G.R. No.
181045 July 2, 2014 not including the date of full payment thereof at the rate per
SPOUSES EDUARDO and LYDIA SILOS, Petitioners,
vs.
PHILIPPINE NATIONAL BANK, Respondent.
DEL CASTILLO, J.:
Factual Antecedents
Spouses Eduardo and Lydia Silos (petitioners) have been in
business for about two decades of operating a department store
and buying and selling of ready-to-wear apparel. Respondent
Philippine National Bank (PNB) is a banking corporation
organized and existing under Philippine laws.
To secure a one-year revolving credit line of ₱150,000.00 obtained
from PNB, petitioners constituted in August 1987 a Real Estate
Mortgage5 over a 370-square meter lot in Kalibo, Aklan covered by
Transfer Certificate of Title No. (TCT) T-14250. In July 1988,the
credit line was increased to ₱1.8 million and the mortgage was
correspondingly increased to ₱1.8 million.6
And in July 1989, a Supplement to the Existing Real Estate
Mortgage7 was executed to cover the same credit line, which was
increased to ₱2.5 million, and additional security was given in the
form of a 134-square meter lot covered by TCT T-16208. In
addition, petitioners issued eight Promissory Notes8 and signed a
Credit Agreement.9 This July 1989 Credit Agreement contained a
stipulation on interest which provides as follows:
1.03. Interest. (a) The Loan shall be subject to interest at the rate
of 19.5% per annum. Interest shall be payable in advance every
one hundred twenty days at the rate prevailing at the time of the
renewal.
(b) The Borrower agrees that the Bank may modify the interest
rate in the Loan depending on whatever policy the Bank may
adopt in the future, including without limitation, the shifting from
the floating interest rate system to the fixed interest rate system,
or vice versa. Where the Bank has imposed on the Loan interest
at a rate per annum, which is equal to the Bank’s spread over the
current floating interest rate, the Borrower hereby agrees that the
Bank may, without need of notice to the Borrower, increase or
decrease its spread over the floating interest rate at any time
depending on whatever policy it may adopt in the
future.10 (Emphases supplied)
The eight Promissory Notes, on the other hand, contained a
stipulation granting PNB the right to increase or reduce interest
rates "within the limits allowed by law or by the Monetary
Board."11
The Real Estate Mortgage agreement provided the same right to
increase or reduce interest rates "at any time depending on
whatever policy PNB may adopt in the future."12
Petitioners religiously paid interest on the notes at the following
rates:
1. 1st Promissory Note dated July 24, 1989 – 19.5%;
2. 2nd Promissory Note dated November 22, 1989 – 23%;
3. 3rd Promissory Note dated March 21, 1990 – 22%;
4. 4th Promissory Note dated July 19, 1990 – 24%;
5. 5th Promissory Note dated December 17, 1990 – 28%;
6. 6th Promissory Note dated February 14, 1991 – 32%;
7. 7th Promissory Note dated March 1, 1991 – 30%; and
8. 8th Promissory Note dated July 11, 1991 – 24%.13
In August 1991, an Amendment to Credit Agreement14 was
executed by the parties, with the following stipulation regarding
interest:
1.03. Interest on Line Availments. (a) The Borrowers agree to pay
interest on each Availment from date of each Availment up to but
annum which is determined by the Bank to be prime rate plus
applicable spread in effect as of the date of each
Availment.15 (Emphases supplied)
Under this Amendment to Credit Agreement, petitioners issued in
favor of PNB the following 18 Promissory Notes, which
petitioners settled – except the last (the note covering the
principal) – at the following interest rates:
1. 9th Promissory Note dated November 8, 1991 – 26%;
2. 10th Promissory Note dated March 19, 1992 – 25%;
3. 11th Promissory Note dated July 11, 1992 – 23%;
4. 12th Promissory Note dated November 10, 1992 –
21%;
5. 13th Promissory Note dated March 15, 1993 – 21%;
6. 14th Promissory Note dated July 12, 1993 – 17.5%;
7. 15th Promissory Note dated November 17, 1993 –
21%;
8. 16th Promissory Note dated March 28, 1994 – 21%;
9. 17th Promissory Note dated July 13, 1994 – 21%;
10. 18th Promissory Note dated November 16, 1994 –
16%;
11. 19th Promissory Note dated April 10, 1995 – 21%;
12. 20th Promissory Note dated July 19, 1995 – 18.5%;
13. 21st Promissory Note dated December 18, 1995 –
18.75%;
14. 22nd Promissory Note dated April 22, 1996 – 18.5%;
15. 23rd Promissory Note dated July 22, 1996 – 18.5%;
16. 24th Promissory Note dated November 25, 1996 –
18%;
17. 25th Promissory Note dated May 30, 1997 – 17.5%;
and
18. 26th Promissory Note (PN 9707237) dated July 30,
1997 – 25%.16
The 9th up to the 17th promissory notes provide for the payment
of interest at the "rate the Bank may at any time without notice,
raise within the limits allowed by law x x x."17
On the other hand, the 18th up to the 26th promissory notes –
including PN 9707237, which is the 26th promissory note – carried
the following provision:
x x x For this purpose, I/We agree that the rate of interest herein
stipulated may be increased or decreased for the subsequent
Interest Periods, with prior notice to the Borrower in the event of
changes in interest rate prescribed by law or the Monetary Board
of the Central Bank of the Philippines, or in the Bank’s overall
cost of funds. I/We hereby agree that in the event I/we are not
agreeable to the interest rate fixed for any Interest Period, I/we
shall have the option top repay the loan or credit facility without
penalty within ten (10) calendar days from the Interest Setting
Date.18 (Emphasis supplied)
Respondent regularly renewed the line from 1990 up to 1997, and
petitioners made good on the promissory notes, religiously
paying the interests without objection or fail. But in 1997,
petitioners faltered when the interest rates soared due to the
Asian financial crisis. Petitioners’ sole outstanding promissory
note for ₱2.5 million – PN 9707237 executed in July 1997 and due
120 days later or on October 28, 1997 – became past due, and
despite repeated demands, petitioners failed to make good on the
note.
Incidentally, PN 9707237 provided for the penalty equivalent to
24% per annum in case of default, as follows:
Without need for notice or demand, failure to pay this note or any
installment thereon, when due, shall constitute default and in
such cases or in case of garnishment, receivership or bankruptcy
or suit of any kind filed against me/us by the Bank, the
outstanding principal of this note, at the option of the Bank and
without prior notice of demand, shall immediately become due
and payable and shall be subject to a penalty charge of twenty
four percent (24%) per annum based on the defaulted principal
amount. x x x19 (Emphasis supplied)
PNB prepared a Statement of Account20 as of October 12, 1998,
detailing the amount due and demandable from petitioners in the
total amount of ₱3,620,541.60, broken down as follows:
Principal P 2,500,000.00
Interest 538,874.94
Penalties 581,666.66
Total P 3,620,541.60
Despite demand, petitioners failed to pay the foregoing amount.
Thus, PNB foreclosed on the mortgage, and on January 14, 1999,
TCTs T-14250 and T-16208 were sold to it at auction for the
amount of ₱4,324,172.96.21 The sheriff’s certificate of sale was
registered on March 11, 1999.
More than a year later, or on March 24, 2000, petitioners filed Civil
Case No. 5975, seeking annulment of the foreclosure sale and an
accounting of the PNB credit. Petitioners theorized that after the
first promissory note where they agreed to pay 19.5% interest, the
succeeding stipulations for the payment of interest in their loan
agreements with PNB – which allegedly left to the latter the sole
will to determine the interest rate – became null and void.
Petitioners added that because the interest rates were fixed by
respondent without their prior consent or agreement, these rates
are void, and as a result, petitioners should only be made liable
for interest at the legal rate of 12%. They claimed further that they
overpaid interests on the credit, and concluded that due to this
overpayment of steep interest charges, their debt should now be
deemed paid, and the foreclosure and sale of TCTs T-14250 and
T-16208 became unnecessary and wrongful. As for the imposed
penalty of ₱581,666.66, petitioners alleged that since the Real
Estate Mortgage and the Supplement thereto did not include
penalties as part of the secured amount, the same should be
excluded from the foreclosure amount or bid price, even if such
penalties are provided for in the final Promissory Note, or PN
9707237.22
In addition, petitioners sought to be reimbursed an alleged
overpayment of ₱848,285.00 made during the period August 21,
1991 to March 5, 1998,resulting from respondent’s imposition of
the alleged illegal and steep interest rates. They also prayed to be
awarded ₱200,000.00 by way of attorney’s fees.23
In its Answer,24 PNB denied that it unilaterally imposed or fixed
interest rates; that petitioners agreed that without prior notice,
PNB may modify interest rates depending on future policy
adopted by it; and that the imposition of penalties was agreed
upon in the Credit Agreement. It added that the imposition of
penalties is supported by the all-inclusive clause in the Real
Estate Mortgage agreement which provides that the mortgage
shall stand as security for any and all other obligations of
whatever kind and nature owing to respondent, which thus
includes penalties imposed upon default or non-payment of the
principal and interest on due date.
On pre-trial, the parties mutually agreed to the following material
facts, among others:
a) That since 1991 up to 1998, petitioners had paid PNB
the total amount of ₱3,484,287.00;25 and
b) That PNB sent, and petitioners received, a March 10,
2000 demand letter.26
During trial, petitioner Lydia Silos (Lydia) testified that the Credit
Agreement, the Amendment to Credit Agreement, Real Estate
Mortgage and the Supplement thereto were all prepared by
respondent PNB and were presented to her and her husband
Eduardo only for signature; that she was told by PNB that the
latter alone would determine the interest rate; that as to the
Amendment to Credit Agreement, she was told that PNB would fill
up the interest rate portion thereof; that at the time the parties
executed the said Credit Agreement, she was not informed about
the applicable spread that PNB would impose on her account;
that the interest rate portion of all Promissory Notes she and
Eduardo issued were always left in blank when they executed
them, with respondent’s mere assurance that it would be the one
to enter or indicate thereon the prevailing interest rate at the time
of availment; and that they agreed to such arrangement. She
further testified that the two Real Estate Mortgage agreements
she signed did not stipulate the payment of penalties; that she
and Eduardo consulted with a lawyer, and were told that PNB’s
actions were improper, and so on March 20, 2000, they wrote to
the latter seeking a recomputation of their outstanding obligation;
and when PNB did not oblige, they instituted Civil Case No.
5975.27
On cross-examination, Lydia testified that she has been in
business for 20 years; that she also borrowed from other
individuals and another bank; that it was only with banks that she
was asked to sign loan documents with no indicated interest rate;
that she did not bother to read the terms of the loan documents
which she signed; and that she received several PNB statements
of account detailing their outstanding obligations, but she did not
complain; that she assumed instead that what was written therein
is correct.28
For his part, PNB Kalibo Branch Manager Diosdado Aspa, Jr.
(Aspa), the sole witness for respondent, stated on cross-
examination that as a practice, the determination of the prime
rates of interest was the responsibility solely of PNB’s Treasury
Department which is based in Manila; that these prime rates were
simply communicated to all PNB branches for implementation;
that there are a multitude of considerations which determine the
interest rate, such as the cost of money, foreign currency values,
PNB’s spread, bank administrative costs, profitability, and the
practice in the banking industry; that in every repricing of each
loan availment, the borrower has the right to question the rates,
but that this was not done by the petitioners; and that anything
that is not found in the Promissory Note may be supplemented by
the Credit Agreement.29
Ruling of the Regional Trial Court
On February 28, 2003, the trial court rendered judgment
dismissing Civil Case No. 5975.30
It ruled that:
1. While the Credit Agreement allows PNB to unilaterally
increase its spread over the floating interest rate at any
time depending on whatever policy it may adopt in the
future, it likewise allows for the decrease at any time of
the same. Thus, such stipulation authorizing both the
increase and decrease of interest rates as may be
applicable is valid,31 as was held in Consolidated Bank
and Trust Corporation (SOLIDBANK) v. Court of
Appeals;32
2. Banks are allowed to stipulate that interest rates on
loans need not be fixed and instead be made dependent
on prevailing rates upon which to peg such variable
interest rates;33
3. The Promissory Note, as the principal contract
evidencing petitioners’ loan, prevails over the Credit
Agreement and the Real Estate Mortgage.
As such, the rate of interest, penalties and attorney’s
fees stipulated in the Promissory Note prevail over
those mentioned in the Credit Agreement and the Real
Estate Mortgage agreements;34
4. Roughly, PNB’s computation of the total amount of
petitioners’ obligation is correct;35
5. Because the loan was admittedly due and
demandable, the foreclosure was regularly made;36
6. By the admission of petitioners during pre-trial, all
payments made to PNB were properly applied to the
principal, interest and penalties.37
The dispositive portion of the trial court’s Decision reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in
favor of the respondent and against the petitioners by
DISMISSING the latter’s petition.
Costs against the petitioners.
38
SO ORDERED.
Petitioners moved for reconsideration. In an Order39 dated June 4,
2003, the trial court granted only a modification in the award of
attorney’s fees, reducing the same from 10% to 1%. Thus, PNB
was ordered to refund to petitioner the excess in attorney’s fees
in the amount of ₱356,589.90, viz:
WHEREFORE, judgment is hereby rendered upholding the validity
of the interest rate charged by the respondent as well as the
extra-judicial foreclosure proceedings and the Certificate of Sale.
However, respondent is directed to refund to the petitioner the
amount of ₱356,589.90 representing the excess interest charged
against the latter.
No pronouncement as to costs.
SO ORDERED.40
Ruling of the Court of Appeals
Petitioners appealed to the CA, which issued the questioned
Decision with the following decretal portion:
WHEREFORE, in view of the foregoing, the instant appeal is
PARTLY GRANTED. The modified Decision of the Regional Trial
Court per Order dated June 4, 2003 is hereby AFFIRMED with
MODIFICATIONS, to wit:
1. [T]hat the interest rate to be applied after the
expiration of the first 30-day interest period for PN. No.
9707237 should be 12% per annum;
2. [T]hat the attorney’s fees of10% is valid and binding;
and
3. [T]hat [PNB] is hereby ordered to reimburse
[petitioners] the excess in the bid price of ₱377,505.99
which is the difference between the total amount due
[PNB] and the amount of its bid price.
SO ORDERED.41
On the other hand, respondent did not appeal the June 4,2003
Order of the trial court which reduced its award of attorney’s fees.
It simply raised the issue in its appellee’s brief in the CA, and
included a prayer for the reversal of said Order.
In effect, the CA limited petitioners’ appeal to the following
issues:
1) Whether x x x the interest rates on petitioners’
outstanding obligation were unilaterally and arbitrarily
imposed by PNB;
2) Whether x x x the penalty charges were secured by
the real estate mortgage; and
3) Whether x x x the extrajudicial foreclosure and sale
are valid.42
The CA noted that, based on receipts presented by petitioners
during trial, the latter dutifully paid a total of ₱3,027,324.60 in
interest for the period August 7, 1991 to August 6, 1997, over and
above the ₱2.5 million principal obligation. And this is exclusive
of payments for insurance premiums, documentary stamp taxes,
and penalty. All the while, petitioners did not complain nor object
to the imposition of interest; they in fact paid the same religiously
and without fail for seven years. The appellate court ruled that
petitioners are thus estopped from questioning the same.
The CA nevertheless noted that for the period July 30, 1997 to
August 14, 1997, PNB wrongly applied an interest rate of 25.72%
instead of the agreed 25%; thus it overcharged petitioners, and
the latter paid, an excess of ₱736.56 in interest.
On the issue of penalties, the CA ruled that the express tenor of
the Real Estate Mortgage agreements contemplated the inclusion
of the PN 9707237-stipulated 24% penalty in the amount to be
secured by the mortgaged property, thus –
For and in consideration of certain loans, overdrafts and other
credit accommodations obtained from the MORTGAGEE and to
secure the payment of the same and those others that the
MORTGAGEE may extend to the MORTGAGOR, including interest
and expenses, and other obligations owing by the MORTGAGOR
to the MORTGAGEE, whether direct or indirect, principal or
secondary, as appearing in the accounts, books and records of
the MORTGAGEE, the MORTGAGOR does hereby transfer and
convey by way of mortgage unto the MORTGAGEE x x
x43 (Emphasis supplied)
The CA believes that the 24% penalty is covered by the phrase
"and other obligations owing by the mortgagor to the mortgagee"
and should thus be added to the amount secured by the
mortgages.44
The CA then proceeded to declare valid the foreclosure and sale
of properties covered by TCTs T-14250 and T-16208, which came
as a necessary result of petitioners’ failure to pay the outstanding
obligation upon demand.45The CA saw fit to increase the trial
court’s award of 1% to 10%, finding the latter rate to be
reasonable and citing the Real Estate Mortgage agreement which
authorized the collection of the higher rate.46
Finally, the CA ruled that petitioners are entitled to ₱377,505.09
surplus, which is the difference between PNB’s bid price of
₱4,324,172.96 and petitioners’ total computed obligation as of
January 14, 1999, or the date of the auction sale, in the amount of
₱3,946,667.87.47
Hence, the present Petition.
Issues
The following issues are raised in this Petition:
I
A. THE COURT OF APPEALS AS WELL AS
THE LOWER COURT ERRED IN NOT
NULLIFYING THE INTEREST RATE PROVISION
IN THE CREDIT AGREEMENT DATED JULY 24,
1989 X X X AND IN THE AMENDMENT TO
CREDIT AGREEMENT DATEDAUGUST 21,
1991 X X X WHICH LEFT TO THE SOLE
UNILATERAL DETERMINATION OF THE
RESPONDENT PNB THE ORIGINAL FIXING OF
INTEREST RATE AND ITS INCREASE, WHICH
AGREEMENT IS CONTRARY TO LAW, ART.
1308 OF THE [NEW CIVIL CODE], AS
ENUNCIATED IN PONCIANO ALMEIDA V.
COURT OF APPEALS,G.R. [NO.] 113412, APRIL
17, 1996, AND CONTRARY TO PUBLIC POLICY
AND PUBLIC INTEREST, AND IN APPLYING
THE PRINCIPLE OF ESTOPPEL ARISING
FROM THE ALLEGED DELAYED COMPLAINT
OF PETITIONER[S], AND [THEIR] PAYMENT OF
THE INTEREST CHARGED.
B. CONSEQUENTLY, THE COURT OF
APPEALS AND THE LOWER COURT ERRED IN
NOT DECLARING THAT PNB IS NOT AT ALL
ENTITLED TO ANY INTEREST EXCEPT THE
LEGAL RATE FROM DATE OF DEMAND, AND
IN NOT APPLYING THE EXCESS OVER THE
LEGAL RATE OF THE ADMITTED PAYMENTS
MADE BY PETITIONER[S] FROM 1991-1998 IN
THE ADMITTED TOTAL AMOUNT OF
₱3,484,287.00, TO PAYMENT OF THE
PRINCIPAL OF ₱2,500,000.[00] LEAVING AN
OVERPAYMENT OF₱984,287.00 REFUNDABLE
BY RESPONDENT TO PETITIONER[S] WITH
INTEREST OF 12% PER ANNUM.
II
THE COURT OF APPEALS AND THE LOWER COURT ERRED IN
HOLDING THAT PENALTIES ARE INCLUDEDIN THE SECURED
AMOUNT, SUBJECT TO FORECLOSURE, WHEN NO PENALTIES
ARE MENTIONED [NOR] PROVIDED FOR IN THE REAL ESTATE
MORTGAGE AS A SECURED AMOUNT AND THEREFORE THE
AMOUNT OF PENALTIES SHOULDHAVE BEEN EXCLUDED FROM
[THE] FORECLOSURE AMOUNT.
III
THE COURT OF APPEALS ERRED IN REVERSING THE RULING
OF THE LOWER COURT, WHICH REDUCED THE ATTORNEY’S
FEES OF 10% OF THE TOTAL INDEBTEDNESS CHARGED IN THE
X X X EXTRAJUDICIAL FORECLOSURE TOONLY 1%, AND
[AWARDING] 10% ATTORNEY’S FEES.48
Petitioners’ Arguments
Petitioners insist that the interest rate provision in the Credit
Agreement and the Amendment to Credit Agreement should be
declared null and void, for they relegated to PNB the sole power
to fix interest rates based on arbitrary criteria or factors such as
bank policy, profitability, cost of money, foreign currency values,
and bank administrative costs; spaces for interest rates in the two
Credit Agreements and the promissory notes were left blank for
PNB to unilaterally fill, and their consent or agreement to the
interest rates imposed thereafter was not obtained; the interest
rate, which consists of the prime rate plus the bank spread, is
determined not by agreement of the parties but by PNB’s
Treasury Department in Manila. Petitioners conclude that by this
method of fixing the interest rates, the principle of mutuality of
contracts is violated, and public policy as well as Circular 90549 of
the then Central Bank had been breached.
Petitioners question the CA’s application of the principle of
estoppel, saying that no estoppel can proceed from an illegal act.
Though they failed to timely question the imposition of the
alleged illegal interest rates and continued to pay the loan on the
basis of these rates, they cannot be deemed to have acquiesced,
and hence could recover what they erroneously paid.50
Petitioners argue that if the interest rates were nullified, then their
obligation to PNB is deemed extinguished as of July 1997;
moreover, it would appear that they even made an over payment
to the bank in the amount of ₱984,287.00.
Next, petitioners suggest that since the Real Estate Mortgage
agreements did not include nor specify, as part of the secured
amount, the penalty of 24% authorized in PN 9707237, such
amount of ₱581,666.66 could not be made answerable by or
collected from the mortgages covering TCTs T-14250 and T-
16208. Claiming support from Philippine Bank of Communications
[PBCom] v. Court of Appeals,51 petitioners insist that the phrase
"and other obligations owing by the mortgagor to the
mortgagee"52 in the mortgage agreements cannot embrace the
₱581,666.66 penalty, because, as held in the PBCom case, "[a]
penalty charge does not belong to the species of obligations
enumerated in the mortgage, hence, the said contract cannot be
understood to secure the penalty";53while the mortgages are the
accessory contracts, what items are secured may only be
determined from the provisions of the mortgage contracts, and
not from the Credit Agreement or the promissory notes.
Finally, petitioners submit that the trial court’s award of 1%
attorney’s fees should be maintained, given that in foreclosures, a
lawyer’s work consists merely in the preparation and filing of the
petition, and involves minimal study. 54 To allow the imposition of
a staggering ₱396,211.00 for such work would be contrary to
equity. Petitioners state that the purpose of attorney’s fees in
cases of this nature "is not to give respondent a larger
compensation for the loan than the law already allows, but to
protect it against any future loss or damage by being compelled
to retain counsel x x x to institute judicial proceedings for the
collection of its credit."55 And because the instant case involves a
simple extrajudicial foreclosure, attorney’s fees may be equitably
tempered.
Respondent’s Arguments
For its part, respondent disputes petitioners’ claim that interest
rates were unilaterally fixed by it, taking relief in the CA
pronouncement that petitioners are deemed estopped by their
failure to question the imposed rates and their continued payment
thereof without opposition. It adds that because the Credit
Agreement and promissory notes contained both an escalation
clause and a de-escalation clause, it may not be said that the
bank violated the principle of mutuality. Besides, the increase or
decrease in interest rates have been mutually agreed upon by the
parties, as shown by petitioners’ continuous payment without
protest. Respondent adds that the alleged unilateral imposition of
interest rates is not a proper subject for review by the Court
because the issue was never raised in the lower court.
As for petitioners’ claim that interest rates imposed by it are null
and void for the reasons that 1) the Credit Agreements and the
promissory notes were signed in blank; 2) interest rates were at
short periods; 3) no interest rates could be charged where no
agreement on interest rates was made in writing; 4) PNB fixed
interest rates on the basis of arbitrary policies and standards left
to its choosing; and 5) interest rates based on prime rate plus
applicable spread are indeterminate and arbitrary – PNB
counters:
a. That Credit Agreements and promissory notes were
signed by petitioner[s] in blank – Respondent claims
that this issue was never raised in the lower court.
Besides, documentary evidence prevails over
testimonial evidence; Lydia Silos’ testimony in this
regard is self-serving, unsupported and uncorroborated,
and for being the lone evidence on this issue. The fact
remains that these documents are in proper form,
presumed regular, and endure, against arbitrary claims
by Silos – who is an experienced business person – that
she signed questionable loan documents whose
provisions for interest rates were left blank, and yet she
continued to pay the interests without protest for a
number of years.56
b. That interest rates were at short periods –
Respondent argues that the law which governs and
prohibits changes in interest rates made more than once
every twelve months has been removed57 with the
issuance of Presidential Decree No. 858.58
c. That no interest rates could be charged where no
agreement on interest rates was made in writing in
violation of Article 1956 of the Civil Code, which
provides that no interest shall be due unless it has been
expressly stipulated in writing – Respondent insists that
the stipulated 25% per annum as embodied in PN
9707237 should be imposed during the interim, or the
period after the loan became due and while it remains
unpaid, and not the legal interest of 12% as claimed by
petitioners.59
d. That PNB fixed interest rates on the basis of arbitrary
policies and standards left to its choosing – According
to respondent, interest rates were fixed taking into
consideration increases or decreases as provided by
law or by the Monetary Board, the bank’s overall costs
of funds, and upon agreement of the parties.60
e. That interest rates based on prime rate plus
applicable spread are indeterminate and arbitrary – On
this score, respondent submits there are various factors
that influence interest rates, from political events to
economic developments, etc.; the cost of money,
profitability and foreign currency transactions may not
be discounted.61
On the issue of penalties, respondent reiterates the trial court’s
finding that during pre-trial, petitioners admitted that the
Statement of Account as of October 12, 1998 – which detailed and
included penalty charges as part of the total outstanding
obligation owing to the bank – was correct. Respondent justifies
the imposition and collection of a penalty as a normal banking
practice, and the standard rate per annum for all commercial
banks, at the time, was 24%.
Respondent adds that the purpose of the penalty or a penal
clause for that matter is to ensure the performance of the
obligation and substitute for damages and the payment of interest
in the event of non-compliance.62 And the promissory note –
being the principal agreement as opposed to the mortgage, which
is a mere accessory – should prevail. This being the case, its
inclusion as part of the secured amount in the mortgage
agreements is valid and necessary.
Regarding the foreclosure of the mortgages, respondent accuses
petitioners of pre-empting consolidation of its ownership over
TCTs T-14250 and T-16208; that petitioners filed Civil Case No.
5975 ostensibly to question the foreclosure and sale of properties
covered by TCTs T-14250 and T-16208 in a desperate move to
retain ownership over these properties, because they failed to
timely redeem them.
Respondent directs the attention of the Court to its petition in
G.R. No. 181046,63 where the propriety of the CA’s ruling on the
following issues is squarely raised:
 1. That the interest rate to be applied after the expiration
of the first 30-day interest period for PN 9707237 should
be 12% per annum; and
2. That PNB should reimburse petitioners the excess in
the bid price of ₱377,505.99 which is the difference
between the total amount due to PNB and the amount of
its bid price.
Our Ruling
The Court grants the Petition.
Before anything else, it must be said that it is not the function of
the Court to re-examine or re-evaluate evidence adduced by the
parties in the proceedings below. The rule admits of certain well-
recognized exceptions, though, as when the lower courts’
findings are not supported by the evidence on record or are
based on a misapprehension of facts, or when certain relevant
and undisputed facts were manifestly overlooked that, if properly
considered, would justify a different conclusion. This case falls
within such exceptions.
The Court notes that on March 5, 2008, a Resolution was issued
by the Court’s First Division denying respondent’s petition in G.R.
No. 181046, due to late filing, failure to attach the required
affidavit of service of the petition on the trial court and the
petitioners, and submission of a defective verification and
certification of non-forum shopping. On June 25, 2008, the Court
issued another Resolution denying with finality respondent’s
motion for reconsideration of the March 5, 2008 Resolution. And
on August 15, 2008, entry of judgment was made. This thus
settles the issues, as above-stated, covering a) the interest rate –
or 12% per annum– that applies upon expiration of the first 30
days interest period provided under PN 9707237, and b)the CA’s
decree that PNB should reimburse petitioner the excess in the bid
price of ₱377,505.09.
It appears that respondent’s practice, more than once proscribed
by the Court, has been carried over once more to the petitioners.
In a number of decided cases, the Court struck down provisions
in credit documents issued by PNB to, or required of, its
borrowers which allow the bank to increase or decrease interest
rates "within the limits allowed by law at any time depending on
whatever policy it may adopt in the future." Thus, in Philippine
National Bank v. Court of Appeals,64 such stipulation and similar
ones were declared in violation of Article 130865 of the Civil Code.
In a second case, Philippine National Bank v. Court of
Appeals,66 the very same stipulations found in the credit
agreement and the promissory notes prepared and issued by the
respondent were again invalidated. The Court therein said:
The Credit Agreement provided inter alia, that —
(a) The BANK reserves the right to increase the interest rate
within the limits allowed by law at any time depending on
whatever policy it may adopt in the future; Provided, that the
interest rate on this accommodation shall be correspondingly
decreased in the event that the applicable maximum interest is
reduced by law or by the Monetary Board. In either case, the
adjustment in the interest rate agreed upon shall take effect on
the effectivity date of the increase or decrease in the maximum
interest rate.
The Promissory Note, in turn, authorized the PNB to raise the rate
of interest, at any time without notice, beyond the stipulated rate
of 12% but only "within the limits allowed by law."
The Real Estate Mortgage contract likewise provided that —
(k) INCREASE OF INTEREST RATE: The rate of interest charged
on the obligation secured by this mortgage as well as the interest
on the amount which may have been advanced by the
MORTGAGEE, in accordance with the provision hereof, shall be
subject during the life of this contract to such an increase within
the rate allowed by law, as the Board of Directors of the
MORTGAGEE may prescribe for its debtors.
xxxx
In making the unilateral increases in interest rates, petitioner
bank relied on the escalation clause contained in their credit
agreement which provides, as follows:
The Bank reserves the right to increase the interest rate within the
limits allowed by law at any time depending on whatever policy it
may adopt in the future and provided, that, the interest rate on
this accommodation shall be correspondingly decreased in the
event that the applicable maximum interest rate is reduced by law
or by the Monetary Board. In either case, the adjustment in the
interest rate agreed upon shall take effect on the effectivity date
of the increase or decrease in maximum interest rate.
This clause is authorized by Section 2 of Presidential Decree
(P.D.) No. 1684 which further amended Act No. 2655 ("The Usury
Law"), as amended, thus:
Section 2. The same Act is hereby amended by adding a new
section after Section 7, to read as follows:
Sec. 7-a. Parties to an agreement pertaining to a loan or
forbearance of money, goods or credits may stipulate that the
rate of interest agreed upon may be increased in the event that
the applicable maximum rate of interest is increased bylaw or by
the Monetary Board; Provided, That such stipulation shall be valid
only if there is also a stipulation in the agreement that the rate of
interest agreed upon shall be reduced in the event that the
applicable maximum rate of interest is reduced by law or by the
Monetary Board; Provided further, That the adjustment in the rate
of interest agreed upon shall take effect on or after the effectivity
of the increase or decrease in the maximum rate of interest.
Section 1 of P.D. No. 1684 also empowered the Central Bank’s
Monetary Board to prescribe the maximum rates of interest for
loans and certain forbearances. Pursuant to such authority, the
Monetary Board issued Central Bank (C.B.) Circular No. 905,
series of 1982, Section 5 of which provides:
Sec. 5. Section 1303 of the Manual of Regulations (for Banks and
Other Financial Intermediaries) is hereby amended to read as
follows:
Sec. 1303. Interest and Other Charges.
— The rate of interest, including commissions, premiums, fees
and other charges, on any loan, or forbearance of any money,
goods or credits, regardless of maturity and whether secured or
unsecured, shall not be subject to any ceiling prescribed under or
pursuant to the Usury Law, as amended.
P.D. No. 1684 and C.B. Circular No. 905 no more than allow
contracting parties to stipulate freely regarding any subsequent
adjustment in the interest rate that shall accrue on a loan or
forbearance of money, goods or credits. In fine, they can agree to
adjust, upward or downward, the interest previously stipulated.
However, contrary to the stubborn insistence of petitioner bank,
the said law and circular did not authorize either party to
unilaterally raise the interest rate without the other’s consent.
It is basic that there can be no contract in the true sense in the
absence of the element of agreement, or of mutual assent of the
parties. If this assent is wanting on the part of the one who
contracts, his act has no more efficacy than if it had been done
under duress or by a person of unsound mind.
Similarly, contract changes must be made with the consent of the
contracting parties. The minds of all the parties must meet as to
the proposed modification, especially when it affects an important
aspect of the agreement. In the case of loan contracts, it cannot
be gainsaid that the rate of interest is always a vital component,
for it can make or break a capital venture. Thus, any change must
be mutually agreed upon, otherwise, it is bereft of any binding
effect.
We cannot countenance petitioner bank’s posturing that the
escalation clause at bench gives it unbridled right to unilaterally
upwardly adjust the interest on private respondents’ loan. That
would completely take away from private respondents the right to
assent to an important modification in their agreement, and would
negate the element of mutuality in contracts. In Philippine
National Bank v. Court of Appeals, et al., 196 SCRA 536, 544-545
(1991) we held —
x x x The unilateral action of the PNB in increasing the interest
rate on the private respondent’s loan violated the mutuality of
contracts ordained in Article 1308 of the Civil Code:
Art. 1308. The contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of them.
In order that obligations arising from contracts may have the
force of law between the parties, there must be mutuality between
the parties based on their essential equality. A contract
containing a condition which makes its fulfillment dependent
exclusively upon the uncontrolled will of one of the contracting
parties, is void . . . . Hence, even assuming that the . . . loan
agreement between the PNB and the private respondent gave the
PNB a license (although in fact there was none) to increase the
interest rate at will during the term of the loan, that license would
have been null and void for being violative of the principle of
mutuality essential in contracts. It would have invested the loan
agreement with the character of a contract of adhesion, where the
parties do not bargain on equal footing, the weaker party’s (the
debtor) participation being reduced to the alternative "to take it or
leave it" . . . . Such a contract is a veritable trap for the weaker
party whom the courts of justice must protect against abuse and
imposition.67 (Emphases supplied)
Then again, in a third case, Spouses Almeda v. Court of
Appeals,68 the Court invalidated the very same provisions in the
respondent’s prepared Credit Agreement, declaring thus:
The binding effect of any agreement between parties to a contract
is premised on two settled principles: (1) that any obligation
arising from contract has the force of law between the parties;
and (2) that there must be mutuality between the parties based on
their essential equality. Any contract which appears to be heavily
weighed in favor of one of the parties so as to lead to an
unconscionable result is void. Any stipulation regarding the
validity or compliance of the contract which is left solely to the
will of one of the parties, is likewise, invalid.
It is plainly obvious, therefore, from the undisputed facts of the
case that respondent bank unilaterally altered the terms of its
contract with petitioners by increasing the interest rates on the
loan without the prior assent of the latter. In fact, the manner of
agreement is itself explicitly stipulated by the Civil Code when it
provides, in Article 1956 that "No interest shall be due unless it
has been expressly stipulated in writing." What has been
"stipulated in writing" from a perusal of interest rate provision of
the credit agreement signed between the parties is that
petitioners were bound merely to pay 21% interest, subject to a
possible escalation or de-escalation, when 1) the circumstances
warrant such escalation or de-escalation; 2) within the limits
allowed by law; and 3) upon agreement.
Indeed, the interest rate which appears to have been agreed upon
by the parties to the contract in this case was the 21% rate
stipulated in the interest provision. Any doubt about this is in fact
readily resolved by a careful reading of the credit agreement
because the same plainly uses the phrase "interest rate agreed
upon," in reference to the original 21% interest rate. x x x
xxxx
Petitioners never agreed in writing to pay the increased interest
rates demanded by respondent bank in contravention to the tenor
of their credit agreement. That an increase in interest rates from
18% to as much as 68% is excessive and unconscionable is
indisputable. Between 1981 and 1984, petitioners had paid an
amount equivalent to virtually half of the entire principal
(₱7,735,004.66) which was applied to interest alone. By the time
the spouses tendered the amount of ₱40,142,518.00 in settlement
of their obligations; respondent bank was demanding
₱58,377,487.00 over and above those amounts already previously
paid by the spouses.
Escalation clauses are not basically wrong or legally
objectionable so long as they are not solely potestative but based
on reasonable and valid grounds. Here, as clearly demonstrated
above, not only [are] the increases of the interest rates on the
basis of the escalation clause patently unreasonable and
unconscionable, but also there are no valid and reasonable
standards upon which the increases are anchored.
xxxx
In the face of the unequivocal interest rate provisions in the credit
agreement and in the law requiring the parties to agree to
changes in the interest rate in writing, we hold that the unilateral
and progressive increases imposed by respondent PNB were null
and void. Their effect was to increase the total obligation on an
eighteen million peso loan to an amount way over three times that
which was originally granted to the borrowers. That these
increases, occasioned by crafty manipulations in the interest
rates is unconscionable and neutralizes the salutary policies of
extending loans to spur business cannot be
disputed.69 (Emphases supplied)
Still, in a fourth case, Philippine National Bank v. Court of
Appeals,70 the above doctrine was reiterated:
The promissory note contained the following stipulation:
For value received, I/we, [private respondents] jointly and
severally promise to pay to the ORDER of the PHILIPPINE
NATIONAL BANK, at its office in San Jose City, Philippines, the
sum of FIFTEEN THOUSAND ONLY (₱15,000.00), Philippine
Currency, together with interest thereon at the rate of 12% per
annum until paid, which interest rate the Bank may at any time
without notice, raise within the limits allowed by law, and I/we
also agree to pay jointly and severally ____% per annum penalty
charge, by way of liquidated damages should this note be unpaid
or is not renewed on due dated.
Payment of this note shall be as follows:
*THREE HUNDRED SIXTY FIVE DAYS* AFTER DATE
On the reverse side of the note the following condition was
stamped:
All short-term loans to be granted starting January 1, 1978 shall
be made subject to the condition that any and/or all extensions
hereof that will leave any portion of the amount still unpaid after
730 days shall automatically convert the outstanding balance into
a medium or long-term obligation as the case may be and give the
Bank the right to charge the interest rates prescribed under its
policies from the date the account was originally granted.
To secure payment of the loan the parties executed a real estate
mortgage contract which provided:
(k) INCREASE OF INTEREST RATE:
The rate of interest charged on the obligation secured by this
mortgage as well as the interest on the amount which may have
been advanced by the MORTGAGEE, in accordance with the
provision hereof, shall be subject during the life of this contract
to such an increase within the rate allowed by law, as the Board
of Directors of the MORTGAGEE may prescribe for its debtors.
xxxx
To begin with, PNB’s argument rests on a misapprehension of the
import of the appellate court’s ruling. The Court of Appeals
nullified the interest rate increases not because the promissory
note did not comply with P.D. No. 1684 by providing for a de-
escalation, but because the absence of such provision made the
clause so one-sided as to make it unreasonable.
That ruling is correct. It is in line with our decision in Banco
Filipino Savings & Mortgage Bank v. Navarro that although P.D.
No. 1684 is not to be retroactively applied to loans granted before
its effectivity, there must nevertheless be a de-escalation clause
to mitigate the one-sidedness of the escalation clause. Indeed
because of concern for the unequal status of borrowers vis-à-vis
the banks, our cases after Banco Filipino have fashioned the rule
that any increase in the rate of interest made pursuant to an
escalation clause must be the result of agreement between the
parties.
Thus in Philippine National Bank v. Court of Appeals, two
promissory notes authorized PNB to increase the stipulated
interest per annum" within the limits allowed by law at any time
depending on whatever policy [PNB] may adopt in the future;
Provided, that the interest rate on this note shall be
correspondingly decreased in the event that the applicable
maximum interest rate is reduced by law or by the Monetary
Board." The real estate mortgage likewise provided:
The rate of interest charged on the obligation secured by this
mortgage as well as the interest on the amount which may have
been advanced by the MORTGAGEE, in accordance with the
provisions hereof, shall be subject during the life of this contract
to such an increase within the rate allowed by law, as the Board
of Directors of the MORTGAGEE may prescribe for its debtors.
Pursuant to these clauses, PNB successively increased the
interest from 18% to 32%, then to 41% and then to 48%. This
Court declared the increases unilaterally imposed by [PNB] to be
in violation of the principle of mutuality as embodied in Art.1308
of the Civil Code, which provides that "[t]he contract must bind
both contracting parties; its validity or compliance cannot be left
to the will of one of them." As the Court explained:
In order that obligations arising from contracts may have the
force of law between the parties, there must be mutuality between
the parties based on their essential equality. A contract
containing a condition which makes its fulfillment dependent
exclusively upon the uncontrolled will of one of the contracting
parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555).
Hence, even assuming that the ₱1.8 million loan agreement
between the PNB and the private respondent gave the PNB a
license (although in fact there was none) to increase the interest
rate at will during the term of the loan, that license would have
been null and void for being violative of the principle of mutuality
essential in contracts. It would have invested the loan agreement
with the character of a contract of adhesion, where the parties do
not bargain on equal footing, the weaker party’s (the debtor)
participation being reduced to the alternative "to take it or leave
it" (Qua vs. Law Union & Rock Insurance Co., 95 Phil. 85). Such a
contract is a veritable trap for the weaker party whom the courts
of justice must protect against abuse and imposition.
A similar ruling was made in Philippine National Bank v. Court of
Appeals. The credit agreement in that case provided:
xxxx
On the strength of this ruling, PNB’s argument – that the spouses
Rocamora’s failure to contest the increased interest rates that
were purportedly reflected in the statements of account and the
demand letters sent by the bank amounted to their implied
acceptance of the increase – should likewise fail.
Evidently, PNB’s failure to secure the spouses Rocamora’s
consent to the increased interest rates prompted the lower courts
to declare excessive and illegal the interest rates imposed. Togo
around this lower court finding, PNB alleges that the ₱206,297.47
deficiency claim was computed using only the original 12% per
annum interest rate. We find this unlikely. Our examination of
PNB’s own ledgers, included in the records of the case, clearly
indicates that PNB imposed interest rates higher than the agreed
12% per annum rate. This confirmatory finding, albeit based
solely on ledgers found in the records, reinforces the application
in this case of the rule that findings of the RTC, when affirmed by
the CA, are binding upon this Court.75 (Emphases supplied)

Verily, all these cases, including the present one, involve identical
The BANK reserves the right to increase the interest rate within
or similar provisions found in respondent’s credit agreements
the limits allowed by law at any time depending on whatever
and promissory notes. Thus, the July 1989 Credit Agreement
policy it may adopt in the future: Provided, that the interest rate
executed by petitioners and respondent contained the following
on this accommodation shall be correspondingly decreased in
stipulation on interest:
the event that the applicable maximum interest is reduced by law
or by the Monetary Board. . . .
1.03. Interest. (a) The Loan shall be subject to interest at the rate
of 19.5% [per annum]. Interest shall be payable in advance every
As in the first case, PNB successively increased the stipulated
one hundred twenty days at the rate prevailing at the time of the
interest so that what was originally 12% per annum became, after
renewal.
only two years, 42%. In declaring the increases invalid, we held:

We cannot countenance petitioner bank’s posturing that the
escalation clause at bench gives it unbridled right to unilaterally
upwardly adjust the interest on private respondents’ loan. That
would completely take away from private respondents the right to
assent to an important modification in their agreement, and would
negate the element of mutuality in contracts.
Only recently we invalidated another round of interest increases
decreed by PNB pursuant to a similar agreement it had with other
borrowers:
(b) The Borrower agrees that the Bank may modify the interest
rate in the Loan depending on whatever policy the Bank may
adopt in the future, including without limitation, the shifting from
the floating interest rate system to the fixed interest rate system,
or vice versa. Where the Bank has imposed on the Loan interest
at a rate per annum which is equal to the Bank’s spread over the
current floating interest rate, the Borrower hereby agrees that the
Bank may, without need of notice to the Borrower, increase or
decrease its spread over the floating interest rate at any time
depending on whatever policy it may adopt in the
future.76 (Emphases supplied)

[W]hile the Usury Law ceiling on interest rates was lifted by C.B.
Circular 905, nothing in the said circular could possibly be read
as granting respondent bank carte blanche authority to raise
interest rates to levels which would either enslave its borrowers
or lead to a hemorrhaging of their assets.
In this case no attempt was made by PNB to secure the
conformity of private respondents to the successive increases in
the interest rate. Private respondents’ assent to the increases can
not be implied from their lack of response to the letters sent by
PNB, informing them of the increases. For as stated in one case,
no one receiving a proposal to change a contract is obliged to
answer the proposal.71 (Emphasis supplied)
while the eight promissory notes issued pursuant thereto granted
PNB the right to increase or reduce interest rates "within the
limits allowed by law or the Monetary Board"77 and the Real
Estate Mortgage agreement included the same right to increase or
reduce interest rates "at any time depending on whatever policy
PNB may adopt in the future."78
On the basis of the Credit Agreement, petitioners issued
promissory notes which they signed in blank, and respondent
later on entered their corresponding interest rates, as follows:
1st Promissory Note dated July 24, 1989 – 19.5%;

2nd Promissory Note dated November 22, 1989 – 23%;

We made the same pronouncement in a fifth case, New
Sampaguita Builders Construction, Inc. v. Philippine National
Bank,72 thus – 3rd Promissory Note dated March 21, 1990 – 22%;

Courts have the authority to strike down or to modify provisions 4th Promissory Note dated July 19, 1990 – 24%;
in promissory notes that grant the lenders unrestrained power to
increase interest rates, penalties and other charges at the latter’s
sole discretion and without giving prior notice to and securing the 5th Promissory Note dated December 17, 1990 – 28%;
consent of the borrowers. This unilateral authority is anathema to
the mutuality of contracts and enable lenders to take undue 6th Promissory Note dated February 14, 1991 – 32%;
advantage of borrowers. Although the Usury Law has been
effectively repealed, courts may still reduce iniquitous or
unconscionable rates charged for the use of money. Furthermore, 7th Promissory Note dated March 1, 1991 – 30%; and
excessive interests, penalties and other charges not revealed in
disclosure statements issued by banks, even if stipulated in the 8th Promissory Note dated July 11, 1991 – 24%.79
promissory notes, cannot be given effect under the Truth in
Lending Act.73 (Emphasis supplied)
On the other hand, the August 1991 Amendment to Credit
Agreement contains the following stipulation regarding interest:
Yet again, in a sixth disposition, Philippine National Bank v.
Spouses Rocamora,74 the above pronouncements were reiterated
to debunk PNB’s repeated reliance on its invalidated contract 1.03. Interest on Line Availments. (a) The Borrowers agree to pay
stipulations: interest on each Availment from date of each Availment up to but
not including the date of full payment thereof at the rate per
annum which is determined by the Bank to be prime rate plus
We repeated this rule in the 1994 case of PNB v. CA and Jayme applicable spread in effect as of the date of each
Fernandez and the 1996 case of PNB v. CA and Spouses Basco. Availment.80 (Emphases supplied)
Taking no heed of these rulings, the escalation clause PNB used
in the present case to justify the increased interest rates is no
different from the escalation clause assailed in the 1996 PNB and under this Amendment to Credit Agreement, petitioners again
case; in both, the interest rates were increased from the agreed executed and signed the following promissory notes in blank, for
12% per annum rate to 42%. x x x
the respondent to later on enter the corresponding interest rates,
which it did, as follows:
9th Promissory Note dated November 8, 1991 – 26%;
10th Promissory Note dated March 19, 1992 – 25%;
11th Promissory Note dated July 11, 1992 – 23%;
12th Promissory Note dated November 10, 1992 – 21%;
13th Promissory Note dated March 15, 1993 – 21%;
14th Promissory Note dated July 12, 1993 – 17.5%;
15th Promissory Note dated November 17, 1993 – 21%;
16th Promissory Note dated March 28, 1994 – 21%;
17th Promissory Note dated July 13, 1994 – 21%;
18th Promissory Note dated November 16, 1994 – 16%;
19th Promissory Note dated April 10, 1995 – 21%;
20th Promissory Note dated July 19, 1995 – 18.5%;
21st Promissory Note dated December 18, 1995 –
18.75%;
22nd Promissory Note dated April 22, 1996 – 18.5%;
23rd Promissory Note dated July 22, 1996 – 18.5%;
24th Promissory Note dated November 25, 1996 – 18%;
25th Promissory Note dated May 30, 1997 – 17.5%; and
26th Promissory Note (PN 9707237) dated July 30, 1997
– 25%.81
The 9th up to the 17th promissory notes provide for the payment
of interest at the "rate the Bank may at any time without notice,
raise within the limits allowed by law x x x."82 On the other hand,
the 18th up to the 26th promissory notes – which includes PN
9707237 – carried the following provision:
x x x For this purpose, I/We agree that the rate of interest herein
stipulated may be increased or decreased for the subsequent
Interest Periods, with prior notice to the Borrower in the event of
changes in interest rate prescribed by law or the Monetary Board
of the Central Bank of the Philippines, or in the Bank’s overall
cost of funds. I/We hereby agree that in the event I/we are not
agreeable to the interest rate fixed for any Interest Period, I/we
shall have the option to prepay the loan or credit facility without
penalty within ten (10) calendar days from the Interest Setting
Date.83 (Emphasis supplied)
These stipulations must be once more invalidated, as was done in
previous cases. The common denominator in these cases is the
lack of agreement of the parties to the imposed interest rates. For
this case, this lack of consent by the petitioners has been made
obvious by the fact that they signed the promissory notes in
blank for the respondent to fill. We find credible the testimony of
Lydia in this respect. Respondent failed to discredit her; in fact,
its witness PNB Kalibo Branch Manager Aspa admitted that
interest rates were fixed solely by its Treasury Department in
Manila, which were then simply communicated to all PNB
branches for implementation. If this were the case, then this
would explain why petitioners had to sign the promissory notes in
blank, since the imposable interest rates have yet to be
determined and fixed by respondent’s Treasury Department in
Manila.
Moreover, in Aspa’s enumeration of the factors that determine the
interest rates PNB fixes – such as cost of money, foreign
currency values, bank administrative costs, profitability, and
considerations which affect the banking industry – it can be seen
that considerations which affect PNB’s borrowers are ignored. A
borrower’s current financial state, his feedback or opinions, the
nature and purpose of his borrowings, the effect of foreign
currency values or fluctuations on his business or borrowing, etc.
– these are not factors which influence the fixing of interest rates
to be imposed on him. Clearly, respondent’s method of fixing
interest rates based on one-sided, indeterminate, and subjective
criteria such as profitability, cost of money, bank costs, etc. is
arbitrary for there is no fixed standard or margin above or below
these considerations.
The stipulation in the promissory notes subjecting the interest
rate to review does not render the imposition by UCPB of interest
rates on the obligations of the spouses Beluso valid. According
to said stipulation:
The interest rate shall be subject to review and may be increased
or decreased by the LENDER considering among others the
prevailing financial and monetary conditions; or the rate of
interest and charges which other banks or financial institutions
charge or offer to charge for similar accommodations; and/or the
resulting profitability to the LENDER after due consideration of all
dealings with the BORROWER.
It should be pointed out that the authority to review the interest
rate was given [to] UCPB alone as the lender. Moreover, UCPB
may apply the considerations enumerated in this provision as it
wishes. As worded in the above provision, UCPB may give as
much weight as it desires to each of the following considerations:
(1) the prevailing financial and monetary condition;(2) the rate of
interest and charges which other banks or financial institutions
charge or offer to charge for similar accommodations; and/or(3)
the resulting profitability to the LENDER (UCPB) after due
consideration of all dealings with the BORROWER (the spouses
Beluso). Again, as in the case of the interest rate provision, there
is no fixed margin above or below these considerations.
In view of the foregoing, the Separability Clause cannot save
either of the two options of UCPB as to the interest to be
imposed, as both options violate the principle of mutuality of
contracts.84 (Emphases supplied)
To repeat what has been said in the above-cited cases, any
modification in the contract, such as the interest rates, must be
made with the consent of the contracting parties.1âwphi1 The
minds of all the parties must meet as to the proposed
modification, especially when it affects an important aspect of the
agreement. In the case of loan agreements, the rate of interest is a
principal condition, if not the most important component. Thus,
any modification thereof must be mutually agreed upon;
otherwise, it has no binding effect.
What is even more glaring in the present case is that, the
stipulations in question no longer provide that the parties shall
agree upon the interest rate to be fixed; -instead, they are worded
in such a way that the borrower shall agree to whatever interest
rate respondent fixes. In credit agreements covered by the above-
cited cases, it is provided that:
The Bank reserves the right to increase the interest rate within the
limits allowed by law at any time depending on whatever policy it
may adopt in the future: Provided, that, the interest rate on this
accommodation shall be correspondingly decreased in the event
that the applicable maximum interest rate is reduced by law or by
the Monetary Board. In either case, the adjustment in the interest
rate agreed upon shall take effect on the effectivity date of the
increase or decrease in maximum interest rate.85 (Emphasis
supplied)
Whereas, in the present credit agreements under scrutiny, it is
stated that:
IN THE JULY 1989 CREDIT AGREEMENT
(b) The Borrower agrees that the Bank may modify the interest
rate on the Loan depending on whatever policy the Bank may
adopt in the future, including without limitation, the shifting from
the floating interest rate system to the fixed interest rate system,
or vice versa. Where the Bank has imposed on the Loan interest
at a rate per annum, which is equal to the Bank’s spread over the
current floating interest rate, the Borrower hereby agrees that the
Bank may, without need of notice to the Borrower, increase or
decrease its spread over the floating interest rate at any time
depending on whatever policy it may adopt in the
future.86 (Emphases supplied)
IN THE AUGUST 1991 AMENDMENT TO CREDIT AGREEMENT
1.03. Interest on Line Availments. (a) The Borrowers agree to pay
interest on each Availment from date of each Availment up to but
not including the date of full payment thereof at the rate per
annum which is determined by the Bank to be prime rate plus
applicable spread in effect as of the date of each
Availment.87 (Emphasis supplied)
Plainly, with the present credit agreement, the element of consent
or agreement by the borrower is now completely lacking, which
makes respondent’s unlawful act all the more reprehensible.
Accordingly, petitioners are correct in arguing that estoppel
should not apply to them, for "[e]stoppel cannot be predicated on
an illegal act. As between the parties to a contract, validity cannot
be given to it by estoppel if it is prohibited by law or is against
public policy."88
It appears that by its acts, respondent violated the Truth in
Lending Act, or Republic Act No. 3765, which was enacted "to
protect x x x citizens from a lack of awareness of the true cost of
credit to the user by using a full disclosure of such cost with a
view of preventing the uninformed use of credit to the detriment
of the national economy."89 The law "gives a detailed enumeration
of the specific information required to be disclosed, among which
are the interest and other charges incident to the extension of
credit."90 Section 4 thereof provides that a disclosure statement
must be furnished prior to the consummation of the transaction,
thus:
SEC. 4. Any creditor shall furnish to each person to whom credit
is extended, prior to the consummation of the transaction, a clear
statement in writing setting forth, to the extent applicable and in
accordance with rules and regulations prescribed by the Board,
the following information:
(1) the cash price or delivered price of the property or
service to be acquired;
(2) the amounts, if any, to be credited as down payment
and/or trade-in;
(3) the difference between the amounts set forth under
clauses (1) and (2);
(4) the charges, individually itemized, which are paid or
to be paid by such person in connection with the
transaction but which are not incident to the extension
of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and
centavos; and
(7) the percentage that the finance bears to the total
amount to be financed expressed as a simple annual
rate on the outstanding unpaid balance of the obligation.
Under Section 4(6), "finance charge" represents the amount to be
paid by the debtor incident to the extension of credit such as
interest or discounts, collection fees, credit investigation fees,
attorney’s fees, and other service charges. The total finance
charge represents the difference between (1) the aggregate
consideration (down payment plus installments) on the part of the
debtor, and (2) the sum of the cash price and non-finance
charges.91
By requiring the petitioners to sign the credit documents and the
promissory notes in blank, and then unilaterally filling them up
later on, respondent violated the Truth in Lending Act, and was
remiss in its disclosure obligations. In one case, which the Court
finds applicable here, it was held:
UCPB further argues that since the spouses Beluso were duly
given copies of the subject promissory notes after their
execution, then they were duly notified of the terms thereof, in
substantial compliance with the Truth in Lending Act.
Once more, we disagree. Section 4 of the Truth in Lending Act
clearly provides that the disclosure statement must be furnished
prior to the consummation of the transaction:
SEC. 4. Any creditor shall furnish to each person to whom credit
is extended, prior to the consummation of the transaction, a clear
statement in writing setting forth, to the extent applicable and in
accordance with rules and regulations prescribed by the Board,
the following information:
(1) the cash price or delivered price of the property or
service to be acquired;
(2) the amounts, if any, to be credited as down payment
and/or trade-in;
(3) the difference between the amounts set forth under
clauses (1) and (2);
(4) the charges, individually itemized, which are paid or
to be paid by such person in connection with the
transaction but which are not incident to the extension
of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and
centavos; and
(7) the percentage that the finance bears to the total
amount to be financed expressed as a simple annual
rate on the outstanding unpaid balance of the obligation.
The rationale of this provision is to protect users of credit from a
lack of awareness of the true cost thereof, proceeding from the
experience that banks are able to conceal such true cost by
hidden charges, uncertainty of interest rates, deduction of
interests from the loaned amount, and the like. The law thereby
seeks to protect debtors by permitting them to fully appreciate
the true cost of their loan, to enable them to give full consent to
the contract, and to properly evaluate their options in arriving at
business decisions. Upholding UCPB’s claim of substantial
compliance would defeat these purposes of the Truth in Lending
Act. The belated discovery of the true cost of credit will too often
not be able to reverse the ill effects of an already consummated
business decision.
In addition, the promissory notes, the copies of which were
presented to the spouses Beluso after execution, are not
sufficient notification from UCPB. As earlier discussed, the
interest rate provision therein does not sufficiently indicate with
particularity the interest rate to be applied to the loan covered by
said promissory notes.92 (Emphases supplied)
However, the one-year period within which an action for violation
of the Truth in Lending Act may be filed evidently prescribed long
ago, or sometime in 2001, one year after petitioners received the
March 2000 demand letter which contained the illegal charges.
The fact that petitioners later received several statements of
account detailing its outstanding obligations does not cure
respondent’s breach. To repeat, the belated discovery of the true
cost of credit does not reverse the ill effects of an already
consummated business decision.93
Neither may the statements be considered proposals sent to
secure the petitioners’ conformity; they were sent after the
imposition and application of the interest rate, and not before.
And even if it were to be presumed that these are proposals or
offers, there was no acceptance by petitioners. "No one receiving
a proposal to modify a loan contract, especially regarding
interest, is obliged to answer the proposal."94
Loan and credit arrangements may be made enticing by, or
"sweetened" with, offers of low initial interest rates, but actually
accompanied by provisions written in fine print that allow lenders
to later on increase or decrease interest rates unilaterally, without
the consent of the borrower, and depending on complex and
subjective factors. Because they have been lured into these
contracts by initially low interest rates, borrowers get caught and
stuck in the web of subsequent steep rates and penalties,
surcharges and the like. Being ordinary individuals or entities,
they naturally dread legal complications and cannot afford court
litigation; they succumb to whatever charges the lenders impose.
At the very least, borrowers should be charged rightly; but then
again this is not possible in a one-sided credit system where the
temptation to abuse is strong and the willingness to rectify is
made weak by the eternal desire for profit.
Given the above supposition, the Court cannot subscribe to
respondent’s argument that in every repricing of petitioners’ loan
availment, they are given the right to question the interest rates
imposed. The import of respondent’s line of reasoning cannot be
other than that if one out of every hundred borrowers questions
respondent’s practice of unilaterally fixing interest rates, then
only the loan arrangement with that lone complaining borrower
will enjoy the benefit of review or re-negotiation; as to the 99
others, the questionable practice will continue unchecked, and
respondent will continue to reap the profits from such
unscrupulous practice. The Court can no more condone a view so
perverse. This is exactly what the Court meant in the immediately
preceding cited case when it said that "the belated discovery of
the true cost of credit does not reverse the ill effects of an already
consummated business decision;"95 as to the 99 borrowers who
did not or could not complain, the illegal act shall have become a
fait accompli– to their detriment, they have already suffered the
oppressive rates.
Besides, that petitioners are given the right to question the
interest rates imposed is, under the circumstances, irrelevant; we
have a situation where the petitioners do not stand on equal
footing with the respondent. It is doubtful that any borrower who
finds himself in petitioners’ position would dare question
respondent’s power to arbitrarily modify interest rates at any
time. In the second place, on what basis could any borrower
question such power, when the criteria or standards – which are
really one-sided, arbitrary and subjective – for the exercise of
such power are precisely lost on him?
For the same reasons, the Court cannot validly consider that, as
stipulated in the 18th up to the 26th promissory notes, petitioners
are granted the option to prepay the loan or credit facility without
penalty within 10 calendar days from the Interest Setting Date if
they are not agreeable to the interest rate fixed. It has been shown
that the promissory notes are executed and signed in blank,
meaning that by the time petitioners learn of the interest rate, they
are already bound to pay it because they have already pre-signed
the note where the rate is subsequently entered.
Besides, premium may not be placed upon a stipulation in a
contract which grants one party the right to choose whether to
continue with or withdraw from the agreement if it discovers that
what the other party has been doing all along is improper or
illegal.
The Court sustains petitioners’ view that the penalty may not be
included as part of the secured amount. Having found the credit
agreements and promissory notes to be tainted, we must accord
the same treatment to the mortgages. After all, "[a] mortgage and
a note secured by it are deemed parts of one transaction and are
construed together."101 Being so tainted and having the attributes
of a contract of adhesion as the principal credit documents, we
must construe the mortgage contracts strictly, and against the
party who drafted it. An examination of the mortgage agreements
reveals that nowhere is it stated that penalties are to be included
in the secured amount. Construing this silence strictly against the
respondent, the Court can only conclude that the parties did not
intend to include the penalty allowed under PN 9707237 as part of
the secured amount. Given its resources, respondent could have
– if it truly wanted to – conveniently prepared and executed an
amended mortgage agreement with the petitioners, thereby
including penalties in the amount to be secured by the
encumbered properties. Yet it did not.
With regard to attorney’s fees, it was plain error for the CA to
have passed upon the issue since it was not raised by the
petitioners in their appeal; it was the respondent that improperly
brought it up in its appellee’s brief, when it should have
interposed an appeal, since the trial court’s Decision on this issue
is adverse to it. It is an elementary principle in the subject of
appeals that an appellee who does not himself appeal cannot
obtain from the appellate court any affirmative relief other than
those granted in the decision of the court below.
x x x [A]n appellee, who is at the same time not an appellant, may
on appeal be permitted to make counter assignments of error in
ordinary actions, when the purpose is merely to defend himself
against an appeal in which errors are alleged to have been
committed by the trial court both in the appreciation of facts and
in the interpretation of the law, in order to sustain the judgment in
his favor but not when his purpose is to seek modification or
reversal of the judgment, in which case it is necessary for him to
have excepted to and appealed from the judgment.102

Thus said, respondent’s arguments relative to the credit

Since petitioners did not raise the issue of reduction of attorney’s
documents – that documentary evidence prevails over testimonial
fees, the CA possessed no authority to pass upon it at the
evidence; that the credit documents are in proper form, presumed
instance of respondent. The ruling of the trial court in this respect
regular, and endure, against arbitrary claims by petitioners,
should remain undisturbed.
experienced business persons that they are, they signed
questionable loan documents whose provisions for interest rates
were left blank, and yet they continued to pay the interests For the fixing of the proper amounts due and owing to the parties
without protest for a number of years – deserve no consideration. – to the respondent as creditor and to the petitioners who are
entitled to a refund as a consequence of overpayment
considering that they paid more by way of interest charges than
With regard to interest, the Court finds that since the escalation
the 12% per annum103 herein allowed – the case should be
clause is annulled, the principal amount of the loan is subject to
remanded to the lower court for proper accounting and
the original or stipulated rate of interest, and upon maturity, the
computation, applying the following procedure:
amount due shall be subject to legal interest at the rate of 12%
per annum. This is the uniform ruling adopted in previous cases,
including those cited here.96 The interests paid by petitioners 1. The 1st Promissory Note with the 19.5% interest rate
should be applied first to the payment of the stipulated or legal is deemed proper and paid;
and unpaid interest, as the case may be, and later, to the capital
or principal.97 Respondent should then refund the excess amount
2. All subsequent promissory notes (from the 2nd to the
of interest that it has illegally imposed upon petitioners; "[t]he
26th promissory notes) shall carry an interest rate of
amount to be refunded refers to that paid by petitioners when
only 12% per annum.104 Thus, interest payment made in
they had no obligation to do so."98 Thus, the parties’ original
excess of 12% on the 2nd promissory note shall
agreement stipulated the payment of 19.5% interest; however, this
immediately be applied to the principal, and the
rate was intended to apply only to the first promissory note which
principal shall be accordingly reduced. The reduced
expired on November 21, 1989 and was paid by petitioners; it was
principal shall then be subjected to the 12%105 interest
not intended to apply to the whole duration of the loan.
on the 3rd promissory note, and the excess over 12%
Subsequent higher interest rates have been declared illegal; but
interest payment on the 3rd promissory note shall again
because only the rates are found to be improper, the obligation to
be applied to the principal, which shall again be reduced
pay interest subsists, the same to be fixed at the legal rate of 12%
accordingly. The reduced principal shall then be
per annum. However, the 12% interest shall apply only until June
subjected to the 12% interest on the 4th promissory
30, 2013. Starting July1, 2013, the prevailing rate of interest shall
note, and the excess over12% interest payment on the
be 6% per annum pursuant to our ruling in Nacar v. Gallery
4th promissory note shall again be applied to the
Frames99 and Bangko Sentral ng Pilipinas-Monetary Board
principal, which shall again be reduced accordingly.
Circular No. 799.
And so on and so forth;

Now to the issue of penalty. PN 9707237 provides that failure to

pay it or any installment thereon, when due, shall constitute
default, and a penalty charge of 24% per annum based on the
defaulted principal amount shall be imposed. Petitioners claim
that this penalty should be excluded from the foreclosure amount
or bid price because the Real Estate Mortgage and the
Supplement thereto did not specifically include it as part of the
secured amount. Respondent justifies its inclusion in the secured
amount, saying that the purpose of the penalty or a penal clause
is to ensure the performance of the obligation and substitute for
damages and the payment of interest in the event of non-
compliance.100 Respondent adds that the imposition and
collection of a penalty is a normal banking practice, and the
standard rate per annum for all commercial banks, at the time,
was 24%. Its inclusion as part of the secured amount in the
mortgage agreements is thus valid and necessary.
3. After the above procedure is carried out, the trial
court shall be able to conclude if petitioners a) still have
an OUTSTANDING BALANCE/OBLIGATION or b) MADE
PAYMENTS OVER AND ABOVE THEIR TOTAL
OBLIGATION (principal and interest);
4. Such outstanding balance/obligation, if there be any,
shall then be subjected to a 12% per annum interest
from October 28, 1997 until January 14, 1999, which is
the date of the auction sale;
5. Such outstanding balance/obligation shall also be
charged a 24% per annum penalty from August 14, 1997
until January 14, 1999. But from this total penalty, the
petitioners’ previous payment of penalties in the amount
of ₱202,000.00made on January 27, 1998106 shall be
DEDUCTED;
 6. To this outstanding balance (3.), the interest (4.),
penalties (5.), and the final and executory award of 1%
attorney’s fees shall be ADDED;
7. The sum total of the outstanding balance (3.), interest
(4.) and 1% attorney’s fees (6.) shall be DEDUCTED from
the bid price of ₱4,324,172.96. The penalties (5.) are not
included because they are not included in the secured
amount;
3. The trial court’s award of one per cent (1%) attorney’s
fees is REINSTATED;
4. The case is ordered REMANDED to the Regional Trial
Court, Branch 6 of Kalibo, Aklan for the computation of
overpayments made by petitioners spouses Eduardo
and Lydia Silos to respondent Philippine National Bank,
taking into consideration the foregoing dispositions,
and applying the procedure hereinabove set forth;

8. The difference in (7.) [₱4,324,172.96 LESS sum total of
the outstanding balance (3.), interest (4.), and 1%
attorney’s fees (6.)] shall be DELIVERED TO THE
PETITIONERS;
9. Respondent may then proceed to consolidate its title
to TCTs T-14250 and T-16208;
5. Thereafter, the trial court is ORDERED to make a
determination as to the validity of the extrajudicial
foreclosure and sale, declaring the same null and void in
case of overpayment and ordering the release and
return of Transfer Certificates of Title Nos. T-14250 and
TCT T-16208 to petitioners, or ordering the delivery to
the petitioners of the difference between the bid price
and the total remaining obligation of petitioners, if any;

10. ON THE OTHER HAND, if after performing the

6. In the meantime, the respondent Philippine National
procedure in (2.), it turns out that petitioners made an
Bank is ENJOINED from consolidating title to Transfer
OVERPAYMENT, the interest (4.), penalties (5.), and the
Certificates of Title Nos. T-14250 and T-16208 until all
award of 1% attorney’s fees (6.) shall be DEDUCTED
the steps in the procedure above set forth have been
from the overpayment. There is no outstanding
taken and applied;
balance/obligation precisely because petitioners have
paid beyond the amount of the principal and interest;
7. The reimbursement of the excess in the bid price of
₱377,505.99, which respondent Philippine National Bank
11. If the overpayment exceeds the sum total of the
is ordered to reimburse petitioners, should be HELD IN
interest (4.), penalties (5.), and award of 1% attorney’s
ABEYANCE until the true amount owing to or owed by
fees (6.), the excess shall be RETURNED to the
the parties as against each other is determined;
petitioners, with legal interest, under the principle of
solutio indebiti;107
8. Considering that this case has been pending for such
a long time and that further proceedings, albeit
12. Likewise, if the overpayment exceeds the total
uncomplicated, are required, the trial court is ORDERED
amount of interest (4.) and award of 1% attorney’s fees
to proceed with dispatch.
(6.), the trial court shall INVALIDATE THE
EXTRAJUDICIAL FORECLOSURE AND SALE;
SO ORDERED.
13. HOWEVER, if the total amount of interest (4.) and
award of 1% attorney’s fees (6.) exceed petitioners’
overpayment, then the excess shall be DEDUCTED from
the bid price of ₱4,324,172.96;

14. The difference in (13.) [₱4,324,172.96 LESS sum total

of the interest (4.) and 1% attorney’s fees (6.)] shall be
DELIVERED TO THE PETITIONERS;

15. Respondent may then proceed to consolidate its title

to TCTs T-14250 and T-16208. The outstanding
penalties, if any, shall be collected by other means.

From the above, it will be seen that if, after proper

accounting, it turns out that the petitioners made
payments exceeding what they actually owe by way of
principal, interest, and attorney’s fees, then the
mortgaged properties need not answer for any
outstanding secured amount, because there is not any;
quite the contrary, respondent must refund the excess
to petitioners.1âwphi1 In such case, the extrajudicial
foreclosure and sale of the properties shall be declared
null and void for obvious lack of basis, the case being
one of solutio indebiti instead. If, on the other hand, it
turns out that petitioners’ overpayments in interests do
not exceed their total obligation, then the respondent
may consolidate its ownership over the properties,
since the period for redemption has expired. Its only
obligation will be to return the difference between its bid
price (₱4,324,172.96) and petitioners’ total obligation
outstanding – except penalties – after applying the
latter’s overpayments.

WHEREFORE, premises considered, the Petition is GRANTED.

The May 8, 2007 Decision of the Court of Appeals in CA-G.R. CV
No. 79650 is ANNULLED and SET ASIDE. Judgment is hereby
rendered as follows:

1. The interest rates imposed and indicated in the 2nd

up to the 26th Promissory Notes are DECLARED NULL
AND VOID, and such notes shall instead be subject to
interest at the rate of twelve percent (12%) per annum up
to June 30, 2013, and starting July 1, 2013, six percent
(6%) per annum until full satisfaction;

2. The penalty charge imposed in Promissory Note No.

9707237 shall be EXCLUDED from the amounts secured
by the real estate mortgages;
G.R. No. 201001 November 10, 2014
MCMP CONSTRUCTION CORP., Petitioner,
vs.
MONARK EQUIPMENT CORP., Respondent.
RESOLUTION
VELASCO, JR., J.:
For consideration of the Court is a Petition for Review on
Certiorari dated April 20, 20li filed by MCMP Construction Corp.
under Rule 45 of the Rules of Court. The petition seeks the
reversal of the Decision dated October 14, 20112and Resolution
dated March 9, 20123 issued by the Court of Appeals (CA) in CA
G.R. CV No. 91860 entitled Monark Equipment Corporation v.
MCMP Construction Corporation. The CA Decision affirmed the
Decision dated November 20, 20074 and Order dated April 28,
20085 issued by the Regional Trial Court, Branch 96 in Quezon
City (RTC) in Civil Case No. Q-02-4 7092 entitled Monark
Equipment Corporation v. MCMP Construction Corporation.
The facts of the case are as follows:
MCMP Construction Corporation (MCMP) leased heavy equipment
from Monark Equipment Corporation (Monark) for various periods
in 2000, the lease covered by a Rental Equipment Contract
(Contract). Thus, Monark delivered five (5) pieces of heavy
equipment to the project site of MCMP in Tanay, Rizal and Llavac,
Quezon, the delivery evidenced by invoices as well as Documents
Acknowledgment Receipt Nos. 04667 and 5706, received and
signed by representatives of MCMP, namely, Jorge Samonte on
December 5, 2000 and Rose Takahashi on January 29, 2001,
respectively. Notably, the invoices state:
"Credit sales are payable within 30 days from the date of invoice.
Customer agrees to pay interest at 24% p.a. on all amounts. In
addition, customer agrees to pay a collection fee of 1%
compounded monthly and 2% per month penalty charge for late
payment on amounts overdue. Customer agrees to pay a sum
equal to 25% of any amount due as attorney’s fees in case of suit,
and expressly submit to the jurisdiction of the courts of Quezon
City, Makati, Pasig or Manila, Metro Manila, for any legal action
arising from, this transactions."
Despite the lapse of the thirty (30)-day period indicated in the
invoices, MCMP failed to pay the rental fees. Upon demands made
upon MCMP to pay the amount due, partial payments were made
in the amount of Ph₱100,000.00 on April 15, 2001 and
Ph₱100,000.00 on August 15, 2001. Further demands went
unheeded. As of April 30, 2002, MCMP owed Monark the amount
of Ph₱1,282,481.83, broken down as follows:
Principal Accumulated PhP 765,380.33
Interest (2%) 253,226.17
2% Monthly Penalty Charge 253,226.17
Collection Fee (1%) 10,649.16
===============
Ph₱1,282,481.836
Thus, on June 18, 2002, Monark filed a suit for a Sum of Money
with the RTC docketed as Civil Case No. Q-02-47092.7 In its
Answer filed on July 5, 2002,8 MCMP alleged in defense thatthe
complaint was premature as Monark has refused to give a
detailed breakdown of its claims. MCMP further averred that it had
an agreement with Monark that it would not be charged for the
whole time that the leased equipment was in its possession but
rather only for the actual time that the equipment was used
although still on the project site. MCMP, however, admitted that
this agreement was not contained in the Contract.
During trial, Monark presented asone of its witnesses, Reynaldo
Peregrino (Peregrino), its Senior Account Manager. Peregrino
testified that there were two (2) original copies ofthe Contract,
one retained by Monark, while the other was given to MCMP. He
further testified that Monark’s copy had been lost and that diligent
efforts to recover the copy proved futile. Instead, Peregrino
presented a photocopy of the Contract which he personally had
on file. MCMP objected to the presentation of secondary evidence
to prove the contents of the Contract arguing that there were no
diligent efforts to search for the original copy. Notably, MCMP did
not present its copy of the Contract notwithstanding the directive
of the trial court to produce the same.9
On November 20, 2007, the RTC issued its Decision finding for
Monark as plaintiff, the dispositive portion of which reads:
"WHEREFORE, in view of the foregoing findings and legal
premises, judgment is hereby rendered in favor of the plaintiff,
and ordering the defendant to pay the former:
1. PhP 1,282,481.83 as balance for the rental fees of the subject
heavy equipments (sic) as of April 30, 2002, inclusive of the
interests thereof;
2. Twenty-Five percent (25%) of the total amount to be recovered
as payment for the attorney’s fees; and,
3. The costs of suit.
SO ORDERED."
From this Decision of the RTC, MCMP filed a Motion for
Reconsideration dated January 31, 2008 while Monark interposed
a Motion for Clarification and/or Partial Reconsideration.10 On
April 28, 2008, the RTC issued an Order, disposing as follows:
"WHEREFORE, in light of the foregoing, the Court finds no
reversible error in the assailed decision henceforth, the Motion
for Reconsideration of defendant is hereby DENIED for lack of
merit. On the other hand, the plaintiff’s Motion for Clarification
and/or Partial Reconsideration is hereby GRANTED for being
meritorious. Therefore, in the dispositive portion of the assailed
decision dated 20 November 2007, the following should be
included:
‘The payment of interests, charges and fees due after April 30,
2002 and up to the time when all the obligations of the defendant
to the plaintiff shall have been fully paid, computed in accordance
with the stipulations entered into between the parties under
Exhibits "A" to "G", and uniformly stated in the following wise:
Credit sales are payable within 30 days from the date of invoice.
Customer agreesto pay interest at 24% p.a. on all amounts. In
addition, customer agrees to pay a collection fee of 1%
compounded monthly and 2% per month penalty charge for late
payment on amounts overdue. Customer agrees to pay a sum
equal to 25% of any amount due as attorney’s fees in case of suit,
and expressly submit to the jurisdiction of the courts of Quezon
City, Makati, Pasig or Manila, Metro Manila, for any legal action
arising from, this transactions.’
SO ORDERED."
Unsatisfied, MCMP appealed the RTC’s Decision and Order to the
Court of Appeals (CA). Eventually, the appellate court, by a
Decision dated October 14, 2011, affirmed in totothe Decision and
Order of the RTC. MCMP’s motion for reconsideration of the CA
Decision was denied by the CA in its Resolution dated March 9,
2012.
Hence, the instant petition.
MCMP challenges the ruling of the CA arguing that the appellate
court should have disallowed the presentation of secondary
evidence to prove the existence of the Contract, following the
Best Evidence Rule. MCMP specifically argues that based on the
testimony of Peregrino, Monark did not diligently search for the
original copy of the Contract as evidenced by the fact that: 1) the
actual custodian of the document was not presented; 2) the
alleged loss was not even reported to management or the police;
and 3) Monark only searched for the original copy of the
document for the purposes of the instant case.
Petitioner’s contention is erroneous.
The Best Evidence Rule, a basic postulate requiring the
production of the original document whenever its contents are
the subject of inquiry, is contained in Section 3 of Rule 130 ofthe
Rules of Court which provides:
"Section 3. Original document must be produced; exceptions. —
When the subject of inquiry is the contents of a document, no
evidence shall be admissible other than the original document
itself, except in the following cases:
(a) When the original has been lost or destroyed, or cannot be
produced in court, without bad faith on the part of the offeror;
(b) When the original is in the custody or under the control of the In Macalinao v. Bank of the Philippine Islands,15 the Court reduced
party against whom the evidence is offered, and the latter fails to the interest imposed by the bank of 36% for being excessive and
produce it after reasonable notice; unconscionable:

(c) When the original consists of numerous accounts or other "x x x Nevertheless, it should be noted that this is not the first
documents which cannot be examined in court without great loss time that this Court has considered the interest rate of 36% per
of time and the fact sought to be established from them is only annum as excessive and unconscionable. We held in Chua vs.
the general result of the whole; and Timan:

(d) When the original is a public record in the custody of a public The stipulated interest rates of 7% and 5% per month imposed on
officer or is recorded in a public office. (Emphasis supplied)" respondents’ loans mustbe equitably reduced to 1% per month or
12% per annum. We need not unsettle the principle we had
affirmed in a plethora of cases that stipulated interest rates of 3%
Relative thereto, Sections 5 and 6 of Rule 130 provide the relevant
per month and higher are excessive, iniquitous, unconscionable
rules on the presentation of secondary evidence to prove the
and exorbitant. Such stipulations are void for being contrary to
contents of a lost document:
morals, if not against the law. While C.B. Circular No. 905-82,
which took effect on January 1, 1983, effectively removed the
"Section 5. When original document is unavailable. — When the ceiling on interest rates for both secured and unsecured loans,
original document has been lost ordestroyed, or cannot be regardless of maturity, nothing in the said circular could possibly
produced in court, the offeror, upon proof of its execution or be read as granting carte blanche authority to lenders to raise
existence and the cause of its unavailability without bad faith on interest rates to levels which would either enslave their borrowers
his part, may prove its contents by a copy, or by a recital of its or lead to a hemorrhaging of their assets. (Emphasis supplied.)
contents in some authentic document, or by the testimony of
witnesses in the order stated. (4a)
Since the stipulation on the interest rate is void, it is as if there
was no express contract thereon. Hence, courts may reduce the
Section 6. When original document is in adverse party's custody interest rate as reason and equity demand.
or control. — If the document is inthe custody or under the
control of adverse party, he must have reasonable notice to
The same is true with respect tothe penalty charge. Notably,
produce it. If after such notice and after satisfactory proof of its
under the Terms and Conditions Governing the Issuance and Use
existence, he fails to produce the document, secondary evidence
of the BPI Credit Card, it was also stated therein that respondent
may be presented as in the case of its loss."
BPI shall impose an additional penalty charge of 3% per month.
Pertinently, Article 1229 of the Civil Code states:
In Country Bankers Insurance Corporation v. Lagman,11 the Court
set down the requirements before a party may present secondary
Art. 1229. The judge shall equitably reduce the penalty when the
evidence to prove the contents of the original document
principal obligation has been partly or irregularly complied with
whenever the original copy has been lost:
by the debtor. Even if there has been no performance, the penalty
may also be reduced by the courts if it is iniquitous or
Before a party is allowed to adduce secondary evidence to prove unconscionable. In exercising this power to determine what is
the contents of the original, the offeror must prove the following: iniquitous and unconscionable, courts must consider the
(1) the existence or due execution of the original; (2) the loss and circumstances of each case since what may be iniquitous and
destruction of the original or the reason for its non-production in unconscionable in one may be totally just and equitable in
court; and (3) on the part of the offeror, the absence of bad faith another."
to which the unavailability of the original can be attributed. The
correct order of proof is as follows: existence, execution, loss,
In the more recent case of Pentacapital Investment Corporation v.
and contents.
Mahinay,16 the Court reduced the interest and penalties imposed
in a contract as follows:
In the instant case, the CA correctlyruled that the above
requisites are present. Both the CA and the RTC gave credence to
"Aside from the payment of the principal obligation of
the testimony of Peregrino that the original Contract in the
₱1,936,800.00, the parties agreed that respondent pay interest at
possession of Monark has been lost and that diligent efforts were
the rate of 25% from February 17, 1997 until fully paid. Such rate,
exerted to find the same but to no avail. Such testimony has
however, is excessive and thus, void. Since the stipulation on the
remained uncontroverted. As has been repeatedly held by this
interest rate is void, it is as if there was no express contract
Court, "findings offacts and assessment ofcredibility of witnesses
thereon. To be sure, courts may reduce the interest rate as reason
are matters best left to the trial court."12 Hence, the Court will
and equity demand. In this case, 12% interest is reasonable.
respect the evaluation of the trial court on the credibility of
Peregrino.
The promissory notes likewise required the payment of a penalty
charge of 3% per month or 36% per annum. We find such rates
MCMP, to note, contends that the Contract presented by Monark
unconscionable. This Court has recognized a penalty clause as
is not the contract that they entered into. Yet, it has failed to
an accessory obligation which the parties attach to a principal
present a copy of the Contract even despite the request ofthe trial
obligation for the purpose of ensuring the performance thereof by
court for it to produce its copy of the Contract.13 Normal business
imposing on the debtor a special prestation (generallyconsisting
practice dictates that MCMP should have asked for and retained a
of the payment of a sum of money) in case the obligation is not
copy of their agreement. Thus, MCMP’s failure to present the
fulfilled or is irregularly or inadequately fulfilled. However, a
same and even explain its failure, not only justifies the
penalty charge of 3% per month is unconscionable; hence, we
presentation by Monark of secondary evidence in accordance
reduce it to1% per month or 12% per annum, pursuant to Article
with Section 6 of Rule 130 of the Rules of Court, butit also gives
1229 of the Civil Code which states:
rise to the disputable presumption adverse to MCMP under
Section 3 (e) of Rule 131 of the Rules of Court that "evidence
willfully suppressed would be adverse if produced." Art. 1229. The judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with
by the debtor. Even if there has been no performance, the penalty
Next, MCMP claims that the piecesof equipment were not actually
may also be reduced by the courts if it is iniquitous or
delivered to it by Monark. It bears pointing out, however, that the
unconscionable.
witnesses of MCMP itself, Jorge Samonte, a Budget Supervisor of
MCMP, and Engr. Horacio A. Martinez, Sr., General Manager of
MCMP, both acknowledged the delivery of the equipment to the Lastly, respondent promised to pay 25% of his outstanding
project sites.14Clearly, the contention of MCMP is false. obligations as attorney’s fees in case of non-payment thereof.
Attorney’s fees here are in the nature of liquidated damages. As
long as said stipulation does not contravene law, morals, or
Evidently, the instant petition must be dismissed.
public order, it is strictly binding upon respondent. Nonetheless,
courts are empowered to reduce such rate if the same is
Nevertheless, the Court takes notice that the trial court imposed iniquitous or unconscionable pursuant to the above-quoted
upon MCMP a 24% per annum interest on the rental fees as well provision. This sentiment is echoed inArticle 2227 of the Civil
as a collection fee of 1% per month compounded monthly and a Code, to wit:
2% per month penalty charge. In all then, the effective interest
rate foisted upon MCMP is 60% per annum. On top of this, MCMP
Art. 2227. Liquidated damages, whether intended as an indemnity
was assessedfor attorney’s fees at the rate of 25% of the total
or a penalty, shall be equitably reduced if they are iniquitous or
amount due. These are exorbitant and unconscionable rates and,
unconscionable.
following jurisprudence, must be equitably reduced.
Hence, we reduce the stipulated attorney's fees from 25% to
10%."

Following the above principles previously laid down by the Court,

the interest and penalty charges imposed upon MCMP must also
be considered as iniquitous, unconscionable and, therefore, void.
As such, the rates may validly be reduced. Thus, the interest rate
of 24% per annum is hereby reduced to 12% per annum.
Moreover, the interest shall start to accrue thirty (30) days after
receipt of the second set of invoices on January 21, 2001, or
March 1, 2001 in accordance with the provisions in the invoices
themselves.

Additionally, the penalty and collection charge of 3% per month,

or 36% per annum, is also reduced to 6% per annum.1âwphi1 And
the amount of attorney's fees is reduced from 25% of the total
amount due to 5%.

WHEREFORE, premises considered, the instant petition is hereby

DENIED for lack of merit with the MODIFICATION that the
dispositive portion of the RTC's Decision dated November 20,
2007, as amended in an Order dated April 28, 2008, should read:

WHEREFORE, in view of the foregoing findings and legal

premises, judgment is hereby rendered in favor of the plaintiff,
and ordering the defendant to pay the former:

1. PhP 765,380.33 representing the unpaid rental fees;

2. Interest of 12% per annum on the unpaid rental fees to be

computed from March 1, 200117 until payment;

3. Penalty and collection charge of 6% per annum on the unpaid

rental fees to be computed from March 1, 2001;

4. Attorney's Fees of five percent (5%) of the total amount to be

recovered; and,

5. The costs of suit.

SO ORDERED.
G.R. No. 189404 December 11, 2013
WILGEN LOON, JERRY ARCILLA, ALBERTPEREYE, ARNOLD
PEREYE, EDGARDO OBOSE, ARNEL MALARAS, PATROCINO
TOETIN, EVELYN LEONARDO, ELMER GLOCENDA, RUFO
CUNAMAY, ROLANDOSAJOL, ROLANDO ABUCAYON, JENNIFER
NATIVIDAD, MARITESS TORION, ARMANDO LONZAGA, RIZAL
GELLIDO, EVIRDE HAQUE,1 MYRNA VINAS, RODELITO AYALA,
WINELITO OJEL, RENATO RODREGO, NENA ABINA, EMALYN
OLIVEROS, LOUIE ILAGAN, JOEL ENTIG, ARNEL ARANETA,
BENJAMIN COSE, WELITO LOON and WILLIAM
ALIPAO, Petitioners,
vs.
POWER MASTER, INC., TRI-C GENERAL SERVICES, and
SPOUSES HOMER and CARINA ALUMISIN,Respondents.
DECISION
BRION, J.:
The Factual Antecedents
Respondents Power Master, Inc. and Tri-C General Services
employed and assigned the petitioners as janitors and leadsmen
in various Philippine Long Distance Telephone
Company (PLDT) offices in Metro Manila area. Subsequently, the
petitioners filed a complaint for money claims against Power
Master, Inc., Tri-C General Services and their officers, the
spouses Homer and Carina Alumisin
(collectively, the respondents). The petitioners alleged in their
complaint that they were not paid minimum wages, overtime,
holiday, premium, service incentive leave, and thirteenth month
pays. They further averred that the respondents made them sign
blank payroll sheets. On June 11, 2001, the petitioners amended
their complaint and included illegal dismissal as their cause of
action. They claimed that the respondents relieved them from
service in retaliation for the filing of their original complaint.
Notably, the respondents did not participate in the proceedings
before the Labor Arbiter except on April 19, 2001 and May 21,
2001 when Mr. Romulo Pacia, Jr. appeared on the respondents’
behalf.5 The respondents’ counsel also appeared in a preliminary
mandatory conference on July 5, 2001.6 However, the
respondents neither filed any position paper nor proffered pieces
of evidence in their defense despite their knowledge of the
pendency of the case.
The Labor Arbiter’s Ruling
In a decision7 dated March 15, 2002, Labor Arbiter (LA) Elias H.
Salinas partially ruled in favor of the petitioners. The LA awarded
the petitioners salary differential, service incentive leave, and
thirteenth month pays. In awarding these claims, the LA stated
that the burden of proving the payment of these money claims
rests with the employer. The LA also awarded attorney’s fees in
favor of the petitioners, pursuant to Article 111 of the Labor
Code.8
However, the LA denied the petitioners’ claims for backwages,
overtime, holiday, and premium pays. The LA observed that the
petitioners failed to show that they rendered overtime work and
worked on holidays and rest days without compensation. The LA
further concluded that the petitioners cannot be declared to have
been dismissed from employment because they did not show any
notice of termination of employment. They were also not barred
from entering the respondents’ premises.
The Proceedings before the NLRC
Both parties appealed the LA’s ruling with the National Labor
Relations Commission. The petitioners disputed the LA’s denial
of their claim for backwages, overtime, holiday and premium
pays. Meanwhile, the respondents questioned the LA’s ruling on
the ground that the LA did not acquire jurisdiction over their
persons.
The respondents insisted that they were not personally served
with summons and other processes. They also claimed that they
paid the petitioners minimum wages, service incentive leave and
thirteenth month pays. As proofs, they attached photocopied and
computerized copies of payroll sheets to their memorandum on
appeal.9 They further maintained that the petitioners were validly
dismissed. They argued that the petitioners’ repeated defiance to
their transfer to different workplaces and their violations of the
company rules and regulations constituted serious misconduct
and willful disobedience.10
On January 3, 2003, the respondents filed an unverified
supplemental appeal. They attached photocopied and
computerized copies of list of employees with automated teller
machine (ATM) cards to the supplemental appeal. This list also
showed the amounts allegedly deposited in the employees’ ATM
cards.11 They also attached documentary evidence showing that
the petitioners were dismissed for cause and had been accorded
due process.
On January 22, 2003, the petitioners filed an Urgent Manifestation
and Motion12 where they asked for the deletion of the
supplemental appeal from the records because it allegedly
suffered from infirmities. First, the supplemental appeal was not
verified. Second, it was belatedly filed six months from the filing
of the respondents’ notice of appeal with memorandum on
appeal. The petitioners pointed out that they only agreed to the
respondents’ filing of a responsive pleading until December 18,
2002.13 Third¸ the attached documentary evidence on the
supplemental appeal bore the petitioners’ forged signatures.
They reiterated these allegations in an Urgent Motion to Resolve
Manifestation and Motion (To Expunge from the Records
Respondents’ Supplemental Appeal, Reply and/or
Rejoinder) dated January 31, 2003.14Subsequently, the petitioners
filed an Urgent Manifestation with Reiterating Motion to Strike-Off
the Record Supplemental Appeal/Reply, Quitclaims and Spurious
Documents Attached to Respondents’ Appeal dated August 7,
2003.15 The petitioners argued in this last motion that the payrolls
should not be given probative value because they were the
respondents’ fabrications. They reiterated that the genuine
payrolls bore their signatures, unlike the respondents’
photocopies of the payrolls. They also maintained that their
signatures in the respondents’ documents (which showed their
receipt of thirteenth month pay) had been forged.
The NLRC Ruling
In a resolution dated November 27, 2003, the NLRC partially ruled
in favor of the respondents.16 The NLRC affirmed the LA’s awards
of holiday pay and attorney’s fees. It also maintained that the LA
acquired jurisdiction over the persons of the respondents
through their voluntary appearance.
However, it allowed the respondents to submit pieces of evidence
for the first time on appeal on the ground that they had been
deprived of due process. It found that the respondents did not
actually receive the LA’s processes. It also admitted the
respondents’ unverified supplemental appeal on the ground that
technicalities may be disregarded to serve the greater interest of
substantial due process. Furthermore, the Rules of Court do not
require the verification of a supplemental pleading.
The NLRC also vacated the LA’s awards of salary differential,
thirteenth month and service incentive leave pays. In so ruling, it
gave weight to the pieces of evidence attached to the
memorandum on appeal and the supplemental appeal. It
maintained that the absence of the petitioners’ signatures in the
payrolls was not an indispensable factor for their authenticity. It
pointed out that the payment of money claims was further
evidenced by the list of employees with ATM cards. It also found
that the petitioners’ signatures were not forged. It took judicial
notice that many people use at least two or more different
signatures.
The NLRC further ruled that the petitioners were lawfully
dismissed on grounds of serious misconduct and willful
disobedience. It found that the petitioners failed to comply with
various memoranda directing them to transfer to other
workplaces and to attend training seminars for the intended
reorganization and reshuffling.
The NLRC denied the petitioners’ motion for reconsideration in a
resolution dated April 28, 2006.17 Aggrieved, the petitioners filed a
petition for certiorari under Rule 65 of the Rules of Court before
the CA.18
The CA Ruling
The CA affirmed the NLRC’s ruling. The CA held that the
petitioners were afforded substantive and procedural due
process. Accordingly, the petitioners deliberately did not explain
their side. Instead, they continuously resisted their transfer to
other PLDT offices and violated company rules and regulations. It
also upheld the NLRC’s findings on the petitioners’ monetary
claims.
The CA denied the petitioners’ motion for reconsideration in a
resolution dated August 28, 2009, prompting the petitioners to file
the present petition.19
The Petition
In the petition before this Court, the petitioners argue that the CA
committed a reversible error when it did not find that the NLRC
committed grave abuse of discretion. They reiterate their
arguments before the lower tribunals and the CA in support of
this conclusion. They also point out that the respondents posted
a bond from a surety that was not accredited by this Court and by
the NLRC. In effect, the respondents failed to perfect their appeal
before the NLRC. They further insist that the NLRC should not
have admitted the respondents’ unverified supplemental appeal.20
The Respondents’ Position
In their Comments, the respondents stress that the petitioners
only raised the issue of the validity of the appeal bond for the first
time on appeal. They also reiterate their arguments before the
NLRC and the CA. They additionally submit that the petitioners’
arguments have been fully passed upon and found unmeritorious
by the NLRC and the CA.21
The Issues
This case presents to us the following issues:
1) Whether the CA erred when it did not find that the NLRC
committed grave abuse of discretion in giving due course to the
respondents’ appeal;
a) Whether the respondents perfected their appeal before the
NLRC; and
b) Whether the NLRC properly allowed the respondents’
supplemental appeal
2) Whether the respondents were estopped from submitting
pieces of evidence for the first time on appeal;
3) Whether the petitioners were illegally dismissed and are thus
entitled to backwages;
4) Whether the petitioners are entitled to salary differential,
overtime, holiday, premium, service incentive leave, and
thirteenth month pays; and
5) Whether the petitioners are entitled to attorney’s fees.
The Court’s Ruling
The respondents perfected their
appeal with the NLRC because the
revocation of the bonding company's
authority has a prospective
application
Paragraph 2, Article 223 of the Labor Code provides that "[i]n
case of a judgment involving a monetary award, an appeal by the
employer may be perfected only upon the posting of a cash or
surety bond issued by a reputable bonding company duly
accredited by the Commission in the amount equivalent to the
monetary award in the judgment appealed from."
Contrary to the respondents’ claim, the issue of the appeal bond’s
validity may be raised for the first time on appeal since its proper
filing is a jurisdictional requirement.22 The requirement that the
appeal bond should be issued by an accredited bonding company
is mandatory and jurisdictional. The rationale of requiring an
appeal bond is to discourage the employers from using an appeal
to delay or evade the employees' just and lawful claims. It is
intended to assure the workers that they will receive the money
judgment in their favor upon the dismissal of the employer’s
appeal.23
In the present case, the respondents filed a surety bond issued by
Security Pacific Assurance Corporation (Security Pacific) on June
28, 2002. At that time, Security Pacific was still an accredited
bonding company. However, the NLRC revoked its accreditation
on February 16, 2003.24 Nonetheless, this subsequent revocation
should not prejudice the respondents who relied on its then
subsisting accreditation in good faith. In Del Rosario v. Philippine
Journalists, Inc.,25 we ruled that a bonding company’s revocation
of authority is prospective in application.
However, the respondents should post a new bond issued by an
accredited bonding company in compliance with paragraph 4,
Section 6, Rule 6 of the NLRC Rules of Procedure. This provision
states that "[a] cash or surety bond shall be valid and effective
from the date of deposit or posting, until the case is finally
decided, resolved or terminated or the award satisfied."
The CA correctly ruled that the
NLRC properly gave due course to
the respondents’ supplemental
appeal
The CA also correctly ruled that the NLRC properly gave due
course to the respondents’ supplemental appeal. Neither the laws
nor the rules require the verification of the supplemental
appeal.26 Furthermore, verification is a formal, not a jurisdictional,
requirement. It is mainly intended for the assurance that the
matters alleged in the pleading are true and correct and not of
mere speculation.27 Also, a supplemental appeal is merely an
addendum to the verified memorandum on appeal that was earlier
filed in the present case; hence, the requirement for verification
has substantially been complied with.
The respondents also timely filed their supplemental appeal on
January 3, 2003. The records of the case show that the petitioners
themselves agreed that the pleading shall be filed until December
18, 2002. The NLRC further extended the filing of the
supplemental pleading until January 3, 2003 upon the
respondents’ motion for extension.
A party may only adduce evidence
for the first time on appeal if he
adequately explains his delay in the
submission of evidence and he
sufficiently proves the allegations
sought to be proven
In labor cases, strict adherence to the technical rules of
procedure is not required. Time and again, we have allowed
evidence to be submitted for the first time on appeal with the
NLRC in the interest of substantial justice.28 Thus, we have
consistently supported the rule that labor officials should use all
reasonable means to ascertain the facts in each case speedily
and objectively, without regard to technicalities of law or
procedure, in the interest of due process.29
However, this liberal policy should still be subject to rules of
reason and fairplay. The liberality of procedural rules is qualified
by two requirements: (1) a party should adequately explain any
delay in the submission of evidence; and (2) a party should
sufficiently prove the allegations sought to be proven.30 The
reason for these requirements is that the liberal application of the
rules before quasi-judicial agencies cannot be used to perpetuate
injustice and hamper the just resolution of the case. Neither is the
rule on liberal construction a license to disregard the rules of
procedure.31
Guided by these principles, the CA grossly erred in ruling that the
NLRC did not commit grave abuse of discretion in arbitrarily
admitting and giving weight to the respondents’ pieces of
evidence for the first time on appeal.
A. The respondents failed to
adequately explain their delay
in the submission of evidence
We cannot accept the respondents’ cavalier attitude in blatantly
disregarding the NLRC Rules of Procedure. The CA gravely erred
when it overlooked that the NLRC blindly admitted and arbitrarily
gave probative value to the respondents’ evidence despite their
failure to adequately explain their delay in the submission of
evidence. Notably, the respondents’ delay was anchored on their
assertion that they were oblivious of the proceedings before the
LA. However, the respondents did not dispute the LA’s finding
that Mr. Romulo Pacia, Jr. appeared on their behalf on April 19,
2001 and May 21, 2001.32 The respondents also failed to contest
the petitioners’ assertion that the respondents’ counsel appeared
in a preliminary mandatory conference on July 5, 2001.33
Indeed, the NLRC capriciously and whimsically admitted and gave
weight to the respondents’ evidence despite its finding that they
voluntarily appeared in the compulsory arbitration proceedings.
The NLRC blatantly disregarded the fact that the respondents
voluntarily opted not to participate, to adduce evidence in their
defense and to file a position paper despite their knowledge of the
pendency of the proceedings before the LA. The respondents
were also grossly negligent in not informing the LA of the specific
building unit where the respondents were conducting their
business and their counsel’s address despite their knowledge of
their non-receipt of the processes.34
B. The respondents failed to
sufficiently prove the
allegations sought to be
proven
Furthermore, the respondents failed to sufficiently prove the
allegations sought to be proven. Why the respondents’
photocopied and computerized copies of documentary evidence
were not presented at the earliest opportunity is a serious
question that lends credence to the petitioners’ claim that the
respondents fabricated the evidence for purposes of
appeal. While we generally admit in evidence and give probative
value to photocopied documents in administrative proceedings,
allegations of forgery and fabrication should prompt the adverse
party to present the original documents for inspection.35 It was
incumbent upon the respondents to present the originals,
especially in this case where the petitioners had submitted their
specimen signatures. Instead, the respondents effectively
deprived the petitioners of the opportunity to examine and
controvert the alleged spurious evidence by not adducing the
originals. This Court is thus left with no option but to rule that the
respondents’ failure to present the originals raises the
presumption that evidence willfully suppressed would be adverse
if produced.36
It was also gross error for the CA to affirm the NLRC’s
proposition that "[i]t is of common knowledge that there are many
people who use at least two or more different signatures."37 The
NLRC cannot take judicial notice that many people use at least
two signatures, especially in this case where the petitioners
themselves disown the signatures in the respondents’ assailed
documentary evidence.38 The NLRC’s position is unwarranted and
is patently unsupported by the law and jurisprudence.
The petitioners are entitled to
attorney’s fees
The award of attorney’s fees is also warranted under the
circumstances of this case.1âwphi1 An employee is entitled to an
award of attorney’s fees equivalent to ten percent (10%) of the
amount of the wages in actions for unlawful withholding of
wages.44
As a final note, we observe that Rodelito Ayala, Winelito Ojel,
Renato Rodrego and Welito Loon are also named as petitioners in
this case. However, we deny their petition for the reason that they
were not part of the proceedings before the CA. Their failure to
timely seek redress before the CA precludes this Court from
awarding them monetary claims.
All told, we find that the NLRC committed grave abuse of
discretion in admitting and giving probative value to the
respondents' evidence on appeal, which errors the CA replicated
when it upheld the NLRC rulings.
WHEREFORE, based on these premises, we REVERSE and SET
ASIDE the decision dated June 5, 2009, and the resolution dated
August 28, 2009 of the Court of Appeals in CA-G.R. SP No. 95182.
This case is REMANDED to the Labor Arbiter for the sole purpose
of computing petitioners' (Wilgen Loon, Jerry Arcilla, Albert
Pereye, Arnold Pereye, Edgardo Obose, Arnel Malaras, Patrocino
Toetin, Evelyn Leonardo, Elmer Glocenda, Rufo Cunamay,
Rolando Sajol, Rolando Abucayon, Jennifer Natividad, Maritess
Torion, Ammndo Lonzaga, Rizal Gellido, Evirdly Haque, Myrna
Vinas, Nena Abina, Emalyn Oliveros, Louie Ilagan, Joel Entig,
Amel Araneta, Benjamin Cose and William Alipao) full backwages
(computed from the date of their respective dismissals up to the
finality of this decision) and their salary differential, service
incentive leave, holiday, thirteenth month pays, and attorney's
fees equivalent to ten percent (10%) of the withheld wages. The
respondents are further directed to immediately post a
satisfactory bond conditioned on the satisfaction of the awards
affirmed in this Decision.

Viewed in these lights, the scales of justice must tilt in favor of

SO ORDERED.
the employees. This conclusion is consistent with the rule that
the employer’s cause can only succeed on the strength of its own
evidence and not on the weakness of the employee’s evidence.39

The petitioners are entitled to

backwages

Based on the above considerations, we reverse the NLRC and the

CA’s finding that the petitioners were terminated for just cause
and were afforded procedural due process. In termination cases,
the burden of proving just and valid cause for dismissing an
employee from his employment rests upon the employer. The
employer’s failure to discharge this burden results in the finding
that the dismissal is unjustified.40 This is exactly what happened
in the present case.

The petitioners are entitled to salary

differential, service incentive,
holiday, and thirteenth month pays

We also reverse the NLRC and the CA’s finding that the
petitioners are not entitled to salary differential, service incentive,
holiday, and thirteenth month pays. As in illegal dismissal cases,
the general rule is that the burden rests on the defendant to prove
payment rather than on the plaintiff to prove non-payment of
these money claims.41 The rationale for this rule is that the
pertinent personnel files, payrolls, records, remittances and other
similar documents – which will show that differentials, service
incentive leave and other claims of workers have been paid – are
not in the possession of the worker but are in the custody and
control of the employer.42

The petitioners are not entitled to

overtime and premium pays

However, the CA was correct in its finding that the petitioners

failed to provide sufficient factual basis for the award of overtime,
and premium pays for holidays and rest days. The burden of
proving entitlement to overtime pay and premium pay for holidays
and rest days rests on the employee because these are not
incurred in the normal course of business.43 In the present case,
the petitioners failed to adduce any evidence that would show
that they actually rendered service in excess of the regular eight
working hours a day, and that they in fact worked on holidays and
rest days.
G.R. No. 201011 January 27, 2014
THERESITA, JUAN, ASUNCION, PATROCINIA, RICARDO, and
GLORIA, all surnamed DIMAGUILA, Petitioners,
vs.
JOSE and SONIA A. MONTEIRO, Respondents.
DECISION
MENDOZA, J.:
The Facts
On July 5, 1993, the respondent spouses, Jose and Sonia
Monteiro (Spouses Monteiro), along with Jose, Gerasmo, Elisa,
and Clarita Nobleza, filed their Complaint for Partition and
Damages before the RTC, against the pet1t10ners, Theresita,
Juan, Asuncion, Patrocinia, Ricardo, and Gloria Dimaguila (The
Dimaguilas), together with Rosalina, Jonathan, Eve, Sol, Venus,
Enrique, Nina, Princess Arieta, and Evangelina Borlaza. The
complaint alleged that all the pmiies were co-owners and prayed
for the pmiition of a residential house and lot located at Gat.
Tayaw St., Liliw, Laguna, with an area of 489 square meters, and
covered by Tax Declaration No. 1453. Spouses Monteiro anchored
their claim on a deed of sale executed in their favor by the heirs of
Pedro Dimaguila (Pedro).
In their Answer, the Dimaguilas and the other defendants
countered that there was no co-ownership to speak of in the first
place. They alleged that the subject property, then owned by
Maria Ignacio Buenaseda, had long been partitioned equally
between her two sons, Perfecto and Vitaliano Dimaguila, through
a Deed of Extrajudicial Partition, with its southern-half portion
assigned to Perfecto and the northern-half portion to Vitaliano.
They claimed that they were the heirs of Vitaliano and that
Spouses Monteiro had nothing to do with the property as they
were not heirs of either Perfecto or Vitaliano.
During the course of the proceedings, several incidents were
initiated, namely: (a) Motion to Dismiss for lack of legal capacity
to sue of Spouses Monteiro and for lack of cause of action; (b)
Motion for Reconsideration of the Order of denial thereof, which
was denied; (c) Motion for Production and Inspection of
Documents; (d) Motion for Reconsideration of the Order granting
the same, which was denied; (e) Motion to Defer Pre-trial; (f)
Notice of Consignation by the petitioners in the exercise of their
alleged right of redemption of the share being claimed by the
Spouses Monteiro in light of the deed of sale they produced and
claimed to have been executed by the heirs of Pedro in their
favor; (g) Motion to Remove Sonia Monteiro (Sonia) as plaintiff,
which was denied; (h) Motion for Reconsideration thereof, which
was also denied; (i) Motion for Clarification and/or Extended
Resolution; and (j) Motion to Suspend Proceedings due to a
pending Petition for Certiorari before the CA assailing several of
the RTC orders. The proceedings resumed after the promulgation
by the CA of its April 5, 2000 Resolution in CA-G.R. No. SP 52833,
which upheld the assailed RTC orders.
On January 2, 2001, upon resumption of the proceedings,
Spouses Monteiro filed their Motion for Leave to Amend and/or
Admit Amended Complaint.4 The RTC granted their motion. The
amended complaint abandoned the original claim for partition and
instead sought the recovery of possession of a portion of the
subject property occupied by the Dimagui as and other
defendants, specifically, the potiion sold to the couple by the
heirs of Pedro. Furthermore, only Spouses Monteiro were
retained as plaintiffs and the Dimaguilas as defendants.
In amending their complaint, Spouses Montiero adopted the
Dimaguilas' admission in their original answer that the subject
propetiy had already been partitioned between Perfecto and
Vitaliano, through a Deed of Extrajudicial Partition, dated October
5, 1945, and that during their lifetime, the brothers agreed that
Perfecto would become the owner of the southern-hal f portion
and Vitaliano of the northern-half portion, which division was
observed and respected by them as well as their heirs and
successors-in-interest.
Spouses Monteiro further averred that Perfecto was survived by
Esperanza, Leandro and Pedro, who had divided the southern-
half portion equally amongst themselves, with their respective 1
/3 shares measuring 81.13 square meters each; that Pedro's share
pertains to the 1 /3 of the southern-half immediately adjacent to
the northern-half adjudicated to the
Dimaguilas as heirs of Vitaliano; that on September 29, 1992,
Pedro's share was sold by his heirs to them through a Bilihan ng
Lahat Naming Karapatan (Bilihan) with the acquiescence of the
heirs of Esperanza and Leandro appearing in an Affidavit of
Conformity and Waiver; and that when they attempted to take
possession of the share of Pedro, they discovered that the
subject portion was being occupied by the Dimaguilas.
In their Answer5 to the amended complaint, the Dimaguilas
admitted that the subject property was inherited by, and divided
equally between Perfecto and Vitaliano, but denied the admission
in their original answer that it had been actually divided into
southern and nmihern portions. Instead, they argued that the
Extrajudicial Partition mentioned only the division of the subject
property "into two and share and share alike." In effect, they
argued the existence of a co-owenrship, contrary to their original
position. The Dimaguilas further argued that the Bilihan did not
specify the metes and bounds of the property sold, in violation of
Article 1458 of the Civil Code. Even assuming that such had been
specified, they averred that the sale of a definite portion of a
property owned in common was void since a co-owner could only
sell his undivided share in the property.
During the trial, Spouses Monteiro presented Pedrito Adrieta,
brother of Sonia Monteiro (Sonia), who testified that Perfecto was
his grandfather and that at the time of Perfecto's death, he had
two properties, one of which was the subject property in Liliw,
Laguna, which went to his children, Esperanza, Leonardo and
Pedro. Pedro was survived by his children Pedrito, Theresita,
Francisco, and Luis, who, in turn, sold their rights over the
subject property to Sonia.
Sonia testified that she was approached by Pedro's son,
Francisco, and was asked if she was interested in purchasing
Pedro's 1/3 share of the southern portion of the Bahay na Sato,
and that he showed her a deed of extrajudicial partition executed
by and between Perfecto and Vitaliano, as well as the tax
declaration of the property to prove that the property had already
been partitioned between the two brothers.
Engineer Baltazar F. Mesina testified that he was the geodetic
engineer hired by Spouses Monteiro to survey the property in
Liliw, and recounted that he checked the boundary of the subject
property, subdivided the lot into two and came up with a survey
plan.
Crisostomo Arves, an employee from the Office of the Municipal
Assessor, presented a certified true copy of the cadastral map of
Liliw and a list of claimants/owners.
Dominga Tolentino, a record officer of the Department of
Environment and Natural Resources (DENR), testified that as part
of her duties, she certifies and safekeeps the records of surveyed
land, including cadastral maps from the region.
One of the Dimaguilas, Asuncion, was the sole witness for the
defendants. She testified that their first counsel made a mistake
when he alleged in their original answer that the property had
already been partitioned into n01ihern and southern portions
between the two brothers, as the original answer had been rushed
and they were never given a copy of it. She claimed that the
mistake was only pointed out to her by their new counsel after
their former counsel withdrew due to cancer. She further testified
that there was no intention to partition the "bahay na bato" which
stood on the subject property, in order to preserve its historical
and sentimental value.
Ruling of the RTC
In its August 23, 2007 Decision, the RTC ruled in favor of Spouses
Monteiro and ordered the Dimaguilas to turn over the possession
of the subject 1 /3 portion of the southern-half of the property, to
wit:
WHEREOF, judgment is hereby rendered in favor of the plaintiffs
and against the defendants:
a. Ordering the defendants and all persons claiming rights under
them to peacefully vacate and turn-over possession of 1/ 3 of the
southern portion of the property covered by Tax Declaration No.
1453, specifically described as "A" of Lot 877 in the sketch plan
marked as Exhibit "I", within 60 days from the finality of this
Decision, failing which let a writ of possession issue;
b. Ordering the defendants to pay the plaintiffs, jointly and
solidarily, the amount of ?500 per month in the form of rent for
the use of the property from July 1993 until the property is
vacated;
c. Ordering the defendants to pay the plaintiffs, jointly and
solidarily, attorney's fees of ₱30,000 and litigation expense of
₱20,000.
SO ORDERED.6
The RTC found that although the extrajudicial partition merely
divided the property into two share and share alike, evidence
aliunde was appreciated to show that there was an actual division
of the property into south and north between Perfecto and
Vitaliano, and that such partition was observed and honored by
their heirs. These pieces of evidence were the cadastral map of
Liliw7 and a corresponding list of claimants, which showed that
the subject property had long been registered as Lot 876
(northern-half), claimed by Buenaventura Dimaguila
(Buenaventura), an heir of Vitaliano, and Lot 877 (southern-half),
claimed by Perfecto.
The RTC held that the manner of partition was admitted by the
Dimaguilas themselves in their original answer. It gave no
credence to the claim of Asuncion that such admission was an
error of their fonner counsel and that she was unaware of the
contents of their original answer. It noted that the Dimaguilas had
strongly maintained their theory of partition from 1992 when the
complaint was first filed, and only changed their defense in 2001
when Spouses Monteiro filed their amended complaint. It keenly
observed that it was precisely their admission which propelled
Spouses Monteiro to amend their complaint from one of partition
to recovery of possession. Thus, the RTC concluded that there
was indeed a partition of the subject property into southern-half
and northern-half portions between Perfecto and Vitaliano and
that the Dimaguilas were estopped from denying the same.
As to the authenticity of the Bilihan, where the 1 /3 share of Pedro
was sold to Spouses Monteiro, the RTC found the document to be
regular and authentic absent any piece of evidence to the
contrary. It stated that the proper persons to contest the sale
were not the Dimaguilas, who were the heirs of Vitaliano, but the
heirs of Perfecto. It noted that the records showed that the heirs
of Esperanza and Leandro (Pedro's siblings), had signified their
conformity to the pa1iition and to the sale of Pedro's 1 /3 portion.
Ruling of the CA
In its assailed August 15, 2011 Decision, the CA affirmed the
ruling of the RTC.
The CA found that Spouses Monteiro had established their case
by a preponderance of evidence thru their presentation of the
Deed of Extrajudicial Partition,8 the cadastral map and the
municipal assessor's records.9 It noted, more importantly, that the
Dimaguilas themselves corroborated the claim of partition in their
original answer. It likewise ruled that the petitioners were
estopped from denying their admission of partition after the
respondent spouses had relied on their judicial admission.
The Dimaguilas also insisted on their argument, which was raised
before the RTC, but not addressed, that the Bilihan should not
have been admitted as evidence for lack of a documentary stamp
tax, in accordance with Section 201 of the National Internal
Revenue Code (N!RC). Citing Gabucan v. Manta10 and Del Rosario
v. Hamoy,11 the CA, however, ruled that if a document which did
not bear the required documentary stamp was presented in
evidence, the court should require the proponent to affix the
requisite stamp. The CA noted that the RTC had failed to direct
Spouses Monteiro to affix the stamp and merely reminded the
presiding judge to be more vigilant on similar situations in the
future. Nonetheless, it held that the petitioners did not possess
the necessary personality to assail the sale between Spouses
Monteiro and the heirs of Pedro because it pe1iained to the
southern-half of the property to which they had no claim.
The CA likewise found sufficient basis for the award of rentals as
compensatory damages since Spouses Monteiro were wrongfully
deprived of possession of the 1/3 portion of the southern-half of
the subject property. It also upheld the award of attorney's fees
and litigation expenses by the RTC, considering that Spouses
Monteiro were compelled to litigate and incur expenses to protect
their rights and interest.
In its assailed March 5, 2012 Resolution, the CA denied the
petitioners' motion for reconsideration for lack of merit.
Hence, this petition.
ASSIGNMENT OF ERRORS
I
THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT
THERE WAS AN ACTUAL PARTITION OF THE PROPERTY
COVERED BY TAX DECLARATION NO. 1453.
II
THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT
THE 1/3 PORTION OF THE SOUTHERN HALF OF THE PROPERTY
WAS SOLD TO THE RESPONDENTS.
III
THE COURT OF APPEALS GRAVELY ERRED IN ADMITTING IN
EVIDENCE EXHIBIT C, THE BIL/HAN NG LAHA T NAMING
KARAPATAN.
IV
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT
THE RESPONDENTS ARE ENTITLED TO RECOVER POSSESSION
OF THE 1/3 PORTION OF THE SOUTHERN HALF OF THE
PROPERTY.
V
THE COURT OF APPEALS GRAVELY ERRED IN FINDING THE
PETITIONERS LIABLE FOR RENTALS FOR THE USE OF THE
PROPERTY FROM JULY 1993 UNTIL VACATED.
VI
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THE
PETITIONERS LIABLE FOR ATTORNEY'S FEES AND LITIGATION
EXPENSES.
VII
THE COURT OF APPEALS GRAVELY ERRED WHEN IT FAILED TO
CONSIDER THE PETITIONERS' SUPPLEMENTAL ANSWER TO
AMENDED COMPLAINT AND TO GRANT THE COUNTERCLAIMS
INTERPOSED THEREIN.12
The Dimaguilas argue that their original allegation regarding the
partition of the subject property into northern and southern
portions was a mistake of their former counsel, and it was not
their intention to partition the property because to do so would
damage the house thereon. Even assuming an admission was
made, the petitioners aver that such was made only by some, but
not all, of the co-owners; and that partition can only be made by
all co-owners, and allowing the admission is tantamount to
effecting partition by only some co-owners. Spouses Monteiro
themselves, in their original complaint, made an admission that
they were co-owners of the property and asserted that there was
no partition. The evidence aliunde considered by the RTC,
consisting of the cadastral map and the list of claimants, were
timely objected to during the trial as hearsay and a violation of
the best evidence rule.
The petitioners reiterate that the Bilihan should not have been
admitted into evidence because it lacked the documentary stamp
tax required by Section 201 of the NIRC, providing that no
document shall be admitted in evidence until the requisite stamps
have been affixed thereto. They argue that the ruling of
petitioners' lack of personality to assail the deed of sale is
different from the issue of the deed of sale's admissibility as
evidence. They conclude that considering that no documentary
stamp was ever affixed on the deed of sale, such should never
have been admitted into evidence and consequently, should not
have been relied upon by the lower courts to prove the sale of 1/3
of the southern portion; and that considering that the Bilihan is
inadmissible as evidence, the respondent spouses have no basis
for their claim to the subject 1/3 portion of the southern-half of the
property. Thus, they insist that the lower courts erred in awarding
to Spouses Monteiro the possession of the subject prope1iy, the
rentals, attorney's fees and litigation expenses, and in failing to
rule on their counterclaim for demolition of improvements and
payment of damages.
The assignment of errors boils down to two main issues:
I. Whether there was a pa1iition of the subject property; and
2. Whether the 1/3 portion of the southern-half of the subject
property was sold to the respondent spouses.
Ruling of the Court
At the outset, it must be pointed out that the petitioners'
assignment of errors calls for the Court to again evaluate the
evidence to determine whether there was a partition of the
property and whether the 1/3 portion of the southern half was
sold to the respondent spouses. These clearly entail questions of
fact which are beyond the Court's ambit of review under Rule 45
of the Rules of Court, especially considering that the findings of
fact of the RTC were affirmed by the CA. 13 On this ground alone,
the present petition must be denied. Nonetheless, the Court shall
delve into these factual issues to finally put this case to rest.
Partition of the Subject Property
Spouses Monteiro, as plaintiffs in the original case, had the
burden of proof to establish their case by a preponderance of
evidence, which is the weight, credit, and value of the aggregate
evidence on either side, synonymous with the term "greater
weight of the evidence." Preponderance of evidence is evidence
which is more convincing to the court as worthy of belief than
that which is offered in opposition thereto.14
To prove their claim of partition, the respondent spouses
presented the following: (1) the Deed of Extrajudicial Partition,
dated October 5, 1945, executed by and between the brothers
Perfecto and Vitaliano; (2) the cadastral map of Liliw Cadm-
484,15 dated August 6, 1976, showing that the subject property
had been divided into southern and northern portions, registered
as Lot Nos. 876 and 877; and (3) the Municipal Assessor's
records16 showing that the said lots were respectively claimed by
Buenaventura and Perfecto.
It is undisputed that the Deed of Extrajudicial Partition stated that
Perfecto and Vitaliano agreed "to divide between them into two
and share and share alike" the subject property, including the
house situated thereon. It appears, however, that the property
was actually partitioned into definite portions, namely, southern
and northern halves, as reflected in the cadastral map of Liliw,
which were respectively claimed by an heir of Vitaliano and
Perfecto himself. It, thus, appears that the subject property had
already been partitioned into definite portions more than 20 years
prior to the original complaint for partition filed in 1993, and that
such division had been observed by the brothers' heirs. As earlier
pointed out, the petitioners themselves admitted to this very fact
in their original answer, to wit:
(b) On September 5, 1945 the brothers PERFECTO and
VITALIANO DIMAGUILA executed a deed of EXTRA JUDICIAL
PARTITION of the aforedescribed property dividing the same into
two (2) equal parts as indicated in the aforesaid deed as follows,
to wit:
xxx
(c) As a result of the foregoing partition and as known by all the
parties in this case from the beginning or as soon as they
reached the age of discernment PERFECTO DIMAGUILA became
the sole and exclusive owner of the southern half of the
aforedescribed property and VITALIANO DIMAGUILA became the
sole owner of the northern half of the same property; the house
that was built thereon and still existing up to this time was
likewise equally divided between the two (2) DIMAGUILA brothers
in accordance with the extrajudicial partition of half equal shares;
xxx
2. In other words, the share of VITALIANO DIMAGUILA in the
above described property has already been long segregated and
had passed on to his heirs as is very well known by all the parties
in this case;17
xxx
(Emphases in the Original)
Section 418 of Rule 129 of the Rules of Court provides that an
admission made by a pa1iy in the course of the proceedings in
the same case does not require proof, and may be contradicted
only by showing that it was made through palpable mistake. The
petitioners argue that such admission was the palpable mistake
of their former counsel in his rush to file the answer, a copy of
which was not provided to them. Petitioner Asuncion testified:
Q So, why was that allegations (sic) made in the Answer?
A May be, (sic) in his rush to file the Answer, Atty. Paredes filed
the same without giving us a copy ...19
This contention is unacceptable. It is a purely self-serving claim
unsupported by any iota of evidence. Bare allegations,
unsubstantiated by evidence, are not equivalent to
proof.20 Furthermore, the Court notes that this position was
adopted by the petitioners only almost eight (8) years after their
original answer was filed, in response to the amended complaint
of the respondent spouses. In their original answer to the
complaint for partition, their claim that there was already a
partition into northern-half and southern-half portions, was the
very essence of their defense. It was precisely this admission
which moved the respondent spouses to amend their complaint.
The petitioners cannot now insist that the very foundation of their
original defense was a palpable mistake.
Article 143121 of the Civil Code provides that through estoppel, an
admission is rendered conclusive upon the person making it, and
cannot be denied or disproved as against the person relying
thereon. The respondent spouses had clearly relied on the
petitioners' admission and so amended their original complaint
for partition to one for recovery of possession of a portion of the
subject property. Thus, the petitioners are now estopped from
denying or attempting to prove that there was no partition of the
property.
Considering that an admission does not require proof, the
admission of the petitioners would actually be sufficient to prove
the partition even without the documents presented by the
respondent spouses. If anything, the additional evidence they
presented only served to corroborate the petitioners' admission.
The petitioners argue that they timely objected to the cadastral
map and the list of claimants presented by the respondent
spouses, on the ground that they violated the rule on hearsay and
the best evidence rule.
Anent the best evidence rule, Section 3( d) of Rule 130 of the
Rules of Court provides that when the subject of inquiry is the
contents of a document, no evidence shall be admissible other
than the original document itself, except when the original is a
public record in the custody of a public officer or is recorded in a
public office.22 Section 7 of the same Rule provides that when the
original of a document is in the custody of a public officer or is
recorded in a public office, its contents may be proved by a
certified copy issued by the public officer in custody
thereof.23 Section 24 of Rule 132 provides that the record of public
documents may be evidenced by a copy attested by the officer
having the legal custody or the record.24
Certified true copies of the cadastral map of Liliw and the
corresponding list of claimants of the area covered by the map
were presented by two public officers. The first was Crisostomo
Arves, Clerk III of the Municipal Assessor's Office, a repository of
such documents. The second was Dominga Tolentino, a DENR
employee, who, as a record officer, certifies and safekeeps
records of surveyed land involving cadastral maps. The cadastral
maps and the list of claimants, as ce1iified true copies of original
public records, fall under the exception to the best evidence rule.
As to the hearsay rule, Section 44 of Rule 130 of the Rules of
Court similarly provides that entries in official records are an
exception to the rule.25 The rule provides that entries in official
records made in the performance of the duty of a public officer of
the Philippines, or by a person in the performance of a duty
specially enjoined by law, are prima facie evidence of the facts
therein stated. The necessity of this rule consists in the
inconvenience and difficulty of requiring the official's attendance
as a witness to testify to the innumerable transactions in the
course of his duty. The document's trustworthiness consists in
the presumption of regularity of performance of official duty.26
Cadastral maps are the output of cadastral surveys. The DENR is
the department tasked to execute, supervise and manage the
conduct of cadastral surveys.27 It is, therefore, clear that the
cadastral map and the corresponding list of claimants qualify as
entries in official records as they were prepared by the DENR, as
mandated by law. As such, they are exceptions to the hearsay
rule and are primafacie evidence of the facts stated therein.
Even granting that the petitioners had not admitted the partition,
they presented no evidence to contradict the evidence of the
respondent spouses. Thus, even without the admission of the
petitioners, the respondent spouses proved by a preponderance
of evidence that there had indeed been a partition of the subject
property.

Sale of 1/3 Portion of the Southern-half

To prove that 1/3 of the southern-half portion of the subject

property was sold to them, Spouses Monteiro presented a deed of
sale entitled Bilihan ng Lahat Naming Karapatan,28 dated
September 29, 1992, wherein Pedro's share was sold by his heirs
to them, with the acquiescence of the heirs of Esperanza and
Leandro in an Affidavit of Conformity and Waiver.29 The
petitioners argue that the Bilihan should not have been admitted
into evidence because it lacked the documentary stamp tax
required by Section 201 of the NIRC.

On August 29, 1994, the petitioners filed a motion for the

production and/or inspection of documents,30 praying that
Spouses Monteiro be ordered to produce the deed of sale, which
they cited as the source of their rights as co-owners. On
November 20, 1995, Spouses Monteiro submitted their
compliance,31 furnishing the RTC and the petitioners with a
copy32 of the Bilihan. On January 3, 1996, the petitioners filed a
notice of consignation,33manifesting that they had attempted to
exercise their right of redemption as co-owners of the 1/3 portion
of the southern half of the property under Article 162334 of the
Civil Code by sending and tendering payment of redemption to
Spouses Monteiro, which was, however, returned.

By filing the notice of consignation and tendering their payment

for the redemption of the 1/3 portion of the southern-half of the
property, the petitioners, in effect, admitted the existence, due
execution and validity of the Bilihan. Consequently, they are now
estopped from questioning its admissiblity in evidence for relying
on such for their right of redemption. Additionally, the Court
notes that the copy35 of the Bilihan which was originally
submitted by Spouses Monteiro with its compliance filed on
November 20, 1995, does in fact bear a documentary stamp tax. It
could only mean that the documentary stamp tax on the sale was
properly paid. The Bilihan was, therefore, properly admitted into
evidence and considered by the RTC.

In any case, as correctly held by the lower cou1is, the petitioners,

as heirs of Vitaliano, who inherited the northern-half po1iion of
the subject property, do not possess the necessary personality to
assail the sale of the southern-half portion between Spouses
Monteiro and the heirs of Pedro.1âwphi1 They are not real parties-
in-interest who stand to be benefited or injured by the sale of the
1/3 portion of the southern-half over which they have absolutely
no right. As correctly ruled by the courts below, only fellow co-
owners have the personality to assail the sale, namely, the heirs
of Pedro's siblings, Esperanza and Leandro. They have, however,
expressly aquiesced to the sale and waived their right to the
property in the affidavit presented by Spouses Monteiro. 36 As
such, the petitioners have no right to their counterclaims of
demolition of improvements and payment of damages.

With Spouses Monteiro having sufficiently proved their claim over

the subject I /3 portion of the southern-half of the prope1iy
through the Bilihan, the lower courts did not err in awarding
possession, rentals, attorney's fees, and litigation expenses to
them.

The Court, however, finds that the award of rentals should be

reckoned from January 2, 2001, the date the Spouses Monteiro
filed their Amended Complaint seeking recovery of the subject
portion. Interest at the rate of 6% per annum shall also be
imposed on the total amount of rent due from finality of this
Decision until fully paid.37

WHEREFORE, the petition is DENIED. The August 15, 2011

Decision and the March 15, 2012 Resolution of the Court of
Appeals, in CA-G .R. CV No. 92707 are AFFIRMED with
MODIFICATION, in that:

a. The award of rent at the rate of ₱500.00 per month shall be

reckoned from January 2, 2001 until the property is vacated; and

b. Interest at the rate of 6% per annum shall be imposed on the

total amount of rent due from finality of this Decision until fully
paid.

SO ORDERED.
G.R. No. 107372 January 23, 1997
RAFAEL S. ORTAÑES, petitioner,
vs.
THE COURT OF APPEALS, OSCAR INOCENTES AND ASUNCION
LLANES INOCENTES, respondents.
RESOLUTION
FRANCISCO, J.:
On September 30, 1982, private respondents sold to petitioner
two (2) parcels of registered land in Quezon City for a
consideration of P35,000.00 and P20,000.00, respectively. The first
deed of absolute sale covering Transfer Certificate of Title (TCT)
No. 258628 provides in part:
That for and in consideration of the sum of THIRTY FIVE
THOUSAND (P35,000.00) PESOS, receipt of which in full is hereby
acknowledged, we have sold, transferred and conveyed, as we
hereby sell, transfer and convey, that subdivided portion of the
property covered by TCT No. 258628 known as Lot No. 684-G-1-B-
2 in favor of RAFAEL S. ORTAÑEZ, of legal age, Filipino, whose
marriage is under a regime of complete separation of property,
and a resident of 942 Aurora Blvd., Quezon City, his heirs or
assigns.1
while the second deed of absolute sale covering TCT. No. 243273
provides:
That for and in consideration of the sum of TWENTY THOUSAND
(P20,000.00) PESOS receipt of which in full is hereby
acknowledged, we have sold, transferred and conveyed, as we
hereby sell, transfer and convey, that consolidated-subdivided
portion of the property covered by TCT No. 243273 known as Lot
No. 5 in favor of RAFAEL S. ORTANEZ, of legal age, Filipino,
whose marriage is under a regime of complete separation of
property, and a resident of 942 Aurora Blvd., Cubao, Quezon City
his heirs or assigns.2
Private respondents received the payments for the above-
mentioned lots, but failed to deliver the titles to petitioner. On
April 9, 1990 the latter demanded from the former the delivery of
said titles.3 Private respondents, however, refused on the ground
that the title of the first lot is in the possession of another
person,4 and petitioner's acquisition of the title of the other lot is
subject to certain conditions.
Offshoot, petitioner sued private respondents for specific
performance before the RTC. In their answer with counterclaim
private respondents merely alleged the existence of the following
oral conditions5 which were never reflected in the deeds of sale:6
3.3.2 Title to the other property (TCT No. 243273) remains with the
defendants (private respondents) until plaintiff (petitioner) shows
proof that all the following requirements have been met:
(i) Plaintiff will cause the segregation of his right of way
amounting to 398 sq. m.;
(ii) Plaintiff will submit to the defendants the approved plan for
the segregation;
(iii) Plaintiff will put up a strong wall between his property and
that of defendants' lot to segregate his right of way;
(iv) Plaintiff will pay the capital gains tax and all other expenses
that may be incurred by reason of sale. . .
During trial, private respondent Oscar Inocentes, a former judge,
orally testified that the sale was subject to the above
conditions,7 although such conditions were not incorporated in
the deeds of sale. Despite petitioner's timely objections on the
ground that the introduction of said oral conditions was barred by
the parol evidence rule, the lower court nonetheless, admitted
them and eventually dismissed the complaint as well as the
counterclaim. On appeal, the Court of Appeals (CA) affirmed the
court a quo. Hence, this petition.
We are tasked to resolve the issue on the admissibility of parol
evidence to establish the alleged oral conditions-precedent to a
contract of sale, when the deeds of sale are silent on such
conditions.
The parol evidence herein introduced is inadmissible. First,
private respondents' oral testimony on the alleged conditions,
coming from a party who has an interest in the outcome of the
case, depending exclusively on human memory, is not as reliable
as written or documentary evidence.8 Spoken words could be
notoriously unreliable unlike a written contract which speaks of a
uniform language.9 Thus, under the general rule in Section 9 of
Rule 13010 of the Rules of Court, when the terms of an agreement
were reduced to writing, as in this case, it is deemed to contain all
the terms agreed upon and no evidence of such terms can be
admitted other than the contents thereof.11Considering that the
written deeds of sale were the only repository of the truth,
whatever is not found in said instruments must have been waived
and abandoned by the parties.12 Examining the deeds of sale, we
cannot even make an inference that the sale was subject to any
condition. As a contract, it is the law between the parties.13
Secondly, to buttress their argument, private respondents rely on
the case of Land Settlement Development, Co. vs.Garcia
Plantation14 where the Court ruled that a condition precedent to a
contract may be established by parol evidence. However, the
material facts of that case are different from this case. In the
former, the contract sought to be enforced15 expressly stated that
it is subject to an agreement containing the conditions-precedent
which were proven through parol evidence. Whereas, the deeds
of sale in this case, made no reference to any pre-conditions or
other agreement. In fact, the sale is denominated as absolute in
its own terms.
Third, the parol evidence herein sought to be introduced would
vary, contradict or defeat the operation of a valid
instrument,16 hence, contrary to the rule that:
The parol evidence rule forbids any addition to . . . the terms of a
written instrument by testimony purporting to show that, at or
before the signing of the document, other or different terms were
orally agreed upon by the parties.17
Although parol evidence is admissible to explain the meaning of a
contract, "it cannot serve the purpose of incorporating into the
contract additional contemporaneous conditions which are not
mentioned at all in the writing unless there has been fraud or
mistake."18 No such fraud or mistake exists in this case.
Fourth, we disagree with private respondents' argument that their
parol evidence is admissible under the exceptions provided by
the Rules, specifically, the alleged failure of the agreement to
express the true intent of the parties. Such exception obtains only
in the following instance:
[W]here the written contract is so ambiguous or obscure in terms
that the contractual intention of the parties cannot be understood
from a mere reading of the instrument. In such a case, extrinsic
evidence of the subject matter of the contract, of the relations of
the parties to each other, and of the facts and circumstances
surrounding them when they entered into the contract may be
received to enable the court to make a proper, interpretation of
the instrument.19
In this case, the deeds of sale are clear, without any ambiguity,
mistake or imperfection, much less obscurity or doubt in the
terms thereof.
Fifth, we are not persuaded by private respondents' contention
that they "put in issue by the pleadings" the failure of the written
agreement to express the true intent of the parties. Record
shows20 that private respondents did not expressly plead that the
deeds of sale were incomplete or that it did not reflect the
intention21 of the buyer (petitioner) and the seller (private
respondents). Such issue must be, "squarely presented."22Private
respondents merely alleged that the sale was subject to four (4)
conditions which they tried to prove during trial by parol
evidence.23 Obviously, this cannot be done, because they did not
plead any of the exceptions mentioned in the parol evidence
rule.24 Their case is covered by the general rule that the contents
of the writing are the only repository of the terms of the
agreement. Considering that private respondent Oscar Inocentes
is a lawyer (and former judge) he was "supposed to be steeped in
legal knowledge and practices" and was "expected to know the
consequences"25 of his signing a deed of absolute sale. Had he
given an iota's attention to scrutinize the deeds, he would have
incorporated important stipulations that the transfer of title to
said lots were conditional.26
One last thing, assuming arguendo that the parol evidence is
admissible, it should nonetheless be disbelieved as no other
evidence appears from the record to sustain the existence of the
alleged conditions. Not even the other seller, Asuncion Inocentes,
was presented to testify on such conditions.
ACCORDINGLY, the appealed decision is REVERSED and the
records of this case REMANDED to the trial court for proper
disposition in accordance with this ruling.

SO ORDERED.
G.R. No. 126006 January 29, 2004
LAPULAPU FOUNDATION, INC. and ELIAS Q. TAN, Petitioners,
vs.
COURT OF APPEALS (Seventeenth Division) and ALLIED
BANKING CORP., Respondents.
DECISION
CALLEJO, SR., J.:
Before the Court is the petition for review on certiorari filed by the
Lapulapu Foundation, Inc. and Elias Q. Tan seeking to reverse
and set aside the Decision1 dated June 26, 1996 of the Court of
Appeals (CA) in CA-G.R. CV No. 37162 ordering the petitioners,
jointly and solidarily, to pay the respondent Allied Banking
Corporation the amount of ₱493,566.61 plus interests and other
charges. Likewise, sought to be reversed and set aside is the
appellate court’s Resolution dated August 19, 1996 denying the
petitioners’ motion for reconsideration.
The case stemmed from the following facts:
Sometime in 1977, petitioner Elias Q. Tan, then President of the
co-petitioner Lapulapu Foundation, Inc., obtained four loans from
the respondent Allied Banking Corporation covered by four
promissory notes in the amounts of ₱100,000 each. The details of
the promissory notes are as follows:
Date of Maturity Amount as of
P/N No.
P/N Date 1/23/79
BD No. Nov. 7, Feb. 5,
₱123,377.76
504 1977 1978
BD No. Nov. 28, Mar. 28,
₱123,411.10
621 1977 1978
BD No. Dec. 12, Apr. 11,
₱122,322.21
716 1977 1978
BD No. Jan. 5,
May 5, 1978 ₱120,455.542
839 1978
As of January 23, 1979, the entire obligation amounted to
₱493,566.61 and despite demands made on them by the
respondent Bank, the petitioners failed to pay the same. The
respondent Bank was constrained to file with the Regional Trial
Court of Cebu City, Branch 15, a complaint seeking payment by
the petitioners, jointly and solidarily, of the sum of ₱493,566.61
representing their loan obligation, exclusive of interests, penalty
charges, attorney’s fees and costs.
In its answer to the complaint, the petitioner Foundation denied
incurring indebtedness from the respondent Bank alleging that
the loans were obtained by petitioner Tan in his personal
capacity, for his own use and benefit and on the strength of the
personal information he furnished the respondent Bank. The
petitioner Foundation maintained that it never authorized
petitioner Tan to co-sign in his capacity as its President any
promissory note and that the respondent Bank fully knew that the
loans contracted were made in petitioner Tan’s personal capacity
and for his own use and that the petitioner Foundation never
benefited, directly or indirectly, therefrom. The petitioner
Foundation then interposed a cross-claim against petitioner Tan
alleging that he, having exceeded his authority, should be solely
liable for said loans, and a counterclaim against the respondent
Bank for damages and attorney’s fees.
For his part, petitioner Tan admitted that he contracted the loans
from the respondent Bank in his personal capacity. The parties,
however, agreed that the loans were to be paid from the proceeds
of petitioner Tan’s shares of common stocks in the Lapulapu
Industries Corporation, a real estate firm. The loans were covered
by promissory notes which were automatically renewable ("rolled-
over") every year at an amount including unpaid interests, until
such time as petitioner Tan was able to pay the same from the
proceeds of his aforesaid shares.
According to petitioner Tan, the respondent Bank’s employee
required him to affix two signatures on every promissory note,
assuring him that the loan documents would be filled out in
accordance with their agreement. However, after he signed and
delivered the loan documents to the respondent Bank, these were
filled out in a manner not in accord with their agreement, such
that the petitioner Foundation was included as party thereto.
Further, prior to its filing of the complaint, the respondent Bank
made no demand on him.
After due trial, the court a quo rendered judgment the dispositive
portion of which reads:
WHEREFORE, in view of the foregoing evidences [sic], arguments
and considerations, this court hereby finds the preponderance of
evidence in favor of the plaintiff and hereby renders judgment as
follows:
"1. Requiring the defendants Elias Q. Tan and Lapulapu
Foundation, Inc. [the petitioners herein] to pay jointly and
solidarily to the plaintiff Allied Banking Corporation [the
respondent herein] the amount of ₱493,566.61 as principal
obligation for the four promissory notes, including all other
charges included in the same, with interest at 14% per annum,
computed from January 24, 1979, until the same are fully paid,
plus 2% service charges and 1% monthly penalty charges.
"2. Requiring the defendants Elias Q. Tan and Lapulapu
Foundation, Inc., to pay jointly and solidarily, attorney’s fees in
the equivalent amount of 25% of the total amount due from the
defendants on the promissory notes, including all charges;
"3. Requiring the defendants Elias Q. Tan and Lapulapu
Foundation, Inc., to pay jointly and solidarily litigation expenses
of ₱1,000.00 plus costs of the suit."3
On appeal, the CA affirmed with modification the judgment of the
court a quo by deleting the award of attorney’s fees in favor of the
respondent Bank for being without basis.
The appellate court disbelieved petitioner Tan’s claim that the
loans were his personal loans as the promissory notes
evidencing them showed upon their faces that these were
obligations of the petitioner Foundation, as contracted by
petitioner Tan himself in his "official and personal character."
Applying the parol evidence rule, the CA likewise rejected
petitioner Tan’s assertion that there was an unwritten agreement
between him and the respondent Bank that he would pay the
loans from the proceeds of his shares of stocks in the Lapulapu
Industries Corp.
Further, the CA found that demand had been made by the
respondent Bank on the petitioners prior to the filing of the
complaint a quo. It noted that the two letters of demand dated
January 3, 19794 and January 30, 19795 asking settlement of the
obligation were sent by the respondent Bank. These were
received by the petitioners as shown by the registry return
cards6 presented during trial in the court a quo.
Finally, like the court a quo, the CA applied the doctrine of
piercing the veil of corporate entity in holding the petitioners
jointly and solidarily liable. The evidence showed that petitioner
Tan had represented himself as the President of the petitioner
Foundation, opened savings and current accounts in its behalf,
and signed the loan documents for and in behalf of the latter. The
CA, likewise, found that the petitioner Foundation had allowed
petitioner Tan to act as though he had the authority to contract
the loans in its behalf. On the other hand, petitioner Tan could not
escape liability as he had used the petitioner Foundation for his
benefit.
Aggrieved, the petitioners now come to the Court alleging that:
I. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT
THE LOANS SUBJECT MATTER OF THE INSTANT PETITION ARE
ALREADY DUE AND DEMANDABLE DESPITE ABSENCE OF
PRIOR DEMAND.
II. THE COURT OF APPEALS GRAVELY ERRED IN APPLYING THE
PAROL EVIDENCE RULE AND THE DOCTRINE OF PIERCING THE
VEIL OF CORPORATE ENTITY AS BASIS FOR ADJUDGING JOINT
AND SOLIDARY LIABILITY ON THE PART OF PETITIONERS
ELIAS Q. TAN AND LAPULAPU FOUNDATION, INC.7
The petitioners assail the appellate court’s finding that the loans
had become due and demandable in view of the two demand
letters sent to them by the respondent Bank. The petitioners
insist that there was no prior demand as they vigorously deny
receiving those letters. According to petitioner Tan, the
signatures on the registry return cards were not his.
The petitioners’ denial of receipt of the demand letters was
rightfully given scant consideration by the CA as it held:
Exhibits "R" and "S" are two letters of demand, respectively dated
January 3, 1979 and January 30, 1979, asking settlement of the
obligations covered by the promissory notes. The first letter was
written by Ben Tio Peng Seng, Vice-President of the bank, and
addressed to Lapulapu Foundation, Inc., attention of Mr. Elias Q.
Tan, President, while the second was a final demand written by
the appellee’s counsel, addressed to both defendants-appellants,
and giving them five (5) days from receipt within which to settle or
judicial action would be instituted against them. Both letters were
duly received by the defendants, as shown by the registry return
cards, marked as Exhibits "R-2" and "S-1," respectively. The
allegation of Tan that he does not know who signed the said
registry return receipts merits scant consideration, for there is no
showing that the addresses thereon were wrong. Hence, the
disputable presumption "that a letter duly directed and mailed
was received in the regular course of mail" (per par. V, Section 3,
Rule 131 of the Revised Rules on Evidence) still holds.8
notes were to be paid on these dates is clear and explicit.
Nowhere was it stated therein that they would be renewed on a
year-to-year basis or "rolled-over" annually until paid from the
proceeds of petitioner Tan’s shares in the Lapulapu Industries
Corp. Accordingly, this purported unwritten agreement could not
be made to vary or contradict the terms and conditions in the
promissory notes.
Evidence of a prior or contemporaneous verbal agreement is
generally not admissible to vary, contradict or defeat the
operation of a valid contract.18 While parol evidence is admissible
to explain the meaning of written contracts, it cannot serve the
purpose of incorporating into the contract additional
contemporaneous conditions which are not mentioned at all in
writing, unless there has been fraud or mistake.19 No such
allegation had been made by the petitioners in this case.

There is no dispute that the promissory notes had already
matured. However, the petitioners insist that the loans had not
become due and demandable as they deny receipt of the
respondent Bank’s demand letters. When presented the registry
return cards during the trial, petitioner Tan claimed that he did not
recognize the signatures thereon. The petitioners’ allegation and
denial are self-serving. They cannot prevail over the registry
return cards which constitute documentary evidence and which
enjoy the presumption that, absent clear and convincing evidence
to the contrary, these were regularly issued by the postal officials
in the performance of their official duty and that they acted in
good faith.9 Further, as the CA correctly opined, mails are
presumed to have been properly delivered and received by the
addressee "in the regular course of the mail."10 As the CA noted,
there is no showing that the addresses on the registry return
cards were wrong. It is the petitioners’ burden to overcome the
presumptions by sufficient evidence, and other than their
barefaced denial, the petitioners failed to support their claim that
they did not receive the demand letters; therefore, no prior
demand was made on them by the respondent Bank.
Having established that the loans had become due and
demandable, the Court shall now resolve the issue of whether the
CA correctly held the petitioners jointly and solidarily liable
therefor.
Finally, the appellate court did not err in holding the petitioners
jointly and solidarily liable as it applied the doctrine of piercing
the veil of corporate entity. The petitioner Foundation asserts that
it has a personality separate and distinct from that of its
President, petitioner Tan, and that it cannot be held solidarily
liable for the loans of the latter.1âwphi1
The Court agrees with the CA that the petitioners cannot hide
behind the corporate veil under the following circumstances:
The evidence shows that Tan has been representing himself as
the President of Lapulapu Foundation, Inc. He opened a savings
account and a current account in the names of the corporation,
and signed the application form as well as the necessary
specimen signature cards (Exhibits "A," "B" and "C") twice, for
himself and for the foundation. He submitted a notarized
Secretary’s Certificate (Exhibit "G") from the corporation,
attesting that he has been authorized, inter alia, to sign for and in
behalf of the Lapulapu Foundation any and all checks, drafts or
other orders with respect to the bank; to transact business with
the Bank, negotiate loans, agreements, obligations, promissory
notes and other commercial documents; and to initially obtain a
loan for ₱100,000.00 from any bank (Exhibits "G-1" and "G-2").
Under these circumstances, the defendant corporation is liable
for the transactions entered into by Tan on its behalf.20

In disclaiming any liability for the loans, the petitioner Foundation
maintains that these were contracted by petitioner Tan in his
personal capacity and that it did not benefit therefrom. On the
other hand, while admitting that the loans were his personal
obligation, petitioner Tan avers that he had an unwritten
agreement with the respondent Bank that these loans would be
renewed on a year-to-year basis and paid from the proceeds of
his shares of stock in the Lapulapu Industries Corp.
These contentions are untenable.
Per its Secretary’s Certificate, the petitioner Foundation had given
its President, petitioner Tan, ostensible and apparent authority to
inter alia deal with the respondent Bank. Accordingly, the
petitioner Foundation is estopped from questioning petitioner
Tan’s authority to obtain the subject loans from the respondent
Bank. It is a familiar doctrine that if a corporation knowingly
permits one of its officers, or any other agent, to act within the
scope of an apparent authority, it holds him out to the public as
possessing the power to do those acts; and thus, the corporation
will, as against anyone who has in good faith dealt with it through
such agent, be estopped from denying the agent’s authority.21

The Court particularly finds as incredulous petitioner Tan’s

In fine, there is no cogent reason to deviate from the CA’s ruling
allegation that he was made to sign blank loan documents and
that the petitioners are jointly and solidarily liable for the loans
that the phrase "IN MY OFFICIAL/PERSONAL CAPACITY" was
contracted with the respondent Bank.
superimposed by the respondent Bank’s employee despite
petitioner Tan’s protestation. The Court is hard pressed to believe
that a businessman of petitioner Tan’s stature could have been so WHEREFORE, premises considered, the petition is DENIED and
careless as to sign blank loan documents. the Decision dated June 26, 1996 and Resolution dated August
19, 1996 of the Court of Appeals in CA-G.R. CV No. 37162 are
AFFIRMED in toto.
In contrast, as found by the CA, the promissory notes11 clearly
showed upon their faces that they are the obligation of the
petitioner Foundation, as contracted by petitioner Tan "in his SO ORDERED
official and personal capacity."12 Moreover, the application for
credit accommodation,13 the signature cards of the two accounts
in the name of petitioner Foundation,14 as well as New Current
Account Record,15 all accompanying the promissory notes, were
signed by petitioner Tan for and in the name of the petitioner
Foundation.16 These documentary evidence unequivocally and
categorically establish that the loans were solidarily contracted
by the petitioner Foundation and petitioner Tan.

As a corollary, the parol evidence rule likewise constrains this

Court to reject petitioner Tan’s claim regarding the purported
unwritten agreement between him and the respondent Bank on
the payment of the obligation. Section 9, Rule 130 of the of the
Revised Rules of Court provides that "[w]hen the terms of an
agreement have been reduced to writing, it is to be considered as
containing all the terms agreed upon and there can be, between
the parties and their successors-in-interest, no evidence of such
terms other than the contents of the written agreement."17

In this case, the promissory notes are the law between the
petitioners and the respondent Bank. These promissory notes
contained maturity dates as follows: February 5, 1978, March 28,
1978, April 11, 1978 and May 5, 1978, respectively. That these
G.R. No. 169985 June 15, 2011
MODESTO LEOVERAS, Petitioner,
vs.
CASIMERO VALDEZ, Respondent.
DECISION
BRION, J.:
Before the Court is a petition for review on certiorari1 assailing
the March 31, 2005 decision2 and the October 6, 2005
resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 68549.
The CA decision reversed the June 23, 2000 decision4 of the
Regional Trial Court (RTC), Branch 46, Urdaneta City, Pangasinan,
dismissing respondent Casimero Valdez’s complaint for
annulment of title, reconveyance and damages against petitioner
Modesto Leoveras.
FACTUAL ANTECEDENTS
Maria Sta. Maria and Dominga Manangan were the registered
owners - three-fourths (¾) and one-fourth (¼) pro-indiviso,
respectively - of a parcel of land located in Poblacion, Manaoag,
Pangasinan, covered by Original Certificate of Title (OCT) No.
24695, with an area of 28,171 square meters.5
In September 1932, Sta. Maria sold her three-fourths (¾) share to
Benigna Llamas.6 The sale was duly annotated at the back of OCT
No. 24695. When Benigna died in 1944,7 she willed her three-
fourths (¾) share equally to her sisters Alejandra Llamas and
Josefa Llamas.8 Thus, Alejandra and Josefa each owned one-half
(½) of Benigna’s three-fourths (¾) share.
On June 14, 1969, Alejandra’s heirs sold their predecessor’s one-
half (½) share (roughly equivalent to 10,564 square meters) to the
respondent, as evidenced by a Deed of Absolute Sale.9
Also on June 14, 1969, Josefa sold her own one-half (½) share
(subject property) to the respondent and the petitioner, as
evidenced by another Deed of Absolute Sale.10 On even date, the
respondent and the petitioner executed an Agreement,11 allotting
their portions of the subject property.
WITNESSETH
That we [petitioner and respondent] are the absolute owners of
[the subject property] which is particularly described as follows:
xxx
That our ownership over the said portion mentioned above is
evidenced by a Deed of Absolute Sale xxx
That in said deed of sale mentioned in the immediate preceding
paragraph, our respective share consist of 5, 282.13 [one-half of
10,564 square meters] square meter each.
That we hereby agreed and covenanted that our respective share
shall be as follows:
Modesto Leoveras – 3,020 square meters residential portion on
the northern part near the Municipal road of Poblacion Pugaro,
Manaoag, Pangasinan;
Casimero Valdez – 7,544.2712 square meters of the parcel of land
described above.13
On June 8, 1977, the petitioner and the respondent executed an
Affidavit of Adverse Claim over the subject property.14 The parties
took possession of their respective portions of the subject
property and declared it in their name for taxation purposes.15
In 1996, the respondent asked the Register of Deeds of Lingayen,
Pangasinan on the requirements for the transfer of title over the
portion allotted to him on the subject property. To his surprise,
the respondent learned that the petitioner had already obtained in
his name two transfer certificates of title (TCTs): one, TCT No.
195812 - covering an area of 3,020 square meters; and two, TCT
No. 195813 - covering an area of 1,004 square meters (or a total of
4,024 square meters).
The Register of Deeds informed the respondent that they could
not find the record of OCT No. 24695; instead, the Register of
Deeds furnished the respondent with the following16 (collectively,
petitioner’s documents):
1. Two (2) deeds of absolute sale dated June 14, 1969, both
executed by Sta. Maria, purportedly conveying an unspecified
portion of OCT No. 24695 as follows:
a. 11, 568 square meters to the respondent and petitioner17
b. 8, 689 square meters to one Virgilia Li Meneses18
2. Deed of Absolute Sale (Benigna Deed) also dated June 14, 1969
executed by Benigna19 which reads:
I, Benigna Llamas, Fernandez xxx do sell xxx by way of
ABSOLUTE SALE unto the said Casimero Valdez, Modesto
Leoveras and Virgilia Meneses their heirs and assigns, 7,544
sq.m.; 4,024 sq. m. and 8,689 sq. m. more or less respectively of a
parcel of land which is particularly described as follows:
"A parcel of land xxx covered by [OCT No.] 24695." (Emphases
added)
3. Subdivision Plan of PSU 21864 of OCT No. 2469520
4. Affidavit of Confirmation of Subdivision21 dated May 3, 1994
(Affidavit), which reads:
That we, Virgilia Li Meneses, xxx Dominga Manangan; Modesto
Leoveras; and Casimero Valdez xxx
xxx are co-owners of a certain parcel of land with an area of 28,
171 sq. m. more or less in subdivision plan Psu 21864 xxx
covered by [OCT No.] 24695 situated at Poblacion (now Pugaro),
Manaoag, Pangasinan;
xxx we agree xxx to subdivide and hereby confirmed the
subdivision in the following manner xxx:
Lot 2 with an area of 3, 020 sq. m. xxx to Modesto Leoveras xxx;
Lot 3 with an area of 1,004 sq. m. xxx to Modesto Leoveras xxx;
Lot 4 with an area of 7,544 sq. m. xxx to Casimero Valdez xxx;
Lot 5 with an area of 8, 689 sq. m. xxx to Virgilia Meneses;
Lot 6 with an area of 7,043 sq. m. xxx to Dominga Manangan
(Emphasis supplied.)
On June 21, 1996, the respondent filed a complaint for Annulment
of Title, Reconveyance and Damages against the petitioner,
seeking the reconveyance of the 1,004-square meter portion
(disputed property) covered by TCT No. 195813, on the ground
that the petitioner is entitled only to the 3,020 square meters
identified in the parties’ Agreement.
The respondent sought the nullification of the petitioner’s titles
by contesting the authenticity of the petitioner’s documents.
Particularly, the respondent assailed the Benigna Deed by
presenting Benigna’s death certificate. The respondent argued
that Benigna could not have executed a deed, which purports to
convey 4,024 square meters to the petitioner, in 1969 because
Benigna already died in 1944. The respondent added that neither
could Sta. Maria have sold to the parties her three-fourths (¾)
share in 1969 because she had already sold her share to Benigna
in 1932.22 The respondent denied his purported signature
appearing in the Affidavit,23 and prayed for:
a) xxx the cancellation of the [petitioner’s documents];
b) the cancellation of TCT No. 195813 in the name of Modesto
Leoveras and that it be reconveyed to the [respondent];
c) the cancellation and nullification of [TCT No. 195812] covering
an area of 3,020 square meters xxx;
d) [the issuance of] title xxx in the name of [respondent] over an
area of 17, 104 square meters of OCT 24695; 24 (Underscoring
supplied)
In his defense, the petitioner claimed that the parties already had
(i) delineated their respective portions of the subject property
even before they acquired it in 1969 and (ii) agreed that upon
acquisition, each would own the portion as delineated; that the
area he actually possessed and subsequently acquired has a total
area of 4,024 square meters, which he subdivided into two
portions and caused to be covered by the two TCTs in question.
The petitioner claimed that in signing the Agreement, he was led
to believe, based on the parties’ rough estimation, that the area
he actually possessed is only 3,020 square meters contrary to the
parties’ real intention - i.e., the extent of their ownership would be
based on their actual possession.25
The petitioner further claimed that the respondent voluntarily
participated in executing the Affidavit, which corrected the
mistake in the previously executed Agreement26 and confirmed
the petitioner’s ownership over the disputed property. The
petitioner asked for the dismissal of the complaint and for a
declaration that he is the lawful owner of the parcels of land
covered by his titles.
RTC RULING
The RTC dismissed the complaint. The court ruled that the
respondent failed to preponderantly prove that the Benigna Deed
and the Affidavit are fabricated and, consequently, no ground
exists to nullify the petitioner’s titles. The court observed that the
respondent did not even compare his genuine signature with the
signatures appearing in these documents.
CA RULING
On appeal, the CA reversed the RTC by ruling against the
authenticity of the Benigna Deed and the Affidavit. The CA gave
weight to Benigna’s death certificate which shows the
impossibility of Benigna’s execution of the deed in 1969. The CA
also noted the discrepancy between the respondent’s signatures
as appearing in the Affidavit, on one hand, and the documents on
record, on the other.27 The CA added that the respondent’s failure
to compare his genuine signature from his purported signatures
appearing in the petitioner’s documents is not fatal, since Section
22, Rule 132 of the Rules of Court allows the court to make its
own comparison. In light of its observations, the CA ruled:
As the totality of the evidence presented sufficiently sustains [the
respondent’s] claim that the titles issued to [the petitioner] were
based on forged and spurious documents, it behooves this Court
to annul these certificates of title.
WHEREFORE, the assailed Decision dated June 23, 2000 is SET
ASIDE. Declaring TCT No. 195812 and TCT No. 195813 as NULL
and VOID, [the petitioner] is hereby directed to reconvey the
subject parcels of land to [the respondent].28 (Emphasis added.)
Unwilling to accept the CA’s reversal of the RTC ruling, the
petitioner filed the present appeal by certiorari, claiming that the
CA committed "gross misappreciation of the facts"29 by going
beyond what the respondent sought in his complaint.
THE PETITION
The petitioner claims that the CA should not have ordered the
reconveyance of both parcels of land covered by the TCTs in
question since the respondent only seeks the reconveyance of
the disputed property – i.e., the parcel of land covered by TCT No.
195813.
The petitioner asserts that after the subject sale, the parties
physically partitioned the subject property and possessed their
respective portions, thereby setting the limits of their ownership.
The petitioner admits that the Benigna Deed is "fabricated" but
hastens to add that it was only designed (i) to affirm the "true
intent and agreement" of the parties on the extent of their
ownership, as shown by their actual physical possession, and (ii)
as a "convenient tool" to facilitate the transfer of title to his name.
THE RESPONDENT’S COMMENT
The respondent claims that since the petitioner himself admitted
using a spurious document in obtaining his titles (as alleged in
the complaint and as found by the CA), then the CA correctly
cancelled the latter’s titles.30
The petitioner forged the respondent’s signature in the Affidavit
to make it appear that he agreed to the division indicated in the
document. The respondent defended the CA’s reconveyance of
both parcels of land, covered by the petitioner’s titles, to the
respondent by arguing that if the distribution in the Affidavit is
followed, the "original intendment" of the parties on their shares
of the subject property would be "grievously impaired"31
THE ISSUES
The two basic issues32 for our resolution are:
1. Whether the CA erred in nullifying the petitioner’s titles.
2. Whether the CA erred in ordering the reconveyance of the
parcel of land covered by the petitioner’s titles.
THE RULING
We partially grant the petition.
An action for reconveyance is a legal and equitable remedy
granted to the rightful landowner, whose land was wrongfully or
erroneously registered in the name of another, to compel the
registered owner to transfer or reconvey the land to him.33 The
plaintiff in this action must allege and prove his ownership of the
land in dispute and the defendant’s erroneous, fraudulent or
wrongful registration of the property.
We rule that the respondent adequately proved his ownership of
the disputed property by virtue of the (i) Deed of Absolute Sale
executed by Josefa in favor of the parties; (ii) the parties’ Affidavit
of Adverse Claim; and (iii) the parties’ Agreement, which cover
the subject property.
The petitioner does not dispute the due execution and the
authenticity of these documents,34 particularly the Agreement.
However, he claims that since the Agreement does not reflect the
true intention of the parties, the Affidavit was subsequently
executed in order to reflect the parties’ true intention.1avvphi1
The petitioner’s argument calls to fore the application of the parol
evidence rule,35 i.e., when the terms of an agreement are reduced
to writing, the written agreement is deemed to contain all the
terms agreed upon and no evidence of these terms can be
admitted other than what is contained in the written
agreement.36 Whatever is not found in the writing is understood to
have been waived and abandoned.37
To avoid the operation of the parol evidence rule, the Rules of
Court allows a party to present evidence modifying, explaining or
adding to the terms of the written agreement if he puts in issue in
his pleading, as in this case, the failure of the written agreement
to express the true intent and agreement of the parties. The
failure of the written agreement to express the true intention of
the parties is either by reason of mistake, fraud, inequitable
conduct or accident, which nevertheless did not prevent a
meeting of the minds of the parties.38
At the trial, the petitioner attempted to prove, by parol evidence,
the alleged true intention of the parties by presenting the
Affidavit, which allegedly corrected the mistake in the previously
executed Agreement and confirmed his ownership of the parcels
of land covered by his titles. It was the petitioner’s staunch
assertion that the respondent co-executed this Affidavit
supposedly to reflect the parties’ true intention.
In the present petition, however, the petitioner made a damaging
admission that the Benigna Deed is fabricated, thereby
completely bolstering the respondent’s cause of action for
reconveyance of the disputed property on the ground of
fraudulent registration of title. Since the Affidavit merely reflects
what is embodied in the Benigna Deed, the petitioner’s
admission, coupled with the respondent’s denial of his purported
signature in the Affidavit, placed in serious doubt the reliability of
this document, supposedly the bedrock of the petitioner’s
defense.
Curiously, if the parties truly intended to include in the
petitioner’s share the disputed property, the petitioner obviously
need not go at length of fabricating a deed of sale to support his
application for the transfer of title of his rightful portion of the
subject property. Notably, there is nothing in the Affidavit (that
supposedly corrected the mistake in the earlier Agreement) that
supports the petitioner’s claim that the partition of the subject
property is based on the parties’ actual possession.
Note that the RTC dismissed the complaint based on the
respondent’s alleged failure to prove the spuriousness of the
documents submitted by the petitioner to the Register of Deeds.
However, by admitting the presentation of a false deed in
securing his title, the petitioner rendered moot the issue of
authenticity of the Benigna Deed and relieved the respondent of
the burden of proving its falsity as a ground to nullify the
petitioner’s titles.
By fraudulently causing the transfer of the registration of title
over the disputed property in his name, the petitioner holds the
title to this disputed property in trust for the benefit of the
respondent as the true owner;39 registration does not vest title but
merely confirms or records title already existing and vested. The
Torrens system of registration cannot be used to protect a
usurper from the true owner, nor can it be used as a shield for the
commission of fraud, or to permit one to enrich oneself at the
expense of others.40 Hence, the CA correctly ordered the
reconveyance of the disputed property, covered by TCT No.
195813, to the respondent.
The parties’ Agreement effectively partitioned the subject
property
The petitioner also relies on his alleged actual possession of the
disputed property to support his claim of ownership. Notably,
both parties make conflicting assertions of possession of the
disputed property.41 The petitioner testified on his possession as
follows:
Q: How many square meters did you get from the land and how
many square meters was the share of [respondent]?
A: 4[0]20 square meters and my brother-in-law 6,000 plus square
meters.
xxx
Q: Was there a boundary between the 4,020 square meters and
the rest of the property which (sic) designated by your brother-in-
law?
A: There is sir, and the boundary is the fence.
Q: When did you put up that fence which is the boundary?
A: After the deed of sale was made.
Q: And that boundary fence which you put according to you since
the execution of the Deed of Absolute Sale in 1969 up to the
present does it still exist?
A: Yes, sir.
Q: Since the time you purchased the property according to you
you already divided the property, is that correct?
A: Yes, sir.
Q: And that as of today who is in possession of that 4,020 square
meters?
A: I, sir.42
The petitioner and the respondent were originally co-owners of
the subject property when they jointly bought it from the same
vendor in 1969. However, the parties immediately terminated this
state of indivision by executing an Agreement, which is in the
nature of a partition agreement.
The Civil Code of the Philippines defines partition as the
separation, division and assignment of a thing held in common
among those to whom it may belong.43 Partition is the division
between two or more persons of real or personal property, owned
in common, by setting apart their respective interests so that they
may enjoy and possess these in severalty,44 resulting in the
partial or total extinguishment of co-ownership.45
In the present case, the parties agreed to divide the subject
property by giving the petitioner the 3,020 square meters
"residential portion on the northern part near the Municipal
road."46 There is no dispute that this 3,020- square meter portion
is the same parcel of land identified as Lot No. 2 (which is not the
subject of the respondent’s action for reconveyance) in the
Affidavit and the Subdivision Plan presented by the petitioner
before the Register of Deeds. The fact that the Agreement lacks
technical description of the parties’ respective portions or that
the subject property was then still embraced by a single
certificate of title could not legally prevent a partition, where the
different portions allotted to each were determined and became
separately identifiable, as in this case.47
What is strikingly significant is that even the petitioner’s own
testimony merely attempted to confirm his actual possession of
the disputed property, without, however, supporting his claim –
contrary to the written Agreement – that the parties’ ownership of
the subject property would be co-extensive with their possession.
This is the core of the petitioner’s defense. At any rate, just as
non-possession does not negate ownership, neither does
possession automatically prove ownership,48 especially in the
face of an unambiguous document executed by the parties
themselves.1avvphi1
Contrary to the petitioner’s claim that his actual possession
determines the extent of his ownership, it is the parties’
Agreement that defines the extent of their ownership in the
subject property. One of the legal effects of partition, whether by
agreement among the co-owners or by judicial proceeding, is to
terminate the co-ownership and, consequently, to make the
previous co-owners the absolute and exclusive owner of the
share allotted to him.49
Parenthetically, the respondent declared for taxation purposes
the portion he claims in December 1987.50 The total area (7,544
square meters) of the properties declared is equivalent to the area
allotted to the respondent under the Agreement. On the other
hand, the petitioner declared the 1,004-square meter portion only
in September 1994, under Tax Declaration No. 9393,51 despite his
claim of exclusive and adverse possession since 1969.
Nullification of the petitioner’s title over the 3,020 square meter
portion
While the petitioner admitted using a spurious document in
securing his titles, nonetheless, he questions the CA’s
nullification of TCT No. 195812 on the ground that, per the
respondent’s own admission and the parties’ Agreement, he is
the rightful owner of the land covered by this title.
We disagree.
The petitioner’s argument confuses registration of title with
ownership.52 While the petitioner’s ownership over the land
covered by TCT No. 195812 is undisputed, his ownership only
gave him the right to apply for the proper transfer of title to the
property in his name. Obviously, the petitioner, even as a rightful
owner, must comply with the statutory provisions on the transfer
of registered title to lands.53 Section 53 of Presidential Decree No.
1529 provides that the subsequent registration of title procured
by the presentation of a forged deed or other instrument is null
and void. Thus, the subsequent issuance of TCT No. 195812 gave
the petitioner no better right than the tainted registration which
was the basis for the issuance of the same title. The Court simply
cannot allow the petitioner’s attempt to get around the proper
procedure for registering the transfer of title in his name by using
spurious documents.
Reconveyance is the remedy of the rightful owner only
While the CA correctly nullified the petitioner’s certificates of title,
the CA erred in ordering the reconveyance of the entire subject
property in the respondent’s favor. The respondent himself
admitted that the 3,020- square meter portion covered by TCT No.
195812 is the petitioner’s just share in the subject
property.54 Thus, although the petitioner obtained TCT No. 195812
using the same spurious documents, the land covered by this title
should not be reconveyed in favor of the respondent since he is
not the rightful owner of the property covered by this title.55

WHEREFORE, the petition is partially GRANTED. The assailed

decision and resolution of the Court of Appeals are MODIFIED.
Accordingly, the petitioner is directed to RECONVEY to the
respondent the parcel of land covered by TCT No. 195813. Costs
against petitioner.

SO ORDERED.
G.R. No. 171601 April 8, 2015
SPOUSES BONIFACIO AND LUCIA PARAS, Petitioners,
vs.
KIMWA CONSTRUCTION AND DEVELOPMENT
CORPORATION, Respondent.
DECISION
LEONEN, J.:
This resolves the Petition for Review on Certiorari 1 under Rule 45
of the 1997 Rules of Civil Procedure praying that the assailed
Decision2 dated July 4, 2005 and Resolution3 dated February 9,
2006 of the Court of Appeals Special 20th Division in CA-G.R. CV
No. 74682 be reversed and set aside, and that the Decision4 of
Branch 55 of the Regional Trial Court, Mandaue City dated May
16, 2001 in Civil Case No. MAN-2412 be reinstated.5
The trial court's May 16, 2001 Decision ruled in favor of
petitioners Spouses Bonifacio and Lucia Paras (plaintiffs before
the Regional Trial Court) in their action for breach of contract with
damages against respondent Kimwa Construction and
Development Corporation (Kimwa).6 The assailed Decision of the
Court of Appeals reversed and set aside the trial court’s May 16,
2001 Decision and dismissed Spouses Paras’ Complaint.7 The
Court of Appeals’ assailed Resolution denied Spouses Paras’
Motion for Reconsideration.8
Lucia Paras (Lucia) was a "concessionaire of a sand and gravel
permit at Kabulihan, Toledo City[.]"9 Kimwa is a "construction
firm that sells concrete aggregates to contractors and haulers in .
. . Cebu."10
On December 6, 1994, Lucia and Kimwa entered into a contract
denominated "Agreement for Supply of Aggregates" (Agreement)
where 40,000 cubic meters of aggregates were "allotted"11 by
Lucia as supplier to Kimwa.12 Kimwa was to pick up the allotted
aggregates at Lucia’s permitted area in Toledo City13 at ₱240.00
per truckload.14
The entirety of this Agreement reads:
AGREEMENT FOR SUPPLY OF AGGREGATES
KNOW ALL MEN BY THESE PRESENTS:
This Agreement made and entered into by and between:
LUCIA PARAS, of legal age, Filipino, married and resident of
Poblacion, Toledo City, Province of Cebu, hereinafter referred to
as the SUPPLIER:
-and-
KIMWA CONSTRUCTION AND DEVELOPMENT CORP., a
corporation duly organized and existing under the laws of the
Philippines with office address at Subangdaku, Mandaue City,
hereinafter represented by its President MRS. CORAZON Y. LUA,
of legal age, Filipino and a resident of Subangdaku, Mandaue
City[,] hereinafter referred to as the CONTRACTOR;
W I T N E S S E T H:
That the SUPPLIER is [sic] Special Permittee of (Rechanelling
Block # VI of Sapang Daco River along Barangay Ilihan) located at
Toledo City under the terms and conditions:
1. That the aggregates is [sic] to be picked-up by the
CONTRACTOR at the SUPPLIER [sic] permitted area at the rate of
TWO HUNDRED FORTY (P 240.00) PESOS per truck load;
2. That the volume allotted by the SUPPLIER to the
CONTRACTOR is limited to 40,000 cu.m.; 3. That the said
Aggregates is [sic] for the exclusive use of the Contractor;
4. That the terms of payment is Fifteen (15) days after the receipt
of billing;
5. That there is [sic] no modification, amendment, assignment or
transfer of this Agreement after acceptance shall be binding upon
the SUPPLIER unless agreed to in writing by and between the
CONTRACTOR and SUPPLIER.
IN WITNESS WHEREOF, we have hereunto affixed our signatures
this 6th day of December, 1994 at Mandaue City, Cebu,
Philippines.
LUCIA PARAS(sgd.) CORAZON Y. LUA(sgd.)
Supplier Contractor
(Emphasis supplied)
Pursuant to the Agreement, Kimwa hauled 10,000 cubic meters of
aggregates. Sometime after this, however, Kimwa stopped
hauling aggregates.16
Claiming that in so doing, Kimwa violated the Agreement, Lucia,
joined by her husband, Bonifacio, filed the Complaint17 for breach
of contract with damages that is now subject of this Petition.
In their Complaint, Spouses Paras alleged that sometime in
December 1994, Lucia was approached by Kimwa expressing its
interest to purchase gravel and sand from her.18 Kimwa allegedly
asked that it be "assured"19 of 40,000 cubic meters worth of
aggregates.20 Lucia countered that her concession area was due
to be rechanneled on May 15,1995, when her Special Permit
expires.21 Thus, she emphasized that she would be willing to enter
into a contract with Kimwa "provided the forty thousand cubic
meter[s] w[ould] be withdrawn or completely extracted and
hauled before 15 May 1995[.]"22 Kimwa then assured Lucia that it
would take only two to three months for it to completely haul the
40,000 cubic meters of aggregates.23 Convinced of Kimwa’s
assurances, Lucia and Kimwa entered into the Agreement.24
Spouses Paras added that within a few days, Kimwa was able to
extract and haul 10,000 cubic meters of aggregates. However,
after extracting and hauling this quantity, Kimwa allegedly
transferred to the concession area of a certain Mrs. Remedios
dela Torre in violation of their Agreement. They then addressed
demand letters to Kimwa. As these went unheeded, Spouses
Paras filed their Complaint.25
In its Answer,26 Kimwa alleged that it never committed to obtain
40,000 cubic meters of aggregates from Lucia. It argued that the
controversial quantity of 40,000 cubic meters represented only an
upper limit or the maximum quantity that it could haul.27 It
likewise claimed that it neither made any commitment to haul
40,000 cubic meters of aggregates before May 15, 1995 nor
represented that the hauling of this quantity could be completed
in two to three months.28 It denied that the hauling of 10,000 cubic
meters of aggregates was completed in a matter of days and
countered that it took weeks to do so. It also denied transferring
to the concession area of a certain Mrs. Remedios dela Torre.29
Kimwa asserted that the Agreement articulated the parties’ true
intent that 40,000 cubic meters was a maximum limit and that May
15, 1995 was never set as a deadline. Invoking the Parol Evidence
Rule, it insisted that Spouses Paras were barred from introducing
evidence which would show that the parties had agreed
differently.30
On May 16, 2001, the Regional Trial Court rendered the Decision
in favor of Spouses Paras. The trial court noted that the
Agreement stipulated that the allotted aggregates were set aside
exclusively for Kimwa. It reasoned that it was contrary to human
experience for Kimwa to have entered into an Agreement with
Lucia without verifying the latter’s authority as a
concessionaire.31 Considering that the Special Permit32 granted to
Lucia (petitioners’ Exhibit "A" before the trial court) clearly
indicated that her authority was good for only six (6) months from
November 14, 1994, the trial court noted that Kimwa must have
been aware that the 40,000 cubic meters of aggregates allotted to
it must necessarily be hauled by May 15, 1995. As it failed to do
so, it was liable to Spouses Paras for the total sum of
₱720,000.00, the value of the 30,000 cubic meters of aggregates
that Kimwa did not haul, in addition to attorney’s fees and costs
of suit.33
On appeal, the Court of Appeals reversed the Regional Trial
Court’s Decision. It faulted the trial court for basing its findings
on evidence presented which were supposedly in violation of the
Parol Evidence Rule. It noted that the Agreement was clear that
Kimwa was under no obligation to haul 40,000 cubic meters of
aggregates by May 15, 1995.34
In a subsequent Resolution, the Court of Appeals denied
reconsideration to Spouses Paras.35
Hence, this Petition was filed.
The issue for resolution is whether respondent Kimwa
Construction and Development Corporation is liable to petitioners
Spouses Paras for (admittedly) failing to haul 30,000 cubic meters
of aggregates from petitioner Lucia Paras’ permitted area by May
15, 1995.
To resolve this, it is necessary to determine whether petitioners
Spouses Paras were able to establish that respondent Kimwa was
obliged to haul a total of 40,000 cubic meters of aggregates on or
before May 15, 1995.
We reverse the Decision of the Court of Appeals and reinstate
that of the Regional Trial Court. Respondent Kimwa is liable for
failing to haul the remainder of the quantity which it was obliged
to acquire from petitioner Lucia Paras.
I In sum, two (2) things must be established for parol evidence to
Rule 130, Section 9 of the Revised Rules on Evidence provides for
the Parol Evidence Rule, the rule on admissibility of documentary
evidence when the terms of an agreement have been reduced into
writing:
Section 9. Evidence of written agreements. — When the terms of
an agreement have been reduced to writing, it is considered as
containing all the terms agreed upon and there can be, between
the parties and their successors in interest, no evidence of such
terms other than the contents of the written agreement.
However, a party may present evidence to modify, explain or add
to the terms of written agreement if he puts in issue in his
pleading:
(a) An intrinsic ambiguity, mistake or imperfection in the written
agreement;
(b) The failure of the written agreement to express the true intent
and agreement of the parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their
successors in interest after the execution of the written
agreement.
The term "agreement" includes wills.
Per this rule, reduction to written form, regardless of the
formalities observed,36 "forbids any addition to, or contradiction
of, the terms of a written agreement by testimony or other
evidence purporting to show that different terms were agreed
upon by the parties, varying the purport of the written contract."37
This rule is animated by a perceived wisdom in deferring to the
contracting parties’ articulated intent. In choosing to reduce their
agreement into writing, they are deemed to have done so
meticulously and carefully, employing specific — frequently, even
technical — language as are appropriate to their context. From an
evidentiary standpoint, this is also because "oral testimony . . .
coming from a party who has an interest in the outcome of the
case, depending exclusively on human memory, is not as reliable
as written or documentary evidence. Spoken words could be
notoriously unreliable unlike a written contract which speaks of a
uniform language."38 As illustrated in Abella v. Court of Appeals:39
Without any doubt, oral testimony as to a certain fact, depending
as it does exclusively on human memory, is not as reliable as
written or documentary evidence.1âwphi1 "I would sooner trust
the smallest slip of paper for truth," said Judge Limpkin of
Georgia, "than the strongest and most retentive memory ever
bestowed on mortal man." This is especially true in this case
where such oral testimony is given by . . . a party to the case who
has an interest in its outcome, and by . . . a witness who claimed
to have received a commission from the petitioner.40
This, however, is merely a general rule. Provided that a party puts
in issue in its pleading any of the four(4) items enumerated in the
second paragraph of Rule 130, Section 9, "a party may present
evidence to modify, explain or add to the terms of the
agreement[.]"41 Raising any of these items as an issue in a
pleading such that it falls under the exception is not limited to the
party initiating an action. In Philippine National Railways v. Court
of First Instance of Albay,42 this court noted that "if the defendant
set up the affirmative defense that the contract mentioned in the
complaint does not express the true agreement of the parties,
then parol evidence is admissible to prove the true agreement of
the parties[.]"43 Moreover, as with all possible objections to the
admission of evidence, a party’s failure to timely object is deemed
a waiver, and parol evidence may then be entertained.
Apart from pleading these exceptions, it is equally imperative that
the parol evidence sought to be introduced points to the
conclusion proposed by the party presenting it. That is, it must be
relevant, tending to "induce belief in [the] existence"44 of the flaw,
true intent, or subsequent extraneous terms averred by the party
seeking to introduce parol evidence.
be admitted: first, that the existence of any of the four (4)
exceptions has been put in issue in a party’s pleading or has not
been objected to by the adverse party; and second, that the parol
evidence sought to be presented serves to form the basis of the
conclusion proposed by the presenting party.
II
Here, the Court of Appeals found fault in the Regional Trial Court
for basing its findings "on the basis of evidence presented in
violation of the parol evidence rule."45 It proceeded to fault
petitioners Spouses Paras for showing "no proof . . . of
[respondent Kimwa’s] obligation."46 Then, it stated that "[t]he
stipulations in the agreement between the parties leave no room
for interpretation."47
The Court of Appeals is in serious error.
At the onset, two (2) flaws in the Court of Appeals’ reasoning
must be emphasized. First, it is inconsistent to say, on one hand,
that the trial court erred on the basis of "evidence
presented"48 (albeit supposedly in violation of the Parol Evidence
Rule),and, on the other, that petitioners Spouses Paras showed
"no proof."49 Second, without even accounting for the exceptions
provided by Rule 130, Section 9, the Court of Appeals
immediately concluded that whatever evidence petitioners
Spouses Paras presented was in violation of the Parol Evidence
Rule.
Contrary to the Court of Appeal’s conclusion, petitioners Spouses
Paras pleaded in the Complaint they filed before the trial court a
mistake or imperfection in the Agreement, as well as the
Agreement’s failure to express the true intent of the parties.
Further, respondent Kimwa, through its Answer, also responded
to petitioners Spouses Paras’ pleading of these issues. This is,
thus, an exceptional case allowing admission of parol evidence.
Paragraphs 6 to 10 of petitioners’ Complaint read:
6. Sensing that the buyers-contractors and haulers alike could
easily consumed [sic] the deposits defendant proposed to the
plaintiff-wife that it be assured of a forty thousand (40,000) cubic
meter [sic];
7. Plaintiff countered that the area is scheduled to be rechanneled
on 15 May 1995 and by that time she will be prohibited to sell the
aggregates;
8. She further told the defendant that she would be willing to enter
into a contract provided the forty thousand cubic meter [sic] will
be withdrawn or completely extracted and hauled before 15 May
1995, the scheduled rechanneling;
9. Defendant assured her that it will take them only two to three
months to haul completely the desired volume as defendant has
all the trucks needed;
10. Convinced of the assurances, plaintiff-wife and the defendant was obliged to haul 40,000 cubic meters of aggregates on or
entered into a contract for the supply of the aggregates sometime before May 15, 1995. Considering its admission that it did not haul
on 6 December 1994 or thereabouts, at a cost of Two Hundred 30,000 cubic meters of aggregates, respondent Kimwa is liable to
Forty (₱240.00) Pesos per truckload[.]50 petitioners.

It is true that petitioners Spouses Paras’ Complaint does not
specifically state words and phrases such as "mistake,"
"imperfection," or "failure to express the true intent of the
parties." Nevertheless, it is evident that the crux of petitioners
Spouses Paras’ Complaint is their assertion that the Agreement
"entered into . . . on 6 December 1994 or thereabouts"51 was
founded on the parties’ supposed understanding that the quantity
of aggregates allotted in favor of respondent Kimwa must be
hauled by May 15, 1995, lest such hauling be rendered impossible
by the rechanneling of petitioner Lucia Paras’ permitted area. This
assertion is the very foundation of petitioners’ having come to
court for relief.
Proof of how petitioners Spouses Paras successfully pleaded and
put this in issue in their Complaint is how respondent Kimwa felt
it necessary to respond to it or address it in its Answer.
Paragraphs 2 to 5 of respondent Kimwa’s Answer read:
2. The allegation in paragraph six of the complaint is admitted
subject to the qualification that when defendant offered to buy
aggregates from the concession of the plaintiffs, it simply asked
the plaintiff concessionaire if she could sell a sufficient supply of
aggregates to be used in defendant’s construction business and
plaintiff concessionaire agreed to sell to the defendant
aggregates from her concession up to a limit of 40,000 cubic
meters at the price of ₱240.00 per cubic meter.
The Pre-Trial Order issued by the Regional Trial Court in Civil
Case No. MAN-2412 attests to respondent Kimwa’s admission
that:
6) Prior to or during the execution of the contract[,] the Plaintiffs
furnished the Defendant all the documents and requisite papers
in connection with the contract, one of which was a copy of the
Plaintiff’s [sic] special permit indicating that the Plaintiff’s [sic]
authority was only good for (6) months from November 14, 1994.53
This Special Permit was, in turn, introduced by petitioners in
evidence as their Exhibit "A,"54 with its date of issuance and
effectivity being specifically identified as their Exhibit "A-
1."55 Relevant portions of this Special Permit read:
To All Whom It May Concern:
PERMISSION is hereby granted to:
Name Address
LUCIA PARAS Poblacion, Toledo City
to undertake the rechannelling of Block No. VI of Sapang Daco
River along Barangay Ilihan, Toledo City, subject to following
terms and conditions:

3. The allegations in paragraph seven and eight of the complaint 1. That the volume to be extracted from the area is approximately
are vehemently denied by the defendant. The contract which was 40,000 cubic meters;
entered into by the plaintiffs and the defendant provides only that
the former supply the latter the volume of 40,000.00 cubic meters ....
of aggregates. There is no truth to the allegation that the plaintiff
This permit which is valid for six (6) months from the date hereof
wife entered into the contract under the condition that the
is revocable anytime upon violation of any of the foregoing
aggregates must be quarried and hauled by defendant completely
conditions or in the interest of public peace and order.
before May 15, 1995, otherwise this would have been
unequivocally stipulated in the contract.
Cebu Capitol, Cebu City, November 14, 1994.56
4. The allegation in paragraph nine of the complaint is hereby
Having been admittedly furnished a copy of this Special Permit,
denied. The defendant never made any assurance to the plaintiff
respondent Kimwa was well aware that a total of only about
wife that it will take only two to three months to haul the aforesaid
40,000 cubic meters of aggregates may be extracted by petitioner
volume of aggregates. Likewise, the contract is silent on this
Lucia from the permitted area, and that petitioner Lucia Paras’
aspect for in fact there is no definite time frame agreed upon by
operations cannot extend beyond May 15, 1995, when the Special
the parties within which defendant is to quarry and haul
Permit expires.
aggregates from the concession of the plaintiffs.
The Special Permit’s condition that a total of only about 40,000
5. The allegation in paragraph ten of the complaint is admitted
cubic meters of aggregates may be extracted by petitioner Lucia
insofar as the execution of the contract is concerned. However,
Paras from the permitted area lends credence to the position that
the contract was executed, not by reason of the alleged
the aggregates "allotted" to respondent Kimwa was in
assurances of the defendant to the plaintiffs, as claimed by the
consideration of its corresponding commitment to haul all 40,000
latter, but because of the intent and willingness of the plaintiffs to
cubic meters. This is so, especially in light of the Agreement’s
supply and sell aggregates to it. It was upon the instance of the
own statement that "the said Aggregates is for the exclusive use
plaintiff that the defendant sign the subject contract to express in
of [respondent Kimwa.]"57 By allotting the entire 40,000 cubic
writing their agreement that the latter would haul aggregates from
meters, petitioner Lucia Paras bound her entire business to
plaintiffs’ concession up to such point in time that the maximum
respondent Kimwa. Rational human behavior dictates that she
limit of 40,000 cubic meters would be quarried and hauled without
must have done so with the corresponding assurances from it. It
a definite deadline being set. Moreover, the contract does not
would have been irrational, if not ridiculous, of her to oblige
obligate the defendant to consume the allotted volume of 40,000
herself to make this allotment without respondent Kimwa’s
cubic meters.52
concomitant undertaking that it would obtain the entire amount
Considering how the Agreement’s mistake, imperfection, or allotted.
supposed failure to express the parties’ true intent was
Likewise, the condition that the Special Permit shall be valid for
successfully put in issue in petitioners Spouses Paras’ Complaint
only six (6) months from November 14,1994 lends credence to
(and even responded to by respondent Kimwa in its Answer), this
petitioners Spouses Paras’ assertion that, in entering into the
case falls under the exceptions provided by Rule 130, Section 9 of
Agreement with respondent Kimwa, petitioner Lucia Paras did so
the Revised Rules on Evidence. Accordingly, the testimonial and
because of respondent Kimwa's promise that hauling can be
documentary parol evidence sought to be introduced by
completed by May 15, 1995. Bound as she was by the Special
petitioners Spouses Paras, which attest to these supposed flaws
Permit, petitioner Lucia Paras needed to make it eminently clear
and what they aver to have been the parties’ true intent, may be
to any party she was transacting with that she could supply
admitted and considered.
aggregates only up to May 15, 1995 and that the other party's
III hauling must be completed by May 15, 1995. She was merely
acting with due diligence, for otherwise, any contract she would
Of course, this admission and availability for consideration is no enter into would be negated; any commitment she would make
guarantee of how exactly the parol evidence adduced shall be beyond May 15, 1995 would make her guilty of misrepresentation,
appreciated by a court. That is, they do not guarantee the and any prospective income for her would be rendered illusory.
probative value, if any, that shall be attached to them. In any case,
we find that petitioners have established that respondent Kimwa
Our evidentiary rules impel us to proceed from the position
(unless convincingly shown otherwise) that individuals act as
rational human beings, i.e, "[t]hat a person takes ordinary care of
his concerns[.]"58 This basic evidentiary stance, taken with the.
supporting evidence petitioners Spouses Paras adduced,
respondent Kimwa's awareness of the conditions under which
petitioner Lucia Paras was bound, and the Agreement's own text
specifying exclusive allotment for respondent Kimwa, supports
petitioners Spouses Paras' position that respondent Kimwa was
obliged to haul 40,000 cubic meters of aggregates on or before
May 15, 1995. As it admittedly hauled only 10,000 cubic meters,
respondent Kimwa is liable for breach of contract in respect of
the remaining 30,000 cubic meters.

WHEREFORE, the Petition is GRANTED. The assailed Decision

dated July 4, 2005 and Resolution dated February 9, 2006 of the
Court of Appeals Special 20th Division in CA-G.R. CV No. 74682
are REVERSED and SET ASIDE. The Decision of Branch 55 of the
Regional Trial Court, Mandaue City dated May 16, 2001 in Civil
Case No. MAN-2412 is REINSTATED.

A legal interest of 6% per annum shall likewise be imposed on the

total judgment award from the finality of this Decision until full
satisfaction.

SO ORDERED
G.R. No. 205590, September 02, 2015
PHILIPPINE NATIONAL BANK, Petitioner, v. GAYAM. PAS
IMIO, Respondent.
DECISION
VELASCO JR., J.:
In this petition for review under Rule 45, the Philippine National
Bank (PNB) assails and seeks to set aside the January 23, 2013
Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 94079
dismissing petitioner's appeal from the decision of the Regional
Trial Court (RTC) of Parañaque City, Branch 196, which ruled for
respondent Ligaya Pasimio (Pasimio) in an action for a sum of
money she commenced thereat against the bank.
The Facts
From the petition, the comment thereon, their respective annexes,
and other pleadings filed by the parties, the Court gathers the
following relevant facts:
On May 19, 2005, Pasimio filed suit against PNB for the recovery
of a sum of money and damages before the RTC of Parañaque
City. In her complaint,2 docketed as Civil Case No. CV-05-0195
and eventually raffled to Branch 196 of the court, she alleged
having a peso and dollar time deposit accounts with PNB in the
total amount of P4,322,057.57 and US$5,170.80, respectively; that
both investment placements have matured; and when she sought
to withdraw her deposit money with accrued interests, PNB
refused to oblige.
In its Answer with Counterclaim,3 with annexes, PNB admitted the
fact of deposit placement for the amount aforestated. But it
claimed that Pasimio is without right to insist on their withdrawal,
the deposited amount having already been used in payment of
her outstanding loan obligations to the bank. PNB narrated how
the set off of sort came about: Pasimio and her husband took out
three "loans against deposit hold-out"4 from the PNB Sucat
branch, as follows: a Three Million One Hundred Thousand Peso
(P3,100,000) loan on March 21, 2001; a One Million Seven Hundred
Thousand Peso (P1,700,000) loan on April 2, 2001; and a Thirty-
One Thousand One Hundred US Dollar (US$31,1 00) loan on
December 7, 2001.
PNB further alleged the following: (1) each loan accommodation
was secured by a deposit account of Pasimio; (2) the proceeds of
the first and second loans were released to and received by the
Pasimio spouses in the form of PNB Manager's Checks (MCs)
while the proceeds of the third loan were released and received in
cash; (3) the loan proceeds were acknowledged by Pasimio in
corresponding notarized promissory notes (PNs) and Disclosure
Statements of Loan/Credit Transaction; (4) Pasimio then re-lent
the proceeds of the third loan to a certain Paolo Sun; (5) contrary
to Pasimio's allegations on maturing deposit instruments, she in
fact renewed/rolled over her placements several times; and (6)
Pasimio had failed to pay her outstanding loan obligations forcing
the bank to apply her deposits to the unpaid loans pursuant to the
legal compensation arrangement embodied in the "hold-out"
proviso under Clause 5 of the PN.5
To this answer, Pasimio filed her reply and answer to
counterclaim alleging facts she would also later venture to prove.
During the trial following the joinder of issues, Pasimio denied
obtaining any loan from PNB, let alone receiving the
corresponding loan proceeds. While conceding signing certain
documents which turned out to be the Peso Loans Against
Peso/FX Deposit Loan Applications, the Promissory Notes and
Hold-out on Savings Deposit/Peso/FX Time Deposit and
Assignment of Deposit Substitute and the Disclosure Statements
of Loan/Credit Transaction (Loan Documents), she professed not
understanding what they really meant. She agreed to affix her
signature on these loan documents in blank or in an incomplete
state, she added, only because the PNB Sucat branch manager,
Teresita Gregorio (Gregorio), and Customer Relations Officer,
Gloria Miranda (Miranda), led her to believe that what she was
signing were related to new high-yielding PNB products.
Pasimio would also deny re-lending the loan proceeds to Paolo
Sun. She asserted in this regard that Gregorio repaired to her
residence with a duly accomplished affidavit detailing the re-
lending event and urged her to sign the same if she wished to
recover her placements.
In all, Pasimio depicted herself as victim of a nefarious lending
scam, orchestrated by Gregorio and Miranda who PNB had
ordered dismissed following the exposure of their involvement in
anomalous loan transactions with unsuspecting PNB depositors.
Pasimio submitted the following as evidence:
1. Passbook for PNB Mint Placement No. 61281001164164
(same as PNB Mint Placement No. 6128100115590) - to
prove that she invested P3,100,000 with PNB-Sucat
under PNB Mint Placement No. 6128100115590;
2. Passbook for PNB Mint Placement No. 61281001164688
(same as PNB Mint Placement No. 6128100115632) - to
prove that she invested P1,700,000 with PNB-Sucat
under PNB Mint Placement No. 6128100115632;
3. Certificate of Time Deposit for $CTD No. 6628100116575
- to prove that she invested US$5,160.84 with PNB-Sucat
under Certificate of Time Deposit $CTD No. 66281001
16575;
4. Letter dated April 22, 2004 addressed to the PNB Sucat
branch manager to prove that she made a demand for
the release of her investments;
5. Letters dated July 21, 2004 from PNB's Internal Auditor
to Pasimio -to prove that PNB confirmed her deposits
and investment with PNB-Sucat but that she corrected
entries pertaining to their amounts and denied having a
deposit hold-out on any of her investments;
6. Engagement letter dated February 2, 2005 from the law
firm Rondain & Mendiola;
7. An unsigned affidavit - to prove that Gregorio had
prepared an affidavit to make it appear that Pasimio and
other depositors entered into loan agreements with a
certain Paolo Sun, to cover her (Gregorio's) illegal
schemes and that Gregorio went to the homes of these
depositors begging them to sign the affidavit as she was
already being audited by PNB's main office;6 and
8. A Memorandum on Irregular Lending Operation on
Loans vs. Deposit Hold-Out (Sucat Branch) dated
February 18, 2003 detailing the alleged modus
operandi of Gregorio and Miranda and stating that the
latter were dismissed for their involvement in shady
loan practices.7
On the other hand, PNB offered the following for purposes as
stated:
1. Peso Loans Against Peso/FX Deposit Loan Application
Form dated March 21, 2001 - to prove that Pasimio
applied for a PNB loan and voluntarily executed a loan
application form dated March 21, 2001 for the amount: of
P3,100,000 secured by her own PNB Mint Account No.
612810011393 as loan collateral;
2. PN and Hold-out on Peso/FX Savings Deposit/Peso/FX
Time Deposit and Assignment of Deposit Substitute
dated March 21, 2001 - to prove that Pasimio's P
3,100,000 loan was supported with a PN which she and
her husband voluntarily signed and executed on March
21, 2001 and that she renewed the said loan on different
dates;
3. Disclosure Statement of Loan/Credit Transaction dated
March 21, 2001 - to prove that Pasimio's loan for
P3,100,000 was also supported with a Disclosure
Statement, a copy of which she acknowledged to have
received prior to the consummation of the credit
transaction, where she voluntarily agreed to the terms
and conditions of her loan by signing the said
statement;
4. MC No. 0000166650 dated March 21, 2001 for
P3,049,188.94 - to prove that Pasimio encashed this
check and received the proceeds of her P3,100,000 loan,
net of bank charges;
5. Peso Loans Against Peso/FX Deposit Loan
Application/Approval Form dated April 2, 2001 - to prove
that Pasimio applied for another loan on April 2, 2001 in
the amount of PI,700,000 and that the same was secured
by Pasimio's own PNB Mint Account No.
6128100113429. As in the first loan, Pasimio also
voluntarily affixed her signature on the document;
6. PN and Hold-out on Peso/FX Savings Deposit/Peso/FX
Time Deposit and Assignment of Deposit Substitute
dated April 2, 2001 - to prove that Pasimio's second loan
of LP1,700,000 is supported by a PN which she
voluntarily signed and executed on April 2, 2001
together with her husband and that she renewed the
said loan on different dates;
7. Disclosure Statement of Loan/Credit Transaction dated
April 2, 2001 - to prove that Pasimio's loan for
P1,700,000 was also supported with a Disclosure
Statement, a copy of which she acknowledged to have
received prior to the consummation of the credit
transaction, where she voluntarily agreed to the terms
and conditions of her loan by signing the said
statement;
8. MC No. 0000166682 dated April 2, 2001 in the amount of
P1,672,797.50 - to prove that Pasimio encashed this
check and received the proceeds of her P1,700,000 loan,
net of bank charges;
9. Peso Loans Against Peso/FX Deposit Loan
Application/Approval Form dated December 7, 200 - to
prove that Pasimio applied for a US$31,100 loan which
her own PNB FX CTD No. 6628100115637 (US$20,393.78)
and CTD No. 6628100115716 (US$10,766.25) secured as
collateral. As in the first two loans, Pasimio also
voluntarily affixed her signature on the document;
10. PN and Hold-Out on Peso/FX Savings Deposit/Peso/FX
Time Deposit and Assignment of Deposit Substitute
dated December 7, 2001 - to prove that Pasimio's US$3
1,100 loan is supported by a PN note which she and her
husband voluntarily signed and executed on December
7, 2001 and that she renewed the said loan on different
dates;
11. Disclosure Statement of Loan/Credit Transaction dated
December 7, 2001 - to prove that Pasimio's loan for US
$31,100 was also supported with a Disclosure
Statement, a copy of which she acknowledged to have
received prior to the consummation of the credit
transaction, where she voluntarily agreed to the terms
and conditions of her loan by signing the said
statement;
12. Miscellaneous Ticket dated December 7, 2001 in the
amount of US$30,981.28 - to prove that Pasimio received
the proceeds of her US$31,100 loan, net of bank
charges;
13. Bills Payment Form dated July 26, 2004 - to prove that
her failure to settle her peso/dollar loan obligations was
subsequently settled by offsetting the available balance
of her deposit accounts that were used as collaterals
against these loans, in accordance with the PNs she
executed;
14. Demand letter addressed to Pasimio dated July 5, 2004
signed by Noel R. Millares on behalf of the bank -- to
prove that PNB demanded payment of her loans in the
aggregate amount of P4,623,458.03 and US$5,277.34
which had already become due and payable;
15. Pasimio's Affidavit dated April 10, 2003 - to prove
Pasimio's execution of an affidavit lending US$3 1,100 to
Paolo Sun;
16. Pasimio's letter dated February 25, 2003 - to prove that
the Pasimios effected a change in their PNB Mint
Account Nos. deposited at PNB Sucat from the old
account number 6128100113393 to the new account
number 6128100116464 (pertaining to the deposit of
F3,100,000); and from the old account number
6128100113429 to the new account number
61281001.16488 (pertaining to the deposit of
P1,700,000);
17. PNB Mint Savings Account Passbook with Serial No.
046783 - to prove that the deposit covered by this
passbook in the amount of P3,100,000 was used as
collateral for Pasimio's f3,100,000 loan. As proof of this
fact, the passbook is stamped with the notation "HOLD-
OUT" to indicate a withdrawal restriction on this
account;
18. PNB Mint Savings Account Passbook with Serial
Number 046781 - to prove that the deposit covered by
this, passbook in the amount of P1,700,000 was used as
collateral for Pasimio's P1,700,000 loan. As proof of this
fact, the passbook is stamped with the notation "HOLD-
OUT" to indicate a withdrawal restriction on this
account;
19. Portion of PNB Mint Passbook stamped "Hold Out" - to
prove that the savings account covered by this
passbook is under a hold-out restriction;
20. Pasimio's Certificate of Time Deposit Ledger for PNBig
Savings Account No. 222-5476838-7 - to prove that
Pasimio opened an account with PNB-Sucat on March
21, 2001 under Account No. 222- 5476838-7 which was
constituted as collateral of the P3,100,000 loan;
21. PNBig Savings Account from October 29, 2003 up to
May 3, 2004 - to prove that Pasimio opened an account
with PNB-Sucat under Account No. 281-5254913 which
constituted as collateral for the P1,700,000 loan;
22. The Certificate of Deposit Ledger from June 4, 2001 to
July 25, 2004 - to prove that the amounts covered by this
deposit document were used as collateral for Pasimio's
dollar loan of US$31,100;
23. CTD dated June 4, 2001 in the amount of US$34,030.18 -
to prove that Pasimio was issued a Certificate of Time
Deposit for the amount of US$34,030.18 with an annual
interest rate of 4.5%;
24. CTD dated July 27, 2001 in the amount of US$20,187.10 -
to prove that Pasimio was issued a Certificate of Time
Deposit for the amount of US$20,187.10 with an annual
interest rate of 4.125%;
25. CTD dated December 23, 2003 in the amount of
US$5,136.03 - to prove that Pasimio had an existing
dollar time deposit with PNB which she used as
collateral for the dollar hold-out loan that she took out.
The dollar certificate is stamped with a notation that
reads "HOLD-OUT";
26. Statement of Account (SOA) - to prove that PNB-Sucat
issued a SOA for Pasimio's Dollar Hold-Out Loan, which
showed an outstanding balance of US$5,100. This SOA
was used as basis for the offsetting of Pasimio's past
due loan obligation with her PNB Mint Account as
collateral; and
27. Statement of Account (SOA) - to prove that PNB-Sucat
issued a SOA for Pasimio's Dollar Hold-Out Loan, which
showed an outstanding balance of P4,321,781.06. This
SOA was used as basis for the offsetting of Pasimio's
past due loan obligation with her PNB Mint Account as
collateral.8
RTC Decision

On October 30, 2009, the RTC' rendered judgment9 in favor of
Pasimio, as plaintiff, disposing:cralawlawlibrary
WHEREFORE, premises considered, this court finds the
Complaint dated May 16, 2005 with merit, and Defendant,
Philippine National Bank is ordered to pay plaintiff, LIGAYA M.
P[A]SIMIO[,] the amount of x x x (P3,100,000.00), x x x
(P1,222,000.00) and x x x (US$5,170), respectively, representing
her peso/dollar time deposit placements with said bank, with legal
interest on said amounts, and, the amount of x x x (P180,000.00)
representing attorney's fees, and costs.
SO ORDERED.10
chanrobleslaw
The disposition is predicated on the postulate that Pasimio had
proven by convincing evidence that she did not obtain any loan
accommodation from PNB. As a corollary, the trial court held that
there was no evidence snowing the release by PNB of the loan
proceeds to Pasimio. Pushing the point, the RTC stated that the
transaction documents were highly questionable for the reasons
stated in some detail in its decision to be reproduced by the CA in
its assailed decision.
Therefrom, PNB appealed to the CA, the recourse docketed as
CA-GR. CV No. 94079.
CA Decision
In its assailed Decision dated January 23, 2013, the CA affirmed
that the RTC, to wit:
WHEREFORE, the instant appeal is DENIED. The Decision dated
30 October 2009 rendered by the [RTC], Branch 196, Parañaque
City in Civil Case No. 05-0195 is hereby AFFIRMED.11
Even as it found and declared PNB's bank personnel grossly
negligent and their transactions with Pasimio highly
unacceptable,12 the appellate court held that no loan proceeds
were ever released to Pasimio, thus sustaining the RTC
appreciation of the evidence thus presented on the matter by
Pasimio.13 The CA wrote:cralawlawlibrary
Hence, We are one with the RTC when it ruled that there was no
release of proceeds of bank loans to plaintiff-appellee [Pasimio],
viz:
No release of proceeds of purported bank loans to plaintiff. The
evidence at hand does not show that any amount of the loans, if
there were any, were ever released by [PNB] to plaintiff.
The [PNB] presented a miscellaneous ticket dated December 7,
2001 for the discounted amount of x x x (US$ 30,981.28) attending
the release of such funds over the purported third loan in the
amount of x x x (US$ 31.100.00) extended to plaintiff and as
affecting her FX dollar time deposits. This document remains to
be a simple ticket advice and | would] not amount to fact of
payment of loan proceeds in the absence of any cogent and
better evidence which is available to (he bank. There is no
statement of account or a corresponding check document
presented to compliment such ticket advice to clearly show an
amount was debited from the account of the bank to ably pay off
the amount of the loan proceeds. The miscellaneous ticket
standing by itself is no[t] an adequate proof of fact of payment of
a loan x x x.
The [PNB] presented a document for Manager Check No. 166650
dated March 21, 2001 at a discounted amount of x x x
(P3,049,188.94) to prove the possible release of proceeds of a first
loan allegedly secured by plaintiff for the amount of x x x
(P3,100,000.00). Looking over the dorsal portion of the check, it is
highly unnatural and irregular that the very check in question
does not have a machine printed validation of the transaction to
reflect the debit entry of the account from which the release "of
funds might have been secured. With exception to the stamp
marking and a few signatures at the back of the check, it becomes
highly inconceivable for a bank teller to forget a machine
validation of a check, not unless the checks was not properly
cleared but was only received by the teller. The check standing
out as evidence docs not proffer (that the amount indicated
therein was properly released for the purpose, to only draw a
farce conclusion that it was properly transacted and funds was
indeed released to plaintiff.
The [PNB] presented a document for Manager Check No. 166682
dated April 2, 2001 in the discounted amount of x x x
(P1,679,797.50) to prove the alleged release of proceeds of a
second loan allegedly secured by plaintiff for the amount x x x
(P1,700,000.00). Looking over the dorsal portion of the check, the
machine validation entry by the teller reads of entry '005 502
281 02AP01 PCOUT 1,672,797.50 A N 14021226' in comparison
with the front portion of the very check does not tally with the
check no. '166682' neither the checking account from which the
amount is drawn at reference number '00-281-022222-2' which
makes it an invalid validation entry and will not prove the fact that
debited amounts were made from the bank account number '00-
281-022222-2' [to cover the release to plaintiff of proceeds] of the
second loan. There being no explanation by the very bank
employees presented by the bank on the discrepancy of the teller
validation entries with the checking account used to possible pay
off the release of loan proceeds, there can be no indication that
the loan was properly paid for to plaintiff.
Simply stated, there is really no loan ever released by defendant
bank in favor of plaintiff to engage the operative right to hold-out
on the deposits of the latter.14
chanrobleslaw
On a related matter, the CA found, as highly irregular, the PNB
personnel's act of securing Pasimio's signature and consent to
have the proceeds of the US$3 1,100 loan re-lent to Paolo Sun. ft
expounded:cralawlawlibrary
Second, it can be gleaned from the facts of the case that [PNB]
was able to obtain the signature and assent of plaintiff-appellee in
re-lending the loan proceeds to a certain Paolo Sun, in a manner
not in accordance with the ordinary course of business of banks.
According to plaintiff-appellee, Bank Manager Gregorio went to
her house for her to sign a document, telling her that it was the
only way for plaintiff-appellee to get her money back by re-
lending her money deposits with [PNB] to a certain Paolo Sun
whom she does not know. Plaintiff-appellee also contends that
she was not aware that the document she signed was notarized.
For that alone, the action performed by the bank manager in the
transactions is definitely exposed to a high incident of
negligence. It bears stressing that banks must exercise the
highest degree of diligence and by doing the transactions outside
the bank without any proper explanation of the consequences of
the document to be signed by plaintiff-appellee as client of the
bank is reprehensible x x x. The bank personnel misrepresented
the true nature of the transaction which deprived plaintiff-appellee
to evaluate the consequences of the transaction offered to her by
the bank personnel of [PNB].15chanrobleslaw
And agreeing with the RTC on what it viewed as the questionable
nature of the transactions PNB entered into with Pasimio, as
purportedly evidenced by a combination of related circumstances
reflecting documentary tampering, the CA quoted with approval
the ensuing excerpts from the RTC's decision:cralawlawlibrary
The transaction documents are highly questionable. The loan
application form dated March 21, 2001 over the purported first
peso loan in the amount of x x x (P3,100,000.00) which was
verified with a notary public on April 30, 2001 did not utilize any
residence certificate of plaintiff x x x which also missed out for a
residence certificate number in the promissory note dated March
21, 2001, the same former document carried bolder typewritten
entries for the names of depositors but faint entries for the
amountand the security deposit account which only shows that
such entries were made on different dates using different
typesets compounded by the column side for the verified balance
of deposit and the recommendation of interest were left
unfilled. Which circumstances bring in a question on the validity
and veracity of the loan documents when in fact the entries and
the missing items thereto [do] not speak well of a fully
accomplished and perfected loan document between the parties.
Sad to say, this court cannot even believe [PNB's] witness, Edna
Palomares in stating that she checked the entries [in] the loan
approval form be lore she placed her signature considering there
are valuable and important entries that are left unfulfilled by a
bank officer as herself to even downgrade her line of credibility
on the true circumstances to the execution of such document.
The same circumstances attend the loan documents that
allegedly covered the second loan in the amount of x x x
(P1,700,000.00) and the third loan in the amount of x x x
(US$31,100.00), and, this court need not discuss further to
emphasize the line of anomalous circumstances attending the
execution and existence of such documents.16(emphasis
added)chanrobleslaw
The CA explained that even if both parties may have been
negligent in the conduct of their respective affairs, PNB cannot
evade liability for its shortcomings. As stressed by the appellate
court, the banking industry is impressed with public interest.
Accordingly, all banks and their personnel are burdened with a
high level of responsibility and expected to be more careful than
ordinary persons. The CA held that since PNB was grossly
negligent, it should bear the consequences:cralawlawlibrary
Third, although it may be argued that both parties seemed to have
been negligent in their own affairs, [PNB] cannot put all the blame
to cover its negligence on plaintiff-appellee. The degree of care is
more paramount and expected with that of banks than that of an
ordinary person.
As the banking industry is impressed with public interest, all bank
personnel are burdened with a high level of responsibility insofar
as care and diligence in the custody and management of funds
are concerned. Banks handle transactions involving millions of
pesos and properties x x x. Indeed, by the very nature of their
work, the degree of responsibility, care and trustworthiness
expected of officials and employees of the bank is tar greater than
those of ordinary officers and employees in the other business
firms.
Unquestionably, [PNB] x x x had the direct obligation to supervise
very closely the employees handling its depositors' accounts, and
should always be mindful of the fiduciary nature of its
relationship with the depositors. Such relationship required it and
its employees to record accurately every single transaction, and
as promptly as possible, considering that the depositors'
accounts should always reflect the amounts of money the
depositors could dispose of as they saw fit x x x. If it fell short of
that obligation, it should bear the responsibility for the
consequences to the depositor x x x.
In this case. [PNB's] personnel were in violation of their duties
and responsibilities as its employees. They have committed gross
negligence in dealing with their bank transactions which
connotes "want of care in the performance of one's duties."
[PNB's] failure to observe basic procedure constituted serial
negligence. The repealed failure to carefully observe the duties of
its personnel clearly showed utter want of care. As gathered from
the records of the case, it was shown that this is not an isolated
transaction as other clients of the bank have been likewise
victimized. Witness Virginia Pollard has stated in her testimony
before the RTC that at one point, she too, was a victim of irregular
bank transactions of the same branch of [PNB] as offered by its
bank personnel. Thus, it was [PNB's] action that defies the
ordinary banking transactions and between an ordinary person
like plaintiff-appellee and a bank like [PNB], [PNB] carries more
burden, which unfortunately, it failed to overcome.
Verily, from the foregoing instances, (PNB] was indeed grossly
negligent in its transactions with plaintiff-appellee. Even
assuming that plaintiff-appellee was concocting her version of the
facts, We still find irregularities and inconsistencies that have
attributed to the unjustified refusal to return the investment
placement and to the commission of negligence.17
Finally, the CA would state the observation, citing City trust
Banking Corporation v. Cruz18and Typoco v. Commission on
Elections,19 that the errors PNB sought reviewed relate to the
RTC's factual findings when the appellate court is not a trier of
facts, necessarily implying that it is improper for the CA under the
premises to do what PNB seeks. The CA explained that 'the stated
doctrine regarding the factual findings of the RTC applies within
force in the instant case."20chanrobleslaw
Issue
Whether or not the CA erred in affirming the RTC Decision
granting Pasimio's complaint for a sum of money.
The Court's Ruling
The findings of Fact of the CA are subject to well-defined
exceptions,21 among which are when such findings are not
supported by substantial evidence, grounded on surmises or
conjectures or are patently arbitrary, binding and conclusive and
this Court will not review them on appeal. This case squarely falls
under the exceptions of the general rule.
The petition is impressed with merit.
The CA has the power to
resolve factual issues
Before proceeding to the main issue of this case, there is a need
to clarify the assailed decision's perplexing but flawed
pronouncement that the CA, not being a trier of facts, is without
competence to review the factual determination of the RTC.
Section 9 of Bates Pambansa Blg. (BP) 129, otherwise known as
the Judiciary Reorganization Act of 1980, categorically states that
the CA has, inter alia, the power to try cases, receive evidence
and perform any and all acts necessary to resolve factual issues
raised in cases falling within its original and appellate
jurisdiction, thus:cralawlawlibrary
Sec. 9. Jurisdiction. - The Court of Appeals shall exercise:
x x x x
The Court of Appeals shall have the power to try cases and
conduct hearings, receive evidence and perform any and all acts
necessary to resolve factual issues raised in cases falling within
its original and appellate jurisdiction, including the power to grant
and conduct new trials or further proceedings. Trials or hearings
in the Court of Appeals must be continuous and must be
completed within three (3) months unless extended by the Chief
Justice.chanrobleslaw
To be sure, the cases22 the CA cited to support its adverted
pronouncement are inapposite. In context, the issue involved
in Citytrust and Typoco relates to the nature and extent of this
Court's, and not the CA's, power to review factual findings of
lower courts and administrative agencies in petitions for review
and in original certiorari and prohibition cases.
Clearly, Citytrust and Typoco have been misread and
consequently misapplied.
It is also worthy to note that the appellate court's reliance on the
factual findings of the trial court is hinged on the latter's firsthand
opportunity to hear the witnesses and to observe their demeanor
during the trial. However, when such findings are not anchored
on their credibility and their testimonies, but on the assessment
of documents that are available to appellate magistrates and
subject to their scrutiny, reliance on the trial courts factual
findings finds no application.23
The CA's regrettable cavalier treatment of PNB's appeal is
inconsistent with Rule 41 of the Rules of Court and with the usual
course of judicial proceedings. Be reminded that the parties in
Rule 41 appeal proceedings may raise questions of fact or mixed
questions of fact and law.24 Thus, in insisting that it is not a trier
of facts and implying that it had no choice but to adopt the RTC's
factual findings, the CA shirked from its function as an appellate
court to independently evaluate the merits of this case. To accept
the CA's aberrant stance is to trivialize its review function, but,
perhaps worse, render useless one of the reasons for its
institution.
Pasimio failed to prove her claim
by preponderance of evidence
It is settled that the burden of proof lies with the party who
asserts a right and the quantum of evidence required by law in
civil cases is preponderance of evidence. "Preponderance of
evidence" is the weight, credit, and value of the aggregate
evidence on either side and is usually considered to be
synonymous with the term "greater weight of evidence" or
"greater weight of credible evidence."25 Section 1, Rule 133 of the
Rules of Court provides:cralawlawlibrary
Section 1. Preponderance of evidence, how determined. - In civil
cases, the party having the burden of proof must establish his
case by a preponderance of evidence. In determining where the
preponderance of evidence or superior weight of evidence on the
issues involved lies, the court may consider all the facts and
circumstances of the case, the witnesses' manner of testifying,
their intelligence, their means and opportunity of knowing the
facts to which they are testifying, the nature of the facts to which
they testify, the probability or improbability of their testimony,
their interest or want of interest, and also their personal
credibility so far as the same may legitimately appear upon the
trial. The court may also consider the number of witnesses,
though the preponderance is not necessarily with the greater
number.chanrobleslaw
Just as settled is the rule that the plaintiff in civil cases must rely
on strength of his or her own evidence and not upon the
weakness of that of the defendant. In the case at bench, this
means that on Pasimio rests the burden of proof and the onus to
produce the required quantum of evidence to support her cause/s
of action.26
With the view we take of the case, Pasimio has failed to discharge
this burden.
There can be no quibbling that Pasimio had, during the time
material, opened and maintained deposit accounts with PNB. For
this purpose, she submitted two passbooks and one certificate of
time deposit to establish her peso and dollar placements with the
bank. However, PNB also succeeded in substantiating its defense
for refusing to release Pasimio's funds by presenting documents
showing that her accounts were, pursuant to hold-out
arrangement, made collaterals for the loans she obtained from the
bank and were eventually used to pay her outstanding loan
obligations. Unfortunately, Pasimio failed to trump PNB's defense
after the burden of evidence shifted back to her.
To recall, PNB, to bolster its case, presented these documents:
loan application forms, PNs and disclosure statements to prove
that Pasimio obtained the disputed bank loans; manager's checks
and a miscellaneous ticket to establish the release of the loan
proceeds to Pasimio; passbooks and a certificate of time deposit
with the stamp "HOLD-OUT" to indicate restrictions on the
withthrawal of Pasimio's deposit; a bills payment form to prove
that Pasimio's deposits were made to pay for her outstanding
obligations in accordance with the provisions of Pasimio's
promissory notes; and a signed and notarized affidavit recounting
that she lent the proceeds of her dollar loan to Paolo Sun.
On the witness stand, PNB's witness Edna Palomares, the bank's
Per Pro Officer, categorically testified having prepared and
processed all. of Pasimio's loan documents, and witnessed
Pasimio and her husband signing the same.27 Palomares also
testified about Pasimio's receipt of the proceeds of the subject
loans and identified the signatures appearing on the dorsal
portion of the PNB manager's checks and miscellaneous ticket
covering the loan processed as genuine signatures of Pasimio.28
Pasimio, on the other hand, denied applying for any loan with
PNB and receiving any loan proceeds or authorizing the bank to
use her deposit as collateral. While admitting to signing certain
papers, she professed unawareness that what she signed were in
fact loan documents as nobody came forward to explain what
they were, adding that she was convinced to sign them only
because she was made to believe by bank officers that the
documents were related to a new PNB high-yielding investment
product.
Unfortunately, the courts a quo chose to disregard all of PNB's
documentary evidence and ruled in favor of Pasimio. This to us is
a blatant mistake on the part of the RTC and the CA because all
that Pasimio put forward against PNB's evidence, for the most
part documentary, were unsubstantiated denials and bare, self-
serving assertions. To borrow from Pecson v. Commission on
Elections,29 citing Almeida v. Court of Appeals,30 the use of wrong
or irrelevant considerations, reliance on clearly erroneous factual
findings or giving too much weight to one factor in deciding an
issue is sufficient to taint a decision-maker's action with grave
abuse of discretion.
As between Pasimio's barefaced denials and Palomares' positive
assertions, the trial court ought to have accorded greater weight
to Palomares' testimony, especially considering that Pasimio
never put in issue the due execution and authenticity of the loan
documents. As between a positive and categorical testimony
which has a truth, on one hand, and a bare denial, on the other,
the former is generally held to prevail.31
ft cannot be stressed enough that Pasimio unequivocally
admitted that the signatures appearing in the Loan
Application/Approval Forms dated March 21, 2001, April 2, 2001
and December 7, 2001,32 in all three Promissory Notes,33 and the
Disclosure Statement dated December 7, 2001 were hers and her
husband's. She also was aware of the consequences of her act of
signing. Her testimonies on the matter are quoted
hereunder:cralawlawlibrary
Atty. Banzuela:
Q: Thank you. Madam Witness, you testified that you signed
these documents which are blank in its details, what do
yon mean by blank in details.
A: Nothing. Blank as in it's a pro-forma form but blank.
Q: Madam Witness, but you read what these documents were?
A: No, I did not read.
Q: You entrusted to PNB that huge amount of US$31,100,
P1,700,000 and US$3,100 without going through the
documents that you were signing with PNB?
A: That's right.
Q: Why is this so. Madam Witness?
A: Because I trusted the bank, I trusted the employees of the
bank having been a depositor for the past two (2) decades.
Q: But you know. Madam Witness, the consequences of your
acts in signing pro-forma documents?
A: Well, I trusted those people. So...
Q: But you know the consequences of signing blank
documents?
A: Yes.34
Pasimio had tagged as forgeries her signatures appearing in the
Disclosure Statements of March 21, 2001 and April 2, 2001. She,
however, never presented any competent proof to successfully
support her contention. While testimonies of handwriting experts
are not a must to prove forgeries, Pasimio did not submit any
evidence for the RTC to consider and readily conclude that the
signatures in these Disclosure Statements were forged.
Likewise, Pasimio also denied, having appeared before a notary
public to subscribe and swear to the loan documents, but never
substantiated this allegation. It is settled that a notarial document,
guaranteed by public attestation in accordance with the law, must
be sustained in full force and effect, absent strong, complete, and
conclusive proof of its falsity or nullity on account of some flaw
or defect provided by law.35
The RTC and the CA, for unexplained reason, ignored Pasimio's
admissions in her April 10, 2003 Affidavit in which she stated that
she relent the proceeds of the US$31,10 loan to Paolo Sun. A
portion of this affidavit reads:cralawlawlibrary
2. I agreed to lend (lie amount of Dollars: Thirty One Thousand
One Hundred Only ($31,100.00) to PAOLO SUN, payable on an
agreed maturity date and at an agreed interest rate out of a Loan
Against Deposit Holdout that I will secure from PNB using my
time deposits as collateral.
3. PAOLO SUN and I agreed that should ( lend him the proceeds
of my Loan Against Deposit Holdout from PNB, he would pay all
the bank charges and interest on such PNB loan, which he agreed
to do so by authorizing PNB to debit his deposit account for such
amount equivalent to the charges/interest due on my loan.
4. PNB approved my loan application, and so, after I have lent the
loan proceeds to PAOLO SUN, the latter has dutifully and
promptly paid all bank charges and interest under the aforesaid
arrangement;36chanrobleslaw
Again, Pasimio did not deny the due execution of this affidavit.
Rather, she lamely insisted she was only forced to sign this
affidavit upon Gregorio's representations that this was the only
way that she would recover her investments. Pasimio denied
knowing Paolo Sun and having loan arrangements with him. She
would stick to her story that she signed the document under
duress, needing, as she did at that time, money to support a
dying spouse. Gregorio also allegedly divulged that she needed
Pasimio to sign the Affidavit as she (Gregorio) was already being
audited and investigated by the PNB Main office.
As between Pasimio's empty assertions about the above affidavit
and its contents and the categorical statements in the notarized
affidavit detailing her arrangement with PNB and Paolo Sun, the
choice as to which is more credible should be clear and simple. In
fact, Pasimio ought to have been estopped from denying the
contents of that affidavit.
Verily, Pasimio's version of the case taxes credulity. By her own
testimonial account, she is a holder of a BS Commerce degree
and used to work as a personnel director of an advertising
agency.37 It is, therefore, not believable that a person of her
educational attainment and stature, who appeared to be of good
physical and mental health, would simply hand over millions of
pesos, no mean amount by ordinary standards, to a bank and
then blindly sign documents involving her money without
exercising a modicum of care by verifying, or at least taking a
cursory look at what these documents mean. And yet, the
courts a quo chose to close their eyes to these absurdities.
Lest it be overlooked, Pasimio's husband Rene also affixed his
signature on the subject promissory notes and loan application
forms to signify his consent to his wife's financial dealings. There
is no allegation, let alone proof; that Rene did not likewise
understand what he was signing and giving his consent to. These
loan documents have, on their face, the words "Peso Loans
Against Peso/FX Deposit Loan Application/Approval Form,"
"Promissory Note and Hold-out on Peso/FX Savings Deposit/
Peso/FX Time Deposit and Assignment of Deposit Substitute,"
and "Disclosure Statements of Loan/Credit Transaction" printed
in big letters. Thus, it is reasonable to assume that, at first glance,
Pasimio and husband Rene would have been put on notice of
what these documents were. What they signed were pro-
forma bank documents, printed in full but with blanks to be filled
up with specific terms thereof such as loan amount, interest rate,
and security, among others. They were not, in fine, empty white
sheets of paper. It may be that Pasimio was indeed made to sign
the blank spaces of the loan documents. Be that as it may, it is
well-nigh impossible that she had absolutely no idea what they
actually were, she having testified being a PNB depositor for
some twenty years. Indeed, the Court is hard-pressed to believe
that she has not encountered these documents before, just as it
is also hard to imagine that her husband did not notice the titles
of these documents and had no clue what they were.
Pasimio would parlay the idea that she signed certain loan
documents and the April 10, 2003 affidavit under duress or undue
influence. Like her other unsubstantiated assertions, her
allegations of improper influence, duress or fraud practised on
her by bank officers deserve scant consideration. Undue
influence is described under the Civil Code, thus:cralawlawlibrary
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 freedom of choice. The following
circumstances shall be considered: the confidential, family,
spiritual and other relations between the parties, or the fact that
the person alleged to have been unduly influenced was suffering
from menial weakness, or was ignorant or in financial
distress.chanrobleslaw
As regards fraud, the Civil Code says:cralawlawlibrary
Art. 1338. There is fraud when, through insidious words or
machinations of one of the contracting parties, the other is
induced to enter into a contract which without them, he would not
have agreed to.
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.chanrobleslaw
The employment of fraud, duress, or undue influence is a serious
charge, and to be sustained it must be supported by clear and
convincing proof; it cannot be presumed.38 There is no allegation
or evidence that Gregorio and Miranda influenced Pasimio by
employing means she could not well resist, and which controlled
her volition and induced her to sign the loan documents and the
April 10, 2003 Affidavit, which otherwise she would not have
executed. Also, there was no evidence showing that Gregorio and
Miranda's influence interfered with Pasimio's exercise of
independent discretion necessary to determine the advantage or
disadvantage of signing these documents.
Then, too, Pasimio failed to prove that Gregorio and Miranda
defrauded her. Taking into consideration the personal conditions
of Pasimio, there is no clear and convincing evidence
establishing serious fraud or deceit, insidious words or
machinations on the part of PNB or its officers, sufficient to
impress or lead her into error;39
It is germane to observe at this juncture that PNB has, in its favor,
certain presumptions which Pasimio failed to overturn. Rule 131,
Sec. 3 of the Rules of Court specifies that a disputable
presumption is satisfactory if uncontradicted and not overcome
by other evidence. Corollary thereto, paragraphs (r) and (s)
thereof read:cralawlawlibrary
SBC. 3. Disputable presumptions.— The following presumptions
are satisfactory if uncontradicted, but may be contradicted and
overcome by other evidence:
x x x x
(r) That there was sufficient consideration for a contract;
(s) That a negotiable instrument was given or indorsed for a
sufficient consideration;chanrobleslaw
and Sec. 24 of the Negotiable Instruments Law
reads:cralawlawlibrary
SEC. 24. Presumption of consideration.— Every negotiable
instrument is deemed prima facie to have been issued for a
valuable consideration; and every person whose signature
appears thereon to have become a party thereto for
value.chanrobleslaw
Pasimio also failed to overcome the presumptions that a person
takes ordinary care of his concerns,40that private transactions
have been fair and regular,41 and that the ordinary course of
business has been followed.42
Certainly, the trial court erred in saying that Pasimio "had proved
by convincing evidence that she had not secured any loan
accommodations from the defendant bank x x x and, thus, is
entitled for the return of said deposit x x x" and that "[t]he factum
probans to sustain parties cause has been successfully hurdled
and undertaken by plaintiff, in contradistinction to defendant's
mere denial of a transport obligation, the latter failing to
overcome the quantum of evidence presented by plaintiff to tilt
the scale of justice in favor of plaintiff herein."43 In truth, other
than her self-serving statements, Pasimio had nothing else to
show against PNB's evidence. The greater weight of credible
evidence as to whether Pasimio secured from PNB loans covered
by promissory notes with hold-out provisions is decidedly in
favor of petitioner bank.
To be sure, the RTC did not explain its reasons for coming up
with these conclusions and did not even bother to discuss its
evaluation of the merits of Pasimio's evidence. The Court also
notes that the trial court never even declared that, indeed,
Pasimio and her husband were fooled into signing the loan
documents and made to believe that the loan documents were
related to a high-yielding PNB product.
Hence, it may be said that the trial court violated in a sense the
constitutional caveat enjoining courts from rendering a decision
"without expressing therein clearly and distinctly the facts and
the law on which it is based." The RTC had 1 ailed to discharge its
duty to inform parties to litigation on how the case was decided,
with an explanation of the factual and legal reasons that led to the
conclusions of the court.
The dismissal of PNB's petition is
based on mere speculations and
surmises
In denying Pasimio's appeal, the CA adopted verbatim the trial
court's findings that there was no evidence proving Pasimio's
receipt of the loan proceeds and that the loan documents were
highly questionable. The appellate court also reasoned that since
PNB was grossly negligent in transacting with Pasimio, the bank
should suffer the consequences.
In upholding the RTC's finding respecting Pasimio's never having
received any loan proceeds, the CA doubtless disregarded the
rule holding that a promissory note is the best evidence of the
transaction embodied therein; also, to prove the existence of the
loan, there is no need to submit a separate receipt to prove that
the borrower received the loan proceeds.44 Indeed, a promissory
note represents a solemn acknowledgment of a debt and a formal
commitment to repay it on the date and under the conditions
agreed upon by the borrower and the lender. As has been held, a
person who signs such an instrument is bound 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.45
The Court has also declared that a mere denial of the receipt of
the loan, which is stated in a clear and unequivocal manner in a
public instrument, is not sufficient to assail its validity. To
overthrow the recitals of such instrument, convincing and more
than merely preponderant evidence is necessary. A contrary rule
would throw wide open doors to fraud.46 Following this doctrine,
Pasimio's notarized promissory notes bearing her signature and
that of her husband must be upheld, absent, as here, strong,
complete, and conclusive proof of their nullity.
The promissory notes, bearing Pasimio's signature, speak for
themselves. To repeat, Pasimio has not questioned the
genuineness and due execution of the notes. By signing the
promissory notes, she is deemed to acknowledge receipt of the
corresponding loan proceeds. Withal, she cannot plausibly set up
the defense that she did not apply for any loan, and receive the
value of the notes or any consideration therefor in order to
escape her liabilities under these promissory notes.47
But the foregoing is not all. PNB presented evidence that
strengthened its allegation on the existence of the loan. Here,
each promissory note was supported by a corresponding loan
application form and disclosure statement, all of which carried
Pasimio's signatures. Isolated from each other, these documents
might not prove the existence of the loan, but when taken
together, collectively, they show that Pasimio took the necessary
steps to contract loans from PNB and was aware of their terms
and conditions.
Further, this Court does not agree that the loan documents were
"highly questionable." The trial court arrived at this conclusion
upon observing that the March 21, 2001, April 2, 2001, and
December 7, 2001 loan application forms and promissory notes
did not bear Pasimio's community tax certificate number and
because it appeared that the blanks for the specific terms of these
loan documents were filled up on different dates considering that
some typewritten entries appeared to be bolder or darker than the
others.
These reasons are specious as they are flimsy.
First, the authenticity of these loan documents should not be
affected merely because their blank spaces appeared to have
been filled up, if that be the case, on different dates, using
different typewriters. As PNB aptly puts it, there is nothing
suspicious or inherently wrong about bank forms being filled up
on different dates since these are usually pre-typed, with the
blanks thereon to be filled up subsequently, depending on the
specific terms of the transaction with a client, and thereafter
presented to the latter for signing.
Second, the absence of Pasimio's community tax certificate
number in : said loan documents neither vitiates the transaction
nor invalidates the document. If at all, such absence renders the
notarization of the loan documents defective. Under the notarial
rules at that time, i.e., Sec. 163 (a) of Republic Act No. 7160,
otherwise known as the Local Government Code of 1991, where
an individual subject to the community tax acknowledges any
document before a notary public, it shall be the duty of the
administering officer to require such individual to exhibit the
community tax certificate. The defective notarization of the loan
documents only means that these documents would not be
carrying the evidentiary weight conferred upon it with respect to
its due execution; that they should be treated as a private
document to be examined in appropriate cases under the
parameters of Sec. 20, Rule 132 of the Rules of Court which
provides that "before any private document offered as authentic
is received in evidence, its due execution and authenticity must
be proved either: (a) by anyone who saw the document executed
or written; or (b) by evidence of the genuineness of the signature
or handwriting of the maker x x x." Settled is the rule that a
defective notarization will strip the document of its public
character and reduce it to a private instrument, and the
evidentiary standard of its validity shall be based on
preponderance of evidence.48
It must be stressed that the adverted defective notarization
should not have been made an issue at all in the first place, for
Pasimio already admitted executing the documents in question,
or to put it in another way, she did not deny that the signatures
appearing thereon were hers and her husband's. Thus, the
requirements of Sec. 20, Rule 132 of the Rules of Court have been
sufficiently met and all doubts as to their authenticity and due
execution should have been put to rest.
More importantly, the records do not show that Pasimio alleged
the regoing defects and presented any proof for the trial court to
consider and rule on.
Furthermore, the Court does not find sufficient evidence to
support the CA's finding that PNB is guilty of gross negligence
and, thus, must suffer the consequences of its transactions with
Pasimio. In this regard, the CA explained that PNB foiled to
exercise the highest degree of diligence required of banks
because allegedly, Gregorio was able to obtain Pasimio's
signature and assent to re-lend the dollar loan proceeds to Paolo
Sun in a manner not in accordance with the ordinary course of
business of hanks. Also, the appellate court found PNB
reprehensible for doing transactions outside the bank without any
proper explanation of the consequences of the document to be
signed by [Pasimio] and because the bank
personnel misrepresented the true nature of the transaction.49
There is no sufficient evidence to support the foregoing. It must
be stressed that these were solely drawn from Pasimio's
testimony that Gregorio went to her house for her to sign the
April 10, 2003 Affidavit and that the latter told her that the only
way she could get her money back was to re-lend her money
deposits to Paolo Sun. Other than Pasimio's story, the CA had no
other evidence to bolster these findings.
 No. CV-05-0195 before the egional Trial Court of Paranaque City,
Further, the CA's conclusions that PNB's personnel were in Branch 196 is DISMISSED for lack of merit.
violation of their duties and responsibilities as its employees; that
they committed gross negligence in dealing with their bank
transactions; and that the bank repeatedly failed to observe basic
procedures thus, was guilty of serial negligence, are not
supported by sufficient evidence.
.

It was wrong for the CA to make the foregoing conclusions

merely because another bank client, Virginia Pollard (Pollard),
testified to being a victim of irregular bank transactions of PNB
Sucat. Even if Pollard were telling the truth, her testimony should
not have been considered proof that what she underwent is what
actually transpired between Pasimio and PNB. Res inter alios
acta. Acts and declarations of persons strangers to a suit should,
as a rule, be irrelevant as evidence. Pollard's transaction with
PNB is entirely different and totally unrelated to Pasimio's
dealings with the bank.

What may be true in the case of Pollard may not hold true for
Pasimio. It was quite erroneous for the appellate court to declare
PNB grossly negligent in its transactions with Pasimio when the
only evidence it had discussed on the matter was Pollard's
testimony. It may be true that the PNB was grossly negligent in
dealing with Pollard, but this does not automatically mean that
PNB was grossly negligent toward Pasimio as well. Hence, the CA
had no basis in saying that "[e]ven assuming that [Pasimio] was
concocting her version of the facts, fit] still find[s] irregularities
and inconsistencies that have attributed to the unjustified refusal
to return the investment placement and to the commission of
negligence."

Much is attempted to be made by the Memorandum on Irregular

Lending Operation on Loans v. Deposit Hold-Out (Sucat
Branch) dated February 18, 2003. The memorandum does not
pertain to Pasimio or her accounts and transactions with the
bank, albeit it discusses Garcia and Miranda's sham dealings with
other bank clients. Hence, the memorandum is really not
determinative of the critical question of whether or not Pasimio
sought and eventually secured loan accommodations from PNB.

Here, the RTC and the CA focused on finding trivial Haws and
weaknesses in PNB's evidence and totally disregarded the bank's
most telling proof, foremost of which are the notarized notes Had
the courts a quo looked at and considered the totality of the
bank's evidence, then it would have realized how preposterous
the story that Pasimio spun was, a story featuring, at bottom, a
well-educated, accomplished woman signing several pieces of
bank documents involving millions of pesos, without knowing,
nay even reading, what she is signing.

Finally, it is well to consider this rule: that when the terms of an

agreement have been reduced to writing, it is to be considered as
containing all such terms, and, therefore, there can be, between
the parties and their successors-in-interest, no evidence of the
terms of the agreement other than the contents of the writing. 50

Under this rule, parol evidence or oral evidence cannot be given

to contradict, change or vary a written document, except if a party
presents evidence to modify, explain, or add to the terms of a
written agreement and puts in issue in his pleadings: (a) an
intrinsic ambiguity, mistake, or imperfection in the written
agreement; (b) the failure of the written agreement to express the
true intent and agreement of the parties; (c) the validity of the
written agreement; and (d) the existence of other terms agreed to
by the parties or their successors-in-interest after the execution
of the written agreement.51

Such evidence, however, must be clear and convincing and of

such sufficient credibility as to overturn the written
agreement.52 Since no evidence of such nature is before the
Court, the documents embodying the loan agreement of the
parties should be upheld.

WHEREFORE, premises considered, the petition

is GRANTED. The assailed Decision of the Court of Appeals dated
January 23, 2013 in CA-G.R. CV No. 94079 is REVERSED and SET
ASIDE. Respondent Ligaya M. Pasimio's complaint in Civil Case