed restructuring, specifically referring to specific subject loan pursuant to the letter of [PNB] dated January 25, 2000, Exhibit
terms in the 25 January 2000 proposal of PNB. U for [the Spouses Gironella], and Exhibit 2 for [PNB], and [the Spouses
Gironella's] letter dated February 7, 2000, Exhibit V for the [Spouses
However, in its 8 March 2000 letter, PNB rejected finally the counter offer of Gironella], and Exhibit 3 for [PNB], as perfected and binding upon the
the Spouses Gironella for the restructuring of their loan. parties.

On 25 July 2000, PNB re-filed its Petition for Extra-Judicial Foreclosure of [PNB] is ordered to pay the costs of suit.5
the mortgaged property.
On Motion for Partial Reconsideration and/or Clarification filed by the
Forthwith, the Spouses Gironella filed the Complaint before the RTC with Spouses Gironella, the RTC clarified that the payment of Php100,000.00 a
prayer for issuance of a Temporary Restraining Order (TRO) and preliminary month as actual and compensatory damages is reckoned from the filing of the
injunction to enjoin enforcement of the original credit agreements, and Amended Complaint on 25 September 2002. In addition, the RTC declared
security therefor, between the parties. Effectively, the Spouses Gironella permanent the writ of preliminary injunction it had previously issued,
sought to enjoin the foreclosure of the mortgaged property. effectively enjoining the enforcement of the original credit agreements and
the accessory contract, the real estate mortgage over the land covered by
On 4 and 28 September 2000, the RTC issued the prayed for TRO and Writ TCT No. 56059.
of Preliminary injunction.

I. Loans in general
Posthaste, PNB appealed to the CA questioning the trial court's ruling. PNB Dear Mr. Besa:chanRoblesvirtualLawlibrary
argued that the exchange of correspondence between the parties, specifically
the 25 January 2000 and 7 February 2000 letters, did not constitute a I was very much elated over the information relayed to me by my father, thru
perfected and binding restructuring agreement since there was no express our Resident Manager, William Crossly, regarding the profound concern and
acceptance by either party of the other's counter-offer. PNB averred that it, in interest shown by your Vice-President for Northern Luzon Branches Pedrito
fact, finally rejected the restructuring proposal of the Spouses Gironella on 8 D. Torres towards the Dagupan Village Hotel and Sports Center. I
March 2000. understand that VP Torres was also convinced that the construction of the
additional function hall and night club would, indeed, upgrade the revenue-
The appellate court granted the appeal of PNB and reversed the ruling of the earning capacity of the hotel, thus reportedly giving his assent for the
trial court. The CA ruled that the Spouses Gironella, apart from their bare immediate commencement of the project.
allegations, failed to present evidence required in civil cases, i.e. by a
preponderance of evidence, to establish their claim that PNB fraudulently In this connection, therefore, may I reiterate our appeal manifested in our
and in gross negligence and/or, in abuse of right, gave them false hopes and previous letters for the approval of our additional loan application with which
assurances that their third loan would be approved in violation of Articles 19, to underwrite the above project which was started almost two months ago,
20 and 21 of the Civil Code thereby entitling them to damages. The appellate and the purchase of a 125 ... generating set.
court ruled, thus:
In the above letter, [petitioner] Gina Gironella appears to be mindful that a
In civil cases, he who alleges a fact has the burden of proving it by a formal approval is necessary for their application to be considered as finally
preponderance of evidence. Aside from the surmises of [the Spouses approved. Thus, when the [Spouses Gironella] undertook to initiate the
Gironella] that they were given false hope and assurances by [PNB's] construction of the disco-restaurant and the purchase of the generator set
officers, the [Spouses Gironella] in this case failed to show proof even without the formal approval of their additional loan, the [Spouses
preponderant enough to sway this [c]ourt in their favor. Gironella] did it at their own risk.6

As compared to the other transactions and negotiation entered into between On the finding of the trial court that the correspondence between the parties
the parties herein which were very much documented, the [Spouses embodied in the 25 January 2000 and 7 February 2000 letters of PNB and the
Gironella] failed to present any documentary evidence relevant to their Spouses Gironella, respectively, constituted the restructuring agreement, the
claims of fraud, gross negligence, and abuse of right against the [PNB's] appellate court found that there was no final agreement reached by the parties
officers. The records of the instant case are wanting of any proof that would where the offer was certain and acceptance thereof by the other party was
substantiate the [Spouses Gironella's] claim that they were assured by absolute. The appellate court held that, in this case, a qualified acceptance
[PNB's] officers that the additional loan application will be approved and that equated to a counter-offer and, at that point, there was no absolute and
it was agreed upon that the income of the hotel will be used for the unqualified acceptance which is identical in all respects with that of the offer
construction of the disco-restaurant and the purchase of the generator set for so as to produce consent or meeting of the minds.
the meantime.
Hence, this appeal by certiorari of the Spouses Gironella insisting on the
It must also be noted that [the Spouses Gironella] contracted two previous correctness of the trial court's ruling.
loans from [PNB] even before the additional loan subject of this case was
applied for. Thus, not being their first time to enter into a loan with a bank, We deny the petition and affirm the appellate court's ruling.
the [Spouses Gironella] are already very much aware of the process being
observed in obtaining a loan from such kind of institution. Gina Gironella The Spouses Gironella claim fraud, gross negligence and/or, at the very least,
even wrote in her 7 August 1992 letter to Mr. Alfredo S. Besa, Manager of abuse of right in violation of Articles 19, 20 and 21 of the Civil Code when
the PNB Dagupan Branch, that: PNB, essentially, twice did not approve their loan applications: (1) the
additional loan of Php5,800,000.00 for their businesses' expansion plans, and

I. Loans in general
(2) restructuring of their original credit agreements, despite purported First. As plaintiffs, the Spouses Gironella had the duty, the burden of proof,
assurances and representations of approval by PNB's officers and to present evidence, required by law, on the facts in issue necessary to
representatives. The Spouses Gironella maintain that these actuations of PNB establish their claim.8 The trial court did not even name the bank officers and
through its officers and representatives constituted fraud, gross negligence representatives who gave "false hopes and assurances" to the Spouses
and/or abuse of right in its dealings thus entitling the Spouses Gironella to Gironella. The trial court could have easily specified the representations and
damages, actual and compensatory, moral, attorney's fees and litigation statements of the bank officers and representatives which the Spouses
expenses. Gironella heavily relied upon. The Spouses Gironella's lack of evidence is
further highlighted by the trial court's non-sequitur statement that "[i]f it
Incredibly, the RTC adopted in full the stance and allegations of the Spouses were not for [PNB's] continuous assurances that the loan will be approved,
Gironella, without a shred of evidence or reference thereto in the the [Spouses Gironella] would not have participated in the negotiations with
ratiocination of its ruling: PNB officers and representatives, thus dispensing with the preparation and
submission of various documents, financial reports and other demands."9
It should be noted that [PNB's] act of continuously giving positive assurances
to the [Spouses Gironella] and giving them false hopes that the additional Second. The foregoing statement fails to take into consideration the three (3)
loan will be approved and eventually informing them later that the same was distinct stages of a contract: (1) preparation or negotiation, (2) perfection,
disapproved by the higher management is a clear indication of fraud and and finally, (3) consummation.10 At that point where the Spouses Gironella
gross negligence. If it were not for [PNB's] continuous assurances that the were applying for the additional loan of Php5,800,000.00, that involved the
loan will be approved, the [Spouses Gironella] would not have participated in negotiation stage for a contract separate from the first two credit agreements
the negotiations with PNB officers and representatives, thus dispensing with which were consolidated into one, secured by the same real estate mortgage
the preparation and submission of various documents, financial reports and over TCT No. 56059, both payable on installment and with the same term.
other demands. The [c]ourt agrees with the stand of the [Spouses Gironella] Necessarily, the Spouses Gironella as debtors applying for an. additional
that if it were for [PNB's] directive to direct the use of the funds generated by loan, ought to participate in the negotiations thereof and await PNB's
the hotel to construct [the] disco-restaurant purchase of the generator set assessment and processing of their additional loan application.
(sic), the servicing and/or payment of the original loan should not have been
affected. The records would show that [PNB] misled the [Spouses Gironella] Discussion on the succeeding stages of a contract shall be done anon in
into believing that the additional loan of 5.8 Million Pesos would be relation to the alleged restructuring agreement.
approved. It should be stated in this connection that the payments for the first
loan Php9,500,000.00 would have come from the funds generated by the Third. We find difficulty in accepting the Spouses Gironella's insistence that
hotel. There is no doubt that the [Spouses Gironella] applied for an additional PNB's officers and representatives repeatedly assured them that their
loan of P5,800,000.00 for the purpose of constructing the disco-restaurant additional loan will be approved, apparently, without qualification. In
and purchase of generator set. The hotel fund was used for the above-cited approving loans, credit accommodations and guarantees, PNB, as a bank,
purpose and that was the reason instead of using the same to pay [the must still comply with banking laws and conduct business in a safe and
Spouses Gironella's] obligation relative to the Php9,500,000.00 loan. [The sound manner. Ultimately, PNB to comply with the General Banking
Spouses Gironella's] acted in good faith when they used the money to Act11 as amended, the old statute and precursor to the present General
construct the disco-restaurant and purchase the generator set because of the Banking Law,12 must assess compliance by the Spouses Gironella with
false assurances of [PNB] that the amount of Php5,800,000.00 loan would be specific legal banking requirements such as the Single Borrower's
approved.7 Limit.13 Clearly, approval of the Spouses Gironella's additional loan is not
contingent solely on the purported representations of PNB's officers as
The appellate court correctly did not give imprimatur to the foregoing ruling claimed by the former.
of the trial court given that nowhere therein does the trial court refer to
evidence to support its conclusions. Fourth. From these very same bare allegations of the Spouses Gironella, the
trial court, in upholding their stance, considered the assurances given by

I. Loans in general
PNB's officers that the additional loan will be approved as the evidence itself We cannot subscribe to the contention of the Spouses Gironella, albeit
of PNB's supposed commission of fraud. In short, the Spouses Gironella upheld by the trial court.
proffer as evidence of fraud their own bare allegations which regrettably, the
trial court echoed. A contract is perfected by mere consent.16 In turn, consent is manifested by
the meeting of the offer and the acceptance upon the thing and the cause
We cannot overemphasize that the burden of proof is upon the party who which are to constitute the contract.17 The offer must be certain and the
alleges bad faith or fraud.14 In this case, the Spouses Gironella's bare acceptance seasonable and absolute.18 If qualified, the acceptance would
allegations that PNB's officers assured them that their additional loan will be merely constitute a counter-offer19 as what occurred in this case.
approved are mere abstractions of fraud without specifics pointing to the
actual commission of fraud. To reach that moment of perfection, the parties must agree on the same thing
in the same sense, so that their minds meet as to all the terms. 20 They must
We thus agree with the disquisition of the appellate court thereon: have a distinct intention common to both and without doubt or difference;
until all understand alike, there can be no assent, and therefore no contract.
In civil cases, he who alleges a fact has the burden of proving it by a The minds of parties must meet at every point; nothing can be left open for
preponderance of evidence. Aside from the surmises of [the Spouses further arrangement. So long as there is any uncertainty or indefiniteness, or
Gironella] that they were given false hopes and assurances by [PNB's] future negotiations or considerations to be had between the parties, there is
officers, the [Spouses Gironella] in this case failed to show proof not a completed contract, and in fact, there is no contract at all. 21
preponderant enough to sway this [c]ourt in their favor.
The Spouses Gironella's payments under its original loan account cannot be
As compared to the other transactions and negotiations entered into between considered as partial execution of the proposed restructuring loan agreement.
the parties herein which were very, much documented, the [Spouses They were clearly made during the pendency of the negotiations on the
Gironella] failed to present any documentary evidence relevant to their restructuring. Such pendency proves, absence, not presence of an agreement
claims of fraud, gross negligence, and abuse of right against the [PNB's] ready for execution. At the time of payments only petitioners' obligation
officers. The records of the instant case are wanting of any proof that would under the original credit agreements were in existence. Indeed, the payment
substantiate the [Spouses Gironella's] claim that they were assured by scheme under the proposed restructuring was outlined by PNB only in the
[PNB's] officers that the additional loan application will be approved and that letter of 25 January 2000.
it was agreed upon that the income of the hotel will be used for the
construction of the disco-restaurant and the purchase of the generator set for Further on this, negotiation begins from the time the prospective contracting
the meantime.15 parties manifest their interest in the contract and ends at the moment of
agreement of the parties. Once there is concurrence of the offer and
The Spouses Gironella next contend that the parties already had a partially acceptance of the object and cause, the stage of negotiation is finished. 22 This
executed, if not perfected and binding, restructuring agreement embodied in situation does not obtain in the case at bar. The letter dated 25 January 2000
their 7 February 2000 letter of acceptance of the offer and proposal contained of PNB was qualifiedly accepted by the Spouses Gironella as contained in
in PNB's 25 January 2000 letter. As with their first contention on the "false their 7 February 2000 letter and constituted a counter-offer which PNB
hopes and assurances" purportedly given by PNB's officers and ultimately rejected in its 8 March 2000 letter. The surrounding circumstances
representatives to the Spouses Gironella, the trial court upheld them and clearly show that the parties were not past the stage of negotiation for the
found that there was a perfected and binding restructuring agreement terms and conditions of the restructured loan agreements. There was no
between the parties. Moreover, the Spouses Gironella assert that since they meeting of the minds on the restructuring of the loans. Thus, the Spouses
have made substantial payments in pursuance of the restructuring agreement, Gironella's original Php9,500,000.00 loan agreement subsists.
or at the least under a promise of restructuring the loan, there is effectively a
partially executed restructuring agreement. In all, we affirm the appellate court's ruling, PNB is not liable either for
fraud, gross negligence or abuse of right. It did not breach any agreement

I. Loans in general
there having been no restructured loan agreement at all that was perfected.
Consequently, the PNB is not liable to pay the Spouses Gironella any form of

WHEREFORE, the petition is DENIED. The Decision of the Court of

Appeals dated 27 August 2010 in CA-G.R. CV No. 83870 is AFFIRMED.
The Decision and Order dated 23 June 2004 and 28 September 2004 of the
Regional Trial Court, Branch 44, Dagupan City are REVERSED and SET
ASIDE. The Amended Complaint of the petitioners, Oscar and Gina
Gironella, is DISMISSED.


I. Loans in general
9.) [G.R. No. 133632. February 15, 2002] Consequently, in March 1981, private respondents executed a mortgage deed
containing the above stipulations with the provision that payment of the
BPI INVESTMENT CORPORATION, petitioner, vs. HON. COURT OF monthly amortization shall commence on May 1, 1981.
CORPORATION, respondents. On August 13, 1982, ALS and Litonjua updated Roas arrearages by paying
BPIIC the sum of P190,601.35. This reduced Roas principal balance
DECISION to P457,204.90 which, in turn, was liquidated when BPIIC applied thereto
the proceeds of private respondents loan of P500,000.
On September 13, 1982, BPIIC released to private respondents P7,146.87,
This petition for certiorari assails the decision dated February 28, 1997, of purporting to be what was left of their loan after full payment of Roas loan.
the Court of Appeals and its resolution dated April 21, 1998, in CA-G.R. CV
No. 38887. The appellate court affirmed the judgment of the Regional Trial In June 1984, BPIIC instituted foreclosure proceedings against private
Court of Pasig City, Branch 151, in (a) Civil Case No. 11831, for foreclosure respondents on the ground that they failed to pay the mortgage indebtedness
of mortgage by petitioner BPI Investment Corporation (BPIIC for brevity) which from May 1, 1981 to June 30, 1984, amounted to Four Hundred
against private respondents ALS Management and Development Corporation Seventy Five Thousand Five Hundred Eighty Five and 31/100 Pesos
and Antonio K. Litonjua,[1] consolidated with (b) Civil Case No. 52093, for (P475,585.31). A notice of sheriffs sale was published on August 13, 1984.
damages with prayer for the issuance of a writ of preliminary injunction by
the private respondents against said petitioner. On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against
BPIIC. They alleged, among others, that they were not in arrears in their
The trial court had held that private respondents were not in default in the payment, but in fact made an overpayment as of June 30, 1984. They
payment of their monthly amortization, hence, the extrajudicial foreclosure maintained that they should not be made to pay amortization before the
conducted by BPIIC was premature and made in bad faith. It awarded private actual release of the P500,000 loan in August and September 1982. Further,
respondents the amount of P300,000 for moral damages, P50,000 for out of the P500,000 loan, only the total amount of P464,351.77 was released
exemplary damages, and P50,000 for attorneys fees and expenses for to private respondents. Hence, applying the effects of legal compensation, the
litigation. It likewise dismissed the foreclosure suit for being premature. balance of P35,648.23 should be applied to the initial monthly amortization
for the loan.
The facts are as follows:
On August 31, 1988, the trial court rendered its judgment in Civil Case Nos.
Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from 11831 and 52093, thus:
Ayala Investment and Development Corporation (AIDC), the predecessor of
petitioner BPIIC, for the construction of a house on his lot WHEREFORE, judgment is hereby rendered in favor of ALS Management
in New Alabang Village, Muntinlupa. Said house and lot were mortgaged to and Development Corporation and Antonio K. Litonjua and against BPI
AIDC to secure the loan. Sometime in 1980, Roa sold the house and lot to Investment Corporation, holding that the amount of loan granted by BPI to
private respondents ALS and Antonio Litonjua for P850,000. They ALS and Litonjua was only in the principal sum of P464,351.77, with
paid P350,000 in cash and assumed the P500,000 balance of Roas interest at 20% plus service charge of 1% per annum, payable on equal
indebtedness with AIDC. The latter, however, was not willing to extend the monthly and successive amortizations at P9,283.83 for ten (10) years or one
old interest rate to private respondents and proposed to grant them a new loan hundred twenty (120) months. The amortization schedule attached as Annex
of P500,000 to be applied to Roas debt and secured by the same property, at A to the Deed of Mortgage is correspondingly reformed as aforestated.
an interest rate of 20% per annum and service fee of 1% per annum on the
outstanding principal balance payable within ten years in equal monthly The Court further finds that ALS and Litonjua suffered compensable
amortization of P9,996.58 and penalty interest at the rate of 21% per annum damages when BPI caused their publication in a newspaper of general
per day from the date the amortization became due and payable.

I. Loans in general
circulation as defaulting debtors, and therefore orders BPI to pay ALS and The motion for reconsideration filed by petitioner BPIIC was likewise
Litonjua the following sums: denied, hence this petition, where BPIIC submits for resolution the following
a) P300,000.00 for and as moral damages;
b) P50,000.00 as and for exemplary damages; CONTRACT IN THE LIGHT OF THE RULE LAID DOWN
c) P50,000.00 as and for attorneys fees and expenses of litigation.
The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being AND EXEMPLARY DAMAGES AND ATTORNEYS FEES IN THE
On the first issue, petitioner contends that the Court of Appeals erred in
Both parties appealed to the Court of Appeals. However, private respondents ruling that because a simple loan is perfected upon the delivery of the object
appeal was dismissed for non-payment of docket fees. of the contract, the loan contract in this case was perfected only
on September 13, 1982. Petitioner claims that a contract of loan is a
On February 28, 1997, the Court of Appeals promulgated its decision, the consensual contract, and a loan contract is perfected at the time the contract
dispositive portion reads: of mortgage is executed conformably with our ruling in Bonnevie v. Court of
Appeals, 125 SCRA 122. In the present case, the loan contract was perfected
WHEREFORE, finding no error in the appealed decision the same is hereby on March 31, 1981, the date when the mortgage deed was executed, hence,
AFFIRMED in toto. the amortization and interests on the loan should be computed from said date.
SO ORDERED.[3] Petitioner also argues that while the documents showed that the loan was
released only on August 1982, the loan was actually released on March 31,
In its decision, the Court of Appeals reasoned that a simple loan is perfected
1981, when BPIIC issued a cancellation of mortgage of Frank Roas
only upon the delivery of the object of the contract. The contract of loan
loan. This finds support in the registration on March 31, 1981 of the Deed of
between BPIIC and ALS & Litonjua was perfected only on September 13,
Absolute Sale executed by Roa in favor of ALS, transferring the title of the
1982, the date when BPIIC released the purported balance of the P500,000
property to ALS, and ALS executing the Mortgage Deed in favor of
loan after deducting therefrom the value of Roas indebtedness. Thus,
BPIIC. Moreover, petitioner claims, the delay in the release of the loan
payment of the monthly amortization should commence only a month after
should be attributed to private respondents. As BPIIC only agreed to extend
the said date, as can be inferred from the stipulations in the contract. This,
a P500,000 loan, private respondents were required to reduce Frank Roas
despite the express agreement of the parties that payment shall commence
loan below said amount. According to petitioner, private respondents were
on May 1, 1981. From October 1982 to June 1984, the total amortization due
only able to do so in August 1982.
was only P194,960.43. Evidence showed that private respondents had an
overpayment, because as of June 1984, they already paid a total amount In their comment, private respondents assert that based on Article 1934 of the
of P201,791.96. Therefore, there was no basis for BPIIC to extrajudicially Civil Code,[4] a simple loan is perfected upon the delivery of the object of the
foreclose the mortgage and cause the publication in newspapers concerning contract, hence a real contract. In this case, even though the loan contract
private respondents delinquency in the payment of their loan.This fact was signed on March 31, 1981, it was perfected only on September 13, 1982,
constituted sufficient ground for moral damages in favor of private when the full loan was released to private respondents. They submit that
respondents. petitioner misread Bonnevie. To give meaning to Article 1934, according to
private respondents, Bonnevie must be construed to mean that the contract to

I. Loans in general
extend the loan was perfected on March 31, 1981 but the contract of loan In the present case, the loan contract between BPI, on the one hand, and ALS
itself was only perfected upon the delivery of the full loan to private and Litonjua, on the other, was perfected only on September 13, 1982, the
respondents on September 13, 1982. date of the second release of the loan. Following the intentions of the parties
on the commencement of the monthly amortization, as found by the Court of
Private respondents further maintain that even granting, arguendo, that the Appeals, private respondents obligation to pay commenced only on October
loan contract was perfected on March 31, 1981, and their payment did not 13, 1982, a month after the perfection of the contract. [7]
start a month thereafter, still no default took place.According to private
respondents, a perfected loan agreement imposes reciprocal obligations, We also agree with private respondents that a contract of loan involves a
where the obligation or promise of each party is the consideration of the reciprocal obligation, wherein the obligation or promise of each party is the
other party. In this case, the consideration for BPIIC in entering into the loan consideration for that of the other.[8] As averred by private respondents, the
contract is the promise of private respondents to pay the monthly promise of BPIIC to extend and deliver the loan is upon the consideration
amortization. For the latter, it is the promise of BPIIC to deliver the that ALS and Litonjua shall pay the monthly amortization commencing
money. In reciprocal obligations, neither party incurs in delay if the other on May 1, 1981, one month after the supposed release of the loan. It is a
does not comply or is not ready to comply in a proper manner with what is basic principle in reciprocal obligations that neither party incurs in delay, if
incumbent upon him. Therefore, private respondents conclude, they did not the other does not comply or is not ready to comply in a proper manner with
incur in delay when they did not commence paying the monthly amortization what is incumbent upon him.[9] Only when a party has performed his part of
on May 1, 1981, as it was only on September 13, 1982 when petitioner fully the contract can he demand that the other party also fulfills his own
complied with its obligation under the loan contract. obligation and if the latter fails, default sets in. Consequently, petitioner
could only demand for the payment of the monthly amortization
We agree with private respondents. A loan contract is not a consensual after September 13, 1982 for it was only then when it complied with its
contract but a real contract. It is perfected only upon the delivery of the obligation under the loan contract. Therefore, in computing the amount due
object of the contract.[5] Petitioner misapplied Bonnevie. The contract as of the date when BPIIC extrajudicially caused the foreclosure of the
in Bonnevie declared by this Court as a perfected consensual contract falls mortgage, the starting date is October 13, 1982 and not May 1, 1981.
under the first clause of Article 1934, Civil Code. It is an accepted promise to
deliver something by way of simple loan. Other points raised by petitioner in connection with the first issue, such as
the date of actual release of the loan and whether private respondents were
In Saura Import and Export Co. Inc. vs. Development Bank of the the cause of the delay in the release of the loan, are factual. Since petitioner
Philippines, 44 SCRA 445, petitioner applied for a loan of P500,000 with has not shown that the instant case is one of the exceptions to the basic rule
respondent bank. The latter approved the application through a board that only questions of law can be raised in a petition for review under Rule
resolution. Thereafter, the corresponding mortgage was executed and 45 of the Rules of Court,[10]factual matters need not tarry us now. On these
registered. However, because of acts attributable to petitioner, the loan was points we are bound by the findings of the appellate and trial courts.
not released. Later, petitioner instituted an action for damages. We
recognized in this case, a perfected consensual contract which under normal On the second issue, petitioner claims that it should not be held liable for
circumstances could have made the bank liable for not releasing the moral and exemplary damages for it did not act maliciously when it initiated
loan. However, since the fault was attributable to petitioner therein, the court the foreclosure proceedings. It merely exercised its right under the mortgage
did not award it damages. contract because private respondents were irregular in their monthly
amortization. It invoked our ruling in Social Security System vs. Court of
A perfected consensual contract, as shown above, can give rise to an action Appeals, 120 SCRA 707, where we said:
for damages. However, said contract does not constitute the real contract of
loan which requires the delivery of the object of the contract for its perfection Nor can the SSS be held liable for moral and temperate damages. As
and which gives rise to obligations only on the part of the borrower.[6] concluded by the Court of Appeals the negligence of the appellant is not so
gross as to warrant moral and temperate damages, except that, said Court
reduced those damages by only P5,000.00 instead of eliminating them.

I. Loans in general
Neither can we agree with the findings of both the Trial Court and
respondent Court that the SSS had acted maliciously or in bad faith. The SSS
was of the belief that it was acting in the legitimate exercise of its right under
the mortgage contract in the face of irregular payments made by private
respondents and placed reliance on the automatic acceleration clause in the
contract. The filing alone of the foreclosure application should not be a
ground for an award of moral damages in the same way that a clearly
unfounded civil action is not among the grounds for moral damages.

Private respondents counter that BPIIC was guilty of bad faith and should be
liable for said damages because it insisted on the payment of amortization on
the loan even before it was released. Further, it did not make the
corresponding deduction in the monthly amortization to conform to the
actual amount of loan released, and it immediately initiated foreclosure
proceedings when private respondents failed to make timely payment.

But as admitted by private respondents themselves, they were irregular in

their payment of monthly amortization. Conformably with our ruling
in SSS, we can not properly declare BPIIC in bad faith. Consequently, we
should rule out the award of moral and exemplary damages. [11]

However, in our view, BPIIC was negligent in relying merely on the entries
found in the deed of mortgage, without checking and correspondingly
adjusting its records on the amount actually released to private respondents
and the date when it was released. Such negligence resulted in damage to
private respondents, for which an award of nominal damages should be given
in recognition of their rights which were violated by BPIIC. [12] For this
purpose, the amount of P25,000 is sufficient.

Lastly, as in SSS where we awarded attorneys fees because private

respondents were compelled to litigate, we sustain the award of P50,000 in
favor of private respondents as attorneys fees.

WHEREFORE, the decision dated February 28, 1997, of the Court of

Appeals and its resolution dated April 21, 1998, are AFFIRMED WITH
MODIFICATION as to the award of damages. The award of moral and
exemplary damages in favor of private respondents is DELETED, but the
award to them of attorneys fees in the amount of P50,000 is UPHELD.
Additionally, petitioner is ORDERED to pay private respondents P25,000 as
nominal damages. Costs against petitioner.


I. Loans in general
10.) Before us are two consolidated petitions for review on certiorari under Rule
Republic of the Philippines 45 of the Rules of Court filed by petitioner Pentacapital Investment
Supreme Court Corporation. In G.R. No. 171736, petitioner assails the Court of Appeals
Manila (CA) Decision[1] dated December 20, 2005 and Resolution[2] dated March 1,
2006 in CA-G.R. SP No. 74851; while in G.R. No. 181482, it assails the CA
SECOND DIVISION Decision[3] dated October 4, 2007 and Resolution[4] dated January 21, 2008 in
CA-G.R. CV No. 86939.
Petitioner, The Fact

Petitioner filed a complaint for a sum of money against respondent Makilito

- versus - Mahinay based on two separate loans obtained by the latter, amounting
to P1,520,000.00 and P416,800.00, or a total amount of P1,936,800.00.
MAKILITO B. MAHINAY, These loans were evidenced by two promissory notes[5] dated February 23,
Respondent. 1996. Despite repeated demands, respondent failed to pay the loans, hence,
x--------------------------------------------------x the complaint.[6]
Petitioner, G.R. No. 181482
In his Answer with Compulsory Counterclaim,[7] respondent claimed that
Present: petitioner had no cause of action because the promissory notes on which its
complaint was based were subject to a condition that did not occur. [8] While
CARPIO, J., admitting that he indeed signed the promissory notes, he insisted that he
- versus - Chairperson, never took out a loan and that the notes were not intended to be evidences of
NACHURA, indebtedness.[9] By way of counterclaim, respondent prayed for the payment
PERALTA, of moral and exemplary damages plus attorneys fees. [10]
ABAD, and
MENDOZA, JJ. Respondent explained that he was the counsel of Ciudad Real Development
MAKILITO B. MAHINAY, Inc. (CRDI). In 1994, Pentacapital Realty Corporation (Pentacapital Realty)
Respondent. Promulgated: offered to buy parcels of land known as the Molino Properties, owned by
CRDI, located in Molino, Bacoor, Cavite. The Molino Properties, with a total
July 5, 2010 area of 127,708 square meters, were sold at P400.00 per sq m. As the Molino
Properties were the subject of a pending case, Pentacapital Realty paid only
the down payment amounting to P12,000,000.00. CRDI allegedly instructed
Pentacapital Realty to pay the formers creditors, including respondent who
thus received a check worth P1,715,156.90.[11] It was further agreed that the
balance would be payable upon the submission of an Entry of Judgment
DECISION showing that the case involving the Molino Properties had been decided in
favor of CRDI.[12]

I. Loans in general
Respondent, Pentacapital Realty and CRDI allegedly agreed that respondent petitioner sought recourse in the CA through a special
had a charging lien equivalent to 20% of the total consideration of the sale in civil action for certiorari, seeking to reverse and set aside the RTC Order.
the amount of P10,277,040.00. Pending the submission of the Entry of The case was docketed as CA-G.R. SP No. 74851. On December 20, 2005,
Judgment and as a sign of good faith, respondent purportedly returned the CA rendered the assailed Decision dismissing the petition. [23] The
the P1,715,156.90 check to Pentacapital Realty. However, the Molino appellate court sustained the allowance of the supplemental compulsory
Properties continued to be haunted by the seemingly interminable court counterclaim based on the allegations in respondents pleading. The CA
actions initiated by different parties which thus prevented respondent from further concluded that there was a logical relationship between the claims of
collecting his commission. petitioner in its complaint and those of respondent in his supplemental
compulsory counterclaim. The CA declared that it was inconsequential that
respondent did not clearly allege the facts required to pierce the corporate
separateness of petitioner and its subsidiary, the Pentacapital Realty.[24]
On motion[13] of respondent, the Regional Trial Court (RTC) allowed him to
file a Third Party Complaint[14] against CRDI, subject to the payment of
docket fees.[15]
Petitioner now comes before us in G.R. No. 171736, raising the following

Admittedly, respondent earlier instituted an action for Specific Performance

against Pentacapital Realty before the RTC of Cebu City, Branch 57, praying A.
for the payment of his commission on the sale of the Molino Properties. [16] In
an Amended Complaint,[17] respondent referred to the action he instituted as WHETHER RESPONDENT MAHINAY IS BARRED FROM ASSERTING
one of Preliminary Mandatory Injunction instead of Specific Performance. THE CLAIM CONTAINED IN HIS SUPPLEMENTAL COMPULSORY
Acting on Pentacapital Realtys Motion to Dismiss, the RTC dismissed the COUNTERCLAIM ON THE GROUNDS OF (1) RES JUDICATA, (2)
case for lack of cause of action.[18] The dismissal became final and executory. WILLFUL AND DELIBERATE FORUM SHOPPING, AND (3) FAILURE
With the dismissal of the aforesaid case, respondent filed a Motion to Permit B.
Supplemental Compulsory Counterclaim.[19] In addition to the damages that
respondent prayed for in his compulsory counterclaim, he sought the WHETHER RESPONDENT MAHINAYS SUPPLEMENTAL
payment of his commission amounting to P10,316,640.00, plus interest at the COMPULSORY COUNTERCLAIM IS ACTUALLY A THIRD-PARTY
rate of 16% per annum, as well as attorneys fees equivalent to 12% of his COMPLAINT AGAINST PENTACAPITAL REALTY, THE
principal claim.[20] Respondent claimed that Pentacapital Realty is a 100% INTRODUCTION OF WHICH REQUIRES THE PAYMENT OF THE
subsidiary of petitioner. Thus, although petitioner did not directly participate NECESSARY DOCKET FEES;
in the transaction between Pentacapital Realty, CRDI and respondent, the
latters claim against petitioner was based on the doctrine of piercing the veil C.
of corporate fiction. Simply stated, respondent alleged that petitioner and
Pentacapital Realty are one and the same entity belonging to the Pentacapital ASSUMING FOR THE SAKE OF PURE ARGUMENT THAT IT IS
Over the opposition of petitioner, the RTC, in an Order[22] dated August 22, RESPONDENT MAHINAY TO LODGE A SUPPLEMENTAL
2002, allowed the filing of the supplemental counterclaim. Aggrieved, COMPULSORY COUNTERCLAIM AGAINST HEREIN PETITIONER

I. Loans in general
ITS SUBSIDIARY, PENTACAPITAL REALTY, ON THE THEORY There being no writ of injunction or Temporary Restraining Order (TRO),
THAT THEY ARE ONE AND THE SAME COMPANY, WHETHER the proceedings before the RTC continued and respondent was allowed to
PENTACAPITAL REALTY SHOULD HAVE AT LEAST BEEN MADE A present his evidence on his supplemental compulsory counterclaim. After
PARTY TO THE CASE AS RULED BY THIS HONORABLE COURT trial on the merits, the RTC rendered a decision[26] dated March 20, 2006, the
IN FILMERCO COMMERCIAL CO., INC. VS. INTERMEDIATE dispositive portion of which reads:
WHEREFORE, PREMISES CONSIDERED, plaintiffs complaint is hereby
D. ordered dismissed for lack of merit. This court, instead, finds that defendant
was able to prove by a clear preponderance of evidence his cause of action
WHETHER RESPONDENT MAHINAY SHOULD BE ALLOWED TO against plaintiff as to defendants compulsory and supplemental
PRESENT EVIDENCE ON HIS SO-CALLED SUPPLEMENTAL counterclaims. That, therefore, this court hereby orders the plaintiff to pay
COMPULSORY COUNTERCLAIM INASMUCH AS (1) RESPONDENT unto defendant the following sums, to wit:
BUTTRESS THE MERGING OF PENTACAPITAL REALTY AND 1. P1,715,156.90 representing the amount plaintiff is obligated to pay
PENTACAPITAL INVESTMENT INTO ONE ENTITY AND THE defendant as provided for in the deed of sale and the supplemental
CONSEQUENT IMPUTATION ON THE LATTER OF THE FORMERS agreement, plus interest at the rate of 16% per annum, to be computed from
SUPPOSED LIABILITY ON RESPONDENT MAHINAYS September 23, 1998 until the said amount shall have been fully paid;
INCIDENTS ALLEGEDLY PERTAINING TO, AND WHICH WOULD 2. Php 10,316,640.00 representing defendants share of the proceeds of the
THEREBY SUPPORT, THE PIERCING OF CORPORATE VEIL ARE sale of the Molino property (defendants charging lien) plus interest at the rate
NOT EVIDENTIARY MATTERS MATERIAL TO THE PROCEEDINGS of 16% per annum, to be computed from September 23, 1998 until the said
BEFORE THE COURT A QUO CONSIDERING THAT THE SAME ARE amount shall have been fully paid;
3. Php 50,000.00 as attorneys fees based on quantum meruit;
4. Php 50,000.00 litigation expenses, plus costs of suit.
MAY BE INVOKED AND APPLIED IN ORDER TO EVADE AN This court finds it unnecessary to rule on the third party complaint, the relief
OBLIGATION AND FACILITATE PROCEDURAL WRONGDOING; prayed for therein being dependent on the possible award by this court of the
AND relief of plaintiffs complaint.[27]

F. On appeal, the CA, in CA-G.R. CV No. 86939, affirmed in toto the above
decision. The CA found no basis for petitioner to collect the amount
WHETHER PETITIONER PENTACAPITAL INVESTMENT demanded, there being no perfected contract of loan for lack of
COMMITTED FORUM SHOPPING WHEN IT FILED THE PRESENT consideration.[28] As to respondents supplemental compulsory counterclaim,
PETITION DURING THE PENDENCY OF THE MOTION FOR quoting the findings of the RTC, the appellate court held that respondent was
RECONSIDERATION IT FILED BEFORE THE COURT A QUO AND, able to prove by preponderance of evidence that it was the intent of
SUBSEQUENTLY, OF THE APPEAL BEFORE THE COURT OF Pentacapital Group of Companies and CRDI to give him P10,316,640.00
APPEALS TO QUESTION THE JUDGMENT OF THE COURT A QUO.[25] and P1,715,156.90.[29] The CA likewise affirmed the award of interest at the
rate of 16% per annum, plus damages.[30]

I. Loans in general
Unsatisfied, petitioner moved for reconsideration of the aforesaid Decision, Inasmuch as the claim of respondent Mahinay is supposedly against
but it was denied in a Resolution[31] dated January 21, 2008. Hence, the PentaCapital Realty, and considering that petitioner PentaCapital Investment
present petition in G.R. No. 181482, anchored on the following arguments: is a separate, distinct entity from PentaCapital Realty, the latter should have
been impleaded as it is an indispensable party.
Considering that the inferences made in the present case are manifestly D.
absurd, mistaken or impossible, and are even contrary to the admissions of Assuming for the sake of pure argument that it is proper to disregard the
respondent Mahinay, and inasmuch as the judgment is premised on a corporate fiction and to consider herein petitioner PentaCapital Investment
misapprehension of facts, this Honorable Court may validly take cognizance and its subsidiary, PentaCapital Realty, as one and the same entity,
of the errors relative to the findings of fact of both the Honorable Court of respondent Mahinays supplemental compulsory counterclaim must still
Appeals and the court a quo. necessarily fail.

B. 1.
Respondent Mahinay is liable to petitioner PentaCapital Investment for the The cause of action of respondent Mahinay, as contained in his supplemental
PhP1,936,800.00 loaned to him as well as for damages and attorneys fees. compulsory counterclaim, is already barred by a prior judgment (res
The Honorable Court of Appeals erred in concluding that respondent 2.
Mahinay failed to receive the money he borrowed when there is not even any Considering that the dismissal on the merits by the RTC Cebu of respondent
dispute as to the fact that respondent Mahinay did indeed receive the Mahinays complaint against PentaCapital Realty for attorneys fees has
PhP1,936,800.00 from petitioner PentaCapital Investment. attained finality, respondent Mahinay committed a willful act of forum
shopping when he interposed the exact same claim in the proceedings a
2. quo as a supposed supplemental compulsory counterclaim against what he
The Promissory Notes executed by respondent Mahinay are valid instruments claims to be one and the same company.
and are binding upon him.
C. Respondent Mahinays supplemental compulsory counterclaim is actually a
Petitioner PentaCapital Investment cannot be held liable on the supposed third party complaint against PentaCapital Realty; the filing thereof therefore
supplemental compulsory counterclaim of respondent Mahinay. requires the payment of the necessary docket fees.

1. E.
The findings of fact as well as the conclusions arrived at by the Court of The doctrine of piercing the corporate veil is an equitable remedy which
Appeals in its decision were based on mistaken assumptions and on cannot and should not be invoked, much less applied, in order to evade an
erroneous appreciation of the evidence on record. obligation and facilitate procedural wrongdoing.[32]

There is no evidence on record to support the merging of PentaCapital Realty Simply put, the issues for resolution are: 1) whether the admission of
and petitioner PentaCapital Investment into one entity and the consequent respondents supplemental compulsory counterclaim is proper; 2) whether
imputation on the latter of the formers supposed liability on respondent respondents counterclaim is barred by res judicata; and (3) whether
Mahinays supplemental compulsory counterclaim. petitioner is guilty of forum-shopping.

3. The Courts Ruling

I. Loans in general

Admission of Respondents
Supplemental Compulsory Counterclaim Moreover, in his Answer with Compulsory Counterclaim, respondent already
alleged that he demanded from Pentacapital Group of Companies to which
petitioner supposedly belongs, the payment of his 20% commission. This, in
The pertinent provision of the Rules of Court is Section 6 of Rule 10, which fact, was what prompted respondent to file a complaint before the RTC-Cebu
reads: for preliminary mandatory injunction for the release of the said amount.

Sec. 6. Supplemental pleadings. Upon motion of a party, the court may, upon
reasonable notice and upon such terms as are just, permit him to serve a Given these premises, it is obvious that the alleged obligation of petitioner
supplemental pleading setting forth transactions, occurrences or events which already existed and was known to respondent at the time of the filing of his
have happened since the date of the pleading sought to be supplemented. The Answer with Counterclaim. He should have demanded payment of his
adverse party may plead thereto within ten (10) days from notice of the order commission and share in the proceeds of the sale in that Answer with
admitting the supplemental pleading. Compulsory Counterclaim, but he did not. He is, therefore, proscribed from
incorporating the same and making such demand via a supplemental
As a general rule, leave will be granted to a party who desires to file a pleading. The supplemental pleading must be based on matters arising
supplemental pleading that alleges any material fact which happened or came subsequent to the filing of the original pleading related to the claim or
within the partys knowledge after the original pleading was filed, such being defense presented therein, and founded on the same cause of
the office of a supplemental pleading. The application of the rule would action.[34] Supplemental pleadings must state transactions, occurrences or
ensure that the entire controversy might be settled in one action, avoid events which took place since the time the pleading sought to be
unnecessary repetition of effort and unwarranted expense of litigants, supplemented was filed.[35]
broaden the scope of the issues in an action owing to the light thrown on it by
facts, events and occurrences which have accrued after the filing of the
original pleading, and bring into record the facts enlarging or charging the
kind of relief to which plaintiff is entitled. It is the policy of the law to grant Even on the merits of the case, for reasons that will be discussed below,
relief as far as possible for wrongs complained of, growing out of the same respondents counterclaim is doomed to fail.
transaction and thus put an end to litigation.[33]

Petitioners Complaint
In his Motion to Permit Supplemental Compulsory Counterclaim, respondent
admitted that, in his Answer with Compulsory Counterclaim, he claimed that, In its complaint for sum of money, petitioner prayed that respondent be
as one of the corporations composing the Pentacapital Group of Companies, ordered to pay his obligation amounting to P1,936,800.00 plus interest and
petitioner is liable to him for P10,316,640.00, representing 20% attorneys penalty charges, and attorneys fees. This obligation was evidenced by two
fees and share in the proceeds of the sale transaction between Pentacapital promissory notes executed by respondent. Respondent, however, denied
Realty and CRDI. In the same pleading, he further admitted that he did not liability on the ground that his obligation was subject to a condition that did
include this amount in his compulsory counterclaim because he had earlier not occur. He explained that the promissory notes were dependent upon the
commenced another action for the collection of the same amount against happening of a remote event that the parties tried to anticipate at the time
Pentacapital Realty before the RTC of Cebu. With the dismissal of the RTC- they transacted with each other, and the event did not happen. [36] He further
Cebu case, there was no more legal impediment for respondent to file the insisted that he did not receive the proceeds of the loan.
supplemental counterclaim.

I. Loans in general
To ascertain whether or not respondent is bound by the promissory notes, it Contrary to the conclusions of the RTC and the CA, we find such proof
must be established that all the elements of a contract of loan are present. insufficient to overcome the presumption of consideration. The presumption
Like any other contract, a contract of loan is subject to the rules governing that a contract has sufficient consideration cannot be overthrown by the bare,
the requisites and validity of contracts in general. It is elementary in this uncorroborated and self-serving assertion of respondent that it has no
jurisdiction that what determines the validity of a contract, in general, is the consideration.[41] The alleged lack of consideration must be shown by
presence of the following elements: (1) consent of the contracting parties; (2) preponderance of evidence.[42]
object certain which is the subject matter of the contract; and (3) cause of the
obligation which is established.[37] As it now appears, the promissory notes clearly stated that respondent
promised to pay petitioner P1,520,000.00 and P416,800.00, plus interests and
In this case, respondent denied liability on the ground that the promissory penalty charges, a year after their execution. Nowhere in the notes was it
notes lacked consideration as he did not receive the proceeds of the loan. stated that they were subject to a condition. As correctly observed by
petitioner, respondent is not only a lawyer but a law professor as well. He is,
We cannot sustain his contention. therefore, legally presumed not only to exercise vigilance over his concerns
but, more importantly, to know the legal and binding effects of promissory
Under Article 1354 of the Civil Code, it is presumed that consideration exists notes and the intricacies involving the execution of negotiable instruments
and is lawful unless the debtor proves the contrary.[38] Moreover, under including the need to execute an agreement to document extraneous
Section 3, Rule 131 of the Rules of Court, the following are disputable collateral conditions and/or agreements, if truly there were such.[43] This
presumptions: (1) private transactions have been fair and regular; (2) the militates against respondents claim that there was indeed such an
ordinary course of business has been followed; and (3) there was sufficient agreement. Thus, the promissory notes should be accepted as they appear on
consideration for a contract.[39] A presumption may operate against an their face.
adversary who has not introduced proof to rebut it. The effect of a legal
presumption upon a burden of proof is to create the necessity of presenting Respondents liability is not negated by the fact that he has uncollected
evidence to meet the legal presumption or the prima facie case created commissions from the sale of the Molino properties. As the records of the
thereby, and which, if no proof to the contrary is presented and offered, will case show, at the time of the execution of the promissory notes, the Molino
prevail. The burden of proof remains where it is, but by the presumption, the properties were subject of various court actions commenced by different
one who has that burden is relieved for the time being from introducing parties. Thus, the sale of the properties and, consequently, the payment of
evidence in support of the averment, because the presumption stands in the respondents commissions were put on hold. The non-payment of his
place of evidence unless rebutted.[40] commissions could very well be the reason why he obtained a loan from

In the present case, as proof of his claim of lack of consideration, respondent In Sierra v. Court of Appeals,[44] we held that:
denied under oath that he owed petitioner a single centavo. He added that he
did not apply for a loan and that when he signed the promissory notes, they
were all blank forms and all the blank spaces were to be filled up only if the
sale transaction over the subject properties would not push through because A promissory note is a solemn acknowledgment of a debt and a formal
of a possible adverse decision in the civil cases involving them (the commitment to repay it on the date and under the conditions agreed upon by
properties). He thus posits that since the sale pushed through, the promissory the borrower and the lender. A person who signs such an instrument is bound
notes did not become effective. to honor it as a legitimate obligation duly assumed by him through the
signature he affixes thereto as a token of his good faith. If he reneges on his
promise without cause, he forfeits the sympathy and assistance of this Court
and deserves instead its sharp repudiation.

I. Loans in general
Pentacapital Realty as the buyer, CRDI as the seller, and respondent as the
agent of CRDI. Respondent insisted, and the RTC and the CA agreed, that
Aside from the payment of the principal obligation of P1,936,800.00, the petitioner, as the parent company of Pentacapital Realty, was aware of the
parties agreed that respondent pay interest at the rate of 25% from February sale transaction, and that it was the former who paid the consideration of the
17, 1997 until fully paid. Such rate, however, is excessive and thus, sale. Hence, they concluded that the two corporations should be treated as
void. Since the stipulation on the interest rate is void, it is as if there was no one entity.
express contract thereon. To be sure, courts may reduce the interest rate as
reason and equity demand.[45] In this case, 12% interest is reasonable. Petitioner assails the CA Decision sustaining the grant of respondents
counterclaim and supplemental counterclaim on the following
The promissory notes likewise required the payment of a penalty charge of grounds: first, respondents claims are barred by res judicata, the same having
3% per month or 36% per annum. We find such rates unconscionable. This been adjudicated with finality by the RTC-Cebu in Civil Case No. CEB-
Court has recognized a penalty clause as an accessory obligation which the 25032; second, piercing the veil of corporate fiction is without
parties attach to a principal obligation for the purpose of ensuring the basis; third, the case is dismissible for failure to implead Pentacapital Realty
performance thereof by imposing on the debtor a special prestation as indispensable party; and last, respondents supplemental counterclaim is
(generally consisting of the payment of a sum of money) in case the actually a third party complaint against Pentacapital Realty, the filing thereof
obligation is not fulfilled or is irregularly or inadequately requires the payment of the necessary docket fees.
fulfilled.[46] However, a penalty charge of 3% per month is
unconscionable;[47] hence, we reduce it to 1% per month or 12% per annum, Petitioners contentions are meritorious.
pursuant to Article 1229 of the Civil Code which states:
Res judicata means a matter adjudged; a thing judicially acted upon or
Art. 1229. The judge shall equitably reduce the penalty when the principal decided; a thing or matter settled by judgment. It lays the rule that an existing
obligation has been partly or irregularly complied with by the debtor. Even if final judgment or decree rendered on the merits, without fraud or collusion,
there has been no performance, the penalty may also be reduced by the by a court of competent jurisdiction, upon any matter within its jurisdiction,
courts if it is iniquitous or unconscionable.[48] is conclusive of the rights of the parties or their privies, in all other actions or
suits in the same or any other judicial tribunal of concurrent jurisdiction on
Lastly, respondent promised to pay 25% of his outstanding obligations as the points and matters in issue in the first suit.[51]
attorneys fees in case of non-payment thereof. Attorneys fees here are in the
nature of liquidated damages. As long as said stipulation does not contravene
law, morals, or public order, it is strictly binding upon respondent.
Nonetheless, courts are empowered to reduce such rate if the same is The requisites of res judicata are:
iniquitous or unconscionable pursuant to the above-quoted provision.[49] This
sentiment is echoed in Article 2227 of the Civil Code, to wit: (1) The former judgment or order must be final;

Art. 2227. Liquidated damages, whether intended as an indemnity or a (2) It must be a judgment on the merits;
penalty, shall be equitably reduced if they are iniquitous or unconscionable.
(3) It must have been rendered by a court having jurisdiction over the
Hence, we reduce the stipulated attorneys fees from 25% to 10%.[50] subject matter and the parties; and
Respondents Counterclaim and Supplemental Counterclaim (4) There must be between the first and second actions, identity of
The RTC, affirmed by the CA, granted respondents counterclaims as it parties, subject matter, and cause of action.[52]
applied the doctrine of piercing the veil of corporate fiction. It is undisputed These requisites are present in the instant case. It is undisputed that
that the parties to the contract of sale of the subject properties are respondent instituted an action for Preliminary Mandatory Injunction against
Pentacapital Realty, before the RTC of Cebu City, docketed as Civil Case

I. Loans in general
No. CEB-25032. On motion of Pentacapital Realty, in an Order dated August deemed sufficient.[55] There is identity of parties not only when the parties in
15, 2001, the court dismissed the complaint on two grounds: 1) non-payment the cases are the same, but also between those in privity with them.
of the correct filing fee considering that the complaint was actually a
collection of sum of money although denominated as Preliminary Mandatory No other procedural law principle is indeed more settled than that once a
Injunction; and 2) lack of cause of action. The court treated the complaint as judgment becomes final, it is no longer subject to change, revision,
a collection suit because respondent was seeking the payment of his unpaid amendment, or reversal, except only for correction of clerical errors, or the
commission or share in the proceeds of the sale of the Molino Properties. making of nunc pro tunc entries which cause no prejudice to any party, or
Additionally, the RTC found that respondent had no cause of action against where the judgment itself is void. The underlying reason for the rule is two-
Pentacapital Realty, there being no privity of contract between them. Lastly, fold: (1) to avoid delay in the administration of justice and thus make orderly
the court held that it was CRDI which agreed that 20% of the total the discharge of judicial business; and (2) to put judicial controversies to an
consideration of the sale be paid and delivered to respondent.[53] Instead of end, at the risk of occasional errors, inasmuch as controversies cannot be
assailing the said Order, respondent filed his supplemental compulsory allowed to drag on indefinitely and the rights and obligations of every litigant
counterclaim, demanding again the payment of his commission, this time, must not hang in suspense for an indefinite period of time.[56]
against petitioner in the instant case. The Order, therefore, became final and
executory. In view of the foregoing disquisitions, we find no necessity to discuss the
other issues raised by petitioner.
Respondents supplemental counterclaim against petitioner is anchored on the Forum Shopping
doctrine of piercing the veil of corporate fiction. Obviously, after the
dismissal of his complaint before the RTC-Cebu, he now proceeds For his part, respondent adopts the conclusions made by the RTC and the CA
against petitioner, through a counterclaim, on the basis of the same cause of in granting his counterclaims. He adds that the petition should be dismissed
action. Thus, if we follow respondents contention that petitioner and on the ground of forum-shopping. He argues that petitioner is guilty of
Pentacapital Realty are one and the same entity, the latter being a subsidiary forum-shopping by filing the petition for review (G.R. No. 181482), assailing
of the former, respondent is barred from instituting the present case based on the CA Decision dated October 4, 2007, despite the pendency of G.R. No.
the principle of bar by prior judgment. The RTC-Cebu already made a 171736 assailing the CA Decision dated December 20, 2005.
definitive conclusion that Pentacapital Realty is not a privy to the contract
between respondent and CRDI. It also categorically stated that it was CRDI We do not agree with respondent.
which agreed to pay respondents commission equivalent to 20% of the
proceeds of the sale. With these findings, and considering that petitioners Forum-shopping is the act of a litigant who repetitively availed of several
alleged liability stems from its supposed relation with Pentacapital Realty, judicial remedies in different courts, simultaneously or successively, all
logic dictates that the findings of the RTC-Cebu, which had become final and substantially founded on the same transactions and the same essential facts
executory, should bind petitioner. and circumstances, and all raising substantially the same issues, either
pending in or already resolved adversely by some other court, to increase his
chances of obtaining a favorable decision if not in one court, then in
It is well-settled that when material facts or questions in issue in a former
action were conclusively settled by a judgment rendered therein, such facts What is important in determining whether forum-shopping exists is the
or questions constitute res judicata and may not again be litigated in a vexation caused the courts and parties-litigants by a party who asks different
subsequent action between the same parties or their privies regardless of the courts and/or administrative agencies to rule on the same or related causes
form of the latter.[54] Absolute identity of parties is not required, and where a and/or grant the same or substantially the same reliefs, in the process creating
shared identity of interest is shown by the identity of the relief sought by one the possibility of conflicting decisions being rendered by the different fora
person in a prior case and the second person in a subsequent case, such was upon the same issues.[58]

I. Loans in general
Forum-shopping can be committed in three ways: (1) by filing multiple cases
based on the same cause of action and with the same prayer, the previous
case not having been resolved yet (where the ground for dismissal is litis
pendentia); (2) by filing multiple cases based on the same cause of action and
with the same prayer, the previous case having been finally resolved (where
the ground for dismissal is res judicata); and (3) by filing multiple cases
based on the same cause of action but with different prayers (splitting of
causes of action, where the ground for dismissal is also either litis
pendentia or res judicata).[59]

More particularly, the elements of forum-shopping are: (a) identity of parties

or at least such parties that represent the same interests in both actions; (b)
identity of rights asserted and reliefs prayed for, the relief being founded on
the same facts; (c) identity of the two preceding particulars, such that any
judgment rendered in the other action will, regardless of which party is
successful, amount to res judicata in the action under consideration.[60]

These elements are not present in this case. In G.R. No. 171736, petitioner
assails the propriety of the admission of respondents supplemental
compulsory counterclaim; while in G.R. No. 181482, petitioner assails the
grant of respondents supplemental compulsory counterclaim. In other words,
the first case originated from an interlocutory order of the RTC, while the
second case is an appeal from the decision of the court on the merits of the
case. There is, therefore, no forum-shopping for the simple reason that the
petition and the appeal involve two different and distinct issues.

WHEREFORE, premises considered, the petitions are hereby GRANTED.

The Decisions and Resolutions of the Court of Appeals dated December 20,
2005 and March 1, 2006, in CA-G.R. SP No. 74851, and October 4, 2007
and January 21, 2008, in CA-G.R. CV No. 86939, are REVERSED and

Respondent Makilito B. Mahinay is ordered to pay petitioner Pentacapital

Investment Corporation P1,936,800.00 plus 12% interest per annum,
and 12% per annum penalty charge, starting February 17, 1997. He is
likewise ordered to pay 10% of his outstanding obligation as attorneys
fees. No pronouncement as to costs.


I. Loans in general
11.) Republic of the Philippines (Sgd.) EPIFANIA EBARLE
Manila (Sgd.) SOL EBARLE


G.R. No. 90270 July 24, 1992 September 8, 1984

ARMANDO V. SIERRA, petitioner, Dumaguete City

EBARLE, respondents. 1. (Illegible) 2. _______________

SUBSCRIBED AND SWORN TO BEFORE ME this 8th day of September

CRUZ, J.: 1984 at the City of Dumaguete.
A promissory note is supposed to be a genuine document acknowledging a (Sgd.) FRANCISCO B. ZERNA, JR.
loan duly received and promising to pay the same on the date indicated in
accordance with the conditions therein set forth. There is no record is Notary Public
there cannot be of the number of times such a promise has been fulfilled
and the debt discharged. But our casebooks are replete with reports of In their separate answers, the private respondents denied under oath "the
litigations where the promissory note has been rejected and even indignantly genuineness, due execution, legality and validity" of the promissory note.
denounced. The usual objection is that it is spurious or fabricated, or vitiated They alleged that the note was executed "under duress, fear and undue
by fraud or duress or undue influence, or not reflective of the true intention influence." As affirmative defenses, they claimed that they had been tacked
of the parties. into signing the note for P85,000.00 (and another note for P54,550.00, but
not the subject of this suit) and that the amount owing to the petitioner was
The present petition is a case in point. only P20,000.00. This represented the loan he had extended to Epifania
Ebarle, mother of the other private respondents, Sol Ebarle and Ele Ebarle.
On November 2, 1984, the petitioner filed a complaint against the private They also counterclaimed for damages.
respondents in the Regional Trial Court of Dumaguete City. He sought
recovery of a sum of money be allegedly lent them under the following At the trial, the petitioner testified that he had lent the private respondents the
promissory note which he annexed to his complaint: sum of P85,000.00 which they said they needed "to pay some cattle for
fattening to be inspected by the inspector of the Land Bank that day" in
PROMISSORY NOTE connection with their application for a loan of P400,000.00 from the said
For value received, WE, EPIFANIA EBARLE, SOL EBARLE, & ELE bank to finance their logging and cattle business. The application was
EBARLE, hereby promise to pay Mr. Armando V. Sierra, his heirs and apparently not approved. When the note fell due, he made demands for their
assigns, the sum of EIGHTY FIVE THOUSAND PESOS ONLY payment, which were ignored. He thereupon filed is complaint.
(P85,000.00) Philippine Currency, on or before October 8, 1984 at his For their part, the private respondents declared that on September 8, 1984,
residence in Dumaguete City. they were asked by the petitioner to sign two promissory notes, one for
In case of default, I will shoulder all expenses incurred in the collection and P85,000.00 and another for P54,550.00, in consideration of Epifania Ebarle's
attorney's fees of P1,000.00 plus an interest of 12% per annum. outstanding debt of P20,000.00 to him. They said they initially objected

I. Loans in general
because of the amounts indicated in the said notes. They eventually agreed, The private respondents are not unlettered peasants with a modicum of
however, on the petitioner's assurance that the documents were a mere intelligence and unfamiliar with business and legal matters. They are
formality that he had to show his business partner, who was demanding educated persons with not a little experience in business affairs and possibly
immediate payment of the said loan. The petitioner also said that if a even legal transactions. They own and operate an hacienda consisting of 33
complaint was filed against them for recovery under the notes, what they hectares. Epifania Ebarle was a professor in English for 25 years at the
should do was not answer so that they would be declared in default. A new Silliman University. Sol Ebarle holds a degree in commerce, Ele Ebarle in
agreement would then be concluded for the correct amount of Epifania agriculture. There is no question that these three professionals fully
Ebarle's loan and with easier terms of payment. understood the import and consequences of what they were doing when they
signed the two promissory notes on September 8, 1984.
On July 21, 1988, the trial court rendered a decision holding that the
promissory note for P85,000.00 was invalid and that the private respondents The notes were written in plain English and consisted of only two short
were liable to the petitioner only for the loan of P20,000.00. 1 On appeal, this paragraphs. There was no fine print to conceal hidden meanings. Each was a
decision was affirmed by the respondents court. 2 The petitioner then came to simple promise to pay to the petitioner, for value received, the amounts
this Court to seek reversal of the courts below on factual and legal grounds. indicated therein not later than October 8, 1984, at his residence and to
assume all litigation expenses, with 12% interest, in case of default.
The petitioner argues that the Court of Appeals committed reversible error in
the interpretation of the promissory note in light of the established facts. It The private respondents say they had misgivings about signing the notes but
also erred in not according the said note the presumption of validity as a duly they signed them just the same upon the petitioner's prodding. That is
executed public document. strange, considering their insistence that all Epifania Ebarle owed the
petitioner was the amount of P20,000.00, which she claimed to have received
Required to submit a comment, the private respondents contended that the earlier. If that was all she really obtained, it is difficult to understand why all
assignment of errors raised only questions of fact, the determination of which three of them signed the promissory notes for a total indebtedness of
by the lower courts was as a rule final and conclusive upon this Court. In P139,550.00 or almost seven times the mother's alleged loan. Their natural
reply, the petitioner submitted that the erroneous findings of fact made by the reaction when asked to sign the notes would have been an irate refusal. What
respondent court removed the case from the general rule and justified a they should have done was demand the correction of the notes to reflect the
review of the challenged decision. true amount of the debt in only one note and to sign it only after such
correction. Instead, each of them, one after the other, willingly signed the
The Court has gone over the records of this case and finds that there was two notes, the first in the morning and the second in the afternoon of the
indeed a misapprehension of facts by the trial and appellate courts. The same day, without any reservation whatsoever.
testimonies of the private respondents on the circumstances surrounding the
execution of the promissory note are, in our view, not believable. The private respondents say that the petitioner was in a hurry to conclude the
transactions, but the fact is that they themselves were not. There was
The Rules of Court provide that "when the terms of an agreement have been apparently no cogent reason for the immediate signing of the notes as far as
reduced to writing, it is to be considered as containing all such terms, and, they themselves were concerned. After all, Epifania Ebarle had already
therefore, there can be, between the parties and their successors in interest, received the alleged original and only loan of P20,000.00, or so they say,
no evidence of the terms of the agreement other than the contents of the which they were simply being made to affirm. Moreover, as they also insist,
writing." 3 It is true that parol evidence may be admitted to challenge the they had not received, nor did they expect to receive, the amounts indicated
contents of such agreement "where a mistake or imperfection of the writing, in the two notes.
or its failure to express the true intent and agreement of the parties, or the
validity of the agreement is put in issue by the pleadings." 4 However, such In this connection, we cannot agree that they could not have received the
evidence must be clear and convincing and of such sufficient credibility as to amounts stated in the notes because it was not likely that the petitioner would
overturn the written agreement. keep such large amounts of cash in his house. That is a mere conjecture. The
petitioner operates his own vineyard as well as his father's hacienda, besides

I. Loans in general
dealing in the sale of cars and real estate. His transactions require ready cash fact that the person alleged to have been unduly influenced was suffering
now and then, which is why he keeps substantial sums of money available in from mental weakness, or was ignorant or in financial distress.
his house.
This definition is amplified by Tolentino, who says that "undue influence is
In any case, as he says correctly, it is his prerogative to keep money in his any means employed upon a party which, under the circumstances, he could
house in whatever amount he pleases, especially since he feels quite secure not well resist, and which controlled his volition and induced him to give his
there with his guards and dogs. What is important is that the notes the private consent to the contract, which otherwise he would not have entered into. It
respondents signed expressly and categorically acknowledged that they must, in some measure, destroy the free agency of a party and interfere with
received the specific amounts indicated therein. Whether the money came the exercise of that independent discretion which is necessary for
from the bank or from the petitioner's house did not affect the validity of determining the advantage or disadvantage of a proposed contract. In every
their acknowledged indebtedness. such case, there is a moral coercion. The moral coercion may be effected
through threats, expressed or implied, or through harassing tactics." 6
Epifania Ebarle testified that she was also worried about the petitioner's
assurance that if they allowed themselves to be declared in default when Fraud must also be discounted, for according to the Civil Code:
sued, a new agreement with easier terms and for the correct amount of
P20,000.00 would be concluded between them. Asked if she understood what Art. 1338. There is fraud when, through insidious words or machinations of
default meant, she said she did. Nevertheless, despite her uneasiness, she one of the contracting parties, the other is induced to enter into a contract
signed the two promissory notes one after the other, and so did her children which without them, he would not have agreed to.
even if they also felt a similar anxiety. It was only afterwards, she said, that
she "went to a lawyer." Art. 1344. In order that fraud may make a contract voidable, it should be
serious and should not have been employed by both contracting parties.
Remarkably, all three of the private respondents signed the two notes
notwithstanding their claimed individual reluctance. One of them at least To quote Tolentino again, the "misrepresentation constituting the fraud must
could have voiced his or her apprehensions and made efforts to be dissuade be established by full, clear, and convincing evidence, and not merely by a
the others from signing, but no one did. Everyone signed. And not only that. preponderance thereof. The deceit must be serious. The fraud is serious when
Having signed one note in the morning, allof them again signed the second it is sufficient to impress, or to lead an ordinarily prudent person into error;
promissory note in the afternoon, again with no one expressing his or her that which cannot deceive a prudent person cannot be a ground for nullity.
misgivings. It is as if they were all mesmerized by the petitioner into signing The circumstances of each case should be considered, taking into account the
the promissory notes although, as they now say in hindsight, they were all personal conditions of the victim." 7
doing so against their better judgment. The non-presentation at the trial of the notary public who attested the
The facts belie this supposition. promissory notes did not have the effect of invalidating them. It is well
settled that the evidentiary nature of public documents must be sustained in
Sol Ebarle admitted on the stand that no harassment or threat in any form the absence of strong, complete, and conclusive proof of its nullity.
was employed by the petitioner upon any of them. 5
A notarial document, guaranteed by public attestation in accordance with the
Neither were they subjected to any undue influence, which is described in the law, must be sustained in full force and effect so long as he who impugns it
Civil Code thus: does not present strong, complete, and conclusive proof of its falsity or
nullity on accounts of some flaw or defect provided against by law. 8
Art. 1337. There is undue influence when a person takes improper advantage
of his power over the will of another, depriving the latter of a reasonable A mere denial of the receipt of the loan, which is stated in a clear and
freedom of choice. The following circumstances shall be considered: the unequivocal manner in a public instrument, is not sufficient. To overthrow
confidential, family, spiritual and other relations between the parties, or the the recitals of a mortgage deed, clear, convincing and more than merely

I. Loans in general
preponderant evidence is necessary. A contrary rule would throw wide open private respondents tried to dissuade the others when all of them signed the
doors to fraud. 9 first note in the morning, and this same acquiescence was repeated when all
three of them, again in common concert, signed the second note that same
The mere assertion of the private respondents that the notes were not afternoon.
notarized in their presence does not meet this standard of proof. In any event,
a promissory note does not have to be notarized to be binding. The private The defense is preposterous. Despite its acceptance by the lower courts, we
respondents have admitted signing the two notes and they have not reject it as a rank invention.
succeeded in proving that they did so "under duress, fear and undue
influence." A promissory note is a solemn acknowledgment of a debt and a formal
commitment to repay it on the date and under the conditions agreed upon by
The private respondents' argument that the two promissory notes are spurious the borrower and the lender. A person who signs such an instrument is bound
because they were signed separately on the same day is in fact an argument to honor it as a legitimate obligation duly assumed by him through the
against them. As they acutely observe, if indeed the purpose of the notes was signature he affixes thereto as a token of his good faith. If he reneges on his
simply to acknowledge and renew the P20,000.00 loan, then it could have promise without cause, he forfeits the sympathy and assistance of this Court
been accomplished in only one promissory note specifying this amount. True and deserves instead its sharp repudiation. So must it be in the case at bar.
enough. But the point is that the purpose was not to acknowledge the
supposed loan. It was to acknowledge the two separate loans. The fact that WHEREFORE, the appealed decision is REVERSED and SET ASIDE and a
two promissory notes were signed indicates that two different loans were new judgment is hereby rendered requiring the private respondents to pay the
actually extended, not simultaneously but successively, one in the morning petitioner the sum of P85,000.00, with 12% interest from September 8, 1984,
and the other in the afternoon of September 8, 1984. until full payment, plus P15,000.00 as moral damages and P15,000.00 as
attorney's fees. Costs against the respondents.
It is a no less significant consideration that no written evidence of the
supposed original loan of P20,000.00 extended to Epifania Ebarle has been SO ORDERED.
presented. None of the private respondents has produced a copy of any
promissory note therefor, to prove that there was really such a loan. As a
businessman, and there being no special relationship between him and the
private respondents, the petitioner would have required a written
acknowledgment of that loan, and given a copy of such instrument to the

In sum, this Court is asked to believe that three highly educated persons, to
acknowledge an alleged debt of only P20,000.00 owed by one of them,
signed on the same day two notarized promissory notes for the total amount
of P139,550.00 on the assurance by the petitioner that it was a mere
"formality." The notes were written in plain English, without the "whereases"
and "wherefores" of the legal idiom, and could not have been misunderstood
or not comprehended by them. What is even worse, the private respondents
insist that when they expressed their hesitation, the petitioner assured them
that if they were sued on the notes, all they should do was allow themselves
to be declared in default and a new and more liberal agreement specifying the
correct amount of their loan would then be concluded. Although they
admitted knowing the meaning of default, they nevertheless accepted this
assurance and freely signed the notes without reservation. None of the three

I. Loans in general
1.) Republic of the Philippines THE HONORABLE NICOLAS A. GEROCHI, JR., in his capacity as
SUPREME COURT Presiding Judge, Regional Trial Court, National Capital Judicial Region,
Manila Branch 139, Makati and FEDERICO L. MELOCOTTON JR., in his
capacity as Trial Fiscal Regional Trial Court, Branch 139,
EN BANC Makati, respondents.

G.R. No. L-63419 December 18, 1986 G.R No. 75812-13 December 18, 1986


vs. spouses, petitioners,
THE HONORABLE ANTONIO M. MARTINEZ, in his capacity as vs.
Presiding Judge, Regional Trial Court, National Capital Judicial Region, HONORABLE PRESIDING JUDGE OF BRANCH 154, now vacant but
Branch XX, Manila, and the HONORABLE JOSE B. FLAMINIANO, in temporarily presided by HONORABLE ASAALI S. ISNANI Branch
his capacity as City Fiscal of Manila, respondents. 153, Court of First Instance of Pasig, Metro Manila, respondent.

G.R. No. L-66839-42 December 18, 1986 G.R No. 75765-67 December 18, 1986

LUZVIMINDA F. LOBATON petitioner, LUIS M. HOJAS, petitioner,

vs. vs.
HONORABLE GLICERIO L. CRUZ, in his capacity as Presiding HON. JUDGE SENEN PENARANDA, Presiding Judge, Regional Trial
Executive Judge, Branch V, Region IV, Regional Trial Court, sitting at Court of Cagayan de Oro City, Branch XX, HONORABLE JUDGE
Lemery, Batangas, THE PROVINCIAL FISCAL OF BATANGAS, and ALFREDO LAGAMON, Presiding Judge, Regional Trial Court of
NOLI T. CATHI, City Fiscal of Cagayan de Oro City, respondents.
G.R No. 71654 December 18, 1986
G.R. No. 75789 December 18, 1986
HONORABLE JUDGE ERNANI C. PANO, Regional Trial Court, vs.
Quezon City, Branch LXXXVIII, HONORABLE ClTY FISCAL OF HON. DAVID G. NITAFAN, Presiding Judge, Regional Trial Court,
QUEZON CITY, respondents. National Capital Judicial Region, Branch 52, Manila and THELMA
SARMIENTO, respondents.
G.R. No. 74524-25 December 18, 1986
R.R. Nogales Law Office for petitioner in G.R. No. 63419, G.R. Nos. 74524-
OSCAR VIOLAGO, petitioner, 25, G.R. Nos. 75812-13, G.R. Nos. 75765-67 and counsel for respondent in
vs. G.R. No. 75789.
Quezon City, Branch LXXXVIII, HONORABLE CITY FISCAL OF Pio S. Canta for petitioner in G.R. Nos. 66839-42.
QUEZON CITY, respondents.
Hermogenes Datuin, Jr. for petitioner in G.R. No. 71654.
G.R. No. 75122-49 December 18, 1986
Abinoja, Tabalingcos, Villalon & Associates for petitioner in G.R. Nos.
ELINOR ABAD, petitioner, 75122-49.

I. Loans in general
The Solicitor General for respondent in G.R. No. 63419, G.R. Nos. 66839-42, BP 22 punishes a person "who makes or draws and issues any check on
G.R. No. 71654, G.R. Nos. 74524-25, G.R. Nos. 75122-49, G.R. Nos. 75812- account or for value, knowing at the time of issue that he does not have
13, G.R. Nos. 75765-67 and counsel for petitioner in G.R. No. 75789. sufficient funds in or credit with the drawee bank for the payment of said
check in full upon presentment, which check is subsequently dishonored by
the drawee bank for insufficiency of funds or credit or would have been
dishonored for the same reason had not the drawer, without any valid reason,
YAP, J.: ordered the bank to stop payment." The penalty prescribed for the offense is
The constitutionality of Batas Pambansa Bilang 22 (BP 22 for short), imprisonment of not less than 30 days nor more than one year or a fine or not
popularly known as the Bouncing Check Law, which was approved on April less than the amount of the check nor more than double said amount, but in
3, 1979, is the sole issue presented by these petitions for decision. The no case to exceed P200,000.00, or both such fine and imprisonment at the
question is definitely one of first impression in our jurisdiction. discretion of the court. 3

These petitions arose from cases involving prosecution of offenses under the The statute likewise imposes the same penalty on "any person who, having
statute. The defendants in those cases moved seasonably to quash the sufficient funds in or credit with the drawee bank when he makes or draws
informations on the ground that the acts charged did not constitute an and issues a check, shall fail to keep sufficient funds or to maintain a credit
offense, the statute being unconstitutional. The motions were denied by the to cover the full amount of the check if presented within a period of ninety
respondent trial courts, except in one case, which is the subject of G. R. No. (90) days from the date appearing thereon, for which reason it is dishonored
75789, wherein the trial court declared the law unconstitutional and by the drawee bank. 4
dismissed the case. The parties adversely affected have come to us for relief. An essential element of the offense is "knowledge" on the part of the maker
As a threshold issue the former Solicitor General in his comment on the or drawer of the check of the insufficiency of his funds in or credit with the
petitions, maintained the posture that it was premature for the accused to bank to cover the check upon its presentment. Since this involves a state of
elevate to this Court the orders denying their motions to quash, these orders mind difficult to establish, the statute itself creates a prima facie presumption
being interlocutory. While this is correct as a general rule, we have in of such knowledge where payment of the check "is refused by the drawee
justifiable cases intervened to review the lower court's denial of a motion to because of insufficient funds in or credit with such bank when presented
quash. 1 In view of the importance of the issue involved here, there is no within ninety (90) days from the date of the check. 5 To mitigate the
doubt in our mind that the instant petitions should be entertained and the harshness of the law in its application, the statute provides that such
constitutional challenge to BP 22 resolved promptly, one way or the other, in presumption shall not arise if within five (5) banking days from receipt of the
order to put to rest the doubts and uncertainty that exist in legal and judicial notice of dishonor, the maker or drawer makes arrangements for payment of
circles and the general public which have unnecessarily caused a delay in the the check by the bank or pays the holder the amount of the check.
disposition of cases involving the enforcement of the statute. Another provision of the statute, also in the nature of a rule of evidence,
For the purpose of resolving the constitutional issue presented here, we do provides that the introduction in evidence of the unpaid and dishonored
not find it necessary to delve into the specifics of the informations involved check with the drawee bank's refusal to pay "stamped or written thereon or
in the cases which are the subject of the petitions before us. 2 The language of attached thereto, giving the reason therefor, "shall constitute prima
BP 22 is broad enough to cover all kinds of checks, whether present dated or facie proof of "the making or issuance of said check, and the due presentment
postdated, or whether issued in payment of pre-existing obligations or given to the drawee for payment and the dishonor thereof ... for the reason written,
in mutual or simultaneous exchange for something of value. stamped or attached by the drawee on such dishonored check." 6

I The presumptions being merely prima facie, it is open to the accused of

course to present proof to the contrary to overcome the said presumptions.


I. Loans in general
BP 22 is aimed at putting a stop to or curbing the practice of issuing checks 2. By means of any of the following false pretenses or fraudulent acts
that are worthless, i.e. checks that end up being rejected or dishonored for executed prior to or simultaneously with the commis sion of the fraud:
payment. The practice, as discussed later, is proscribed by the state because
of the injury it causes to t public interests. (a) By using fictitious name, or falsely pretending to possess power,
influence, qualifications, property, credit, agency, business or imaginary
Before the enactment of BP 22, provisions already existed in our statute transactions, or by means of other similar deceits;
books which penalize the issuance of bouncing or rubber checks. Criminal
law has dealth with the problem within the context of crimes against property xxx xxx xxx
punished as "estafa" or crimes involving fraud and deceit. The focus of these
penal provisions is on the damage caused to the property rights of the victim. (d) By postdating a check, or issuing a check in payment of an obligation the
offender knowing that at the time he had no funds in the bank, or the funds
The Penal Code of Spain, which was in force in the Philippines from 1887 deposited by him were not sufficient to cover the amount of the cheek
until it was replaced by the Revised Penal Code in 1932, contained without informing the payee of such circumstances.
provisions penalizing, among others, the act of defrauding another through
false pretenses. Art. 335 punished a person who defrauded another "by The scope of paragraph 2 (d), however, was deemed to exclude checks issued
falsely pretending to possess any power, influence, qualification, property, in payment of pre-existing obligations. 10 The rationale of this interpretation
credit, agency or business, or by means of similar deceit." Although no is that in estafa, the deceit causing the defraudation must be prior to or
explicit mention was made therein regarding checks, this provision was simultaneous with the commission of the fraud. In issuing a check as
deemed to cover within its ambit the issuance of worthless or bogus checks payment for a pre-existing debt, the drawer does not derive any material
in exchange for money. 7 benefit in return or as consideration for its issuance. On the part of the payee,
he had already parted with his money or property before the check is issued
In 1926, an amendment was introduced by the Philippine Legislature, which to him hence, he is not defrauded by means of any "prior" or "simultaneous"
added a new clause (paragraph 10) to Article 335 of the old Penal Code, this deceit perpetrated on him by the drawer of the check.
time referring in explicit terms to the issuance of worthless checks. The
amendment penalized any person who 1) issues a check in payment of a debt With the intention of remedying the situation and solving the problem of how
or for other valuable consideration, knowing at the time of its issuance that to bring checks issued in payment of pre-existing debts within the ambit of
he does not have sufficient funds in the bank to cover its amount, or 2) Art. 315, an amendment was introduced by the Congress of the Philippines in
maliciously signs the check differently from his authentic signature as 1967, 11 which was enacted into law as Republic Act No. 4885, revising the
registered at the bank in order that the latter would refuse to honor it; or 3) aforesaid proviso to read as follows:
issues a postdated check and, at the date set for its payment, does not have (d) By postdating a check, or issuing a check in payment of an obligation
sufficient deposit to cover the same.8 when the offender had no funds in the bank, or his funds deposited therein
In 1932, as already adverted to, the old Penal Code was superseded by the were not sufficient to cover the amount of the check. The failure of the
Revised Penal Code. 9 The above provisions, in amended form, were drawer of the check to deposit the amount necessary to cover his check
incorporated in Article 315 of the Revised Penal Code defining the crime of within three (3) days from receipt of notice from the bank and/or the payee or
estafa. The revised text of the provision read as follows: holder that said check has been dishonored for lack or insufficiency of funds
shall be puma facie evidence of deceit constituting false pretense or
Art. 315. Swindling (estafa).Any person who shall defraud another by any fraudulent act.
of the means mentioned hereinbelow shall be punished by:
However, the adoption of the amendment did not alter the situation
xxx xxx xxx materially. A divided Court held in People vs. Sabio, Jr. 12 that Article 315,
as amended by Republic Act 4885, does not cover checks issued in payment
of pre-existing obligations, again relying on the concept underlying the crime

I. Loans in general
of estafa through false pretenses or deceitwhich is, that the deceit or false III
pretense must be prior to or simultaneous with the commission of the fraud.
Among the constitutional objections raised against BP 22, the most serious is
Since statistically it had been shown that the greater bulk of dishonored the alleged conflict between the statute and the constitutional provision
checks consisted of those issued in payment of pre-existing debts, 13 the forbidding imprisonment for debt. It is contended that the statute runs
amended provision evidently failed to cope with the real problem and to deal counter to the inhibition in the Bill of Rights which states, "No person shall
effectively with the evil that it was intended to eliminate or minimize. be imprisoned for debt or non-payment of a poll tax." 16 Petitioners insist
that, since the offense under BP 22 is consummated only upon the dishonor
With the foregoing factual and legal antecedents as a backdrop, the then or non-payment of the check when it is presented to the drawee bank, the
Interim Batasan confronted the problem squarely. It opted to take a bold step statute is really a "bad debt law" rather than a "bad check law." What it
and decided to enact a law dealing with the problem of bouncing or worthless punishes is the non-payment of the check, not the act of issuing it. The
checks, without attaching the law's umbilical cord to the existing penal statute, it is claimed, is nothing more than a veiled device to coerce payment
provisions on estafa. BP 22 addresses the problem directly and frontally and of a debt under the threat of penal sanction.
makes the act of issuing a worthless check malum prohibitum. 14
First of all it is essential to grasp the essence and scope of the constitutional
The question now arises: Is B P 22 a valid law? inhibition invoked by petitioners. Viewed in its historical context, the
constitutional prohibition against imprisonment for debt is a safeguard that
Previous efforts to deal with the problem of bouncing checks within the evolved gradually during the early part of the nineteenth century in the
ambit of the law on estafa did not evoke any constitutional challenge. In various states of the American Union as a result of the people's revulsion at
contrast, BP 22 was challenged promptly. the cruel and inhumane practice, sanctioned by common law, which
Those who question the constitutionality of BP 22 insist that: (1) it offends permitted creditors to cause the incarceration of debtors who could not pay
the constitutional provision forbidding imprisonment for debt; (2) it impairs their debts. At common law, money judgments arising from actions for the
freedom of contract; (3) it contravenes the equal protection clause; (4) it recovery of a debt or for damages from breach of a contract could be
unduly delegates legislative and executive powers; and (5) its enactment is enforced against the person or body of the debtor by writ of capias
flawed in that during its passage the Interim Batasan violated the ad satisfaciendum. By means of this writ, a debtor could be seized and
constitutional provision prohibiting amendments to a bill on Third Reading. imprisoned at the instance of the creditor until he makes the satisfaction
awarded. As a consequence of the popular ground swell against such a
The constitutional challenge to BP 22 posed by petitioners deserves a barbarous practice, provisions forbidding imprisonment for debt came to be
searching and thorough scrutiny and the most deliberate consideration by the generally enshrined in the constitutions of various states of the Union. 17
Court, involving as it does the exercise of what has been described as "the
highest and most delicate function which belongs to the judicial department This humanitarian provision was transported to our shores by the Americans
of the government." 15 at the turn of t0he century and embodied in our organic laws. 18 Later, our
fundamental law outlawed not only imprisonment for debt, but also the
As we enter upon the task of passing on the validity of an act of a co-equal infamous practice, native to our shore, of throwing people in jail for non-
and coordinate branch of the government, we need not be reminded of the payment of the cedula or poll tax. 19
time-honored principle, deeply ingrained in our jurisprudence, that a statute
is presumed to be valid. Every presumption must be indulged in favor of its The reach and scope of this constitutional safeguard have been the subject of
constitutionality. This is not to say that we approach our task with diffidence judicial definition, both by our Supreme Court 20 and by American State
or timidity. Where it is clear that the legislature has overstepped the limits of courts.21 Mr. Justice Malcolm speaking for the Supreme Court in Ganaway
its authority under the constitution we should not hesitate to wield the axe vs. Queen, 22 stated: "The 'debt' intended to be covered by the constitutional
and let it fall heavily, as fall it must, on the offending statute. guaranty has a well-defined meaning. Organic provisions relieving from
imprisonment for debt, were intended to prevent commitment of debtors to
prison for liabilities arising from actions ex contractu The inhibition was

I. Loans in general
never meant to include damages arising in actions ex delicto, for the reason for payment. It is not the non-payment of an obligation which the law
that damages recoverable therein do not arise from any contract entered into punishes. The law is not intended or designed to coerce a debtor to pay his
between the parties but are imposed upon the defendant for the wrong he has debt. The thrust of the law is to prohibit, under pain of penal sanctions, the
done and are considered as punishment, nor to fines and penalties imposed making of worthless checks and putting them in circulation. Because of its
by the courts in criminal proceedings as punishments for crime." deleterious effects on the public interest, the practice is proscribed by the
law. The law punishes the act not as an offense against property, but an
The law involved in Ganaway was not a criminal statute but the Code of offense against public order.
Procedure in Civil Actions (1909) which authorized the arrest of the
defendant in a civil case on grounds akin to those which justify the issuance Admittedly, the distinction may seem at first blush to appear elusive and
of a writ of attachment under our present Rules of Court, such as imminent difficult to conceptualize. But precisely in the failure to perceive the vital
departure of the defendant from the Philippines with intent to defraud his distinction lies the error of those who challenge the validity of BP 22.
creditors, or concealment, removal or disposition of properties in fraud of
creditors, etc. The Court, in that case, declared the detention of the defendant It may be constitutionally impermissible for the legislature to penalize a
unlawful, being violative of the constitutional inhibition against person for non-payment of a debt ex contractu But certainly it is within the
imprisonment for debt, and ordered his release. The Court, however, prerogative of the lawmaking body to proscribe certain acts deemed
refrained from declaring the statutory provision in question unconstitutional. pernicious and inimical to public welfare. Acts mala in se are not the only
acts which the law can punish. An act may not be considered by society as
Closer to the case at bar is People v. Vera Reyes,23 wherein a statutory inherently wrong, hence, not malum in se but because of the harm that it
provision which made illegal and punishable the refusal of an employer to inflicts on the community, it can be outlawed and criminally punished
pay, when he can do so, the salaries of his employees or laborers on the as malum prohibitum. The state can do this in the exercise of its police
fifteenth or last day of every month or on Saturday every week, was power.
challenged for being violative of the constitutional prohibition against
imprisonment for debt. The constitutionality of the law in question was The police power of the state has been described as "the most essential,
upheld by the Court, it being within the authority of the legislature to enact insistent and illimitable of powers" which enables it to prohibit all things
such a law in the exercise of the police power. It was held that "one of the hurtful to the comfort, safety and welfare of society. 24 It is a power not
purposes of the law is to suppress possible abuses on the part of the emanating from or conferred by the constitution, but inherent in the state,
employers who hire laborers or employees without paying them the salaries plenary, "suitably vague and far from precisely defined, rooted in the
agreed upon for their services, thus causing them financial difficulties. "The conception that man in organizing the state and imposing upon the
law was viewed not as a measure to coerce payment of an obligation, government limitations to safeguard constitutional rights did not intend
although obviously such could be its effect, but to banish a practice thereby to enable individual citizens or group of citizens to obstruct
considered harmful to public welfare. unreasonably the enactment of such salutary measures to ensure communal
peace, safety, good order and welfare." 25
The enactment of BP 22 is a declaration by the legislature that, as a matter of
Has BP 22 transgressed the constitutional inhibition against imprisonment for public policy, the making and issuance of a worthless check is deemed public
debt? To answer the question, it is necessary to examine what the statute nuisance to be abated by the imposition of penal sanctions.
prohibits and punishes as an offense. Is it the failure of the maker of the
check to pay a debt? Or is it the making and issuance of a worthless check in It is not for us to question the wisdom or impolicy of the statute. It is
payment of a debt? What is the gravamen of the offense? This question lies sufficient that a reasonable nexus exists between means and end. Considering
at the heart of the issue before us. the factual and legal antecedents that led to the adoption of the statute, it is
not difficult to understand the public concern which prompted its enactment.
The gravamen of the offense punished by BP 22 is the act of making and It had been reported that the approximate value of bouncing checks per day
issuing a worthless check or a check that is dishonored upon its presentation was close to 200 million pesos, and thereafter when overdrafts were banned

I. Loans in general
by the Central Bank, it averaged between 50 minion to 80 million pesos a place him in the same category with the honest man who is unable to pay his
day. 26 debts, and for whom the constitutional inhibition against' imprisonment for
debt, except in cases of fraud was intended as a shield and not a sword.
By definition, a check is a bill of exchange drawn on a bank and payable on
demand. 27 It is a written order on a bank, purporting to be drawn against a In sum, we find the enactment of BP 22 a valid exercise of the police power
deposit of funds for the payment of all events, of a sum of money to a certain and is not repugnant to the constitutional inhibition against imprisonment for
person therein named or to his order or to cash and payable on debt.
demand. 28 Unlike a promissory note, a check is not a mere undertaking to
pay an amount of money. It is an order addressed to a bank and partakes of a This Court is not unaware of the conflicting jurisprudence obtaining in the
representation that the drawer has funds on deposit against which the check various states of the United States on the constitutionality of the "worthless
is drawn, sufficient to ensure payment upon its presentation to the bank. check" acts. 31 It is needless to warn that foreign jurisprudence must be taken
There is therefore an element of certainty or assurance that the instrument with abundant caution. A caveat to be observed is that substantial differences
wig be paid upon presentation. For this reason, checks have become widely exist between our statute and the worthless check acts of those states where
accepted as a medium of payment in trade and commerce. Although not legal the jurisprudence have evolved. One thing to remember is that BP 22 was not
tender, checks have come to be perceived as convenient substitutes for lifted bodily from any existing statute. Furthermore, we have to consider that
currency in commercial and financial transactions. The basis or foundation of judicial decisions must be read in the context of the facts and the law
such perception is confidence. If such confidence is shakes the usefulness of involved and, in a broader sense, of the social economic and political
checks as currency substitutes would be greatly diminished or may become environmentin short, the milieuunder which they were made. We
nit Any practice therefore tending to destroy that confidence should be recognize the wisdom of the old saying that what is sauce for the goose may
deterred for the proliferation of worthless checks can only create havoc in not be sauce for the gander.
trade circles and the banking community.
As stated elsewhere, police power is a dynamic force that enables the state to
Recent statistics of the Central Bank show that one-third of the entire money meet the exigencies of changing times. There are occasions when the police
supply of the country, roughly totalling P32.3 billion, consists of peso power of the state may even override a constitutional guaranty. For example,
demand deposits; the remaining two. 29 These de deposit thirds consists of there have been cases wherein we held that the constitutional provision on
currency in circulation. ma deposits in the banks constitute the funds against non-impairment of contracts must yield to the police power of the
which among others, commercial papers like checks, are drawn. The state. 32 Whether the police power may override the constitutional inhibition
magnitude of the amount involved amply justifies the legitimate concern of against imprisonment for debt is an issue we do not have to address. This
the state in preserving the integrity of the banking system. Flooding the bridge has not been reached, so there is no occasion to cross it.
system with worthless checks is like pouring garbage into the bloodstream of
the nation's economy. We hold that BP 22 does not conflict with the constitutional inhibition
against imprisonment for debt.
The effects of the issuance of a worthless check transcends the private
interests of the parties directly involved in the transaction and touches the V
interests of the community at large. The mischief it creates is not only a We need not detain ourselves lengthily in the examination of the other
wrong to the payee or holder, but also an injury to the public. The harmful constitutional objections raised by petitioners, some of which are rather
practice of putting valueless commercial papers in circulation, multiplied a flimsy.
thousand fold, can very wen pollute the channels of trade and commerce,
injure the banking system and eventually hurt the welfare of society and the We find no valid ground to sustain the contention that BP 22 impairs
public interest. As aptly stated 30 freedom of contract. The freedom of contract which is constitutionally
protected is freedom to enter into "lawful" contracts. Contracts which
The 'check flasher' does a great deal more than contract a debt; he shakes the contravene public policy are not lawful. 33 Besides, we must bear in mind
pillars of business; and to my mind, it is a mistaken charity of judgment to

I. Loans in general
that checks can not be categorized as mere contracts. It is a commercial A careful review of the record of the proceedings of the Interim Batasan on
instrument which, in this modem day and age, has become a convenient this matter shows that, indeed, there was some confusion among Batasan
substitute for money; it forms part of the banking system and therefore not Members on what was the exact text of the paragraph in question which the
entirely free from the regulatory power of the state. body approved on Second Reading. 36 Part of the confusion was due
apparently to the fact that during the deliberations on Second Reading (the
Neither do we find substance in the claim that the statute in question denies amendment period), amendments were proposed orally and approved by the
equal protection of the laws or is discriminatory, since it penalizes the drawer body or accepted by the sponsor, hence, some members might not have
of the check, but not the payee. It is contended that the payee is just as gotten the complete text of the provisions of the bill as amended and
responsible for the crime as the drawer of the check, since without the approved on Second Reading. However, it is clear from the records that the
indispensable participation of the payee by his acceptance of the check there text of the second paragraph of Section 1 of BP 22 is the text which was
would be no crime. This argument is tantamount to saying that, to give equal actually approved by the body on Second Reading on February 7, 1979, as
protection, the law should punish both the swindler and the swindled. The reflected in the approved Minutes for that day. In any event, before the bin
petitioners' posture ignores the well-accepted meaning of the clause "equal was submitted for final approval on Third Reading, the Interim Batasan
protection of the laws." The clause does not preclude classification of created a Special Committee to investigate the matter, and the Committee in
individuals, who may be accorded different treatment under the law as long its report, which was approved by the entire body on March 22, 1979, stated
as the classification is no unreasonable or arbitrary. 34 that "the clause in question was ... an authorized amendment of the bill and
the printed copy thereof reflects accurately the provision in question as
It is also suggested that BP 22 constitutes undue or improper delegation of approved on Second Reading. 37 We therefore, find no merit in the
legislative powers, on the theory that the offense is not completed by the sole petitioners' claim that in the enactment of BP 22 the provisions of Section 9
act of the maker or drawer but is made to depend on the will of the payee. If (2) of Article VIII of the 1973 Constitution were violated.
the payee does not present the check to the bank for payment but instead
keeps it, there would be no crime. The logic of the argument stretches to WHEREFORE, judgment is rendered granting the petition in G.R. No. 75789
absurdity the meaning of "delegation of legislative power." What cannot be and setting aside the order of the respondent Judge dated August 19, 1986.
delegated is the power to legislate, or the power to make laws. 35 which The petitions in G.R. Nos. 63419, 66839-42, 71654, 74524-25, 75122-49,
means, as applied to the present case, the power to define the offense sought 75812-13 and 75765-67 are hereby dismissed and the temporary restraining
to be punished and to prescribe the penalty. By no stretch of logic or order issued in G.R. Nos. 74524-25 is lifted. With costs against private
imagination can it be said that the power to define the crime and prescribe petitioners.
the penalty therefor has been in any manner delegated to the payee. Neither
is there any provision in the statute that can be construed, no matter how SO ORDERED
remotely, as undue delegation of executive power. The suggestion that the
statute unlawfully delegates its enforcement to the offended party is

Lastly, the objection has been raised that Section 9 (2) of Article VII of the
1973 Constitution was violated by the legislative body when it enacted BP 22
into law. This constitutional provision prohibits the introduction of
amendments to a bill during the Third Reading. It is claimed that during its
Third Reading, the bill which eventually became BP 22 was amended in that
the text of the second paragraph of Section 1 of the bill as adopted on Second
Reading was altered or changed in the printed text of the bill submitted for
approval on Third Reading.

I. Loans in general
2.) [G.R. No. 122539. March 4, 1999] US$5600.00, wherein the accused agreed to sell the same and with the
express obligation to remit to the complainant-bank the proceeds of the sale,
JESUS V. TIOMICO, petitioner, vs. THE HON. COURT OF APPEALS and/or to turn over the same if not sold, on demand, but the accused once in
(FORMER FIFTH DIVISION and PEOPLE OF THE possession of the said items, far from complying with his obligation, with
PHILIPPINES, respondent. unfaithfulness and abuse of confidence, did then and there wilfully,
unlawfully and feloniously misappropriate, misapply and convert the same to
DECISION his own personal use and benefit despite repeated demands, failed and
PURISIMA, J.: refused and still fails and refuses to account for and/or remit the proceeds of
the sale thereof, to the damage and prejudice of the said complainant-bank as
This is a petition for review by certiorari under Section 2, Rule 125, in represented by Lourdes V. Palomo in the aforementioned amount of US
relation to Section 1, Rule 45 of the Rules of Court to correct, reverse and $5600 or its equivalent in Philippine currency.
annul the decision[1] of the Court of Appeals which affirmed the
judgment[2] of the trial court convicting the petitioner herein for a violation of Contrary to law.
the Trust Receipts Law. Arraigned thereunder, Tiomico entered a plea of Not Guilty, at which
Petitioner Jesus V. Tiomico, (Tiomico) opened a Letter of Credit with the juncture, Assistant Provincial Prosecutor John B. Egana manifested that he
Bank of the Philippine Islands (BPI) for $5,600 to be used for the was authorizing the private prosecutor, Atty. Jose B. Soncuya, to prosecute
importation of two (2) units of Forklifts, Shovel loader and a truck mounted the case subject to his direction, supervision and control.
with crane.On October 29, 1982, the said machineries were received by the On October 16, 1989, Gretel S. Donato was presented to testify for the
accused, as evidenced by the covering trust receipt. Upon maturity of the prosecution. According to her, she worked for the Bank of the Philippine
trust receipt, on December 28, 1982, he made a partial payment of Islands (BPI) in 1981 and in 1982, she was assigned as one of the Letter of
US$855.94, thereby leaving an unpaid obligation of US$4,770.46. As of Credit processors in the International Operations Department of BPI. Her
December 21, 1989, Tiomico owed BPI US$4,770.46. or P109,386.65, duty, among others, was to process letter of credit applications which
computed at P22.93 per US dollar, the rate of exchange at the time. Failing to included that of Tiomico. The trust receipt executed by the latter was given
pay the said amount or to deliver subject machineries and equipments, to her as part of the documents supporting his Letter of Credit.
despite several demands, the International Operations Department of BPI
referred the matter to the Legal Department of the bank. But the letter of The following documents presented in the course of the testimony of Donato
demand sent to him notwithstanding, Tiomico failed to satisfy his monetary were identified by her as follows :
obligation sued upon.
(1) Exhibit A - Letter of Credit;
Consequently, he was accused of a violation of PD 115, otherwise known as
the Trust Receipts Law, under an Information[3] alleging : (2) Exhibit B - Pro Forma Invoice;

That on or about the 29th day of October, 1982, in the Municipality of (3) Exhibit C - Letter of Credit Confirmation;
Makati, Metro Manila, Philippines, and within the jurisdiction of this
Honorable Court, the above-named accused, executed a Trust Receipt (4) Exhibit D -Trust Receipt; Exhibit D1-D4 - signatures thereon;
Agreement for and in behalf of Paramount Calibrators Merchandising of
which he is the sole proprietor in favor of the Bank of the Philippine Islands (5) Exhibit E- Statement of Account, the amount of P306,708.17 appearing
in consideration of the receipt by the said accused of three (3) bares one unit therein, as Exhibit E-1, and the signature thereto of an unidentified bank
Forklift Model FD-30 Toyota Branch 2-J70 Hp and one unit Forklift Model officer, as Exhibit E-2;
LM-301 Toyota Branch 2-J 70 Hp, and one unit shovel loader Model SOT (6) Exhibit F Letter of Demand of the banks legal department; a return card,
130 HP, 6 Cyl-LC #2-16860, for which there is now due the sum of as Exhibit F-1, and the signature of the addressees agent, as Exhibit F-1 A.

I. Loans in general
Counsel for petitioner objected to the admission of Exhibits A, B, C and D Undaunted, petitioner found his way to this Court via the Petition for Review
on the ground that witness failed to identify the said documents inasmuch as by Certiorari at bar, seeking to annul the decision[5] of the Court of Appeals;
her testimony regarding the signatures appearing therein were evidently raising as issues:
hearsay. But the trial court admitted the said documentary evidence, despite
the objections raised thereto by the defense. Thereafter, the prosecution (1) WHETHER OR NOT PD 115 OR TRUST RECEIPTS LAW IS

After the People rested its case, petitioner begged leave to file a demurrer to (2) WHETHER OR NOT A TESTIMONY CAN BE ADMITTED DESPITE
the evidence, theorizing that the evidence on record does not suffice to prove THE ABSENCE OF FORMAL OFFER AS REQUIRED BY SECTIONS 34
beyond reasonable doubt the accusation against him. But instead of granting AND 35, RULE 132, OF THE REVISED RULES OF COURT;
the said motion of the defense, the trial court ordered a re-opening of the
case, so as to enable the prosecution to adduce more evidence. The defense (3) WHETHER OR NOT THE TESTIMONY OF WITNESS WITH
objected but to no avail. The trial court proceeded with the continuation of REGARD TO THE LETTER OF CREDIT AND OTHER DOCUMENT IS
trial in the interest of justice. HEARSAY; AND

On September 5, 1990, the lower court denied the demurrer to evidence. The (4) WHETHER OR NOT THERE WAS DEPRIVATION OF DUE
Motion for Reconsideration of the defense met the same fate. It was PROCESS ON THE RIGHTS OF THE ACCUSED WHEN THE TRIAL
denied. The case was then set for continuation of trial on December 12, COURT DENIED THE MOTION FOR POSTPONEMENT BY THE
1990.Reception of evidence for the defense was set on January 7, 1991. But DEFENSE COUNSEL.
on January 4, 1991, three days before the scheduled continuation of trial, the As regards the first issue, the Court has repeatedly upheld the validity of the
defense counsel filed an Urgent Motion for Postponement for the given Trust Receipts Law and consistently declared that the said law does not
reason that he had to appear before Branch 12 of the Metropolitan Trial violate the constitutional proscription against imprisonment for non-payment
Court of Manila on January 7, 1991. of debts. (People vs. Cuevo, 104 SCRA 312; People vs. Nitafan, 207 SCRA
On January 7, 1991, the lower court denied the Urgent Motion for 726; Lee vs. Rodil, 175 SCRA 100). Such pronouncement was thoroughly
Postponement and adjudged petitioner to have waived the right to introduce explained in Lee vs. Rodil (supra) thus:
evidence on his behalf. Verily, PD 115 is a declaration by the legislative authority that, as a matter of
On January 30, 1991, the trial court promulgated its decision finding public policy, the failure of a person to turn over the proceeds of the sale of
petitioner guilty of a violation of PD 115, and sentencing him accordingly. goods covered by a trust receipt or to return said goods if not sold is a public
nuisance to be abated by the imposition of penal sanctions. As held
On appeal, the Court of Appeals came out with a judgment of affirmance, the in Lozano vs Martinez (146 SCRA 323, 338):
dispositive portion of which, is to the following effect:
xxx certainly, it is within the authority of the lawmaking body to prescribe
WHEREFORE, the Court finds JESUS V. TIOMICO guilty beyond certain acts deemed pernicious and inimical to public welfare. Acts mala in
reasonable doubt of violation of PD 115 and is hereby sentenced to suffer an se are not the only acts that the law can punish. An act may not be considered
indeterminate penalty of ten (10) years of prision mayor , as minimum, to by society as inherently wrong, hence, not malum in se, but because of the
fifteen (15) years of reclusion temporal as maximum; to indemnify Bank of harm that it inflicts on the community, it can be outlawed and criminally
the Philippine Islands the sum of P109,386.65 and to pay the costs. punished as malum prohibitum. The State can do this in the exercise of its
police power.
In fine, PD 115 is a valid exercise of police power and is not repugnant to the
constitutional provision of non-imprisonment for non-payment of debt.

I. Loans in general
In a similar vein, the case of People vs. Nitafan (supra) held: respondent was called to testify, on the ground that there was no prior offer
made by the proponent.[10]
The Trust Receipts Law punishes the dishonesty and abuse of confidence in
the handling of money or goods to the prejudice of another regardless of The tendency of the rules on evidence, is towards substantial justice rather
whether the latter is the owner or not. The law does not seek to enforce than strict adherence to technicalities. To condemn the disputed testimony as
payment of a loan. Thus, there can be no violation of the right against inadmissible due to the failure of the private prosecutor to properly observe
imprisonment for non-payment of a debt. the rules on presentation of evidence, would render nugatory, and defeat the
proceedings before the lower court.
Anent the second issue, the pivotal question is: Should the testimony of a
witness be admitted despite the failure of the proponent to offer it formally in On the third issue - whether or not the witness can testify on subject
evidence, as required by Section 34 of Rule 132 [6] We rule on this issue in the documents introduced as evidence despite her admission that she did not see
affirmative. the accused sign the said exhibits, we likewise rule in the affirmative.

Records disclose that the private prosecutor stated the purpose of the As aptly held by the appellate court:[11]
testimony in question although he did not formally offer the same. The
proceedings[7] went on as follows: Gretel Donato testified that she was not present when appellant affixed his
signature on the documents in question (p. 22, ibid). She, however, identified
ATTY. SONCUYA: the signatures thereon (Exhs. A-1, A-2, D-1, D-2 and D-3, Letter of Credit;
Exhibit B - Pro Forma Invoice; Exhibit C - Letter of Credit Confirmation;
The purpose of the testimony of the witness is to prove that the accused Exhibit D -Trust Receipt; Exhibit D1-D4 - signatures thereon; pp 129 and
applied for a letter of credit, for the opening of a letter of credit and for the 132 of Orig. Rec.) as those of the appellant Jesus V. Tiomico arising from
importation of machinery from Japan and that those machinery were her familiarity therewith inasmuch as she was the one who processed the
delivered and received by the accused as evidenced by the trust receipt and papers pertinent to the transactions between the appellant and the
that the accused failed to comply with the terms and conditions of the said complainant bank (TSN, Feb. 5, 1990, pp 4-6). Her testimony, therefore,
trust receipt, your Honor. cannot be considered hearsay because it is principally based on her personal
knowledge of bank transactions and the documents and records which she
COURT: processes in the regular course of the banks business operations.
All right, proceed. It is not essential to the competence of a lay witness to express opinions on
As aptly stressed by the Solicitor General in his Comment, the absence of the genuineness of handwritings that he did see the person in question
the words, we are formally offering the testimony for the purpose of... should write.[12] It is enough that the witness has so adopted the same into business
be considered merely as an excusable oversight on the part of the private transactions as to induce a reasonable presumption and belief of genuineness
prosecutor. of the document. This is due to the fact that in the ordinary course of
business, documents purporting to be written or signed by that person have
It should be borne in mind that the rationale behind Section 34 of Rule been habitually submitted to the witness, or where knowledge of handwriting
132[9] is to inform the Court of the purpose of the testimony, to enable the is acquired by him in an official capacity.[13]
judge to rule whether the said testimony is necessary or is irrelevant or
immaterial. Did the witness gain familiarity with the signature of the accused? The
answer is yes. Exhibits A to D: Letter of Credit, Pro-Forma Invoice, Letter of
In the case under scrutiny, since the purpose of subject testimony was Credit Confirmation and Trust Receipt, respectively, were all familiar to the
succinctly stated, the reason behind the requirement for its formal offer has witness since the said documents bearing the signature of the accused were
been substantially complied with. What the defense counsel should have all submitted to her for processing. It is therefore beyond cavil that she
done should have been to interpose his objection the moment the private acquired sufficient familiarity to make witness competent to testify on the

I. Loans in general
signatures appearing in subject documents. From the time of the application May we ask for an order directing that the witness respond to my question.
to its approval and when Tiomico defaulted, she (witness) was the one who
had overseen the transactions and recommended the actions to be taken COURT
thereon. As a matter of fact, she was the one who referred the failure of
Tiomico to pay his balance to the Legal Department of BPI, prompting the Just answer the question.
said legal department to send him (Tiomico) a demand letter. WITNESS
Furthermore, whether there was due execution or authenticity of such A - No, sir.
documents was impliedly admitted by the accused. On this point, we quote
with approval the conclusion reached by the Court of Appeals, to wit:[14] COURT
On the other hand, appellant impliedly admitted the due execution of the Does the accused deny the signature?
assailed documents considering that he did not deny the fact that he opened a
letter of credit. Neither did he deny that the signature appearing thereon is ATTY. EBRO
his.What appellant intended to dispute was merely the balance of his past due
account with the complainant bank, thus: No, your Honor. I am just showing also that she has been exaggerating.

'COURT (TSN, Feb. 5, 1990, pp. 12-13, p. 22)

Denied. In light of the foregoing, it stands to reason and conclude that the documents
under scrutiny are admissible in evidence, as held by the trial court.
What is the defense of the accused?
Anent the fourth issue, petitioner theorizes that the denial of the motion for
Denial that he opened the letter of credit. postponement sent in by his lawyer violated his constitutional right to due
It should be stressed that subject Urgent Motion for Postponement was not
No, your honor. the first motion for resetting ever presented by the counsel for petitioner. On
December 12, 1990, upon motion of the latter, and without objection on the
COURT part of the prosecution, the reception of evidence for the defense was reset
What is the defense? once more to January 7, 1991, at 8:30 in the morning.

xxx xxx xxx The most basic tenet of due process is the right to be heard. Where a party
had been afforded an opportunity to participate in the proceedings but failed
ATTY. EBRO to do so, he cannot complain of deprivation of due process. [15] Due process is
satisfied as long as the party is accorded an opportunity to be heard. If it is
Q: - Now you identified signatures allegedly of the accused on Exhibit A, not availed of, it is deemed waived or forfeited without violating the Bill of
which is the application for the letter of credit, I ask you Miss Donato, were Rights.[16]
you personally present when this signature was affixed to the document?
It is further theorized by petitioner that the lower court should have at least
A - (witness going over Exhibit A) I was the one of the ones who processed granted him another trial date so as to enable him to present his evidence, so
the letter of credit. that the denial of his Urgent Motion for Postponement infringed his
constitutional right to be heard by himself and by counsel.[17] This
ATTY. EBRO submission is unsustainable.

I. Loans in general
When an accused is accorded a chance to present evidence on his behalf but obstruct or prevent their realization, charged as he is with the primary task of
due to his repeated unjustifiable failure to appear at the trial without any assisting the court in the speedy and efficient administration of justice. [24]
justification, the lower court orders the case submitted for decision on the
basis of the evidence on record, said judicial action is not tainted with grave Petitioner invites attention to the Affidavit of Desistance by the Bank of the
abuse of discretion because in such a case, the accused is deemed to have Philippine Islands (BPI). This issue raised by the petitioner cannot be
waived the right to adduce evidence on his behalf.[18] entertained as it was only raised for the first time on appeal. [25]

Furthermore, records show that in this case the defense counsel did not even Considering that the assailed decision is firmly anchored on prevailing law
bother to appear for the scheduled reception of evidence for his client on and established jurisprudence, the Court cannot help but deny the petition.
January 7, 1991, notwithstanding the fact that the trial court did not act upon,
much less grant, the Urgent Motion for Postponement which he filed on WHEREFORE, the petition is DENIED and the decision of the Court of
January 4, 1991. Lawyers should never presume that their motions for Appeals, dated May 31, 1995, affirming the judgment of conviction rendered
postponement would be granted.[19] on January 28, 1991 by the court of origin AFFIRMED. No pronouncement
as to costs.
A motion for continuance or postponement is not a matter of right. It is
addressed to the sound discretion of the Court. Action thereon will not be SO ORDERED.
disturbed by appellate courts, in the absence of clear and manifest abuse of
discretion resulting in a denial of substantial justice.[20]

Motions for postponement are generally frowned upon by Courts if there is

evidence of bad faith, malice or inexcusable negligence on the part of the
movant.[21] The inadvertence of the defense counsel in failing to take note of
the trial dates and in belatedly informing the trial court of any conflict in his
schedules of trial or court appearances, constitutes inexcusable negligence. It
should be borne in mind that a client is bound by his counsels conduct,
negligence and mistakes in handling the case.[22]

As gleanable from the records:

xxx Attached to the motion is the Order of said court dated November 19,
1990. Obviously, when the case was called on December 12, 1990, the
counsel for the accused had already known of the scheduled hearing before
the Metropolitan Trial Court, yet he agreed to the hearing on January 7,
1991. Counsels conduct is not consistent with the thrust of the Judiciary to
expedite the termination of cases under the Mandatory Continuous Trial

A lawyer as an officer of the court is part of the judicial machinery in the

administration of justice. As such, he has a responsibility to assist in the
proper and sound administration of justice. Like the court itself, he is an
instrument to advance its ends and the speedy, efficient, impartial, correct
and inexpensive adjudication of cases. A lawyer should not only help to
attain these objectives. He should also avoid improper practices that impede,