Credtrans pledge chattel
VOL. 21, OCTOBER 26, 1967 515 July 13, 1954; P120.93 as premiums with interest at the same rate from June 13,
Manila Surety & Fidelity Co., Inc. vs. Velayo
No. L-21069. October 26, 1967.
MANILA SURETY & FIDELITY COMPANY,INC.,
plaintiffappellee, vs. RODOLFO R. VELAYO, defendant-appellant.
Civil law; Pledge, accessory character of.—The accessory character is of the
essence of pledge and mortgage. Under Art. 2085 of the Civil Code of 0195, an
essential requisite of these contracts is that they be constituted to secure the
fulfillment of a principal obligation.
Same; Sale of thing pledged; Effect of; Waiver.—Where
_______________
13 United States v. National Dairy Product Corp. 373 US 29, 32.
14 Ex parte Endo (1944), 323 US 283, 299-300.
15 Chippewa Indians v. United States (1937), 301 US 358, 376.
516
SUPREME COURT REPORTS 5
ANNOTATED 16
Manila Surety & Fidelity Co., Inc. vs.
Velayo
the pieces of jewelry were delivered to a surety company “as collateral
security and by way of pledge” in a contract of guaranty security, and sold at a
lower price than the amount of the principal obligation, the principal obligation
was extinguished and the guarantor cannot recover the deficiency, because Art.
2115 of the Civil Code, in its last portion, clearly establishes that the extinction of
the principal obligation supervenes by operation of imperative law that the
parties cannot override; “If the price of the sale is less, neither shall the creditor
be entitled to recover the deficiency notwithstanding any stipulation to the
contrary.” The effect of this provision cannot be evaded. By electing to sell the
articles pledged, instead of suing on the principal obligation, the creditor has
waived any other remedy, and must abide by the results of the sale.
APPEAL from a decision of the Court of First Instance of Manila.
The facts are stated in the opinion of the Court.
Villaluz Law Office for plaintiff-appellee.
Rodolfo R. Velayo for and in his own behalf as defendant-appellant.
REYES, J.B.L., J.:
Direct appeal from a judgment of the Court of First Instance of Manila (Civil Case
No. 49435) sentencing appellant Rodolfo Velayo to pay appellee Manila Surety &
Fidelity Co., Inc. the sum of P2,565.00 with interest at 12-1/2% per annum from
1954; attorneys’ fees in an amount equivalent to 15% of the total award, and the
costs.
Hub of the controversy are the applicability and extinctive effect of Article
2115 of the Civil Code of the Philippines (1950).
The uncontested facts are that in 1953, Manila Surety & Fidelity Co., upon
request of Rodolfo Velayo, executed a bond for P2,800.00 for the dissolution of a
writ of attachment obtained by one Jovita Granados in a suit against Rodolfo
Velayo in the Court of First Instance of Manila. Velayo undertook to pay the
surety company an annual premium of P112.00; to indemnify the Company for
any damage and loss of whatsoever kind and nature that it shall or may suffer, as
well as reimburse the same for all money it should pay or become liable to pay
under the bond including costs and attorneys’ fees.
517
VOL. 21, OCTOBER 26, 1967 517
Manila Surety & Fidelity Co., Inc. vs. Velayo
As “collateral security and by way of pledge” Velayo also delivered four pieces of
jewelry to the Surety Company “for the latter’s further protection”, with power to
sell the same in case the surety paid or become obligated to pay any amount of
money in connection with said bond, applying the proceeds to the payment of any
amounts it paid or will be liable to pay, and turning the balance, if any, to the
persons entitled thereto, after deducting legal expenses and costs (Rec. App. pp.
12-15).
Judgment having been rendered in favor of Jovita Granados and against
Rodolfo Velayo, and execution having been returned unsatisfied, the surety
company was forced to pay P2,800.00 that it later sought to recoup from Velayo;
and upon the latter’s failure to do so, the surety caused the pledged jewelry to be
sold, realizing therefrom a net product of P235.00 only. Thereafter and upon
Velayo’s failure to pay the balance, the surety company brought suit in the
Municipal Court. Velayo countered with a claim that the sale of the pledged
jewelry extimguished any further liability on his part under Article 2115 of the
1950 Civil Code, which recites :
“ART. 2115. The sale of the thing pledged shall extinguish the principal
obligation, whether or not the proceeds of the sale are equal to the amount of the
principal obligation. interest and expenses in a proper case. If the price of the sale
is more than said amount, the debtor shall not be entitled to the excess, unless it
is otherwise agreed. If the price of the sale is less, neither shall the creditor be
entitled to recover the deficiency, notwithstanding any stipulation to the
contrary.”
The Municipal Court disallowed Velayo’s claims and rendered judgment against
him. Appealed to the Court of First Instance, the defense was once more
overruled, and the case decided in the terms set down at the start of this opinion.
Thereupon, Velayo resorted to this. Court on appeal.
The core of the appealed decision is the following portion thereof (Rec. Appeal
pp. 71-72) :
“It is thus crystal clear that the main agreement between the parties is the
Indemnity Agreement and if the pieces of jewelry mentioned by the defendant
were delivered to the plain-
1
Credtrans pledge chattel

518 secure the price of the personal property sold in installments, and which
518 SUPREME COURT REPORTS originated in Act 4110 promulgated by the Philippine Legislature in 1933.
WHEREFORE, the decision under appeal is modified and the defendant
ANNOTATED absolved from the complaint, except as to his liability for the 1954 premium in the
Manila Surety & Fidelity Co., Inc. vs. Velayo sum of P120.93, and interest at 12-1/2% per annum from June 13, 1954, In this
tiff, it was merely as an added protection to the latter. There was no respect the decision of the Court below is affirmed. No costs. So ordered.
understanding that, should the same be sold at public auction and the value Concepcion, C.J., Dizon, Makalintal, Bengzon,
thereof should be short of the undertaking, the defendant would have no further J.P., Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
liability to the plaintiff. On the contrary, the last portion of the said agreement
specifies that in case the said collateral should diminish in value, the plaintiff Decision affirmed.
may demand additional securities. This stipulation is incompatible with the idea
of pledge as a principal agreement. In this case, the status of the pledge is nothing _________________
more nor less than that of a mortgage given as a collateral for the principal
obligation in which the creditor is entitled to a deficiency judgment for the © Copyright 2019 Central Book Supply, Inc. All rights reserved.
balance should the collateral not command the price equal to the undertaking.
It appearing that the collateral given by the defendant in favor of the plaintiff
to secure this obligation has already been sold for only the amount of P235.00, the
liability of the defendant should be limited to the difference between the amounts
of P2,800.00 and P235.00 or P2,565.00.”

We agree with the appellant that the above quoted reasoning of the appealed
decision is unsound. The accessory character is of the essence of pledge and
mortgage. As stated in Article 2085 of the 1950 Civil Code, an essential requisite
of these contracts is that they be constituted to secure the fulfillment of a
principal obligation, which in the present case is Velayo’s undertaking to
indemnify the surety company for any disbursements made on account of its
attachment counterbond. Hence, the fact that the pledge is not the principal
agreement is of no significance nor is it an obstacle to the application of Article
2115 of the Civil Code.
The reviewed decision further assumes that the extinctive effect of the sale of
the pledged chattels must be derived from stipulation. This is incorrect, because
Article 2115, in its last portion, clearly establishes that the extinction of the
principal obligation supervenes by operation of imperative law that the parties
cannot override:
“If the price of the sale is less, neither shall the creditor be entitled to recover the
deficiency notwithstanding any stipulation to the contrary.”

The provision is clear and unmistakable, and its effect can not be evaded. By
electing to sell the articles pledged, instead of suing on the principal obligation,
the creditor
519
VOL. 21, OCTOBER 26, 1967 519
Bacalso vs. Ramolete
has waived any other remedy, and must abide by the results of the sale. No
deficiency is recoverable.
It is well to note that the rule of Article 2115 is by no means unique. It is but
an extension of the legal prescription contained in Article 1484(3) of the same
Code, concerning the effect of a foreclosure of a chattel mortgage constituted to

2
Credtrans pledge chattel
378 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
G.R. No. 156132. October 16, 2006.*
CITIBANK, N.A. (Formerly First National City Bank) and INVESTORS’
FINANCE CORPORATION, doing business under the name and style of FNCB
Finance, petitioners, vs. MODESTA R. SABENIANO, respondent.
Actions; Pleadings and Practice; Forum Shopping; Motions for Extension of
Time; The Petition for Review would constitute the initiatory pleading before the
Supreme Court, upon the timely filing of which, the case before the Court
commences, much in the same way a case is initiated by the filing of a Complaint
before the trial court—and, without such a Petition, there is technically no case
before the Court; A Motion for Extension of Time within which to file a Petition for
Review does not serve the same purpose as the Petition for Review itself.—
Although it may seem at first glance that respondent was simultaneously seeking
recourse from the Court of Appeals and this Court, a careful and closer scrutiny of
the details of the case at bar would reveal otherwise. It should be recalled that
respondent did nothing more in G.R. No. 152985 than to file with this Court a
Motion for Extension of Time within which to file her Petition for Review. For
unexplained reasons, respondent failed to submit to this Court her intended
Petition within the reglementary period. Consequently, this Court was prompted
to issue a Resolution, dated 13 November 2002, declaring G.R. No. 152985
terminated, and the therein assailed Court of Appeals Decision final and
executory. G.R. No. 152985, therefore, did not progress and respondent’s appeal
was unperfected. The Petition for Review would constitute the initiatory pleading
before this Court, upon the timely filing of which, the case before this Court
commences; much in the same way a case is initiated by the filing of a Complaint
before the trial court. The Petition for Review establishes the identity of parties,
rights or causes of action, and relief sought from this Court, and without such a
Petition, there is technically no case before this Court. The Motion filed by
respondent seeking extension of time within which to file her Petition for Review
does not serve the same purpose as the Petition for Review itself. Such a Motion
merely presents the important dates and the justification for the additional time
requested for, but it does
_______________
*FIRST DIVISION.
379
VOL. 504, OCTOBER 16, 2006 3 contradicted by the evidence on record.
79
Citibank, N.A. (Formerly First National
City Bank) vs. Sabeniano
not go into the details of the appealed case. Without any particular idea as
to the assignments of error or the relief respondent intended to seek from this
Court, in light of her failure to file her Petition for Review, there is actually no
second case involving the same parties, rights or causes of action, and relief
sought, as that in CA-G.R. CV No. 51930.
Same; Same; Same; Certification Against Forum Shopping; Contents; The
Certification against Forum Shopping is required to be attached to the initiatory
pleading.—It should also be noted that the Certification against Forum Shopping
is required to be attached to the initiatory pleading, which, in G.R. No. 152985,
should have been respondent’s Petition for Review. It is in that Certification
wherein respondent certifies, under oath, that: (a) she has not commenced any
action or filed any claim involving the same issues in any court, tribunal or quasi-
judicial agency and, to the best of her knowledge, no such other action or claim is
pending therein; (b) if there is such other pending action or claim, that she is
presenting a complete statement of the present status thereof; and (c) if she
should thereafter learn that the same or similar action or claim has been filed or
is pending, she shall report that fact within five days therefrom to this Court.
Without her Petition for Review, respondent had no obligation to execute and
submit the foregoing Certification against Forum Shopping. Thus, respondent did
not violate Rule 7, Section 5 of the Revised Rules of Court; neither did she
mislead this Court as to the pendency of another similar case.
Appeals; Findings of fact of the Court of Appeals are conclusive upon the
Supreme Court; Exceptions.—It is already a well-settled rule that the jurisdiction
of this Court in cases brought before it from the Court of Appeals by virtue of Rule
45 of the Revised Rules of Court is limited to reviewing errors of law. Findings of
fact of the Court of Appeals are conclusive upon this Court. There are, however,
recognized exceptions to the foregoing rule, namely: (1) when the findings are
grounded entirely on speculation, surmises, or conjectures; (2) when the
interference made is manifestly mistaken, absurd, or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is based on a misapprehension of
facts; (5) when the findings of fact are conflicting; (6) when in making its findings,
the Court of Appeals went beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant and the
380
3 SUPREME COURT REPORTS
80 ANNOTATED
Citibank, N.A. (Formerly First National
City Bank) vs. Sabeniano
appellee; (7) when the findings are contrary to those of the trial court; (8)
when the findings are conclusions without citation of specific evidence on which
they are based; (9) when the facts set forth in the petition as well as in the
petitioner’s main and reply briefs are not disputed by the respondent; and (10)
when the findings of fact are premised on the supposed absence of evidence and
Judges; That the trial court judge who decided a case is not the same judge
who heard the case and received the evidence is of little consequence when the
records and transcripts of stenographic notes (TSNs) are complete and available
for consideration by the former.—What deserves stressing is that, in this
jurisdiction, there exists a disputable presumption that the RTC Decision was
rendered by the judge in the regular performance of his official duties. While the
3
Credtrans pledge chattel
said presumption is only disputable, it is satisfactory unless contradicted or
overcame by other evidence. Encompassed in this presumption of regularity is the
presumption that the RTC judge, in resolving the case and drafting his Decision,
reviewed, evaluated, and weighed all the evidence on record. That the said RTC
judge is not the same judge who heard the case and received the evidence is of
little consequence when the records and transcripts of stenographic notes (TSNs)
are complete and available for consideration by the former.
Evidence; Admissions; Documentary Evidence; Promissory Notes; By the
admission of the genuineness and due execution of an instrument is meant that the
party whose signature it bears admits that he signed it or that it was signed by
another for him with his authority, that at the time it was signed it was in words
and figures exactly as set out in the pleading of the party relying on it, that the
document was delivered, and that any formal requisites required by law, are
waived by him; The effect of an admission is such that in the case of a promissory
note a prima facie case is made for the plaintiff which dispenses with the necessity
of evidence on his part and entitles him to a judgment on the pleadings unless a
special defense of new matter, such as payment, is interposed by the defendant.—
Petitioner Citibank did not deny the existence nor questioned the authenticity of
PNs No. 23356 and 23357 it issued in favor of respondent for her money market
placements. In fact, it admitted the genuineness and due execution of the said
PNs, but qualified that they were no longer outstanding. In Hibberd v. Rohde and
McMillian, 32 Phil. 476, this
381
VOL. 504, OCTOBER 16, 2006 3 an affirmative allegation of a new matter, the burden of proof as to such resting
81
Citibank, N.A. (Formerly First National
City Bank) vs. Sabeniano
Court delineated the consequences of such an admission—By the admission
of the genuineness and due execution of an instrument, as provided in this
section, is meant that the party whose signature it bears admits that he signed it
or that it was signed by another for him with his authority; that at the time it was
signed it was in words and figures exactly as set out in the pleading of the party
relying upon it; that the document was delivered; and that any formal requisites
required by law, such as a seal, an acknowledgment, or revenue stamp, which it
lacks, are waived by him. Hence, such defenses as that the signature is a forgery
(Puritan Mfg. Co. vs. Toti & Gradi, 14 N. M., 425; Cox vs. Northwestern Stage Co.,
1 Idaho, 376; Woollen vs. Whitacre, 73 Ind., 198; Smith vs. Ehnert, 47 Wis.,
479; Faelnar vs. Escaño, 11 Phil. Rep., 92); or that it was unauthorized, as in the
case of an agent signing for his principal, or one signing in behalf of a partnership
(Country Bank vs. Greenberg, 127 Cal., 26; Henshaw vs. Root, 60 Inc.,
220; Naftzker vs. Lantz, 137 Mich., 441) or of a corporation (Merchant vs.
International Banking Corporation, 6 Phil Rep., 314; Wanita vs. Rollins, 75 Miss.,
253; Barnes vs. Spencer & Barnes Co., 162 Mich., 509); or that, in the case of the
latter, that the corporation was authorized under its charter to sign the
instrument (Merchant vs. International Banking Corporation, supra); or that the
party charged signed the instrument in some other capacity than that alleged in
the pleading setting it out (Payne vs. National Bank, 16 Kan., 147); or that it was
never delivered (Hunt vs. Weir, 29 Ill., 83; Elbring vs. Mullen, 4 Idaho, 199; Thorp
vs. Keokuk Coal Co., 48 N.Y., 253; Fire Association of Philadelphia vs. Ruby, 60
Neb., 216) are cut off by the admission of its genuineness and due execution. The
effect of the admission is such that in the case of a promissory note a prima
facie case is made for the plaintiff which dispenses with the necessity of evidence
on his part and entitles him to a judgment on the pleadings unless a special
defense of new matter, such as payment, is interposed by the defendant (Papa vs.
Martinez, 12 Phil. Rep., 613; Chinese Chamber of Commerce vs. Pua To Ching, 14
Phil. Rep., 222; Banco Español-Filipino vs. McKay & Zoeller, 27 Phil. Rep., 183). x
xx
Same; Obligations and Contracts; Payments; As a general rule, one who
pleads payment has the burden of proving it—even where the plaintiff must allege
non-payment, the general rule is that the burden rests on the defendant to prove
payment, rather than on the plaintiff to prove non-payment.—Since the
genuineness and due execution of
382
3 SUPREME COURT REPORTS
82 ANNOTATED
Citibank, N.A. (Formerly First National
City Bank) vs. Sabeniano
PNs No. 23356 and 23357 are uncontested, respondent was able to
establish prima facie that petitioner Citibank is liable to her for the amounts
stated therein. The assertion of petitioner Citibank of payment of the said PNs is
on petitioner Citibank. Respondent having proved the existence of the obligation,
the burden of proof was upon petitioner Citibank to show that it had been
discharged. It has already been established by this Court that—As a general rule,
one who pleads payment has the burden of proving it. Even where the plaintiff
must allege non-payment, the general rule is that the burden rests on the
defendant to prove payment, rather than on the plaintiff to prove non-payment.
The debtor has the burden of showing with legal certainty that the obligation has
been discharged by payment. When the existence of a debt is fully established by
the evidence contained in the record, the burden of proving that it has been
extinguished by payment devolves upon the debtor who offers such defense to the
claim of the creditor. Where the debtor introduces some evidence of payment, the
burden of going forward with the evidence—as distinct from the general burden of
proof—shifts to the creditor, who is then under the duty of producing some
evidence of non-payment.
Same; Witnesses; Taking into consideration the substantial length of time
between the transactions and the witnesses’ testimonies, as well as the undeniable
fact that bank officers deal with multiple clients and process numerous
transactions during their tenure, the Court is reluctant to give much weight to
such bank officials’ testimonies regarding the payment of promissory notes and the
use of the proceeds thereof for opening time deposit accounts—the Court finds it
implausible that they should remember, after all these years, the particular
transaction with respondent involving her promissory notes and her time deposit
accounts.—Before anything else, it should be noted that when Mr. Pujeda’s
testimony before the RTC was made on 12 March 1990 and Mr. Tan’s deposition
in Hong Kong was conducted on 3 September 1990, more than a decade had
4
Credtrans pledge chattel
passed from the time the transactions they were testifying on took place. This
Court had previously recognized the frailty and unreliability of human memory
with regards to figures after the lapse of five years. Taking into consideration the
substantial length of time between the transactions and the witnesses’
testimonies, as well as the undeniable fact that bank officers deal with multiple
clients and process
383
VOL. 504, OCTOBER 16, 2006 3 drawee bank may only pay to another bank in the payee’s or indorser’s account.—
83
Citibank, N.A. (Formerly First National
City Bank) vs. Sabeniano
numerous transactions during their tenure, this Court is reluctant to give
much weight to the testimonies of Mr. Pujeda and Mr. Tan regarding the
payment of PNs No. 23356 and 23357 and the use by respondent of the proceeds
thereof for opening TD accounts. This Court finds it implausible that they should
remember, after all these years, this particular transaction with respondent
involving her PNs No. 23356 and 23357 and TD accounts. Both witnesses did not
give any reason as to why, from among all the clients they had dealt with and all
the transactions they had processed as officers of petitioner Citibank, they
specially remembered respondent and her PNs No. 23356 and 23357. Their
testimonies likewise lacked details on the circumstances surrounding the
payment of the two PNs and the opening of the time deposit accounts by
respondent, such as the date of payment of the two PNs, mode of payment, and
the manner and context by which respondent relayed her instructions to the
officers of petitioner Citibank to use the proceeds of her two PNs in opening the
TD accounts.
Same; Preponderance of Evidence; Words and Phrases; Preponderant
evidence means that, as a whole, the evidence adduced by one side outweighs that
of the adverse party.—After going through the testimonial and documentary
evidence presented by both sides to this case, it is this Court’s assessment that
respondent did indeed have outstanding loans with petitioner Citibank at the
time it effected the off-set or compensation on 25 July 1979 (using respondent’s
savings deposit with petitioner Citibank), 5 September 1979 (using the proceeds
of respondent’s money market placements with petitioner FNCB Finance) and 26
October 1979 (using respondent’s dollar accounts remitted from Citibank-
Geneva). The totality of petitioners’ evidence as to the existence of the said loans
preponderates over respondent’s. Preponderant evidence means that, as a whole,
the evidence adduced by one side outweighs that of the adverse party.
Banks and Banking; Checks; Manager’s Checks (MCs) are drawn by the
bank’s manager upon the bank itself and regarded to be as good as the money it
represents.—It bears to emphasize that the proceeds of the loans were paid to
respondent in MCs, with the respondent specifically named as payee. MCs checks
are drawn by the bank’s manager upon the bank itself and regarded to be as good
384
3 SUPREME COURT REPORTS
84 ANNOTATED
Citibank, N.A. (Formerly First National
City Bank) vs. Sabeniano
as the money it represents. Moreover, the MCs were crossed checks, with
the words “Payee’s Account Only.”
Same; Same; Crossed Checks; A crossed check cannot be presented to the
drawee bank for payment in cash—the check can only be deposited with the payee’s
bank which, in turn, must present it for payment against the drawee bank in the
course of normal banking hours; The crossed check can only be deposited and the
In general, a crossed check cannot be presented to the drawee bank for payment
in cash. Instead, the check can only be deposited with the payee’s bank which, in
turn, must present it for payment against the drawee bank in the course of
normal banking hours. The crossed check cannot be presented for payment, but it
can only be deposited and the drawee bank may only pay to another bank in the
payee’s or indorser’s account. The effect of crossing a check was described by this
Court in Philippine Commercial International Bank v. Court of Appeals, 350
SCRA 446 (2001)—[T]he crossing of a check with the phrase “Payee’s Account
Only” is a warning that the check should be deposited in the account of the payee.
Thus, it is the duty of the collecting bank PCI Bank to ascertain that the check be
deposited in payee’s account only. It is bound to scrutinize the check and to know
its depositors before it can make the clearing indorsement “all prior indorsements
and/or lack of indorsement guaranteed.”
Same; Same; Same; Presumptions; Given that a check is more than just an
instrument of credit used in commercial transactions for it also serves as a receipt
or evidence for the drawee bank of the cancellation of the said check due to
payment, then, the possession by the drawee bank of the said Manager’s Checks
(MCs), duly stamped “Paid” gives rise to the presumption that the said Manager’s
Checks (MCs) were already paid out to the intended payee.—The crossed MCs
presented by petitioner Bank were indeed deposited in several different bank
accounts and cleared by the Clearing Office of the Central Bank of the
Philippines, as evidenced by the stamp marks and notations on the said checks.
The crossed MCs are already in the possession of petitioner Citibank, the drawee
bank, which was ultimately responsible for the payment of the amount stated in
the checks. Given that a check is more than just an instrument of credit used in
commercial transactions for it also serves as a receipt or evidence for the drawee
bank of the cancellation of the said check
385
VOL. 504, OCTOBER 16, 2006 3
85
Citibank, N.A. (Formerly First National
City Bank) vs. Sabeniano
due to payment, then, the possession by petitioner Citibank of the said MCs,
duly stamped “Paid” gives rise to the presumption that the said MCs were already
paid out to the intended payee, who was in this case, the respondent.
Same; Same; Same; Same; It is presumed that private transactions have
been fair and regular, and that the ordinary course of business has been
followed.—This Court finds applicable herein the presumptions that private
transactions have been fair and regular, and that the ordinary course of business
has been followed. There is no question that the loan transaction between
5
Credtrans pledge chattel
petitioner Citibank and the respondent is a private transaction. The transactions
revolving around the crossed MCs—from their issuance by petitioner Citibank to
respondent as payment of the proceeds of her loans; to its deposit in respondent’s
accounts with several different banks; to the clearing of the MCs by an
independent clearing house; and finally, to the payment of the MCs by petitioner
Citibank as the drawee bank of the said checks—are all private transactions
which shall be presumed to have been fair and regular to all the parties
concerned. In addition, the banks involved in the foregoing transactions are also
presumed to have followed the ordinary course of business in the acceptance of
the crossed MCs for deposit in respondent’s accounts, submitting them for
clearing, and their eventual payment and cancellation.
Same; Same; Same; Same; Where checks crossed for payee’s account only
were actually deposited, cleared, and paid, then the presumption would be that the
said checks were properly deposited to the account of the payee, who was clearly
named as such in the checks; The mere fact that the Manager’s Checks (MCs) do
not bear the payee’s signature at the back does not negate deposit thereof in her
account.—Respondent denied ever receiving MCs No. 220701 and 226467.
However, considering that the said checks were crossed for payee’s account only,
and that they were actually deposited, cleared, and paid, then the presumption
would be that the said checks were properly deposited to the account of
respondent, who was clearly named the payee in the checks. Respondent’s bare
allegations that she did not receive the two checks fail to convince this Court, for
to sustain her, would be for this Court to conclude that an irregularity had
occurred somewhere from the time of the issuance of the said checks, to their
deposit, clearance, and payment, and which would
386
3 SUPREME COURT REPORTS
86 ANNOTATED
Citibank, N.A. (Formerly First National
City Bank) vs. Sabeniano
have involved not only petitioner Citibank, but also BPI, which accepted the
checks for deposit, and the Central Bank of the Philippines, which cleared the
checks. It falls upon the respondent to overcome or dispute the presumption that
the crossed checks were issued, accepted for deposit, cleared, and paid for by the
banks involved following the ordinary course of their business. The mere fact that
MCs No. 220701 and 226467 do not bear respondent’s signature at the back does
not negate deposit thereof in her account. The liability for the lack of indorsement
on the MCs no longer fall on petitioner Citibank, but on the bank who received
the same for deposit, in this case, BPI Cubao Branch. Once again, it must be
noted that the MCs were crossed, for payee’s account only, and the payee named
in both checks was none other than respondent. The crossing of the MCs was
already a warning to BPI to receive said checks for deposit only in respondent’s
account. It was up to BPI to verify whether it was receiving the crossed MCs in
accordance with the instructions on the face thereof. If, indeed, the MCs were
deposited in accounts other than respondent’s, then the respondent would have a
cause of action against BPI.
Same; Same; Same; A check, whether a manager’s check or ordinary check, is
not legal tender, and an offer of a check in payment of a debt is not a valid tender
of payment and may be refused receipt by the obligee or creditor.—Mr. Tan, in his
deposition, further explained that provisional receipts were issued when payment
to the bank was made using checks, since the checks would still be subject to
clearing. The purpose for the provisional receipts was merely to acknowledge the
delivery of the checks to the possession of the bank, but not yet of payment. This
bank practice finds legitimacy in the pronouncement of this Court that a check,
whether an MC or an ordinary check, is not legal tender and, therefore, cannot
constitute valid tender of payment. In Philippine Airlines, Inc. v. Court of
Appeals, 181 SCRA 557 (1990), this Court elucidated that: Since a negotiable
instrument is only a substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment (Sec. 189, Act 2031 on Negs.
Insts.; Art. 1249, Civil Code; Bryan Landon Co. v. American Bank, 7 Phil.
255; Tan Sunco, v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check, whether a
manager’s check or ordinary check, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and may be refused receipt by
the obligee or creditor. Mere delivery of checks
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Citibank, N.A. (Formerly First National
City Bank) vs. Sabeniano
does not discharge the obligation under a judgment. The obligation is not
extinguished and remains suspended until the payment by commercial document
is actually realized (Art. 1249, Civil Code, par. 3).
Same; Loans; Words and Phrases; Booking the loan means recording it in
the General Ledger.—Ms. Cristina Dondoyano, who worked at petitioner Citibank
as a loan processor, was responsible for booking respondent’s loans. Booking the
loans means recording it in the General Ledger. She explained the procedure for
booking loans, as follows: The account officer, in the Marketing Department, deals
directly with the clients who wish to borrow money from petitioner Citibank. The
Marketing Department will forward a loan booking checklist, together with the
borrowing client’s PNs and other supporting documents, to the loan pre-processor,
who will check whether the details in the loan booking checklist are the same as
those in the PNs. The documents are then sent to Signature Control for
verification of the client’s signature in the PNs, after which, they are returned to
the loan pre-processor, to be forwarded finally to the loan processor. The loan
processor shall book the loan in the General Ledger, indicating therein the client
name, loan amount, interest rate, maturity date, and the corresponding PN
number. Since she booked respondent’s loans personally, Ms. Dondoyano testified
that she saw the original PNs. In 1986, Atty. Fernandez of petitioner Citibank
requested her to prepare an accounting of respondent’s loans, which she did, and
which was presented as Exhibit “120” for the petitioners. The figures from the
said exhibit were culled from the bookings in the General Ledger, a fact which
respondent’s counsel was even willing to stipulate.
Evidence; Preponderance of Evidence; Words and Phrases; While it is well-
settled that the term “preponderance of evidence” should not be wholly dependent
on the number of witnesses, there are certain instances when the number of
witnesses becomes the determining factor.—This Court finds that the
6
Credtrans pledge chattel
preponderance of evidence supports the existence of the respondent’s loans, in the
principal sum of P1,920,000.00, as of 5 September 1979. While it is well-settled
that the term “preponderance of evidence” should not be wholly dependent on the
number of witnesses, there are certain instances when the number of witnesses
become the determining factor—The preponderance of evidence may be
determined, under certain conditions, by the number of witnesses testifying to a
particular fact or
388
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88 ANNOTATED
Citibank, N.A. (Formerly First National
City Bank) vs. Sabeniano
state of facts. For instance, one or two witnesses may testify to a given state
of facts, and six or seven witnesses of equal candor, fairness, intelligence, and
truthfulness, and equally well corroborated by all the remaining evidence, who
have no greater interest in the result of the suit, testify against such state of
facts. Then the preponderance of evidence is determined by the number of
witnesses. (Wilcox vs. Hines, 100 Tenn. 524, 66 Am. St. Rep., 761.)
Same; Best Evidence Rule; Words and Phrases; In general, the best evidence
rule requires that the highest available degree of proof must be produced, and, for
documentary evidence, the contents of a document are best proved by the
production of the document itself, to the exclusion of any secondary or
substitutionary evidence.—The best evidence rule requires that the highest
available degree of proof must be produced. Accordingly, for documentary
evidence, the contents of a document are best proved by the production of the
document itself, to the exclusion of any secondary or substitutionary evidence.
The best evidence rule has been made part of the revised Rules of Court, Rule
130, Section 3, which reads—SEC. 3. Original document must be produced;
exceptions.—When the subject of inquiry is the contents of a document, no
evidence shall be admissible other than the original document itself, except in the
following cases: (a) When the original has been lost or destroyed, or cannot be
produced in court, without bad faith on the part of the offeror; (b) When the
original is in the custody or under the control of the party against whom the
evidence is offered, and the latter fails to produce it after reasonable notice; (c)
When the original consists of numerous accounts or other documents which
cannot be examined in court without great loss of time and the fact sought to be
established from them is only the general result of the whole; and (d) When the
original is a public record in the custody of a public officer or is recorded in a
public office.
Same; Same; Even with respect to documentary evidence, the best evidence
rule applies only when the content of such document is the subject of the inquiry.—
As the afore-quoted provision states, the best evidence rule applies only when the
subject of the inquiry is the contents of the document. The scope of the rule is
more extensively explained thus—But even with respect to documentary
evidence, the best evidence rule applies only when the content of such document is
the subject of the inquiry. Where the issue is only as to whether such
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City Bank) vs. Sabeniano
document was actually executed, or exists, or on the circumstances relevant
to or surrounding its execution, the best evidence rule does not apply and
testimonial evidence is admissible (5 Moran, op. cit., pp. 76-66; 4 Martin, op. cit.,
p. 78). Any other substitutionary evidence is likewise admissible without need for
accounting for the original. Thus, when a document is presented to prove its
existence or condition it is offered not as documentary, but as real, evidence. Parol
evidence of the fact of execution of the documents is allowed (Hernaez, et al. vs.
McGrath, etc., et al., 91 Phil 565). x x x
Same; A basic rule of evidence states that “evidence that one did or did not
do a certain thing at one time is not admissible to prove that he did or did not do
the same or similar thing at another time, but it may be received to prove a specific
intent or knowledge, identity, plan, system, scheme, habit, custom or usage, and
the like.”—While the Court of Appeals can take judicial notice of the Decision of
its Third Division in the Dy case, it should not have given the said case much
weight when it rendered the assailed Decision, since the former does not
constitute a precedent. The Court of Appeals, in the challenged Decision, did not
apply any legal argument or principle established in the Dy case but, rather,
adopted the findings therein of wrongdoing or misconduct on the part of herein
petitioner Citibank and Mr. Tan. Any finding of wrongdoing or misconduct as
against herein petitioners should be made based on the factual background and
pieces of evidence submitted in this case, not those in another case. It is apparent
that the Court of Appeals took judicial notice of the Dy case not as a legal
precedent for the present case, but rather as evidence of similar acts committed
by petitioner Citibank and Mr. Tan. A basic rule of evidence, however, states that,
“Evidence that one did or did not do a certain thing at one time is not admissible
to prove that he did or did not do the same or similar thing at another time; but it
may be received to prove a specific intent or knowledge, identity, plan, system,
scheme, habit, custom or usage, and the like.” The rationale for the rule is
explained thus—The rule is founded upon reason, public policy, justice and
judicial convenience. The fact that a person has committed the same or similar
acts at some prior time affords, as a general rule, no logical guaranty that he
committed the act in question. This is so because, subjectively, a man’s mind and
even his modes of life may change; and, objectively, the conditions under which he
may find himself at a given time may likewise change and thus induce him to act
in a
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Citibank, N.A. (Formerly First National
City Bank) vs. Sabeniano
different way. Besides, if evidence of similar acts are to be invariably
admitted, they will give rise to a multiplicity of collateral issues and will subject
the defendant to surprise as well as confuse the court and prolong the trial.
7
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Banks and Banking; Compensation; Compensation takes place by operation
of law.—There is little controversy when it comes to the right of petitioner
Citibank to compensate respondent’s outstanding loans with her deposit account.
As already found by this Court, petitioner Citibank was the creditor of respondent
for her outstanding loans. At the same time, respondent was the creditor of
petitioner Citibank, as far as her deposit account was concerned, since bank
deposits, whether fixed, savings, or current, should be considered as simple loan
or mutuum by the depositor to the banking institution. Both debts consist in sums
of money. By June 1979, all of respondent’s PNs in the second set had matured
and became demandable, while respondent’s savings account was demandable
anytime. Neither was there any retention or controversy over the PNs and the
deposit account commenced by a third person and communicated in due time to
the debtor concerned. Compensation takes place by operation of law, therefore,
even in the absence of an expressed authority from respondent, petitioner
Citibank had the right to effect, on 25 June 1979, the partial compensation or off-
set of respondent’s outstanding loans with her deposit account, amounting to
P31,079.14.
Evidence; Notarial Law; On the evidentiary value of notarized documents, it
should be recalled that the notarization of a private document converts it into a
public one and renders it admissible in court without further proof of its
authenticity.—The Deeds of Assignment of the money market placements with
petitioner FNCB Finance were notarized documents, thus, admissible in evidence.
Rule 132, Section 30 of the Rules of Court provides that—SEC. 30. Proof of
notarial documents.—Every instrument duly acknowledged or proved and
certified as provided by law, may be presented in evidence without further proof,
the certificate of acknowledgement being prima facie evidence of the execution of
the instrument or document involved. Significant herein is this Court’s
elucidation in De Jesus v. Court of Appeals, 217 SCRA 307 (1993), which reads—
On the evidentiary value of these documents, it should be recalled that the
notarization of a private document converts it into a public
391
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City Bank) vs. Sabeniano
one and renders it admissible in court without further proof of its
authenticity (Joson vs. Baltazar, 194 SCRA 114 [1991]). This is so because a
public document duly executed and entered in the proper registry is presumed to
be valid and genuine until the contrary is shown by clear and convincing proof
(Asido vs. Guzman, 57 Phil. 652 [1918]; U.S. vs. Enriquez, 1 Phil. 241
[1902]; Favor vs. Court of Appeals, 194 SCRA 308 [1991]). As such, the party
challenging the recital of the document must prove his claim with clear and
convincing evidence (Diaz vs. Court of Appeals, 145 SCRA 346 [1986]).
Same; Same; The certificate of acknowledgment in notarized Deeds of
Assignment constitutes prima facie evidence of the execution thereof.—The rule on
the evidentiary weight that must be accorded a notarized document is clear and
unambiguous. The certificate of acknowledgement in the notarized Deeds of
Assignment constituted prima facie evidence of the execution thereof. Thus, the
burden of refuting this presumption fell on respondent. She could have presented
evidence of any defect or irregularity in the execution of the said documents or
raised questions as to the verity of the notary public’s acknowledgment and
certificate in the Deeds. But again, respondent admitted executing the Deeds of
Assignment, dated 2 March 1978 and 9 March 1978, although claiming that the
loans for which they were executed as security were already paid. And, she
assailed the Deeds of Assignment, dated 25 August 1978, with nothing more than
her bare denial of execution thereof, hardly the clear and convincing evidence
required to trounce the presumption of due execution of a notarized document.
Same; Pledge; Although the pertinent documents were entitled Deeds of
Assignment, they were, in reality, more of a pledge.—Petitioner Citibank was only
acting upon the authority granted to it under the foregoing Deeds when it finally
used the proceeds of PNs No. 20138 and 20139, paid by petitioner FNCB Finance,
to partly pay for respondent’s outstanding loans. Strictly speaking, it did not
effect a legal compensation or off-set under Article 1278 of the Civil Code, but
rather, it partly extinguished respondent’s obligations through the application of
the security given by the respondent for her loans. Although the pertinent
documents were entitled Deeds of Assignment, they were, in reality, more of a
pledge by respondent to petitioner Citibank of her credit due from petitioner
FNCB Finance by virtue of her money market placements with the latter.
According
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Citibank, N.A. (Formerly First National
City Bank) vs. Sabeniano
to Article 2118 of the Civil Code—ART. 2118. If a credit has been pledged
becomes due before it is redeemed, the pledgee may collect and receive the
amount due. He shall apply the same to the payment of his claim, and deliver the
surplus, should there be any, to the pledgor.
Phrases; In the absence of any allegation and evidence presented of the specific
rules and laws governing the constitution of a pledge in Geneva, Switzerland, they
will be presumed to be the same as Philippine local or domestic laws—this is
known as processual presumption.—Certain principles of private international
law should be considered herein because the property pledged was in the
possession of an entity in a foreign country, namely, Citibank-Geneva. In the
absence of any allegation and evidence presented by petitioners of the specific
rules and laws governing the constitution of a pledge in Geneva, Switzerland,
they will be presumed to be the same as Philippine local or domestic laws; this is
known as processual presumption.
Same; Best Evidence Rule; Forgery; When a document is assailed on the
basis of forgery, the best evidence rule applies; Without the original document
containing the alleged forged signature, one cannot make a definitive comparison
which would establish forgery—a comparison based on a mere xerox copy or
reproduction of the document under controversy cannot produce reliable results.—
Respondent denied that it was her signature on the Declaration of Pledge. She
claimed that the signature was a forgery. When a document is assailed on the
8
Credtrans pledge chattel
basis of forgery, the best evidence rule applies—Basic is the rule of evidence that
when the subject of inquiry is the contents of a document, no evidence is
admissible other than the original document itself except in the instances
mentioned in Section 3, Rule 130 of the Revised Rules of Court. Mere photocopies
of documents are inadmissible pursuant to the best evidence rule. This is
especially true when the issue is that of forgery. As a rule, forgery cannot be
presumed and must be proved by clear, positive and convincing evidence and the
burden of proof lies on the party alleging forgery. The best evidence of a forged
signature in an instrument is the instrument itself reflecting the alleged forged
signature. The fact of forgery can only be established by a comparison between
the alleged forged signature and the authentic and
393
VOL. 504, OCTOBER 16, 2006 3 error and those actually assigned and discussed by the appellant. Thus, the Court
93
Citibank, N.A. (Formerly First National
City Bank) vs. Sabeniano
genuine signature of the person whose signature is theorized upon to have
been forged. Without the original document containing the alleged forged
signature, one cannot make a definitive comparison which would establish
forgery. A comparison based on a mere xerox copy or reproduction of the
document under controversy cannot produce reliable results.
Same; Presumptions; It is presumed that evidence willfully suppressed by a
party would be adverse to said party if the evidence is produced.—Respondent
made several attempts to have the original copy of the pledge produced before the
RTC so as to have it examined by experts. Yet, despite several Orders by the RTC,
petitioner Citibank failed to comply with the production of the original
Declaration of Pledge. It is admitted that Citibank-Geneva had possession of the
original copy of the pledge. While petitioner Citibank in Manila and its branch in
Geneva may be separate and distinct entities, they are still incontestably related,
and between petitioner Citibank and respondent, the former had more influence
and resources to convince Citibank-Geneva to return, albeit temporarily, the
original Declaration of Pledge. Petitioner Citibank did not present any evidence to
convince this Court that it had exerted diligent efforts to secure the original copy
of the pledge, nor did it proffer the reason why Citibank-Geneva obstinately
refused to give it back, when such document would have been very vital to the
case of petitioner Citibank. There is thus no justification to allow the presentation
of a mere photocopy of the Declaration of Pledge in lieu of the original, and the
photocopy of the pledge presented by petitioner Citibank has nil probative value.
In addition, even if this Court cannot make a categorical finding that respondent’s
signature on the original copy of the pledge was forged, it is persuaded that
petitioner Citibank willfully suppressed the presentation of the original
document, and takes into consideration the presumption that the evidence
willfully suppressed would be adverse to petitioner Citibank if produced.
Appeals; Review of matters, even those not assigned as errors in the appeal,
may be authorized if the consideration thereof is necessary in arriving at a just
decision of the case, and there is a close interrelation between the omitted
assignment of error and those actually assigned and discussed by the appellant.—
While it is true that the general rule is that only errors which have been stated in
the assignment of errors and properly argued in the brief shall be consid-
394
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Citibank, N.A. (Formerly First National
City Bank) vs. Sabeniano
ered, this Court has also recognized exceptions to the general rule, wherein
it authorized the review of matters, even those not assigned as errors in the
appeal, if the consideration thereof is necessary in arriving at a just decision of
the case, and there is a close interrelation between the omitted assignment of
of Appeals did not err in awarding the damages when it already made findings
that would justify and support the said award.
Banks and Banking; Banking is impressed with public interest and its
fiduciary character requires high standards of integrity and performance—a bank
is under the obligation to treat the accounts of its depositors with meticulous care
whether such accounts consist only of a few hundred pesos or of millions of
pesos.—Although this Court appreciates the right of petitioner Citibank to effect
legal compensation of respondent’s local deposits, as well as its right to the
proceeds of PNs No. 20138 and 20139 by virtue of the notarized Deeds of
Assignment, to partly extinguish respondent’s outstanding loans, it finds that
petitioner Citibank did commit wrong when it failed to pay and properly account
for the proceeds of respondent’s money market placements, evidenced by PNs No.
23356 and 23357, and when it sought the remittance of respondent’s dollar
accounts from Citibank-Geneva by virtue of a highly-suspect Declaration of
Pledge to be applied to the remaining balance of respondent’s outstanding loans.
It bears to emphasize that banking is impressed with public interest and its
fiduciary character requires high standards of integrity and performance. A bank
is under the obligation to treat the accounts of its depositors with meticulous care
whether such accounts consist only of a few hundred pesos or of millions of pesos.
The bank must record every single transaction accurately, down to the last
centavo, and as promptly as possible. Petitioner Citibank evidently failed to
exercise the required degree of care and transparency in its transactions with
respondent, thus, resulting in the wrongful deprivation of her property.
Damages; The award of moral damages is meant to compensate for the
actual injury suffered by a party, not to enrich her.—For the mental anguish,
serious anxiety, besmirched reputation, moral shock and social humiliation
suffered by the respondent, the award of moral damages is but proper. However,
this Court reduces the amount thereof to P300,000.00, for the award of moral
damages is
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9
Credtrans pledge chattel
meant to compensate for the actual injury suffered by the respondent, not to
enrich her.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Agcaoili & Associates for petitioners.
Angara, Abello, Concepcion, Regala & Cruz co-counsel for petitioners.
Moises R. Tolentino, Jr. for respondent.
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari,1 under Rule 45 of the
Revised Rules of Court, of the Decision2 of the Court of Appeals in CA-G.R. CV
No. 51930, dated 26 March 2002, and the Resolution,3 dated 20 November 2002,
of the same court which, although modifying its earlier Decision, still denied for
the most part the Motion for Reconsideration of herein petitioners.
Petitioner Citibank, N.A. (formerly known as the First National City Bank) is
a banking corporation duly authorized and existing under the laws of the United
States of America and licensed to do commercial banking activities and perform
trust functions in the Philippines.
Petitioner Investor’s Finance Corporation, which did business under the name
and style of FNCB Finance, was an affiliate company of petitioner Citibank,
specifically handling money market placements for its clients. It is now, by virtue
_______________
Rollo, pp. 165-325.
1 later obtained several loans from petitioner Citibank, for which she executed
2 Penned by Associate Justice Andres B. Reyes, Jr. with Associate Justices
Conrado M. Vasquez, Jr. and Amelita G. Tolentino, concurring; Id., at pp. 327-
366.
3 Id., at pp. 368-374.
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ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
of a merger, doing business as part of its successor-in-interest, BPI Card Finance
Corporation. However, so as to consistently establish its identity in the Petition at
bar, the said petitioner shall still be referred to herein as FNCB Finance. 4
Respondent Modesta R. Sabeniano was a client of both petitioners Citibank
and FNCB Finance. Regrettably, the business relations among the parties
subsequently went awry.
On 8 August 1985, respondent filed a Complaint5 against petitioners,
docketed as Civil Case No. 11336, before the Regional Trial Court (RTC) of
Makati City. Respondent claimed to have substantial deposits and money market
placements with the petitioners, as well as money market placements with the
Ayala Investment and Development Corporation (AIDC), the proceeds of which
were supposedly deposited automatically and directly to respondent’s accounts
with petitioner Citibank. Respondent alleged that petitioners refused to return
her deposits and the proceeds of her money market placements despite her
repeated demands, thus, compelling respondent to file Civil Case No. 11336
against petitioners for “Accounting, Sum of Money and Damages.” Respondent
eventually filed an Amended Complaint6 on 9 October 1985 to include additional
claims to deposits and money market placements inadvertently left out from her
original Complaint.
In their joint Answer7 and Answer to Amended Complaint,8 filed on 12
September 1985 and 6 November 1985, respectively, petitioners admitted that
respondent had deposits and money market placements with them, including
dollar accounts in the Citibank branch in Geneva, Switzerland (Citibank-Geneva).
Petitioners further alleged that the respondent
_______________
4 TSN, Deposition of Mr. Francisco Tan, 3 September 1990, pp. 9-10.
5 Records, Vol. I, pp. 1-8.
6 Id., at pp. 148-157.
7 Id., at pp. 40-51.
8 Id., at pp. 208-227.
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Citibank, N.A. (Formerly First National City
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Promissory Notes (PNs), and secured by (a) a Declaration of Pledge of her dollar
accounts in Citibank-Geneva, and (b) Deeds of Assignment of her money market
placements with petitioner FNCB Finance. When respondent failed to pay her
loans despite repeated demands by petitioner Citibank, the latter exercised its
right to off-set or compensate respondent’s outstanding loans with her deposits
and money market placements, pursuant to the Declaration of Pledge and the
Deeds of Assignment executed by respondent in its favor. Petitioner Citibank
supposedly informed respondent Sabeniano of the foregoing compensation
through letters, dated 28 September 1979 and 31 October 1979. Petitioners were
therefore surprised when six years later, in 1985, respondent and her counsel
made repeated requests for the withdrawal of respondent’s deposits and money
market placements with petitioner Citibank, including her dollar accounts with
Citibank-Geneva and her money market placements with petitioner FNCB
Finance. Thus, petitioners prayed for the dismissal of the Complaint and for the
award of actual, moral, and exemplary damages, and attorney’s fees.
When the parties failed to reach a compromise during the pre-trial
hearing,9 trial proper ensued and the parties proceeded with the presentation of
their respective evidence. Ten years after the filing of the Complaint on 8 August
1985, a Decision10 was finally rendered in Civil Case No. 11336 on 24 August
1995 by the fourth Judge11 who handled the said case,
_______________
10
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9 Order, dated 11 December 1985, penned by Judge Ansberto P. Paredes,
Records, Vol. I, p. 346.
10 Penned by Judge Manuel D. Victorio, Records, Vol. III, pp. 1607-1621.
11 Civil Case No. 11336 was raffled and re-reffled to four different Judges of
the Makati RTC before it was finally resolved. It was originally raffled to Makati
RTC, Branch 140, presided by Judge Ansberto P. Paredes. On 4 February 1987,
before the termination of the re-direct examination of herein respondent (plaintiff
before the
398
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ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
Judge Manuel D. Victorio, the dispositive portion of which reads—
“WHEREFORE, in view of all the foregoing, decision is hereby rendered as
follows:
(1) Declaring as illegal, null and void the set-off effected by the defendant
Bank [petitioner Citibank] of plaintiff’s [respondent Sabeniano] dollar deposit
with Citibank, Switzerland, in the amount of US$149,632.99, and ordering the
said defendant [petitioner Citibank] to refund the said amount to the plaintiff
with legal interest at the rate of twelve percent (12%) per annum, compounded
yearly, from 31 October 1979 until fully paid, or its peso equivalent at the time of
payment;
(2) Declaring the plaintiff [respondent Sabeniano] indebted to the defendant
Bank [petitioner Citibank] in the amount of P1,069,847.40 as of 5 September 1979
and ordering the plaintiff [respondent Sabeniano] to pay said amount, however,
there shall be no interest and penalty charges from the time the illegal set-off was
effected on 31 October 1979;
(3) Dismissing all other claims and counterclaims interposed by the parties
against each other.
Costs against the defendant Bank.”
_______________
RTC), the case was transferred to Makati RTC, Branch 57, presided by Judge
Francisco X. Velez, for reasons not disclosed in the Records. Judge Velez was able
to try and hear the case until the presentation of the evidence by herein
petitioners (defendants before the RTC). Respondent again took the stand to
present rebuttal evidence, but even before she could finish her testimony, Judge
Velez inhibited himself upon petitioners’ motion (Order, dated 10 April 1992,
penned by Judge Francisco X. Velez, Records, Vol. 11, p. 1085). The case was
transferred to Makati RTC, Branch 141, presided by Judge Marcelino F. Bautista,
Jr. For reasons not disclosed in the Records, Judge Manuel D. Victorio took over
Makati RTC, Branch 141. After the parties submitted their respective
Memoranda, Judge Victorio declared the case submitted for decision (Order,
dated 9 December 1994, penned by Judge Manuel D. Victorio, Records, Vol. III, p.
1602). Judge Victorio rendered his Decision in Civil Case No. 11336 on 24 August
1995 (Records, Vol. III, pp. 1607-1621).
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All the parties appealed the foregoing Decision of the RTC to the Court of
Appeals, docketed as CA-G.R. CV No. 51930. Respondent questioned the findings
of the RTC that she was still indebted to petitioner Citibank, as well as the failure
of the RTC to order petitioners to render an accounting of respondent’s deposits
and money market placements with them. On the other hand, petitioners argued
that petitioner Citibank validly compensated respondent’s outstanding loans with
her dollar accounts with Citibank-Geneva, in accordance with the Declaration of
Pledge she executed in its favor. Petitioners also alleged that the RTC erred in not
declaring respondent liable for damages and interest.
On 26 March 2002, the Court of Appeals rendered its Decision12 affirming
with modification the RTC Decision in Civil Case No. 11336, dated 24 August
1995, and ruling entirely in favor of respondent in this wise—
“Wherefore, premises considered, the assailed 24 August 1995 Decision of the
court a quo is hereby AFFIRMED with MODIFICATION, as follows:
1. Declaring as illegal, null and void the set-off effected by the defendant-
appellant Bank of the plaintiff-appellant’s dollar deposit with Citibank,
Switzerland, in the amount of US$149,632.99, and ordering defendant-appellant
Citibank to refund the said amount to the plaintiff-appellant with legal interest
at the rate of twelve percent (12%) per annum, compounded yearly, from 31
October 1979 until fully paid, or its peso equivalent at the time of payment;
2. As defendant-appellant Citibank failed to establish by competent evidence
the alleged indebtedness of plaintiff-appellant, the set-off of P1,069,847.40 in the
account of Ms. Sabeniano is hereby declared as without legal and factual basis;
3. As defendants-appellants failed to account the following plaintiff-
appellant’s money market placements, savings account and current accounts, the
former is hereby ordered to return the same, in accordance with the terms and
conditions agreed upon by the con-
_______________
12Rollo, pp. 365-366.
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ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
tending parties as evidenced by the certificates of investments, to wit:
1. (i)Citibank NNPN Serial No. 023356 (Cancels and Supersedes NNPN No.
22526) issued on 17 March 1977, P318,897.34 with 14.50% interest p.a.;
2. (ii)Citibank NNPN Serial No. 23357 (Cancels and Supersedes NNPN No.
22528) issued on 17 March 1977, P203,150.00 with 14.50 interest p.a.;
11
Credtrans pledge chattel

3. (iii)FNCB NNPN Serial No. 05757 (Cancels and Supersedes NNPN No. Court to INFORM the parties that the judgment sought to be reviewed has
04952), issued on 02 June 1977, P500,000.00 with 17% interest p.a.; become final and executory.
4. (iv)FNCB NNPN Serial No. 05758 (Cancels and Supersedes NNPN No.
04962), issued on 02 June 1977, P500,000.00 with 17% interest per _______________
annum;
5. (v)The Two Million (P2,000,000.00) money market placements of Ms. Rollo of G.R. No. 152985, pp. 3-4.
13
Sabeniano with the Ayala Investment & Development Corporation The filing of a motion for extension does not automatically suspend the
14
(AIDC) with legal interest at the rate of twelve percent (12%) per running of the period for appeal, since the purpose of such motion is to merely ask
annum compounded yearly, from 30 September 1976 until fully paid; the court to grant an enlargement of the time fixed by law. The movant, therefore,
has no right to assume that his motion would be granted, and should check with
4. Ordering defendants-appellants to jointly and severally pay the plaintiff- the court as to the outcome of his motion, so that if the same is denied, he can still
appellant the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00) by perfect his appeal. (Hon. Bello and Ferrer v. Fernando, 114 Phil. 101, 104; 4 SCRA
way of moral damages, FIVE HUNDRED THOUSAND PESOS (P500,000.00) as 135, 138 [1962]).
15 Rollo of G.R. No. 156132, p. 1227.
exemplary damages, and ONE HUNDRED THOUSAND PESOS (P100,000.00) as
attorney’s fees. 402
Apparently, the parties to the case, namely, the respondent, on one hand, and the 402 SUPREME COURT REPORTS
petitioners, on the other, made separate attempts to bring the aforementioned
ANNOTATED
Decision of the Court of Appeals, dated 26 March 2002, before this Court for
review. Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
G.R. No. 152985 The said Resolution was duly recorded in the Book of Entriesof Judgments on 3
January 2003.
Respondent no longer sought a reconsideration of the Decision of the Court of
Appeals in CA-G.R. CV No. 51930, dated 26 March 2002, and instead, filed G.R. No. 156132
immediately with this Court on 3 May 2002 a Motion for Extension of Time to
File a Meanwhile, petitioners filed with the Court of Appeals a Motion for
401 Reconsideration of its Decision in CA-G.R. CV No. 51930, dated 26 March 2002.
VOL. 504, OCTOBER 16, 2006 401 Acting upon the said Motion, the Court of Appeals issued the Resolution, 16 dated
Citibank, N.A. (Formerly First National City 20 November 2002, modifying its Decision of 26 March 2002, as follows—
“WHEREFORE, premises considered, the instant Motion for
Bank) vs. Sabeniano Reconsideration is PARTIALLY GRANTED as Sub-paragraph (V) paragraph 3
Petition for Review,13 which, after payment of the docket and other lawful fees, of the assailed Decision’s dispositive portion is hereby ordered DELETED.
was assigned the docket number G.R. No. 152985. In the said Motion, respondent The challenged 26 March 2002 Decision of the Court
alleged that she received a copy of the assailed Court of Appeals Decision on 18 is AFFIRMED with MODIFICATION.”
April 2002 and, thus, had 15 days therefrom or until 3 May 2002 within which to Assailing the Decision and Resolution of the Court of Appeals in CA-G.R. CV No.
file her Petition for Review. Since she informed her counsel of her desire to pursue 51930, dated 26 March 2002 and 20 November 2002, respectively, petitioners filed
an appeal of the Court of Appeals Decision only on 29 April 2002, her counsel the present Petition, docketed as G.R. No. 156132. The Petition was initially
neither had enough time to file a motion for reconsideration of the said Decision denied17 by this Court for failure of the petitioners to attach thereto a
with the Court of Appeals, nor a Petition for Certiorari with this Court. Yet, the Certification against Forum Shopping. However, upon petitioners’ Motion and
Motion failed to state the exact extension period respondent was requesting for. compliance with the requirements, this Court resolved18 to reinstate the Petition.
Since this Court did not act upon respondent’s Motion for Extension of Time The Petition presented fourteen (14) assignments of errors allegedly
to file her Petition for Review, then the period for appeal continued to run and committed by the Court of Appeals in its Decision, dated 26 March 2002,
still expired on 3 May 2002.14 Respondent failed to file any Petition for Review involving both questions of fact and questions of law which this Court, for the
within the prescribed period for appeal and, hence, this Court issued a sake of expediency, discusses jointly, whenever possible, in the succeeding
Resolution,15 dated 13 November 2002, in which it pronounced that— paragraphs.
G.R. No. 152985 (Modesta R. Sabeniano vs. Court of Appeals, et al.).—It
appearing that petitioner failed to file the intended petition for review on _______________
certiorari within the period which expired on May 3, 2002, the Court Resolves
to DECLARE THIS CASE TERMINATED and DIRECT the Division Clerk of
12
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16 Rollo, p. 374.
17 Resolution, dated 29 January 2003; Rollo, pp. 980-A-B.
18 Resolution, dated 23 June 2003; Id., at pp. 1311-1312.
403
VOL. 504, OCTOBER 16, 2006 403
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
I
The Resolution of this Court, dated 13 November 2002, in G.R. No. 152985,
declaring the Decision of the Court of Appeals, dated 26 March 2002, final and
executory, pertains to respondent Sabeniano alone.
Before proceeding to a discussion of the merits of the instant Petition, this Court
wishes to address first the argument, persistently advanced by respondent in her
pleadings on record, as well as her numerous personal and unofficial letters to
this Court which were no longer made part of the record, that the Decision of the
Court of Appeals in CA-G.R. CV No. 51930, dated 26 March 2002, had already
become final and executory by virtue of the Resolution of this Court in G.R. No.
152985, dated 13 November 2002.
G.R. No. 152985 was the docket number assigned by this Court to
respondent’s Motion for Extension of Time to File a Petition for Review.
Respondent, though, did not file her supposed Petition. Thus, after the lapse of
the prescribed period for the filing of the Petition, this Court issued the
Resolution, dated 13 November 2002, declaring the Decision of the Court of
Appeals, dated 26 March 2002, final and executory. It should be pointed out,
however, that the Resolution, dated 13 November 2002, referred only to G.R. No.
152985, respon-dent’s appeal, which she failed to perfect through the filing of a
Petition for Review within the prescribed period. The declaration of this Court in
the same Resolution would bind respondent solely, and not petitioners which filed
their own separate appeal before this Court, docketed as G.R. No. 156132, the
Petition at bar. This would mean that respondent, on her part, should be bound
by the findings of fact and law of the Court of Appeals, including the monetary
amounts consequently awarded to her by the appellate court in its
404
404 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
Decision, dated 26 March 2002; and she can no longer refute or assail any part
thereof.19
This Court already explained the matter to respondent when it issued a
Resolution20 in G.R. No. 156132, dated 2 February 2004, which addressed her
Urgent Motion for the Release of the Decision with the Implementation of the
Entry of Judgment in the following manner—
[A]cting on Citibank’s and FNCB Finance’s Motion for Reconsideration, we
resolved to grant the motion, reinstate the petition and require Sabeniano to file a
comment thereto in our Resolution of June 23, 2003. Sabeniano filed
a Comment dated July 17, 2003 to which Citibank and FNCB Finance filed
a Reply dated August 20, 2003.
From the foregoing, it is clear that Sabeniano had knowledge of, and in fact
participated in, the proceedings in G.R. No. 156132. She cannot feign ignorance of
the proceedings therein and claim that the Decision of the Court of Appeals has
become final and executory. More precisely, the Decision became final and
executory only with regard to Sabeniano in view of her failure to file a petition
for review within the extended period granted by the Court, and not to Citibank
and FNCB Finance whose Petition for Review was duly reinstated and is now
submitted for decision.
Accordingly, the instant Urgent Motion is hereby DENIED. (Emphasis
supplied.)
To sustain the argument of respondent would result in an unjust and incongruous
situation wherein one party may frustrate the efforts of the opposing party to
appeal the case by merely filing with this Court a Motion for Extension of Time to
File a Petition for Review, ahead of the opposing
_______________
19 Firestone Tire and Rubber Company of the Philippines v. Tempongko, 137
Phil. 239, 244; 27 SCRA 418, 422 (1969); Singh v. Liberty Insurance Corp., 118
Phil. 532, 535; 8 SCRA 517, 519-520 (1963).
20 Rollo, pp. 1443-1445.
405
VOL. 504, OCTOBER 16, 2006 405
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
party, then not actually filing the intended Petition.21 The party who fails to file
its intended Petition within the reglementary or extended period should solely
bear the consequences of such failure.
Respondent Sabeniano did not commit forum shopping.
Another issue that does not directly involve the merits of the present Petition, but
raised by petitioners, is whether respondent should be held liable for forum
shopping.
Petitioners contend that respondent committed forum shopping on the basis of
the following facts:
While petitioners’ Motion for Reconsideration of the Decision in CA-G.R. CV
No. 51930, dated 26 March 2002, was still pending before the Court of Appeals,
respondent already filed with this Court on 3 May 2002 her Motion for Extension
of Time to File a Petition for Review of the same Court of Appeals Decision,
docketed as G.R. No. 152985. Thereafter, respondent continued to participate in
the proceedings before the Court of Appeals in CA-G.R. CV No. 51930 by filing
her Comment, dated 17 July 2002, to petitioners’ Motion for Reconsideration; and
a Rejoinder, dated 23 September 2002, to petitioners’ Reply. Thus, petitioners
argue that by seeking relief concurrently from this Court and the Court of
Appeals,
13
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_______________
21 See the case of Borromeo v. Court of Appeals (162 Phil. 430, 438; 70 SCRA
329 [1976]) wherein this Court pronounced that a party’s right to appeal shall not
be affected by the perfection of another appeal from the same decision; otherwise,
it would lead to the absurd proposition that one party may be deprived of the
right to appeal from the portion of a decision against him just because the other
party who had been notified of the decision ahead had already perfected his
appeal in so far as the said decision adversely affects him. If the perfection of an
appeal by one party would not bar the right of the other party to appeal from the
same decision, then an unperfected appeal, as in the case at bar, would have far
less effect.
406
406 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
respondent is undeniably guilty of forum shopping, if not indirect contempt.
This Court, however, finds no sufficient basis to hold respondent liable for
forum shopping.
Forum shopping has been defined as the filing of two or more suits involving
the same parties for the same cause of action, either simultaneously or
successively, for the purpose of obtaining a favorable judgment.22 The test for
determining forum shopping is whether in the two (or more) cases pending, there
is an identity of parties, rights or causes of action, and relief sought. 23 To guard
against this deplorable practice, Rule 7, Section 5 of the revised Rules of Court
imposes the following requirement—
“SEC. 5. Certification against forum shopping.—The plaintiff or principal party
shall certify under oath in the complaint or other initiatory pleading asserting a
claim for relief, or in a sworn certification annexed thereto and simultaneously
filed therewith: (a) that he has not theretofore commenced any action or filed any
claim involving the same issues in any court, tribunal or quasi-judicial agency
and, to the best of his knowledge, no such other action or claim is pending therein;
(b) if there is such other pending action or claim, a complete statement of the
present status thereof; and (c) if he should thereafter learn that the same or
similar action or claim has been filed or is pending, he shall report that fact
within five (5) days therefrom to the court wherein his aforesaid complaint or
initiatory pleading has been filed.
Failure to comply with the foregoing requirements shall not be curable by
mere amendment of the complaint or other initiatory pleading but shall be cause
for the dismissal of the case without prejudice, unless otherwise provided, upon
motion and after hearing. The submission of a false certification or non-
compliance with any of the undertakings therein shall constitute indirect
contempt of court, without prejudice to the corresponding administrative and
criminal
_______________
22 The Executive Secretary v. Gordon, 359 Phil. 266, 271; 298 SCRA 736, 740
(1998).
23 Young v. John Keng Seng, 446 Phil. 823, 833; 398 SCRA 629, 638 (2003).
407
VOL. 504, OCTOBER 16, 2006 407
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
actions. If the acts of the party or his counsel clearly constitute willful and
deliberate forum shopping, the same shall be ground for summary dismissal with
prejudice and shall constitute direct contempt, as well as cause for administrative
sanctions.”
Although it may seem at first glance that respondent was simultaneously seeking
recourse from the Court of Appeals and this Court, a careful and closer scrutiny of
the details of the case at bar would reveal otherwise.
It should be recalled that respondent did nothing more in G.R. No.
152985 than to file with this Court a Motion for Extension of Time within which
to file her Petition for Review. For unexplained reasons, respondent failed to
submit to this Court her intended Petition within the reglementary period.
Consequently, this Court was prompted to issue a Resolution, dated 13 November
2002, declaring G.R. No. 152985 terminated, and the therein assailed Court of
Appeals Decision final and executory. G.R. No. 152985, therefore, did not progress
and respondent’s appeal was unperfected.
The Petition for Review would constitute the initiatory pleading before this
Court, upon the timely filing of which, the case before this Court commences;
much in the same way a case is initiated by the filing of a Complaint before the
trial court. The Petition for Review establishes the identity of parties, rights or
causes of action, and relief sought from this Court, and without such a Petition,
there is technically no case before this Court. The Motion filed by respondent
seeking extension of time within which to file her Petition for Review does not
serve the same purpose as the Petition for Review itself. Such a Motion merely
presents the important dates and the justification for the additional time
requested for, but it does not go into the details of the appealed case.
Without any particular idea as to the assignments of error or the relief
respondent intended to seek from this Court, in light of her failure to file her
Petition for Review, there is actually no second case involving the same parties,
rights or
408
408 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
causes of action, and relief sought, as that in CA-G.R. CV No. 51930.
It should also be noted that the Certification against Forum Shopping is
required to be attached to the initiatory pleading, which, in G.R. No. 152985,
should have been re-spondent’s Petition for Review. It is in that Certification
wherein respondent certifies, under oath, that: (a) she has not commenced any
action or filed any claim involving the same issues in any court, tribunal or quasi-
14
Credtrans pledge chattel
judicial agency and, to the best of her knowledge, no such other action or claim is
pending therein; (b) if there is such other pending action or claim, that she is
presenting a complete statement of the present status thereof; and (c) if she
should thereafter learn that the same or similar action or claim has been filed or
is pending, she shall report that fact within five days therefrom to this Court.
Without her Petition for Review, respondent had no obligation to execute and
submit the foregoing Certification against Forum Shopping. Thus, respondent did
not violate Rule 7, Section 5 of the Revised Rules of Court; neither did she
mislead this Court as to the pendency of another similar case.
Lastly, the fact alone that the Decision of the Court of Appeals, dated 26
March 2002, essentially ruled in favor of respondent, does not necessarily
preclude her from appealing the same. Granted that such a move is ostensibly
irrational, nonetheless, it does not amount to malice, bad faith or abuse of the
court processes in the absence of further proof. Again, it should be noted that the
respondent did not file her intended Petition for Review. The Petition for Review
would have presented before this Court the grounds for respondent’s appeal and
her arguments in support thereof. Without said Petition, any reason attributed to
the respondent for appealing the 26 March 2002 Decision would be grounded on
mere speculations, to which this Court cannot give credence.
409
VOL. 504, OCTOBER 16, 2006 409
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
II
As an exception to the general rule, this Court takes cognizance of questions of fact
raised in the Petition at bar.
It is already a well-settled rule that the jurisdiction of this Court in cases brought
before it from the Court of Appeals by virtue of Rule 45 of the Revised Rules of
Court is limited to reviewing errors of law. Findings of fact of the Court of
Appeals are conclusive upon this Court. There are, however, recognized
exceptions to the foregoing rule, namely: (1) when the findings are grounded
entirely on speculation, surmises, or conjectures; (2) when the interference made
is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts; (5)
when the findings of fact are conflicting; (6) when in making its findings, the
Court of Appeals went beyond the issues of the case, or its findings are contrary to
the admissions of both the appellant and the appellee; (7) when the findings are
contrary to those of the trial court; (8) when the findings are conclusions without
citation of specific evidence on which they are based; (9) when the facts set forth
in the petition as well as in the petitioner’s main and reply briefs are not disputed
by the respondent; and (10) when the findings of fact are premised on the
supposed absence of evidence and contradicted by the evidence on record.24
Several of the enumerated exceptions pertain to the Petition at bar.
It is indubitable that the Court of Appeals made factual findings that are
contrary to those of the RTC,25 thus, result-
_______________
24 Sps. Sta. Maria v. Court of Appeals, 349 Phil. 275, 282-283; 285 SCRA 351,
357-358 (1998).
25 The Court of Appeals modified the trial court’s findings and conclusions, as
follows: (1) By declaring the P1,069,847.40 alleged indebtedness of Ms. Sabeniano
as non-existing for failure of Citibank
410
410 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
ing in its substantial modification of the trial court’s Decision, and a ruling
entirely in favor of the respondent. In addition, petitioners invoked in the instant
Petition for Review several exceptions that would justify this Court’s review of the
factual findings of the Court of Appeals, i.e., the Court of Appeals made
conflicting findings of fact; findings of fact which went beyond the issues raised on
appeal before it; as well as findings of fact premised on the supposed absence of
evidence and contradicted by the evidence on record.
On the basis of the foregoing, this Court shall proceed to reviewing and re-
evaluating the evidence on record in order to settle questions of fact raised in the
Petition at bar.
The fact that the trial judge who rendered the RTC Decision in Civil Case No.
11336, dated 24 August 1995, was not the same judge who heard and tried the
case, does not, by itself, render the said Decision erroneous.
The Decision in Civil Case No. 11336 was rendered more than 10 years from the
institution of the said case. In the course of its trial, the case was presided over by
four (4) different RTC judges.26 It was Judge Victorio, the fourth judge assigned to
the case, who wrote the RTC Decision, dated 24 August 1995. In his
Decision,27 Judge Victorio made the following findings—
“After carefully evaluating the mass of evidence adduced by the parties, this
Court is not inclined to believe the plaintiff’s assertion that the promissory notes
as well as the deeds of assignments of
_______________
to substantiate its allegations; (2) By declaring that there are unpaid money
market placements, current accounts and savings account of Ms. Sabeniano; and
(3) The awarding of damages in favor of Ms. Sabeniano and against Citibank.
26 Supra note 11.
27 Records, Vol. III, pp. 1612-1613.
411
VOL. 504, OCTOBER 16, 2006 411
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
her FNCB Finance money market placements were simulated. The evidence is
overwhelming that the plaintiff received the proceeds of the loans evidenced by
the various promissory notes she had signed. What is more, there was not an iota
15
Credtrans pledge chattel
of proof save the plaintiff’s bare testimony that she had indeed applied for loan
with the Development Bank of the Philippines.
More importantly, the two deeds of assignment were notarized, hence they
partake the nature of a public document. It makes more than preponderant proof
to overturn the effect of a notarial attestation. Copies of the deeds of assignments
were actually filed with the Records Management and Archives Office.
Finally, there were sufficient evidence wherein the plaintiff had admitted the
existence of her loans with the defendant Bank in the total amount of
P1,920,000.00 exclusive of interests and penalty charges (Exhibits “28,” “31,” “32,”
and “33”).
In fine, this Court hereby finds that the defendants had established the
genuineness and due execution of the various promissory notes heretofore
identified as well as the two deeds of assignments of the plaintiff’s money market
placements with defendant FNCB Finance, on the strength of which the said
money market placements were applied to partially pay the plaintiff’s past due
obligation with the defendant Bank. Thus, the total sum of P1,053,995.80 of the
plaintiff’s past due obligation was partially offset by the said money market
placement leaving a balance of P1,069,847.40 as of 5 September 1979 (Exhibit
“34”).”
Disagreeing in the foregoing findings, the Court of Appeals stressed, in its
Decision in CA-G.R. CV No. 51930, dated 26 March 2002, “that the ponente of the
herein assailed Decision is not the Presiding Judge who heard and tried the
case.”28 This brings us to the question of whether the fact alone that the RTC
Decision was rendered by a judge other than the judge who actually heard and
tried the case is sufficient justification for the appellate court to disregard or set
aside the findings in the Decision of the court a quo?
_______________
28 Penned by Associate Justice Andres B. Reyes with Associate Justices
Conrado M. Vasquez, Jr. and Amelita G. Tolentino, concurring; Rollo, p. 344.
412
412 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
This Court rules in the negative.
What deserves stressing is that, in this jurisdiction, there exists a disputable
presumption that the RTC Decision was rendered by the judge in the regular
performance of his official duties. While the said presumption is only disputable,
it is satisfactory unless contradicted or overcame by other
evidence.29 Encompassed in this presumption of regularity is the presumption
that the RTC judge, in resolving the case and drafting his Decision, reviewed,
evaluated, and weighed all the evidence on record. That the said RTC judge is not
the same judge who heard the case and received the evidence is of little
consequence when the records and transcripts of stenographic notes (TSNs) are
complete and available for consideration by the former.
In People v. Gazmen,30 this Court already elucidated its position on such an
issue—
“Accused-appellant makes an issue of the fact that the judge who penned the
decision was not the judge who heard and tried the case and concludes therefrom
that the findings of the former are erroneous. Accused-appellant’s argument does
not merit a lengthy discussion. It is well-settled that the decision of a judge who
did not try the case is not by that reason alone erroneous.
It is true that the judge who ultimately decided the case had not heard the
controversy at all, the trial having been conducted by then Judge Emilio L. Polig,
who was indefinitely suspended by this Court. Nonetheless, the transcripts of
stenographic notes taken during the trial were complete and were presumably
examined and studied by Judge Baguilat before he rendered his decision. It is not
_______________
29 Section 3(m) of Rule 131 of the REVISED RULES OF COURT reads—
SEC. 3. Disputable presumptions.—The following presumptions are satisfactory if
uncontradicted, but may be contradicted and overcome by other evidence:
xxxx
(m) That official duty has been regularly performed.
30 317 Phil. 495, 501-503; 247 SCRA 414, 419-420 (1995).
413
VOL. 504, OCTOBER 16, 2006 413
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
unusual for a judge who did not try a case to decide it on the basis of the record.
The fact that he did not have the opportunity to observe the demeanor of the
witnesses during the trial but merely relied on the transcript of their testimonies
does not for that reason alone render the judgment erroneous.”
(People vs. Jaymalin, 214 SCRA 685, 692 [1992])
“Although it is true that the judge who heard the witnesses testify is in a
better position to observe the witnesses on the stand and determine by their
demeanor whether they are telling the truth or mouthing falsehood, it does not
necessarily follow that a judge who was not present during the trial cannot render
a valid decision since he can rely on the transcript of stenographic notes taken
during the trial as basis of his decision.
Accused-appellant’s contention that the trial judge did not have the
opportunity to observe the conduct and demeanor of the witnesses since he was
not the same judge who conducted the hearing is also untenable. While it is true
that the trial judge who conducted the hearing would be in a better position to
ascertain the truth and falsity of the testimonies of the witnesses, it does not
necessarily follow that a judge who was not present during the trial cannot render
a valid and just decision since the latter can also rely on the transcribed
stenographic notes taken during the trial as the basis of his decision.”
(People vs. De Paz, 212 SCRA 56, 63 [1992])
“At any rate, the test to determine the value of the testimony of the witness is
whether or not such is in conformity with knowledge and consistent with the
experience of mankind (People vs. Morre, 217 SCRA 219 [1993]). Further, the
16
Credtrans pledge chattel

credibility of witnesses can also be assessed on the basis of the substance of their by Promissory Note (PN) No.
testimony and the surrounding circumstances (People v. Gonzales, 210 SCRA
44 [1992]). A critical evaluation of the testimony of the prosecution witnesses 23356 (which cancels
reveals that their testimony accords with the aforementioned tests, and carries and supersedes PN No.
with it the ring of truth end perforce, must be given full weight and credit.” 22526), earning 14.5%
Irrefragably, by reason alone that the judge who penned the RTC Decision was
not the same judge who heard the case and received the evidence therein would interest per annum (p.a.)
not render the findings in the said Decision erroneous and unreliable. While the Money market placement
414 with Citibank, evidenced by
414 SUPREME COURT REPORTS PN No. 23357 (which
ANNOTATED cancels and supersedes PN
Citibank, N.A. (Formerly First National City No. 22528), P
Bank) vs. Sabeniano earning 14.5% interest p.a. 203,150.00
conduct and demeanor of witnesses may sway a trial court judge in deciding a
case, it is not, and should not be, his only consideration. Even more vital for the Money market placement
trial court judge’s decision are the contents and substance of the witnesses’ with FNCB Finance,
testimonies, as borne out by the TSNs, as well as the object and documentary evidenced
evidence submitted and made part of the records of the case.
by PN No. 5757 (which
This Court proceeds to making its own findings of fact.
Since the Decision of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 cancels and supersedes PN
March 2002, has become final and executory as to the respondent, due to her No. 4952), P
failure to interpose an appeal therefrom within the reglementary period, she is earning 17% interest p.a. 500,000.00
already bound by the factual findings in the said Decision. Likewise, respondent’s
failure to file, within the reglementary period, a Motion for Reconsideration or an Money market placement
appeal of the Resolution of the Court of Appeals in the same case, dated 20 with FNCB Finance,
November 2002, which modified its earlier Decision by deleting paragraph 3(v) of evidenced
its dispositive portion, ordering petitioners to return to respondent the proceeds of
her money market placement with AIDC, shall already bar her from questioning by PN No. 5758 (which
such modification before this Court. Thus, what is for review before this Court is cancels and supersedes PN
the Decision of the Court of Appeals, dated 26 March 2002, as modified by the No. 2962), P
Resolution of the same court, dated 20 November 2002.
Respondent alleged that she had several deposits and money market earning 17% interest p.a. 500,000.00
placements with petitioners. These deposits and money market placements, as This Court is tasked to determine whether petitioners are indeed liable to return
determined by the Court of Appeals in its Decision, dated 26 March 2002, and as the foregoing amounts, together with the appropriate interests and penalties, to
modified by its Resolution, dated 20 November 2002, are as follows— respondent. It shall trace respondent’s transactions with petitioners, from her
415 money market placements with petitioner Citibank and petitioner FNCB Finance,
to her savings and current accounts with petitioner Citibank, and to her dollar
VOL. 504, OCTOBER 16, 2006 415 accounts with Citibank-Geneva.
Citibank, N.A. (Formerly First National City Money market placements with petitioner Citibank
Bank) vs. Sabeniano The history of respondent’s money market placements with petitioner Citibank
began on 6 December 1976, when she made a placement of P500,000.00 as
Deposit/Placement Amount
principal amount, which was supposed to earn an interest of 16% p.a. and for
Dollar deposit with Citibank- $ which PN No. 20773 was issued. Respondent did not yet claim the proceeds of her
Geneva 149,632.99 placement and, instead, rolled-over or re-
416
Money market placement P
416 SUPREME COURT REPORTS
with Citibank, evidenced 318,897.34
ANNOTATED
17
Credtrans pledge chattel

Citibank, N.A. (Formerly First National City the signature is a forgery (Puritan Mfg. Co. vs. Toti & Gradi, 14 N. M., 425; Cox
vs. Northwestern Stage Co., 1 Idaho, 376; Woollen vs. Whitacre, 73 Ind.,
Bank) vs. Sabeniano 198; Smith vs. Ehnert, 47 Wis., 479; Faelnar vs. Escaño, 11 Phil. Rep., 92); or that
invested the principal and proceeds several times in the succeeding years for it was unauthorized, as in the case of an agent signing for his principal, or one
which new PNs were issued by petitioner Citibank to replace the ones which signing in behalf of a partnership (Country Bank vs. Greenberg, 127 Cal.,
matured. Petitioner Citibank accounted for respondent’s original placement and 26; Henshaw vs. Root, 60 Inc., 220; Naftzker vs. Lantz, 137 Mich., 441) or of a
the subsequent roll-overs thereof, as follows— corporation (Merchant vs. International Banking Corporation, 6 Phil. Rep.,
Date PN No. Cancels Maturity Amount Interest 314; Wanita vs. Rollins, 75 Miss., 253; Barnes vs. Spencer & Barnes Co., 162
(mm/dd/ PN No. Date (P) (p.a.) Mich., 509); or that, in the case of the latter, that the corporation was authorized
under its charter to sign the instrument (Merchant vs. International Banking
yyyy) (mm/dd/ Corporation, supra); or that the party charged signed the instrument in some
yyyy) other capacity than that alleged in the pleading setting it out (Payne vs. National
Bank, 16 Kan., 147); or that it was never delivered (Hunt vs. Weir, 29 Ill.,
12/06/1976 20773 None 01/13/1977 500,000.00 16%
83; Elbring vs. Mullen, 4 Idaho, 199; Thorp vs. Keokuk Coal Co., 48 N.Y., 253; Fire
01/14/1977 21686 20773 02/08/1977 508,444.44 15% Association of Philadelphia vs. Ruby, 60 Neb., 216) are cut off by the admission of
02/09/1977 22526 21686 03/16/1977 313,952.59 15-3/4% its genuineness and due execution.
The effect of the admission is such that in the case of a promissory note a prima
22528 21686 03/16/1977 200,000.00 15-3/4% facie case is made for the plaintiff which dispenses with the necessity of evidence
03/17/1977 23356 22526 04/20/1977 318,897.34 14-1/2% on his part and entitles him to a judgment on the pleadings unless a special
defense of new matter, such as payment, is interposed by the defendant (Papa vs.
23357 22528 04/20/1977 203,150.00 14-1/2%
Martinez, 12 Phil. Rep., 613; Chinese Chamber of Commerce vs. Pua To Ching, 14
Petitioner Citibank alleged that it had already paid to respondent the principal Phil. Rep., 222; Banco Español-Filipino vs. McKay & Zoeller, 27 Phil. Rep., 183). x
amounts and proceeds of PNs No. 23356 and 23357, upon their maturity. x x”
Petitioner Citibank further averred that respondent used the P500,000.00 from Since the genuineness and due execution of PNs No. 23356 and 23357 are
the payment of PNs No. 23356 and 23357, plus P600,000.00 sourced from her
uncontested, respondent was able to establish prima facie that petitioner
other funds, to open two time deposit (TD) accounts with petitioner Citibank, Citibank is liable to her for the amounts stated therein. The assertion of
namely, TD Accounts No. 17783 and 17784. petitioner Citibank
Petitioner Citibank did not deny the existence nor questioned the authenticity
418
of PNs No. 23356 and 23357 it issued in favor of respondent for her money market
placements. In fact, it admitted the genuineness and due execution of the said 418 SUPREME COURT REPORTS
PNs, but qualified that they were no longer out-standing. In Hibberd v. Rohde
31
ANNOTATED
and McMillian,32 this Court delineated the consequences of such an admission—
Citibank, N.A. (Formerly First National City

_______________ Bank) vs. Sabeniano

31Records, Vol. I, p. 515.
3232 Phil. 476, 478-479.
417
VOL. 504, OCTOBER 16, 2006 417
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
“By the admission of the genuineness and due execution of an instrument, as
provided in this section, is meant that the party whose signature it bears admits
that he signed it or that it was signed by another for him with his authority; that
at the time it was signed it was in words and figures exactly as set out in the
pleading of the party relying upon it; that the document was delivered; and that
any formal requisites required by law, such as a seal, an acknowledgment, or
revenue stamp, which it lacks, are waived by him. Hence, such defenses as that
of payment of the said PNs is an affirmative allegation of a new matter, the
burden of proof as to such resting on petitioner Citibank. Respondent having
proved the existence of the obligation, the burden of proof was upon petitioner
Citibank to show that it had been discharged.33 It has already been established by
this Court that—
“As a general rule, one who pleads payment has the burden of proving it. Even
where the plaintiff must allege non-payment, the general rule is that the burden
rests on the defendant to prove payment, rather than on the plaintiff to prove
non-payment. The debtor has the burden of showing with legal certainty that the
obligation has been discharged by payment.
When the existence of a debt is fully established by the evidence contained in
the record, the burden of proving that it has been extinguished by payment
devolves upon the debtor who offers such defense to the claim of the creditor.
Where the debtor introduces some evidence of payment, the burden of going
forward with the evidence—as distinct from the general burden of proof—shifts to

18
Credtrans pledge chattel

the creditor, who is then under the duty of producing some evidence of non- of the unit that was processing these
payment.”34
Reviewing the evidence on record, this Court finds that petitioner Citibank failed transactions. Some of the documents bear my
to satisfactorily prove that PNs No. 23356 and 23357 had already been paid, and signature.
that the amount so paid was actually used to open one of respondent’s TD Court:
accounts with petitioner Citibank.
Petitioner Citibank presented the testimonies of two witnesses to support its And this resume or summary that you have
contention of payment: (1) That of Mr. Herminio Pujeda,35 the officer-in-charge of prepared is based on purely your recollection
loans and placements at the time when the questioned transactions took or documents?
A Based on documents, your Honor.
_______________
Court:
Behn, Meyer & Co. v. Rosatzin, 5 Phil. 660, 662 (1906).
33
Are these documents still available now?
Jimenez v. National Labor Relations Commission, 326 Phil. 89, 95; 256
34
A Yes, your honor.
SCRA 84, 89-90 (1996).
35 Mr. Herminio Pujeda, at the time he testified before the RTC in 1990, was Court:
already the Vice President of petitioner Citibank. Better present the documents.
419 Atty. Mabasa:
VOL. 504, OCTOBER 16, 2006 419 Yes, your Honor, that is why your Honor.
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano _______________
place; and (2) that of Mr. Francisco Tan,36 the former Assistant Vice-President of
36 Mr. Francisco Tan, at the time of his deposition in 1990, was already
Citibank, who directly dealt with respondent with regard to her deposits and
loans. working as Assistant General Manager for Dai-Chi Kangyo Bank in Hong Kong.
37 TSN, 12 March 1990, pp. 6-10.
The relevant portion37 of Mr. Pujeda’s testimony as to PNs No. 23356 and
23357 (referred to therein as Exhibits No. “47” and “48,” respectively) is 420
reproduced below— 420 SUPREME COURT REPORTS
Atty. Mabasa: ANNOTATED
Okey [sic]. Now Mr. Witness, you were Citibank, N.A. (Formerly First National City
asked to testify in this case and this case is Bank) vs. Sabeniano
[sic] consist [sic] of several documents Atty. Mabasa:
involving transactions between the plaintiff Q Now, basing on the notes that you
and the defendant. Now, were you able to prepared, Mr. Witness, and according to
make your own memorandum regarding all you basing also on your personal
these transactions? recollection about all the transactions
A Yes, based on my recollection of these facts, involved between Modesta Sabeniano and
I did come up of [sic] the outline of the defendant City Bank [sic] in this case.
chronological sequence of events. Now, would you tell us what happened to
Court: the money market placements of Modesta
Are you trying to say that you have personal Sabeniano that you have earlier identified
knowledge or participation to these in Exhs. “47” and “48”?
transactions? A The transactions which I said earlier were
A Yes, your Honor, I was the officer-in charge
19
Credtrans pledge chattel
terminated and booked to time deposits.
Q And you are saying time deposits with
what bank?
A With First National Citibank.
Q Is it the same bank as Citibank, N.A.?
A Yes, sir.
Q And how much was the amount booked as
time deposit with defendant Citibank?
A In the amount of P500,000.00.
Q And outside this P500,000.00 which you
said was booked out of the proceeds of
Exhs. “47” and “48,” were there other time
deposits opened by Mrs. Modesta
Sabeniano at that time.
A Yes, she also opened another time deposit
for P600,000.00.
Q So all in all Mr. Witness, sometime in
April of 1978 Mrs. Modesta Sabeneano
[sic] had time deposit placements with
Citibank in the amount of P500,000.00
which is the proceeds of Exhs. “47” and
“48” and another P600,000.00, is it not?
A Yes, sir.
Q And would you know where did the other
P600,000 placed by Mrs. Sabeneano [sic]
in a time deposit with Citibank, N.A. came
[sic] from?
A She funded it directly.
Q What are you saying Mr. Witness is that
the P600,000 is a [sic] fresh money coming
from Mrs. Modesta Sabeneano [sic]?
A That is right.
421
VOL. 504, OCTOBER 16, 2006 421
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
In his deposition in Hong Kong, Mr. Tan recounted what happened to PNs No.
23356 and 23357 (referred to therein as Exhibits “E” and “F,” respectively), as
follows—
Atty. Mabasa: Now from the Exhibits that you have identified Mr. Tan from
Exhibits “A” to “F,” which are Exhibits of the plaintiff. Now, do I understand
from you that the original amount is Five Hundred Thousand and thereafter
renewed in the succeeding exhibits?
Mr. Tan: Yes, Sir.
Atty. Mabasa: Alright, after these Exhibits “E” and “F” matured, what happened
thereafter?
Mr. Tan: Split into two time deposits.
Atty. Mabasa: Exhibits “E” and “F”?
Before anything else, it should be noted that when Mr. Pujeda’s testimony before
the RTC was made on 12 March 1990 and Mr. Tan’s deposition in Hong Kong was
conducted on 3 September 1990, more than a decade had passed from the time the
transactions they were testifying on took place. This Court had previously
recognized the frailty and unreliability of human memory with regards to figures
after the lapse of five years.38 Taking into consideration the substantial length of
time between the transactions and the witnesses’ testimonies, as well as the
undeniable fact that bank officers deal with multiple clients and process
numerous transactions during their tenure, this Court is reluctant to give much
weight to the testimonies of Mr. Pujeda and Mr. Tan regarding the payment of
PNs No. 23356 and 23357 and the use by respondent of the proceeds thereof for
opening TD accounts. This Court finds it implausible that they should remember,
after all these years, this particular transaction with respondent involving her
PNs No. 23356 and 23357 and TD accounts. Both witnesses did not give any
reason as to why,
_______________
38Lichauco v. Atlantic Gulf & Pacific Co., 84 Phil. 330, 346 (1949).
422
422 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
from among all the clients they had dealt with and all the transactions they had
processed as officers of petitioner Citibank, they specially remembered
respondent and her PNs No. 23356 and 23357. Their testimonies likewise lacked
details on the circumstances surrounding the payment of the two PNs and the
opening of the time deposit accounts by respondent, such as the date of payment
of the two PNs, mode of payment, and the manner and context by which
respondent relayed her instructions to the officers of petitioner Citibank to use
the proceeds of her two PNs in opening the TD accounts.
Moreover, while there are documentary evidences to support and trace
respondent’s money market placements with petitioner Citibank, from the
original PN No. 20773, rolled-over several times to, finally, PNs No. 23356 and
23357, there is an evident absence of any documentary evidence on the payment
20
Credtrans pledge chattel
of these last two PNs and the use of the proceeds thereof by respondent for
opening TD accounts. The paper trail seems to have ended with the copies of PNs
No. 23356 and 23357. Although both Mr. Pujeda and Mr. Tan said that they
based their testimonies, not just on their memories but also on the documents on
file, the supposed documents on which they based those portions of their
testimony on the payment of PNs No. 23356 and 23357 and the opening of the TD
accounts from the proceeds thereof, were never presented before the courts
nor made part of the records of the case. Respondent’s money market
placements were of substantial amounts—consisting of the principal amount of
P500,000.00, plus the interest it should have earned during the years of
placement—and it is difficult for this Court to believe that petitioner Citibank
would not have had documented the payment thereof.
When Mr. Pujeda testified before the RTC on 6 February 1990,39 petitioners’
counsel attempted to present in evidence a document that would supposedly
support the claim of peti-
_______________
39TSN, 6 February 1990, Vol. V, pp. 16-24.
423
VOL. 504, OCTOBER 16, 2006 423
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
tioner Citibank that the proceeds of PNs No. 23356 and 23357 were used by
respondent to open one of her two TD accounts in the amount of P500,000.00.
Respondent’s counsel objected to the presentation of the document since it was a
mere “xerox” copy, and was blurred and hardly readable. Petitioners’ counsel then
asked for a continuance of the hearing so that they can have time to produce a
better document, which was granted by the court. However, during the next
hearing and continuance of Mr. Pujeda’s testimony on 12 March 1990, petitioners’
counsel no longer referred to the said document.
As respondent had established a prima facie case that petitioner Citibank is
obligated to her for the amounts stated in PNs No. 23356 and 23357, and as
petitioner Citibank failed to present sufficient proof of payment of the said PNs
and the use by the respondent of the proceeds thereof to open her TD accounts,
this Court finds that PNs No. 23356 and 23357 are still outstanding and
petitioner Citibank is still liable to respondent for the amounts stated
therein.
The significance of this Court’s declaration that PNs No. 23356 and 23357 are
still outstanding becomes apparent in the light of petitioners’ next contentions—
that respondent used the proceeds of PNs No. 23356 and 23357, together with
additional money, to open TD Accounts No. 17783 and 17784 with petitioner
Citibank; and, subsequently, respondent pre-terminated these TD accounts and
transferred the proceeds thereof, amounting to P1,100,000.00, to petitioner FNCB
Finance for money market placements. While respondent’s money market
placements with petitioner FNCB Finance may be traced back with definiteness
to TD Accounts No. 17783 and 17784, there is only flimsy and unsubstantiated
connection between the said TD accounts and the supposed proceeds paid from
PNs No. 23356 and 23357. With PNs No. 23356 and 23357 still unpaid, then they
represent an obligation of petitioner Citibank separate and distinct from the
obligation of petitioner FNCB Finance arising from respondent’s money market
placements with the latter.
424
424 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
Money market placements with petitioner FNCB Finance
According to petitioners, respondent’s TD Accounts No. 17783 and 17784, in the
total amount of P1,100,000.00, were supposed to mature on 15 March 1978.
However, respondent, through a letter dated 28 April 1977, 40 pre-terminated the
said TD accounts and transferred all the proceeds thereof to petitioner FNCB
Finance for money market placement. Pursuant to her instructions, TD Accounts
No. 17783 and 17784 were pre-terminated and petitioner Citibank (then still
named First National City Bank) issued Manager’s Checks (MC) No.
19925341 and 19925142 for the amounts of P500,000.00 and P600,00.00,
respectively. Both MCs were payable to Citifinance (which, according to Mr.
Pujeda,43 was one with and the same as petitioner FNCB Finance), with the
additional notation that “A/C MODESTA R. SABENIANO.” Typewritten on MC
No. 199253 is the phrase “Ref. Proceeds of TD 17783,” and on MC No. 199251 is a
similar phrase, “Ref. Proceeds of TD 17784.” These phrases purportedly
established that the MCs were paid from the proceeds of respondent’s pre-
terminated TD accounts with petitioner Citibank. Upon receipt of the MCs,
petitioner FNCB Finance deposited the same to its account with Feati Bank and
Trust Co., as evidenced by the rubber stamp mark of the latter found at the back
of both MCs. In exchange, petitioner FNCB Finance booked the amounts received
as money market placements, and accordingly issued PNs No. 4952 and 4962, for
the amounts of P500,000.00 and P600,000.00, respectively, payable to
respondent’s savings account with petitioner Citibank, S/A No. 25-13703-4, upon
their maturity on 1 June 1977. Once again, respondent rolled-over several times
the principal
_______________
40 Exhibit “37,” defendants’ folder of exhibits, p. 106.
41 Exhibit “37-C,” Id., at p. 107.
42 Exhibit “37-F,” Id., at p. 108.
43 TSN, 12 March 1990, p. 13.
425
VOL. 504, OCTOBER 16, 2006 425
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
amounts of her money market placements with petitioner FNCB Finance, as
follows—
21
Credtrans pledge chattel

Date PN No. Cancels Maturity Date Amount Interest

Date of Check Amount Notation
(mm/dd/ PN No. (mm/dd/yyyy) (P) (p.a.)Issuance No. (P)
yyyy) (mm/dd/yyyy)
04/29/1977 4952 None 06/01/1977 500,000.00 17%
09/01/1978 76961 12,833.34 Interest payment on PN#08169
4962 None 06/01/1977 600,000.00 17%
09/05/1978 77035 500,000.00 Full payment of principal on PN#08167
06/02/1977 5757 4952 08/31/1977 500,000.00 17% which is hereby cancelled
5758 4962 08/31/1977 500,000.00 09/05/ 1978
17% 77034 500,000.00 Full payment of principal on PN#08169
8167 5757 08/25/1978 500,000.00 14% which is hereby cancelled
08/31/1977 Then again, Checks No. 77035 and 77034 were later returned to petitioner FNCB
8169 5752 08/25/1978 500,000.00 14%
Finance together with a memo,47 dated 6 September 1978, from Mr. Tan of
As presented by the petitioner FNCB Finance, respondent rolled-over only the petitioner Citibank, to a Mr. Bobby Mendoza of petitioner FNCB Finance.
principal amounts of her money market placements as she chose to receive the According to the memo, the two checks, in the total amount of P1,000,000.00,
interest income therefrom. Petitioner FNCB Finance also pointed out that when were to be returned to respondent’s account with instructions to book the said
PN No. 4962, with principal amount of P600,000.00, matured on 1 June 1977, amount in money market placements for one more year. Pursuant to the said
respondent received a partial payment of the principal which, together with the memo, Checks No. 77035 and 77034 were invested by petitioner FNCB Finance,
interest, amounted to P102,633.33;44 thus, only the amount of P500,000.00 from on behalf of respondent, in money market placements for which it issued PNs No.
PN No. 4962 was rolled-over to PN No. 5758. 20138 and 20139. The PNs each covered P500,000.00,
Based on the foregoing records, the principal amounts of PNs No. 5757 and
5758, upon their maturity, were rolled over to PNs No. 8167 and 8169, _______________
respectively. PN No. 816745 expressly canceled and superseded PN No. 5757,
while PN No. 816946 also explicitly canceled and superseded PN No. 5758. Thus, 47Exhibit “108,” Id., at p. 118.
it is patently erroneous for the Court of Appeals to still award to respondent the
427
principal amounts and interests covered by PNs No. 5757 and 5758 when these
were already canceled and superseded. It is now incumbent upon this Court to VOL. 504, OCTOBER 16, 2006 427
determine what subsequently happened to PNs No. 8167 and 8169. Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
_______________
to earn 11% interest per annum, and to mature on 3 September 1979.
On 3 September 1979, petitioner FNCB Finance issued Check No. 100168,
44 Exhibit “104-C,” defendants’ folder of exhibits, p. 111. pay to the order of “Citibank N.A. A/C Modesta Sabeniano,” in the amount of
45 Exhibit “105,” Id., at p. 112. P1,022,916.66, as full payment of the principal amounts and interests of both PNs
46 Exhibit “106,” Id., at p. 114.
No. 20138 and 20139 and, resultantly, canceling the said PNs.48 Respondent
426 actually admitted the issuance and existence of Check No. 100168, but with the
426 SUPREME COURT REPORTS qualification that the proceeds thereof were turned over to petitioner
ANNOTATED Citibank.49 Respondent did not clarify the circumstances attending the supposed
turn over, but on the basis of the allegations of petitioner Citibank itself, the
Citibank, N.A. (Formerly First National City proceeds of PNs No. 20138 and 20139, amounting to P1,022,916.66, was used by it
Bank) vs. Sabeniano to liquidate respondent’s outstanding loans. Therefore, the determination of
Petitioner FNCB Finance presented four checks as proof of payment of the whether or not respondent is still entitled to the return of the proceeds of PNs No.
principal amounts and interests of PNs No. 8167 and 8169 upon their maturity. 20138 and 20139 shall be dependent on the resolution of the issues raised as to
All the checks were payable to respondent’s savings account with petitioner the existence of the loans and the authority of petitioner Citibank to use the
Citibank, with the following details— proceeds of the said PNs, together with respondent’s other deposits and money
Date of Check Amount Notation market placements, to pay for the same.

Issuance No. (P) Savings and current accounts with petitioner Citibank
Respondent presented and submitted before the RTC deposit slips and bank
(mm/dd/yyyy) statements to prove deposits made to several of her accounts with petitioner
09/01/1978 76962 12,833.34 Interest payment on PN#08167 Citibank, particularly, Accounts No. 00484202, 59091, and 472-751, which would
22
Credtrans pledge chattel

have amounted to a total of P3,812,712.32, had there been no withdrawals or Bank) vs. Sabeniano
debits from the said accounts from the time the said deposits were made. Geneva accounted for respondent’s money market placements and dollar accounts
Although the RTC and the Court of Appeals did not make any definitive as follows—
findings as to the status of respondent’s savings
MODESTA SABENIANO &/OR
_______________ US$ 30’000.-Principal Fid. Placement
+ 339.06Interest at 3,875% p.a. from
48 Exhibits “112” and “119,” Id., at pp. 121-A, 124.
49 Records, Vol. III, p. 1367.
US$ 12.07.—25.10.79
428 - 95.-Commission (minimum)
428 SUPREME COURT REPORTS US$
ANNOTATED US$ 30’244.06Total proceeds on 25.10.1979
Citibank, N.A. (Formerly First National City US$ 114’000.-Principal Fid. Placement
Bank) vs. Sabeniano + 1’358.50Interest at 4,125% p.a. from
and current accounts with petitioner Citibank, the Decisions of both the trial and US$ 12.07.—25.10.79
appellate courts effectively recognized only the P31,079.14 coming from - 41.17Commission
respondent’s savings account which was used to off-set her alleged outstanding
loans with petitioner Citibank.50 US$
Since both the RTC and the Court of Appeals had consistently recognized only US$ 115’317.33Total proceeds on 25.10.1979
the P31,079.14 of respondent’s savings account with petitioner Citibank, and that
US$ 145’561.39Total proceeds of both
respondent failed to move for reconsideration or to appeal this particular finding
of fact by the trial and appellate courts, it is already binding upon this Court. placements on 25.10.1979
Respondent is already precluded from claiming any greater amount in her + 11’381.31total of both current accounts
savings and current accounts with petitioner Citibank. Thus, this Court shall
US$
limit itself to determining whether or not respondent is entitled to the return of
the amount of P31,079.14 should the off-set thereof by petitioner Citibank against US$ 156’942.70Total funds available
her supposed loans be found invalid. - 149’632.99Transfer to Citibank Manila on
Dollar accounts with Citibank-Geneva US$ 26.10.1979
Respondent made an effort of preparing and presenting before the RTC her own
(counter value of Pesos
computations of her money market placements and dollar accounts with Citibank-
Geneva, purportedly amounting to a total of United States (US) $343,220.98, as of 1’102’944.78)
23 June 1985.51 In her Memorandum filed with the RTC, she claimed a much US$ 7’309.71Balance in current accounts
bigger amount of deposits and money market placements with Citibank-Geneva,
- 6’998.84Transfer to Citibank Zuerich—
totaling US$1,336,638.65.52 However, respondent herself also submitted as part of
her formal offer of evidence the computation of her money market placements and US$ ac no. 121359 on March 13,
dollar accounts with Citibank-Geneva as determined by the latter.53 Citibank- 1980
US$ 310.87various charges including
_______________
closing charges
50 Exhibit “34-B,” petitioners’ folder of exhibits, p. 102. According to the foregoing computation, by 25 October 1979, respondent had a
51 Exhibit “G,” plaintiff’s folder of exhibits, pp. 4-15. total of US$156,942.70, from which, US$149,632.99 was transferred by Citibank-
52 Records, Vol. III, p. 1, 562. Geneva to petitioner Citibank in Manila, and was used by the latter to offset
53 Exhibit “J,” plaintiff’s folder of exhibits, p. 49. respondent’s outstanding loans. The balance of respondent’s accounts with
429 Citibank-Geneva, after the remittance to petitioner Citibank in Manila, amounted
to US$7,309.71,
VOL. 504, OCTOBER 16, 2006 429
430
Citibank, N.A. (Formerly First National City 430 SUPREME COURT REPORTS

23
Credtrans pledge chattel

ANNOTATED As early as 9 February 1978, respondent obtained her first loan from
petitioner Citibank in the principal amount of P200,000.00, for which she
Citibank, N.A. (Formerly First National City executed PN No. 31504.54 Petitioner Citibank extended to her several other loans
Bank) vs. Sabeniano in the succeeding months. Some of these loans were paid, while others were
which was subsequently expended by a transfer to another account with Citibank- rolled-over or renewed. Significant to the Petition at bar are the loans which
Zuerich, in the amount of US$6,998.84, and by payment of various bank charges, respondent obtained from July 1978 to January 1979, appropriately covered by
including closing charges, in the amount of US$310.87. Rightly so, both the RTC PNs (first set).55 The aggregate principal amount of these loans was
and the Court of Appeals gave more credence to the computation of Citibank- P1,920,000.00, which could be broken down as follows—
Geneva as to the status of respondent’s accounts with the said bank, rather than PN Date of Issuance Date of Maturity Principal D
the one prepared by respondent herself, which was evidently self-serving. Once
No. (mm/dd/yyyy) (mm/dd/yyyy) Amount (m
again, this Court shall limit itself to determining whether or not respondent is
entitled to the return of the amount of US$149,632.99 should the off-set thereof 32935 07/20/1978 09/18/1978 P 400,000.00 07/20/19
by petitioner Citibank against her alleged outstanding loans be found invalid. 33751 10/13/1978 12/12/1978 100,000.00 Unrecove
Respondent cannot claim any greater amount since she did not perfect an appeal
of the Decision of the Court of Appeals, dated 26 March 2002, which found that 33798 10/19/1978 11/03/1978 100,000.00 10/19/19
she is entitled only to the return of the said amount, as far as her accounts with 34025 11/15/1978 01/15/1979 150,000.00 11/16/19
Citibank-Geneva is concerned.
34079 11/21/1978 01/19/1979 250,000.00 11/21/19
III
34192 12/04/1978 01/18/1979 100,000.00 12/05/19
Petitioner Citibank was able to establish by preponderance of evidence the
34402 12/26/1978 02/23/1979 300,000.00 12/26/19
existence of respondent’s loans.
34534 01/09/1979 03/09/1979 150,000.00 01/09/19
Petitioners’ version of events
In sum, the following amounts were used by petitioner Citibank to liquidate 34609 01/17/1979 03/19/1979 150,000.00 01/17/19
respondent’s purported outstanding loans— 34740 01/30/1979 03/30/1979 220,000.00 01/30/19
Description Amount Total P1,920,000.00
Principal and interests of PNs
No. 20138 and 20139 _______________

(money market placements with P 54Exhibit “120-H,” defendants’ folder of exhibits, p. 131.
petitioner FNCB Finance) 1,022,916.66 55Exhibits “1” to “9,” Id., at pp. 44-52.
Savings account with petitioner 31,079.14 432
Citibank 432 SUPREME COURT REPORTS
ANNOTATED
Dollar remittance from Citibank-
Geneva Citibank, N.A. (Formerly First National City
431 Bank) vs. Sabeniano
VOL. 504, OCTOBER 16, 2006 431 When respondent was unable to pay the first set of PNs upon their maturity,
these were rolled-over or renewed several times, necessitating the execution by
Citibank, N.A. (Formerly First National City respondent of new PNs in favor of petitioner Citibank. As of 5 April 1979,
Bank) vs. Sabeniano respondent had the following outstanding PNs (second set),56 the principal
(peso equivalent amount of which remained at P1,920,000.00—
PN No. Date of Issuance Date of Maturity Principal
Of US$149,632.99) 1,102,944.78
(mm/dd/yyyy) (mm/dd/yyyy) Amount
Total P 2,156,940.58
According to petitioner Citibank, respondent incurred her loans under the 34510 01/01/1979 03/02/1979 P 400,000.00
circumstances narrated below. 34509 01/02/1979 03/02/1979 100,000.00
34534 01/09/1979 03/09/1979 150,000.00
24
Credtrans pledge chattel

PN No. Date of Issuance Date of Maturity Principal The petitioners’ copy of the Declaration of Pledge is undated, while that of the
respondent, a copy certified by a Citibank-Geneva officer, bore the date 24
(mm/dd/yyyy) (mm/dd/yyyy) Amount September 1979.61
34612 01/19/1979 03/16/1979 150,000.00 When respondent failed to pay the second set of PNs upon their maturity, an
exchange of letters ensued between respondent and/or her representatives, on one
34741 01/26/1979 03/12/1979 100,000.00
hand, and the representatives of petitioners, on the other.
35689 02/23/1979 05/29/1979 300,000.00
35694 03/19/1979 05/29/1979 150,000.00 _______________
35695 03/19/1979 05/29/1979 100,000.00 58 Exhibit “14-G,” Id., at pp. 72-74.
356946 03/20/1979 05/29/1979 250,000.00 59 Exhibit “15” and “Exhibit 17-D,” Id., at pp. 77-78, 81-82.
60 Exhibit “38,” Id., at pp. 109-110.
35697 03/30/1979 05/29/1979 220,000.00
61 Exhibit “K-1,” plaintiff’s folder of exhibits, pp. 54-55.
Total P1,920,000.00 434
All the PNs stated that the purpose of the loans covered thereby is “To liquidate
existing obligation,” except for PN No. 34534, which stated for its purpose 434 SUPREME COURT REPORTS
“personal investment.” Respondent secured her foregoing loans with petitioner ANNOTATED
Citibank by executing Deeds of Assignment of her money market placements with Citibank, N.A. (Formerly First National City
petitioner FNCB Finance. On 2 March 1978, respondent executed in favor of
petitioner Citibank a Deed of Assignment57 of PN No. 8169, which was issued by Bank) vs. Sabeniano
petitioner FNCB Finance, to secure payment of the credit and banking facilities The first letter62 was dated 5 April 1979, addressed to respondent and signed by
extended to her by petitioner Citibank, in the aggregate principal amount of Mr. Tan, as the manager of petitioner Citibank, which stated, in part, that—
P500,000.00. On 9 March 1978, respondent executed in favor of petitioner Despite our repeated requests and follow-up, we regret you have not granted
us with any response or payment. We, therefore, have no alternative but to call
_______________ your loan of P1,920,000.00 plus interests and other charges due and demandable.
If you still fail to settle this obligation by 4/27/79, we shall have no other
56Exhibits “18” to “26,” Id., at pp. 83-92. alternative but to refer your account to our lawyers for legal action to protect the
57Exhibit “13-E,” Id., at pp. 65-67. interest of the bank.
433 Respondent sent a reply letter63 dated 26 April 1979, printed on paper bearing
the letterhead of respondent’s company, MC Adore International Palace, the body
VOL. 504, OCTOBER 16, 2006 433 of which reads—
Citibank, N.A. (Formerly First National City This is in reply to your letter dated April 5, 1979 inviting my attention to my loan
which has become due. Pursuant to our representation with you over the
Bank) vs. Sabeniano
telephone through Mr. F. A. Tan, you allow us to pay the interests due for the
Citibank another Deed of Assignment,58 this time, of PN No. 8167, also issued by
meantime.
petitioner FNCB Finance, to secure payment of the credit and banking facilities
Please accept our Comtrust Check in the amount of P62,683.33.
extended to her by petitioner Citibank, in the aggregate amount of P500,000.00.
Please bear with us for a little while, at most ninety days. As you know, we
When PNs No. 8167 and 8169, representing respondent’s money market
have a pending loan with the Development Bank of the Philippines in the amount
placements with petitioner FNCB Finance, matured and were rolled-over to PNs
of P11-M. This loan has already been recommended for approval and would be
No. 20138 and 20139, respondent executed new Deeds of Assignment,59 in favor of
submitted to the Board of Governors. In fact, to further facilitate the early release
petitioner Citibank, on 25 August 1978. According to the more recent Deeds,
of this loan, we have presented and furnished Gov. J. Tengco a xerox copy of your
respondent assigned PNs No. 20138 and 20139, representing her rolled-over
letter.
money market placements with petitioner FNCB Finance, to petitioner Citibank
You will be doing our corporation a very viable service, should you grant us our
as security for the banking and credit facilities it extended to her, in the
request for a little more time. A week later or on 3 May 1979, a certain C. N.
aggregate principal amount of P500,000.00 per Deed.
Pugeda, designated as “Executive Secretary,” sent a letter64 to petitioner
In addition to the Deeds of Assignment of her money market placements with
petitioner FNCB Finance, respondent also executed a Declaration of Pledge, 60 in
_______________
which she supposedly pledged “[a]ll present and future fiduciary placements held
in my personal and/or joint name with Citibank, Switzerland,” to secure all claims
the petitioner Citibank may have or, in the future, acquire against respondent.
62 Exhibit “27,” defendants’ folder of exhibits, p. 93.

25
Credtrans pledge chattel

63Exhibit “28,” Id., at p. 94. Please note that the captioned two placements are continuously
64Exhibit “29,” Id., at p. 95. pledged/hypothecated to Citibank, Manila to support my personal outstanding
435 loan. Therefore, please do not release the captioned placements upon maturity
VOL. 504, OCTOBER 16, 2006 435 until you have received the instruction from Citibank, Manila.
On even date, respondent sent another letter67 to Mr. Tan of petitioner Citibank,
Citibank, N.A. (Formerly First National City stating that—
Bank) vs. Sabeniano Re: S/A No. 25-225928
Citibank, on behalf of respondent. The letter was again printed on paper bearing and C/A No. 484-946
the letterhead of MC Adore International Palace. The pertinent paragraphs of the This letter serves as an authority to debit whatever the outstanding balance from
said letter are reproduced below— my captioned accounts and credit the amount to my loan outstanding account
Per instructions of Mrs. Modesta R. Sabeniano, we would like to request for a re- with you.
computation of the interest and penalty charges on her loan in the aggregate Unlike respondent’s earlier letters, both letters, dated 21 June 1979, are printed
amount of P1,920,000.00 with maturity date of all promissory notes at June 30, on plain paper, without the letterhead of her company, MC Adore International
1979. As she has personally discussed with you yesterday, this date will more or Palace.
less assure you of early settlement. By 5 September 1979, respondent’s outstanding and past due obligations to
In this regard, please entrust to bearer, our Comtrust check for P62,683.33 to petitioner Citibank totaled P2,123,843.20, representing the principal amounts
be replaced by another check with amount resulting from the new computation. plus interests. Relying on respondent’s Deeds of Assignment, petitioner Citibank
Also, to facilitate the processing of the same, may we request for another set of applied the proceeds of respondent’s money market placements with petitioner
promissory notes for the signature of Mrs. Sabeniano and to cancel the previous FNCB Finance, as well as her deposit account with petitioner Citibank, to partly
ones she has signed and forwarded to you. liquidate respondent’s outstanding loan balance,68 as follows—
This was followed by a telegram,65 dated 5 June 1979, and received by petitioner
Citibank the following day. The telegram was sent by a Dewey G. Soriano, Legal _______________
Counsel. The telegram acknowledged receipt of the telegram sent by petitioner
Citibank regarding the “re-past due obligation” of McAdore International Palace. 67Exibit “32,” Id., at p. 98.
However, it reported that respondent, the President and Chairman of MC Adore 68Exhibits “34-B” and “34-C,” Id., at pp. 102-103.
International Palace, was presently abroad negotiating for a big loan. Thus, he 437
was requesting for an extension of the due date of the obligation until VOL. 504, OCTOBER 16, 2006 437
respondent’s arrival on or before 31 July 1979.
The next letter,66 dated 21 June 1979, was signed by respondent herself and Citibank, N.A. (Formerly First National City
addressed to Mr. Bobby Mendoza, a Manager of petitioner FNCB Finance. Bank) vs. Sabeniano
Respondent wrote therein—
Respondent’s outstanding P
_______________ obligation (principal and 2,123,843.20
interest)
65 Exhibit “30,” Id., at p. 96. Less: Proceeds from (1,022,916.66)
66 Exhibit “31,” Id., at p. .97.

436 respondent’s

436 SUPREME COURT REPORTS money market

ANNOTATED placements
with petitioner
Citibank, N.A. (Formerly First National City
FNCB Finance
Bank) vs. Sabeniano
Re: PN No. 20138 for P500,000.00 & PN No. (principal and
20139 for P500,000.00 totalling P1 Mil interest)
lion, both PNs will mature on 9/3/1979.
Deposits in (31,079.14)
This is to authorize you to release the accrued quarterly interests payment from
my captioned placements and forward directly to Citibank, Manila Attention: Mr. respondent’s
F. A. Tan, Manager, to apply to my interest payable on my outstanding loan with bank accounts
Citibank.
26
Credtrans pledge chattel
with petitioner
Citibank
Balance of respondent’s P cases in which it was involved. After compiling the documentary evidence for the
obligation 1,069,847.40
Mr. Tan of petitioner Citibank subsequently sent a letter,69 dated 28 September
1979, notifying respondent of the status of her loans and the foregoing
compensation which petitioner Citibank effected. In the letter, Mr. Tan informed
respondent that she still had a remaining past-due obligation in the amount of
P1,069,847.40, as of 5 September 1979, and should respondent fail to pay the
amount by 15 October 1979, then petitioner Citibank shall proceed to off-set the
unpaid amount with respondent’s other collateral, particularly, a money market
placement in Citibank-Hongkong.
On 5 October 1979, respondent wrote Mr. Tan of petitioner Citibank, on paper
bearing the letterhead of MC Adore International Palace, as regards the
P1,920,000.00 loan account supposedly of MC Adore Finance & Investment, Inc.,
and requested for a statement of account covering the principal and interest of the
loan as of 31 October 1979. She stated therein that the loan obligation shall be
paid within 60 days from receipt of the statement of account.
Almost three weeks later, or on 25 October 1979, a certain Atty. Moises
Tolentino dropped by the office of petitioner Citibank, with a letter, dated 9
October 1979, and printed on paper with the letterhead of MC Adore
International Palace, which authorized the bearer thereof to represent the
respondent in settling the overdue account, this time, purportedly, of
_______________
69Exhibit “34,” Id., at p. 100.
438
438 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
MC Adore International Palace Hotel. The letter was signed by respondent as the
President and Chairman of the Board.
Eventually, Atty. Antonio Agcaoili of Agcaoili & Associates, as counsel of
petitioner Citibank, sent a letter to respondent, dated 31 October 1979, informing
her that petitioner Citibank had effected an off-set using her account with
Citibank-Geneva, in the amount of US$149,632.99, against her “outstanding,
overdue, demandable and unpaid obligation” to petitioner Citibank. Atty. Agcaoili
claimed therein that the compensation or off-set was made pursuant to and in
accordance with the provisions of Articles 1278 through 1290 of the Civil Code. He
further declared that respondent’s obligation to petitioner Citibank was now fully
paid and liquidated.
Unfortunately, on 7 October 1987, a fire gutted the 7th floor of petitioner
Citibank’s building at Paseo de Roxas St., Makati, Metro Manila. Petitioners
submitted a Certification70 to this effect, dated 17 January 1991, issued by the
Chief of the Arson Investigation Section, Fire District III, Makati Fire Station,
Metropolitan Police Force. The 7th floor of petitioner Citibank’s building housed
its Control Division, which was in charge of keeping the necessary documents for
present case, Atty. Renato J. Fernandez, internal legal counsel of petitioner
Citibank, forwarded them to the Control Division. The original copies of the MCs,
which supposedly represent the proceeds of the first set of PNs, as well as that of
other documentary evidence related to the case, were among those burned in the
said fire.71
Respondent’s version of events
Respondent disputed petitioners’ narration of the circumstances surrounding her
loans with petitioner Citibank and the alleged authority she gave for the off-set or
compensation
_______________
70Exhibit “121,” Id., at p. 207.
71TSN, 14 May 1991, Vol. XI, pp. 12-14.
439
VOL. 504, OCTOBER 16, 2006 439
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
of her money market placements and deposit accounts with petitioners against
her loan obligation.
Respondent denied outright executing the first set of PNs, except for one (PN
No. 34534 in particular). Although she admitted that she obtained several loans
from petitioner Citibank, these only amounted to P1,150,000.00, and she had
already paid them. She secured from petitioner Citibank two loans of P500,000.00
each. She executed in favor of petitioner Citibank the corresponding PNs for the
loans and the Deeds of Assignment of her money market placements with
petitioner FNCB Finance as security.72 To prove payment of these loans,
respondent presented two provisional receipts of petitioner Citibank—No.
19471,73 dated 11 August 1978, and No. 12723,74 dated 10 November 1978—both
signed by Mr. Tan, and acknowledging receipt from respondent of several checks
in the total amount of P500,744.00 and P500,000.00, respectively, for “liquidation
of loan.”
She borrowed another P150,000.00 from petitioner Citibank for personal
investment, and for which she executed PN No. 34534, on 9 January 1979. Thus,
she admitted to receiving the proceeds of this loan via MC No. 228270. She
invested the loan amount in another money market placement with petitioner
FNCB Finance. In turn, she used the very same money market placement with
petitioner FNCB Finance as security for her P150,000.00 loan from petitioner
Citibank. When she failed to pay the loan when it became due, petitioner
Citibank allegedly forfeited her money market placement with petitioner FNCB
Finance and, thus, the loan was already paid.75
Respondent likewise questioned the MCs presented by petitioners, except for
one (MC No. 228270 in particular), as
27
Credtrans pledge chattel
_______________
72 TSN, 28 November 1991, Vol. XIII, pp. 5, 15, 23, 28-29.
73 Exhibit “QQQ,” plaintiff’s folder of exhibits, p. 117.
74 Exhibit “AAAA,” Id., at p. 124.
75 TSN, 28 November 1991, Vol. XIII, pp. 7-8, 23.
440
440 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
proof that she received the proceeds of the loans covered by the first set of PNs.
As recounted in the preceding paragraph, respondent admitted to obtaining a
loan of P150,000.00, covered by PN No. 34534, and receiving MC No. 228270
representing the proceeds thereof, but claimed that she already paid the same.
She denied ever receiving MCs No. 220701 (for the loan of P400,000.00, covered
by PN No. 33935) and No. 226467 (for the loan of P250,000.00, covered by PN No.
34079), and pointed out that the checks did not bear her indorsements. She did
not deny receiving all other checks but she interposed that she received these
checks, not as proceeds of loans, but as payment of the principal amounts and/or
interests from her money market placements with petitioner Citibank. She also
raised doubts as to the notation on each of the checks that reads “RE: Proceeds of
PN#[corresponding PN No.],” saying that such notation did not appear on the
MCs when she originally received them and that the notation appears to have
been written by a typewriter different from that used in writing all other
information on the checks (i.e., date, payee, and amount).76 She even testified that
MCs were not supposed to bear notations indicating the purpose for which they
were issued.
As to the second set of PNs, respondent acknowledged having signed them all.
However, she asserted that she only executed these PNs as part of the simulated
loans she and Mr. Tan of petitioner Citibank concocted. Respondent explained
that she had a pending loan application for a big amount with the Development
Bank of the Philippines (DBP), and when Mr. Tan found out about this, he
suggested that they could make it appear that the respondent had outstanding
loans with petitioner Citibank and the latter was already demanding payment
thereof; this might persuade DBP to approve respondent’s loan application. Mr.
Tan made the respondent sign the second set of PNs, so that he may have
something to show the DBP investigator who might
_______________
76Id., at pp. 16-23.
441
VOL. 504, OCTOBER 16, 2006 441
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
inquire with petitioner Citibank as to respondent’s loans with the latter. On her
own copies of the said PNs, respondent wrote by hand the notation, “This isa (sic)
simulated non-negotiable note, signed copy given to Mr. Tan., (sic) per agreement
to be shown to DBP representative. itwill (sic) be returned to me if the P11=M
(sic) loan for MC Adore Palace Hotel is approved by DBP.”77
Findings of this Court as to the existence of the loans
After going through the testimonial and documentary evidence presented by both
sides to this case, it is this Court’s assessment that respondent did indeed have
outstanding loans with petitioner Citibank at the time it effected the offset or
compensation on 25 July 1979 (using respondent’s savings deposit with petitioner
Citibank), 5 September 1979 (using the proceeds of respondent’s money market
placements with petitioner FNCB Finance) and 26 October 1979 (using
respondent’s dollar accounts remitted from Citibank-Geneva). The totality of
petitioners’ evidence as to the existence of the said loans preponderates over
respondent’s. Preponderant evidence means that, as a whole, the evidence
adduced by one side outweighs that of the adverse party.78
Respondent’s outstanding obligation for P1,920,000.00 had been sufficiently
documented by petitioner Citibank.
The second set of PNs is a mere renewal of the prior loans originally covered
by the first set of PNs, except for PN No. 34534. The first set of PNs is supported,
in turn, by the existence of the MCs that represent the proceeds thereof received
by the respondent.
It bears to emphasize that the proceeds of the loans were paid to respondent
in MCs, with the respondent specifically
_______________
TSN, 7 May 1986, Vol. II, pp. 42-52; TSN, 19 May 1986, Vol. II, pp. 3-28.
77
Sarmiento v. Court of Appeals, 364 Phil. 613, 621; 305 SCRA 138, 146
78
(1999).
442
442 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
named as payee. MCs checks are drawn by the bank’s manager upon the bank
itself and regarded to be as good as the money it represents. 79 Moreover, the MCs
were crossed
checks, with the words “Payee’s Account Only.” In general, a crossed check
cannot be presented to the drawee bank for payment in cash. Instead, the check
can only be deposited with the payee’s bank which, in turn, must present it for
payment against the drawee bank in the course of normal banking hours. The
crossed check cannot be presented for payment, but it can only be deposited and
the drawee bank may only pay to another bank in the payee’s or indorser’s
account.80 The effect of crossing a check was described by this Court in Philippine
Commercial International Bank v. Court of Appeals81—
28
Credtrans pledge chattel
“[T]he crossing of a check with the phrase “Payee’s Account Only” is a warning
that the check should be deposited in the account of the payee. Thus, it is the duty
of the collecting bank PCI Bank to ascertain that the check be deposited in
payee’s account only. It is bound to scrutinize the check and to know its depositors
before it can make the clearing indorsement “all prior indorsements and/or lack of
indorsement guaranteed.”
The crossed MCs presented by petitioner Bank were indeed deposited in several
different bank accounts and cleared by the Clearing Office of the Central Bank of
the Philippines, as evidenced by the stamp marks and notations on the said
checks. The crossed MCs are already in the possession of petitioner Citibank, the
drawee bank, which was ultimately responsible for the payment of the amount
stated in the checks. Given that a check is more than just an instrument of
_______________
79 Bank of the Philippine Islands v. Court of Appeals, 383 Phil. 538, 553; 326
SCRA 641, 656 (2000), with reference to Tan v. Court of Appeals, 239 SCRA 310,
322 (1994).
80 Gempesaw v. Court of Appeals, G.R. No. 92244, 9 February 1993, 218 SCRA
682, 695.
81 403 Phil. 361, 383; 350 SCRA 446, 467 (2001).
443
VOL. 504, OCTOBER 16, 2006 443
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
credit used in commercial transactions for it also serves as a receipt or evidence
for the drawee bank of the cancellation of the said check due to payment,82 then,
the possession by petitioner Citibank of the said MCs, duly stamped “Paid” gives
rise to the presumption that the said MCs were already paid out to the intended
payee, who was in this case, the respondent.
This Court finds applicable herein the presumptions that private transactions
have been fair and regular,83 and that the ordinary course of business has been
followed.84 There is no question that the loan transaction between petitioner
Citibank and the respondent is a private transaction. The transactions revolving
around the crossed MCs—from their issuance by petitioner Citibank to
respondent as payment of the proceeds of her loans; to its deposit in respondent’s
accounts with several different banks; to the clearing of the MCs by an
independent clearing house; and finally, to the payment of the MCs by petitioner
Citibank as the drawee bank of the said checks—are all private transactions
which shall be presumed to have been fair and regular to all the parties
concerned. In addition, the banks involved in the foregoing transactions are also
presumed to have followed the ordinary course of business in the acceptance of
the crossed MCs for deposit in respondent’s accounts, submitting them for
clearing, and their eventual payment and cancellation.
The afore-stated presumptions are disputable, meaning, they are satisfactory
if uncontradicted, but may be contradicted and overcome by other
evidence.85 Respondent, however, was unable to present sufficient and credible
evidence to dispute these presumptions.
_______________
82 Moran v. Court of Appeals, G.R. No. 105836, 7 March 1994, 230 SCRA 799,
311-312.
83 REVISED RULES OF COURT, Rule 131, Section 3(p).
84 Id., Rule 131, Section 3(q).
85 Id., Section 3.
444
444 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
It should be recalled that out of the nine MCs presented by petitioner Citibank,
respondent admitted to receiving one as proceeds of a loan (MC No. 228270),
denied receiving two (MCs No. 220701 and 226467), and admitted to receiving all
the rest, but not as proceeds of her loans, but as return on the principal amounts
and interests from her money market placements.
Respondent admitted receiving MC No. 228270 representing the proceeds of
her loan covered by PN No. 34534. Although the principal amount of the loan is
P150,000.00, respondent only received P146,312.50, because the interest and
handling fee on the loan transaction were already deducted therefrom. 86 Stamps
and notations at the back of MC No. 228270 reveal that it was deposited at the
Bank of the Philippine Islands (BPI), Cubao Branch, in Account No. 0123-0572-
28.87 The check also bore the signature of respondent at the back.88 And, although
respondent would later admit that she did sign PN No. 34534 and received MC
No. 228270 as proceeds of the loan extended to her by petitioner Citibank, she
contradicted herself when, in an earlier testimony, she claimed that PN No. 34534
was among the PNs she executed as simulated loans with petitioner Citibank.89
Respondent denied ever receiving MCs No. 220701 and 226467. However,
considering that the said checks were crossed for payee’s account only, and that
they were actually deposited, cleared, and paid, then the presumption would be
that the said checks were properly deposited to the account of respondent, who
was clearly named the payee in the checks. Respondent’s bare allegations that
she did not receive the two checks fail to convince this Court, for to sustain her,
would be for this Court to conclude that an irregularity had occurred somewhere
from the time of the issuance of the said checks, to
_______________
86 Exhibit “19,” defendants’ folder of exhibits, p. 84.
87 Exhibits “9-D” and “9-G,” Id., at p. 52.
88 Exhibit “9-F,” Id., at p. 52.
89 TSN, 19 May 1986, Vol. II, p. 10.
445
VOL. 504, OCTOBER 16, 2006 445
Citibank, N.A. (Formerly First National City
29
Credtrans pledge chattel
Bank) vs. Sabeniano
their deposit, clearance, and payment, and which would have involved not only
petitioner Citibank, but also BPI, which accepted the checks for deposit, and the
Central Bank of the Philippines, which cleared the checks. It falls upon the
respondent to overcome or dispute the presumption that the crossed checks were
issued, accepted for deposit, cleared, and paid for by the banks involved following
the ordinary course of their business.
The mere fact that MCs No. 220701 and 226467 do not bear respondent’s
signature at the back does not negate deposit thereof in her account. The liability
for the lack of indorsement on the MCs no longer fall on petitioner Citibank, but
on the bank who received the same for deposit, in this case, BPI Cubao Branch.
Once again, it must be noted that the MCs were crossed, for payee’s account only,
and the payee named in both checks was none other than respondent. The
crossing of the MCs was already a warning to BPI to receive said checks for
deposit only in respondent’s account. It was up to BPI to verify whether it was
receiving the crossed MCs in accordance with the instructions on the face thereof.
If, indeed, the MCs were deposited in accounts other than respondent’s, then the
respondent would have a cause of action against BPI.90
BPI further stamped its guarantee on the back of the checks to the effect that,
“All prior endorsement and/or Lack of endorsement guaranteed.” Thus, BPI
became the indorser of the MCs, and assumed all the warranties of an
indorser,91 specifically, that the checks were genuine and in all respects what they
purported to be; that it had a good title to the checks; that all prior parties had
capacity to contract; and that the checks were, at the time of their indorsement,
valid
_______________
90 Associated Bank v. Court of Appeals, G.R. No. 89802, 7 May 1992, 208
SCRA 465, 469-471.
91 Banco de Oro Savings and Mortgage Bank v Equitable Banking
Corporation, G.R. No. 74917, 20 January 1988, 157 SCRA 188, 199.
446
446 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
and subsisting.92 So even if the MCs deposited by BPI’s client, whether it be by
respondent herself or some other person, lacked the necessary indorsement, BPI,
as the collecting bank, is bound by its warranties as an indorser and cannot set up
the defense of lack of indorsement as against petitioner Citibank, the drawee
bank.93
Furthermore, respondent’s bare and unsubstantiated denial of receipt of the
MCs in question and their deposit in her account is rendered suspect when MC
No. 220701 was actually deposited in Account No. 0123-0572-28 of BPI Cubao
Branch, the very same account in which MC No. 228270 (which respondent
admitted to receiving as proceeds of her loan from petitioner Citibank), and MCs
No. 228203, 228357, and 228400 (which respondent admitted to receiving as
proceeds from her money market placements) were deposited. Likewise, MC No.
226467 was deposited in Account No. 0121-002-43 of BPI Cubao Branch, to which
MCs No. 226285 and 226439 (which respondent admitted to receiving as proceeds
from her money market placements) were deposited. It is an apparent
contradiction for respondent to claim having received the proceeds of checks
deposited in an account, and then deny receiving the proceeds of another check
deposited in the very same account.
Another inconsistency in respondent’s denial of receipt of MC No. 226467 and
her deposit of the same in her account, is her presentation of Exhibit “HHH,” a
provisional receipt which was supposed to prove that respondent turned over
P500,000.00 to Mr. Tan of petitioner Citibank, that the said amount was split into
three money market placements, and that MC No. 226467 represented the return
on her invest-
_______________
92 NEGOTIABLE INSTRUMENTS LAW, Section 66, in connection with
Section 65.
93 Associated Bank v. Court of Appeals, 322 Phil. 677, 697; 252 SCRA 620, 630-
631 (1996); Associated Bank v. Court of Appeals, G.R. No. 89802, 7 May 1992, 208
SCRA 465, 472.
447
VOL. 504, OCTOBER 16, 2006 447
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
ment from one of these placements.94 Because of her Exhibit “HHH,” respondent
effectively admitted receipt of MC No. 226467, although for reasons other than as
proceeds of a loan.
Neither can this Court give credence to respondent’s contention that the
notations on the MCs, stating that they were the proceeds of particular PNs, were
not there when she received the checks and that the notations appeared to be
written by a typewriter different from that used to write the other information on
the checks. Once more, respondent’s allegations were uncorroborated by any other
evidence. Her and her counsel’s observation that the notations on the MCs appear
to be written by a typewriter different from that used to write the other
information on the checks hardly convinces this Court considering that it
constitutes a mere opinion on the appearance of the notation by a witness who
does not possess the necessary expertise on the matter. In addition, the notations
on the MCs were written using both capital and small letters, while the other
information on the checks were written using capital letters only, such difference
could easily confuse an untrained eye and lead to a hasty conclusion that they
were written by different typewriters.
Respondent’s testimony, that based on her experience transacting with banks,
the MCs were not supposed to include notations on the purpose for which the
checks were issued, also deserves scant consideration. While respondent may
have extensive experience dealing with banks, it still does not qualify her as a
competent witness on banking procedures and practices. Her testimony on this
30
Credtrans pledge chattel
matter is even belied by the fact that the other MCs issued by petitioner Citibank
(when it was still named First National City Bank) and by petitioner FNCB
Finance, the existence and validity of which were not disputed by respondent,
also bear similar notations that state the reason for which they were issued.
_______________
94 Plaintiff’s Formal Offer of Documentary Exhibits, Records, Vol. I, pp. 504-
505; plaintiff’s folder of exhibits, p. 110.
448
448 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
Respondent presented several more pieces of evidence to substantiate her claim
that she received MCs No. 226285, 226439, 226467, 226057, 228357, and 228400,
not as proceeds of her loans from petitioner Citibank, but as the return of the
principal amounts and payment of interests from her money market placements
with petitioners. Part of respondent’s exhibits were personal checks 95 drawn by
respondent on her account with Feati Bank & Trust Co., which she allegedly
invested in separate money market placements with both petitioners, the returns
from which were paid to her via MCs No. 226285 and 228400. Yet, to this Court,
the personal checks only managed to establish respondent’s issuance thereof, but
there was nothing on the face of the checks that would reveal the purpose for
which they were issued and that they were actually invested in money market
placements as respondent claimed.
Respondent further submitted handwritten notes that purportedly computed
and presented the returns on her money market placements, corresponding to the
amount stated in the MCs she received from petitioner Citibank. Exhibit “HHH-
1”96 was a handwritten note, which respondent attributed to Mr. Tan of petitioner
Citibank, showing the breakdown of her BPI Check for P500,000.00 into three
different money market placements with petitioner Citibank. This Court,
however, noticed several factors which render the note highly suspect. One, it was
written on the reversed side of Provisional Receipt No. 12724 of petitioner
Citibank which bore the initials of Mr. Tan acknowledging receipt of respondent’s
BPI Check No. 120989 for P500,000.00; but the initials on the handwritten note
appeared to be that of Mr. Bobby Mendoza of petitioner FNCB Finance.97 Second,
according to
_______________
95 Exhibits “GGG” and “JJJ,” plaintiff’s folder of exhibits, pp. 109, 113.
96 Plaintiff’s folder of exhibits, p. 110.
97 See the initials on Exhibit “III-1,” plaintiff’s folder of exhibits, p. 112.
449
VOL. 504, OCTOBER 16, 2006 449
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
Provisional Receipt No. 12724, BPI Check No. 120989 for P500,000.00 was
supposed to be invested in three money market placements with petitioner
Citibank for the period of 60 days. Since all these money market placements were
made through one check deposited on the same day, 10 November 1978, it made
no sense that the handwritten note at the back of Provisional Receipt No. 12724
provided for different dates of maturity for each of the money market placements
(i.e., 16 November 1978, 17 January 1979, and 21 November 1978), and such
dates did not correspond to the 60 day placement period stated on the face of the
provisional receipt. And third, the principal amounts of the money market
placements as stated in the handwritten note—P145,000.00, P145,000.00 and
P242,000.00—totaled P532,000.00, and was obviously in excess of the
P500,000.00 acknowledged on the face of Provisional Receipt No. 12724.
Exhibits “III” and “III-1,” the front and bank pages of a handwritten note of
Mr. Bobby Mendoza of petitioner FNCB Finance,98 also did not deserve much
evidentiary weight, and this Court cannot rely on the truth and accuracy of the
computations presented therein. Mr. Mendoza was not presented as a witness
during the trial before the RTC, so that the document was not properly
authenticated nor its contents sufficiently explained. No one was able to
competently identify whether the initials as appearing on the note were actually
Mr. Mendoza’s.
Also, going by the information on the front page of the note, this Court
observes that payment of respondent’s alleged money market placements with
petitioner FNCB Finance were made using Citytrust Checks; the MCs in
question, including MC No. 228057, were issued by petitioner Citibank. Although
Citytrust (formerly Feati Bank & Trust Co.), petitioner FNCB Finance, and
petitioner Citibank may be affiliates of one another, they each remained separate
and distinct
_______________
98Plaintiff’s folder of exhibits, p. 112.
450
450 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
corporations, each having its own financial system and records. Thus, this Court
cannot simply assume that one corporation, such as petitioner Citibank or
Citytrust, can issue a check to discharge an obligation of petitioner FNCB
Finance. It should be recalled that when petitioner FNCB Finance paid for
respondent’s money market placements, covered by its PNs No. 8167 and 8169, as
well as PNs No. 20138 and 20139, petitioner FNCB Finance issued its own
checks.
As a last point on this matter, if respondent truly had money market
placements with petitioners, then these would have been evidenced by PNs issued
by either petitioner Citibank or petitioner FNCB Finance, acknowledging the
31
Credtrans pledge chattel

principal amounts of the investments, and stating the applicable interest rates, as _______________
well as the dates of their of issuance and maturity. After respondent had so
meticulously reconstructed her other money market placements with petitioners 99TSN, deposition of Mr. Francisco Tan, 3 September 1990, p. 118.
and consolidated the documentary evidence thereon, she came surprisingly short 100G.R. No. 49188, 30 January 1990, 181 SCRA 557, 568.
of offering similar details and substantiation for these particular money market 452
placements.
452 SUPREME COURT REPORTS
Since this Court is satisfied that respondent indeed received the proceeds of
the first set of PNs, then it proceeds to analyze her evidence of payment thereof. ANNOTATED
In support of respondent’s assertion that she had already paid whatever loans Citibank, N.A. (Formerly First National City
she may have had with petitioner Citibank, she presented as evidence Provisional
Bank) vs. Sabeniano
Receipts No. 19471, dated 11 August 1978, and No. 12723, dated 10 November
In the case at bar, the issuance of an official receipt by petitioner Citibank would
1978, both of petitioner Citibank and signed by Mr. Tan, for the amounts of
have been dependent on whether the checks delivered by respondent were
P500,744.00 and P500,000.00, respectively. While these provisional receipts did
actually cleared and paid for by the drawee banks.
state that Mr. Tan, on behalf of petitioner Citibank, received respondent’s checks
as payment for her loans, they failed to specifically identify which loans were As for PN No. 34534, respondent asserted payment thereof at two separate
actually paid. Petitioner Citibank was able to present evidence that respondent instances by two different means. In her formal offer of exhibits, respondent
submitted a deposit slip of petitioner Citibank, dated 11 August 1978, evidencing
had executed several PNs in the years 1978 and 1979 to cover the loans she
the deposit of BPI Check No. 5785 for P150,000.00.101 In her Formal Offer of
secured from the said bank. Petitioner Citibank did admit that respondent was
Documentary Exhibits, dated 7 July 1989, respondent stated that the purpose for
able to pay for some of these PNs, and what it
the presentation of the said deposit slip was to prove that she already paid her
451
loan covered by PN No. 34534.102 In her testimony before the RTC three years
VOL. 504, OCTOBER 16, 2006 451 later, on 28 November 1991, she changed her story. This time she narrated that
Citibank, N.A. (Formerly First National City the loan covered by PN No. 34534 was secured by her money market placement
with petitioner FNCB Finance, and when she failed to pay the said PN when it
Bank) vs. Sabeniano
became due, the security was applied to the loan, therefore, the loan was
identified as the first and second sets of PNs were only those which remained
considered paid.103 Given the foregoing, respondent’s assertion of payment of PN
unpaid. It thus became incumbent upon respondent to prove that the checks
No. 34534 is extremely dubious.
received by Mr. Tan were actually applied to the PNs in either the first or second
According to petitioner Citibank, the PNs in the second set, except for PN No.
set; a fact that, unfortunately, cannot be determined from the provisional receipts
34534, were mere renewals of the unpaid PNs in the first set, which was why the
submitted by respondent since they only generally stated that the checks received
PNs stated that they were for the purpose of liquidating existing obligations. PN
by Mr. Tan were payment for respondent’s loans.
No. 34534, however, which was part of the first set, was still valid and subsisting
Mr. Tan, in his deposition, further explained that provisional receipts were
and so it was included in the second set without need for its renewal, and it still
issued when payment to the bank was made using checks, since the checks would
being the original PN for that particular loan, its stated purpose was for personal
still be subject to clearing. The purpose for the provisional receipts was merely to
investment.104 Respondent essentially admitted executing the second set of PNs,
acknowledge the delivery of the checks to the possession of the bank, but not yet
but they were only meant to cover simu-
of payment.99 This bank practice finds legitimacy in the pronouncement of this
Court that a check, whether an MC or an ordinary check, is not legal tender and,
_______________
therefore, cannot constitute valid tender of payment. In Philippine Airlines, Inc.
v. Court of Appeals,100 this Court elucidated that:
“Since a negotiable instrument is only a substitute for money and not money,
101 Exhibit “MMM,” plaintiff’s folder of exhibits, p. 115.
the delivery of such an instrument does not, by itself, operate as payment (Sec.
102 Records, Vol. I, p. 507.
103 TSN, 28 November 1991, Vol. XIII, pp. 7-8.
189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan Landon Co. v.
104 TSN, deposition of Mr. Francisco Tan, 3 September 1990, p. 96.
American Bank, 7 Phil. 255; Tan Sunco, v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A
check, whether a manager’s check or ordinary check, is not legal tender, and an 453
offer of a check in payment of a debt is not a valid tender of payment and may be VOL. 504, OCTOBER 16, 2006 453
refused receipt by the obligee or creditor. Mere delivery of checks does not Citibank, N.A. (Formerly First National City
discharge the obligation under a judgment. The obligation is not extinguished and
remains suspended until the payment by commercial document is actually Bank) vs. Sabeniano
realized (Art. 1249, Civil Code, par. 3).” lated loans. Mr. Tan supposedly convinced her that her pending loan application
with DBP would have a greater chance of being approved if they made it appear

32
Credtrans pledge chattel
that respondent urgently needed the money because petitioner Citibank was
already demanding payment for her simulated loans.
Respondent’s defense of simulated loans to escape liability for the second set
of PNs is truly a novel one. It is regrettable, however, that she was unable to
substantiate the same. Yet again, respondent’s version of events is totally based
on her own uncorroborated testimony. The notations on the second set of PNs,
that they were non-negotiable simulated notes, were admittedly made by
respondent herself and were, thus, self-serving. Equally self-serving was
respondent’s letter, written on 7 October 1985, or more than six years after the
execution of the second set of PNs, in which she demanded return of the
simulated or fictitious PNs, together with the letters relating thereto, which Mr.
Tan purportedly asked her to execute. Respondent further failed to present any
proof of her alleged loan application with the DBP, and of any circumstance or
correspondence wherein the simulated or fictitious PNs were indeed used for their
supposed purpose.
In contrast, petitioner Citibank, as supported by the testimonies of its officers
and available documentation, consistently treated the said PNs as regular loans—
accepted, approved, and paid in the ordinary course of its business.
The PNs executed by the respondent in favor of petitioner Citibank to cover
her loans were duly-filled out and signed, including the disclosure statement
found at the back of the said PNs, in adherence to the Central Bank requirement
to disclose the full finance charges to a loan granted to borrowers.
Mr. Tan, then an account officer with the Marketing Department of petitioner
Citibank, testified that he dealt directly with respondent; he facilitated the loans;
and the PNs,
454
454 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
at least in the second set, were signed by respondent in his presence.105
Mr. Pujeda, the officer who was previously in charge of loans and placements,
confirmed that the signatures on the PNs were verified against respondent’s
specimen signature with the bank.106
Ms. Cristina Dondoyano, who worked at petitioner Citibank as a loan
processor, was responsible for booking respondent’s loans. Booking the loans
means recording it in the General Ledger. She explained the procedure for
booking loans, as follows: The account officer, in the Marketing Department, deals
directly with the clients who wish to borrow money from petitioner Citibank. The
Marketing Department will forward a loan booking checklist, together with the
borrowing client’s PNs and other supporting documents, to the loan pre-processor,
who will check whether the details in the loan booking checklist are the same as
those in the PNs. The documents are then sent to Signature Control for
verification of the client’s signature in the PNs, after which, they are returned to
the loan pre-processor, to be forwarded finally to the loan processor. The loan
processor shall book the loan in the General Ledger, indicating therein the client
name, loan amount, interest rate, maturity date, and the corresponding PN
number. Since she booked respondent’s loans personally, Ms. Dondoyano testified
that she saw the original PNs. In 1986, Atty. Fernandez of petitioner Citibank
requested her to prepare an accounting of respondent’s loans, which she did, and
which was presented as Exhibit “120” for the petitioners. The figures from the
said exhibit were culled from the bookings in the General Ledger, a fact which
respondent’s counsel was even willing to stipulate.107
_______________
105 TSN, deposition of Mr. Francisco A. Tan, 3 September 1990, pp. 13-16.
106 TSN, 22 May 1990, Vol. V, pp. 31-61.
107 TSN, 7 March 1991, Vol. IX, pp. 15-19; TSN, 13 March 1991, Vol. X, pp. 7-
9.
455
VOL. 504, OCTOBER 16, 2006 455
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
Ms. Teresita Glorioso was an Investigation and Reconcilement Clerk at the
Control Department of petitioner Citibank. She was presented by petitioner
Citibank to expound on the microfilming procedure at the bank, since most of the
copies of the PNs were retrieved from microfilm. Microfilming of the documents
are actually done by people at the Operations Department. At the end of the day
or during the day, the original copies of all bank documents, not just those
pertaining to loans, are microfilmed. She refuted the possibility that insertions
could be made in the microfilm because the microfilm is inserted in a cassette; the
cassette is placed in the microfilm machine for use; at the end of the day, the
cassette is taken out of the microfilm machine and put in a safe vault; and the
cassette is returned to the machine only the following day for use, until the spool
is full. This is the microfilming procedure followed everyday. When the microfilm
spool is already full, the microfilm is developed, then sent to the Control
Department, which double checks the contents of the microfilms against the
entries in the General Ledger. The Control Department also conducts a random
comparison of the contents of the microfilms with the original documents; a
random review of the contents is done on every role of microfilm.108
Ms. Renee Rubio worked for petitioner Citibank for 20 years. She rose from
the ranks, initially working as a secretary in the Personnel Group; then as a
secretary to the Personnel Group Head; a Service Assistant with the Marketing
Group, in 1972 to 1974, dealing directly with corporate and individual clients
who, among other things, secured loans from petitioner Citibank; the Head of the
Collection Group of the Foreign Department in 1974 to 1976; the Head of the
Money Transfer Unit in 1976 to 1978; the Head of the Loans and Placements Unit
up to the early 1980s; and, thereafter, she established operations training for
petitioner Citibank in
_______________
108 TSN, 19 March 1991, Vol. X, pp. 17-21; TSN, 8 April 1991, Vol. X, pp. 31-
34.
456
33
Credtrans pledge chattel
456 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
the Asia-Pacific Region responsible for the training of the officers of the bank. She
testified on the standard loan application process at petitioner Citibank.
According to Ms. Rubio, the account officer or marketing person submits a
proposal to grant a loan to an individual or corporation. Petitioner Citibank has a
worldwide policy that requires a credit committee, composed of a minimum of
three people, which would approve the loan and amount thereof. There can be no
instance when only one officer has the power to approve the loan application.
When the loan is approved, the account officer in charge will obtain the
corresponding PNs from the client. The PNs are sent to the signature verifier who
would validate the signatures therein against those appearing in the signature
cards previously submitted by the client to the bank. The Operations Unit will
check and review the documents, including the PNs, if it is a clean loan, and
securities and deposits, if it is collateralized. The loan is then recorded in the
General Ledger. The Loans and Placements Department will not book the loans
without the PNs. When the PNs are liquidated, whether they are paid or rolled-
over, they are returned to the client.109 Ms. Rubio further explained that she was
familiar with respondent’s accounts since, while she was still the Head of the
Loan and Placements Unit, she was asked by Mr. Tan to prepare a list of
respondent’s outstanding obligations.110 She thus calculated respondent’s
outstanding loans, which was sent as an attachment to Mr. Tan’s letter to
respondent, dated 28 September 1979, and presented before the RTC as Exhibits
“34-B” and “34-C.”111
Lastly, the exchange of letters between petitioner Citibank and respondent, as
well as the letters sent by other people working for respondent, had consistently
recognized that respondent owed petitioner Citibank money.
_______________
109 TSN, 18 April 1991, Vol. X, pp. 3-13.
110 Id., at pp. 15-23.
111 Folder of defendants’ exhibits, pp. 102-103.
457
VOL. 504, OCTOBER 16, 2006 457
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
In consideration of the foregoing discussion, this Court finds that the
preponderance of evidence supports the existence of the respondent’s loans, in the
principal sum of P1,920,000.00, as of 5 September 1979. While it is well-settled
that the term “preponderance of evidence” should not be wholly dependent on the
number of witnesses, there are certain instances when the number of witnesses
become the determining factor—
“The preponderance of evidence may be determined, under certain conditions, by
the number of witnesses testifying to a particular fact or state of facts. For
instance, one or two witnesses may testify to a given state of facts, and six or
seven witnesses of equal candor, fairness, intelligence, and truthfulness, and
equally well corroborated by all the remaining evidence, who have no greater
interest in the result of the suit, testify against such state of facts. Then the
preponderance of evidence is determined by the number of witnesses. (Wilcox vs.
Hines, 100 Tenn. 524, 66 Am. St. Rep., 761.)”112
Best evidence rule
This Court disagrees in the pronouncement made by the Court of Appeals
summarily dismissing the documentary evidence submitted by petitioners based
on its broad and indiscriminate application of the best evidence rule.
In general, the best evidence rule requires that the highest available degree of
proof must be produced. Accordingly, for documentary evidence, the contents of a
document are best proved by the production of the document itself,113 to the
exclusion of any secondary or substitutionary evidence.114
_______________
Municipality of Moncada v. Cajuigan, 21 Phil. 184, 190 (1912).
112
J.A.R. Sibal and J.N. Salazar, Jr., COMPENDIUM ON EVIDENCE 31 (4th
113
ed., 1995).
114 F.D. Regalado, REMEDIAL LAW COMPENDIUM, Vol. II, p. 571 (8th ed.,
2000).
458
458 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
The best evidence rule has been made part of the revised Rules of Court, Rule
130, Section 3, which reads—
“SEC. 3. Original document must be produced; exceptions.—When the subject of
inquiry is the contents of a document, no evidence shall be admissible other than
the original document itself, except in the following cases:
1. (a)When the original has been lost or destroyed, or cannot be produced in
court, without bad faith on the part of the offeror;
2. (b)When the original is in the custody or under the control of the party
against whom the evidence is offered, and the latter fails to produce it
after reasonable notice;
3. (c)When the original consists of numerous accounts or other documents
which cannot be examined in court without great loss of time and the
fact sought to be established from them is only the general result of the
whole; and
4. (d)When the original is a public record in the custody of a public officer or
is recorded in a public office.”
34
Credtrans pledge chattel
As the afore-quoted provision states, the best evidence rule applies only when the
subject of the inquiry is the contents of the document. The scope of the rule is
more extensively explained thus—
“But even with respect to documentary evidence, the best evidence rule applies
only when the content of such document is the subject of the inquiry. Where the
issue is only as to whether such document was actually executed, or exists, or on
the circumstances relevant to or surrounding its execution, the best evidence rule
does not apply and testimonial evidence is admissible (5 Moran, op. cit., pp. 76-66;
4 Martin, op. cit., p. 78). Any other substitutionary evidence is likewise admissible
without need for accounting for the original.
Thus, when a document is presented to prove its existence or condition it is
offered not as documentary, but as real, evidence.
459
VOL. 504, OCTOBER 16, 2006 459
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
Parol evidence of the fact of execution of the documents is allowed (Hernaez, et al.
vs. McGrath, etc., et al., 91 Phil 565). x x x”115
In Estrada v. Desierto,116 this Court had occasion to rule that—
“It is true that the Court relied not upon the original but only copy of the Angara
Diary as published in the Philippine Daily Inquirer on February 4-6, 2001. In
doing so, the Court, did not, however, violate the best evidence rule. Wigmore, in
his book on evidence, states that:
“Production of the original may be dispensed with, in the trial court’s
discretion, whenever in the case in hand the opponent does not bona fide dispute
the contents of the document and no other useful purpose will be served by
requiring production.24
“x x x x
“In several Canadian provinces, the principle of unavailability has been
abandoned, for certain documents in which ordinarily no real dispute arised. This
measure is a sensible and progressive one and deserves universal adoption (post,
sec. 1233). Its essential feature is that a copy may be used unconditionally, if the
opponent has been given an opportunity to inspect it.” (Emphasis supplied.)
This Court did not violate the best evidence rule when it considered and weighed
in evidence the photocopies and microfilm copies of the PNs, MCs, and letters
submitted by the petitioners to establish the existence of respondent’s loans. The
terms or contents of these documents were never the point of contention in the
Petition at bar. It was respondent’s position that the PNs in the first set (with the
exception of PN No. 34534) never existed, while the PNs in the second set (again,
excluding PN No. 34534) were merely executed to cover simulated loan
transactions. As for the MCs representing the proceeds of the loans, the
respondent either denied receipt of certain MCs or admitted receipt of the other
MCs
_______________
115 F.D. Regalado, REMEDIAL LAW COMPENDIUM, Vol. II, 571 (8th ed.,
2000).
G.R. Nos. 146710-15, 3 April 2001, 356 SCRA 108, 137-138.
116
460
460 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
but for another purpose. Respondent further admitted the letters she wrote
personally or through her representatives to Mr. Tan of petitioner Citibank
acknowledging the loans, except that she claimed that these letters were just
meant to keep up the ruse of the simulated loans. Thus, respondent questioned
the documents as to their existence or execution, or when the former is admitted,
as to the purpose for which the documents were executed, matters which are,
undoubtedly, external to the documents, and which had nothing to do with the
contents thereof.
Alternatively, even if it is granted that the best evidence rule should apply to
the evidence presented by petitioners regarding the existence of respondent’s
loans, it should be borne in mind that the rule admits of the following exceptions
under Rule 130, Section 5 of the revised Rules of Court—
“SEC. 5. When the original document is unavailable.—When the original
document has been lost or destroyed, or cannot be produced in court, the offeror,
upon proof of its execution or existence and the cause of its unavailability without
bad faith on his part, may prove its contents by a copy, or by a recital of its
contents in some authentic document, or by the testimony of witnesses in the
order stated.”
The execution or existence of the original copies of the documents was established
through the testimonies of witnesses, such as Mr. Tan, before whom most of the
documents were personally executed by respondent. The original PNs also went
through the whole loan booking system of petitioner Citibank—from the account
officer in its Marketing Department, to the pre-processor, to the signature
verifier, back to the pre-processor, then to the processor for booking.117 The
original PNs were seen by Ms. Dondoyano, the processor, who recorded them in
the General Ledger. Mr. Pujeda personally saw the original MCs, proving
respondent’s receipt of the proceeds of her loans from petitioner Citibank, when
he
_______________
TSN, 13 March 1991, Vol X, pp. 7-9.
117
461
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helped Attys. Cleofe and Fernandez, the bank’s legal counsels, to reconstruct the
records of respondent’s loans. The original MCs were presented to Atty. Cleofe
who used the same during the preliminary investigation of the case, sometime in
years 1986-1987. The original MCs were subsequently turned over to the Control
and Investigation Division of petitioner Citibank.118
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Credtrans pledge chattel
It was only petitioner FNCB Finance who claimed that they lost the original
copies of the PNs when it moved to a new office. Citibank did not make a similar
contention; instead, it explained that the original copies of the PNs were returned
to the borrower upon liquidation of the loan, either through payment or roll-over.
Petitioner Citibank proffered the excuse that they were still looking for the
documents in their storage or warehouse to explain the delay and difficulty in the
retrieval thereof, but not their absence or loss. The original documents in this
case, such as the MCs and letters, were destroyed and, thus, unavailable for
presentation before the RTC only on 7 October 1987, when a fire broke out on the
7th floor of the office building of petitioner Citibank. There is no showing that the
fire was intentionally set. The fire destroyed relevant documents, not just of the
present case, but also of other cases, since the 7th floor housed the Control and
Investigation Division, in charge of keeping the necessary documents for cases in
which petitioner Citibank was involved.
The foregoing would have been sufficient to allow the presentation of
photocopies or microfilm copies of the PNs, MCs, and letters by the petitioners as
secondary evidence to establish the existence of respondent’s loans, as an
exception to the best evidence rule.
_______________
TSN, 22 May 1990, Vol. V, pp. 14-17.
118
462
462 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
The impact of the Decision of the Court of Appeals in the Dy case
In its assailed Decision, the Court of Appeals made the following
pronouncement—
“Besides, We find the declaration and conclusions of this Court in CA-G.R. CV
No. 15934 entitled Sps. Dr. Ricardo L. Dy and Rosalind O. Dy vs. City Bank,
N.A., et al., promulgated on 15 January 1990, as disturbing taking into
consideration the similarities of the fraud, machinations, and deceits employed by
the defendant-appellant Citibank and its Account Manager Francisco Tan.
Worthy of note is the fact that Our declarations and conclusions against
Citibank and the person of Francisco Tan in CA-G.R. CV No. 15934 were
affirmed in toto by the Highest Magistrate in a Minute Resolution dated 22
August 1990 entitled Citibank, N.A., vs. Court of Appeals, G.R. 93350.
As the factual milieu of the present appeal created reasonable doubts as to
whether the nine (9) Promissory Notes were indeed executed with
considerations, the doubts, coupled by the findings and conclusions of this Court
in CA-G.R. CV No. 15934 and the Supreme Court in G.R. No. 93350. should be
construed against herein defendants-appellants Citibank and FNCB Finance.”
What this Court truly finds disturbing is the significance given by the Court of
Appeals in its assailed Decision to the Decision119 of its Third Division in CA-G.R.
CV No. 15934 (or the Dy case), when there is an absolute lack of legal basis for
doing such. Although petitioner Citibank and its officer, Mr. Tan, were
also involved in the Dy case, that is about the only connection between the Dy
case and the one at bar. Not only did the Dy case tackle transactions between
parties other than the par-
_______________
Dr. Ricardo L. Dy and Rosalind O. Dy vs. Citibank, N.A., CA-G.R. CV No.
119
15934, 15 January 1990, penned by Associate Justice Nicolas P. Lapeña, Jr. with
Associate Justices Santiago M. Ka-punan and Emeterio C. Cui, concurring.
463
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ties presently before this Court, but the transactions are absolutely independent
and unrelated to those in the instant Petition.
In the Dy case, Severino Chua Caedo managed to obtain loans from herein
petitioner Citibank amounting to P7,000,000.00, secured to the extent of
P5,000,000.00 by a Third Party Real Estate Mortgage of the properties of Caedo’s
aunt, Rosalind Dy. It turned out that Rosalind Dy and her husband were unaware
of the said loans and the mortgage of their properties. The transactions were
carried out exclusively between Caedo and Mr. Tan of petitioner Citibank. The
RTC found Mr. Tan guilty of fraud for his participation in the questionable
transactions, essentially because he allowed Caedo to take out the signature
cards, when these should have been signed by the Dy spouses personally before
him. Although the Dy spouses’ signatures in the PNs and Third Party Real Estate
Mortgage were forged, they were approved by the signature verifier since the
signature cards against which they were compared to were also forged. Neither
the RTC nor the Court of Appeals, however, categorically declared Mr. Tan
personally responsible for the forgeries, which, in the narration of the facts, were
more likely committed by Caedo.
In the Petition at bar, respondent dealt with Mr. Tan directly, there was no
third party involved who could have perpetrated any fraud or forgery in her loan
transactions. Although respondent attempted to raise suspicion as to the
authenticity of her signatures on certain documents, these were nothing more
than naked allegations with no corroborating evidence; worse, even her own
allegations were replete with inconsistencies. She could not even establish in
what manner or under what circumstances the fraud or forgery was committed,
or how Mr. Tan could have been directly responsible for the same.
While the Court of Appeals can take judicial notice of the Decision of its Third
Division in the Dy case, it should not have given the said case much weight when
it rendered the
464
464 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
36
Credtrans pledge chattel
Bank) vs. Sabeniano
assailed Decision, since the former does not constitute a precedent. The Court of
Appeals, in the challenged Decision, did not apply any legal argument or principle
established in the Dy case but, rather, adopted the findings therein of wrongdoing
or misconduct on the part of herein petitioner Citibank and Mr. Tan. Any finding
of wrongdoing or misconduct as against herein petitioners should be made based
on the factual background and pieces of evidence submitted in this case, not those
in another case.
It is apparent that the Court of Appeals took judicial notice of the Dy case not
as a legal precedent for the present case, but rather as evidence of similar acts
committed by petitioner Citibank and Mr. Tan. A basic rule of evidence, however,
states that, “Evidence that one did or did not do a certain thing at one time is not
admissible to prove that he did or did not do the same or similar thing at another
time; but it may be received to prove a specific intent or knowledge, identity, plan,
system, scheme, habit, custom or usage, and the like.” 120 The rationale for the
rule is explained thus—
“The rule is founded upon reason, public policy, justice and judicial convenience.
The fact that a person has committed the same or similar acts at some prior time
affords, as a general rule, no logical guaranty that he committed the act in
question. This is so because, subjectively, a man’s mind and even his modes of life
may change; and, objectively, the conditions under which he may find himself at a
given time may likewise change and thus induce him to act in a different way.
Besides, if evidence of similar acts are to be invariably admitted, they will give
rise to a multiplicity of collateral issues and will subject the defendant to surprise
as well as confuse the court and prolong the trial.”121
The factual backgrounds of the two cases are so different and unrelated that the
Dy case cannot be used to prove specific
_______________
120 REVISED RULES OF COURT, Rule 130, Section 34.
121 J.A.R. Sibal and J.N. Salazar, Jr., COMPENDIUM ON EVIDENCE 199-
200 (4th ed., 1995).
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intent, knowledge, identity, plan, system, scheme, habit, custom or usage on the
part of petitioner Citibank or its officer, Mr. Tan, to defraud respondent in the
present case.
IV
The liquidation of respondent’s outstanding loans were valid in so far as petitioner
Citibank used respondent’s savings account with the bank and her money market
placements with petitioner FNCB Finance; but illegal and void in so far as
petitioner Citibank used respon-dent’s dollar accounts with Citibank-Geneva.
Savings Account with petitioner Citibank
Compensation is a recognized mode of extinguishing obligations. Relevant
provisions of the Civil Code provides—
Art. 1278. Compensation shall take place when two persons, in their own right,
are creditors and debtors of each other.
Art. 1279. In order that compensation may be proper, it is necessary;
1. (1)That each one of the obligors be bound principally, and that he be at
the same time a principal creditor of the other;
2. (2)That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if
the latter has been stated;
3. (3)That the two debts be due;
4. (4)That they be liquidated and demandable;
5. (5)That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
debtor.
There is little controversy when it comes to the right of petitioner Citibank to
compensate respondent’s outstanding
466
466 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
loans with her deposit account. As already found by this Court, petitioner
Citibank was the creditor of respondent for her outstanding loans. At the same
time, respondent was the creditor of petitioner Citibank, as far as her deposit
account was concerned, since bank deposits, whether fixed, savings, or current,
should be considered as simple loan or mutuum by the depositor to the banking
institution.122 Both debts consist in sums of money. By June 1979, all of
respondent’s PNs in the second set had matured and became demandable, while
respondent’s savings account was demandable anytime. Neither was there any
retention or controversy over the PNs and the deposit account commenced by a
third person and communicated in due time to the debtor concerned.
Compensation takes place by operation of law,123 therefore, even in the absence of
an expressed authority from respondent, petitioner Citibank had the right to
effect, on 25 June 1979, the partial compensation or off-set of respondent’s
outstanding loans with her deposit account, amounting to P31,079.14.
37
Credtrans pledge chattel
Money market placements with FNCB Finance
Things though are not as simple and as straightforward as regards to the money
market placements and bank account used by petitioner Citibank to complete the
compensation or off-set of respondent’s outstanding loans, which came from
persons other than petitioner Citibank.
Respondent’s money market placements were with petitioner FNCB Finance,
and after several roll-overs, they were ultimately covered by PNs No. 20138 and
20139, which, by 3 September 1979, the date the check for the proceeds of the said
PNs were issued, amounted to P1,022,916.66, inclusive of the principal amounts
and interests. As to these money market placements, respondent was the creditor
and petitioner
_______________
122 CIVIL CODE, Article 1980; Guingona, Jr. v. City Fiscal of Manila, 213
Phil. 516, 523-524; 128 SCRA 577, 584 (1984).
123 CIVIL CODE, Article 1286.
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FNCB Finance the debtor; while, as to the outstanding loans, petitioner Citibank
was the creditor and respondent the debtor. Consequently, legal compensation,
under Article 1278 of the Civil Code, would not apply since the first requirement
for a valid compensation, that each one of the obligors be bound principally, and
that he be at the same time a principal creditor of the other, was not met.
What petitioner Citibank actually did was to exercise its rights to the
proceeds of respondent’s money market placements with petitioner FNCB
Finance by virtue of the Deeds of Assignment executed by respondent in its favor.
The Court of Appeals did not consider these Deeds of Assignment because of
petitioners’ failure to produce the original copies thereof in violation of the best
evidence rule. This Court again finds itself in disagreement in the application of
the best evidence rule by the appellate court.
To recall, the best evidence rule, in so far as documentary evidence is
concerned, requires the presentation of the original copy of the document only
when the context thereof is the subject of inquiry in the case. Respondent does not
question the contents of the Deeds of Assignment. While she admitted the
existence and execution of the Deeds of Assignment, dated 2 March 1978 and 9
March 1978, covering PNs No. 8169 and 8167 issued by petitioner FNCB Finance,
she claimed, as defense, that the loans for which the said Deeds were executed as
security, were already paid. She denied ever executing both Deeds of Assignment,
dated 25 August 1978, covering PNs No. 20138 and 20139. These are again issues
collateral to the contents of the documents involved, which could be proven by
evidence other than the original copies of the said documents.
Moreover, the Deeds of Assignment of the money market placements with
petitioner FNCB Finance were notarized documents, thus, admissible in evidence.
Rule 132, Section 30 of the Rules of Court provides that—
468
468 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
“SEC. 30. Proof of notarial documents.—Every instrument duly acknowledged or
proved and certified as provided by law, may be presented in evidence without
further proof, the certificate of acknowledgement being prima facie evidence of
the execution of the instrument or document involved.”
Significant herein is this Court’s elucidation in De Jesus v. Court of
Appeals,124 which reads—
“On the evidentiary value of these documents, it should be recalled that the
notarization of a private document converts it into a public one and renders it
admissible in court without further proof of its authenticity (Joson vs.
Baltazar, 194 SCRA 114 [1991]). This is so because a public document duly
executed and entered in the proper registry is presumed to be valid and genuine
until the contrary is shown by clear and convincing proof (Asido vs. Guzman, 57
Phil. 652 [1918]; U.S. vs. Enriquez, 1 Phil. 241 [1902]; Favor vs. Court of
Appeals, 194 SCRA 308 [1991]). As such, the party challenging the recital of the
document must prove his claim with clear and convincing evidence (Diaz vs. Court
of Appeals, 145 SCRA 346 [1986]).”
The rule on the evidentiary weight that must be accorded a notarized document is
clear and unambiguous. The certificate of acknowledgement in the notarized
Deeds of Assignment constituted prima facie evidence of the execution thereof.
Thus, the burden of refuting this presumption fell on respondent. She could have
presented evidence of any defect or irregularity in the execution of the said
documents125 or raised questions as to the verity of the notary public’s
acknowledgment and certificate in the Deeds.126 But again, respondent admitted
executing the Deeds of Assignment, dated 2 March 1978 and 9 March 1978,
although claiming that the loans for which they were executed as security were
already paid. And, she assailed the Deeds of Assignment, dated 25 August 1978,
_______________
G.R. No. 57092, 21 January 1993, 217 SCRA 307, 313-314.
124
Anachuelo v. Intermediate Appellate Court, G.R. No. L-71391, 29 January
125
1987, 147 SCRA 434, 441-442.
126 Antillon v. Barcelon, 37 Phil. 148, 150-151 (1917).
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with nothing more than her bare denial of execution thereof, hardly the clear and
convincing evidence required to trounce the presumption of due execution of a
notarized document.
Petitioners not only presented the notarized Deeds of Assignment, but even
secured certified literal copies thereof from the National Archives. 127 Mr. Renato
Medua, an archivist, working at the Records Management and Archives Office of
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Credtrans pledge chattel
the National Library, testified that the copies of the Deeds presented before the
RTC were certified literal copies of those contained in the Notarial Registries of
the notary publics concerned, which were already in the possession of the
National Archives. He also explained that he could not bring to the RTC the
Notarial Registries containing the original copies of the Deeds of Assignment,
because the Department of Justice (DOJ) Circular No. 97, dated 8 November
1968, prohibits the bringing of original documents to the courts to prevent the
loss of irreplaceable and priceless documents.128
Accordingly, this Court gives the Deeds of Assignment grave importance in
establishing the authority given by the respondent to petitioner Citibank to use
as security for her loans her money her market placements with petitioner FNCB
Finance, represented by PNs No. 8167 and 8169, later to be rolled-over as PNs
No. 20138 and 20139. These Deeds of Assignment constitute the law between the
parties, and the obligations arising therefrom shall have the force of law between
the parties and should be complied with in good faith.129 Standard clauses in all of
the Deeds provide that—
The ASSIGNOR and the ASSIGNEE hereby further agree as follows:
xxxx
_______________
See Exhibits “13-E, “14-G,” “15-D,”and “17-D,” defendants’ folder of
127
exhibits, pp. 65-67, 72-74, 77-78, 81-82.
128 TSN, 7 March 1991, Vol. IX, pp. 3-6.
129 Cuizon v. Court of Appeals, 329 Phil. 456, 482; 260 SCRA 645, 662 (1996).
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470 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
2. In the event the OBLIGATIONS are not paid at maturity or upon demand, as
the case may be, the ASSIGNEE is fully authorized and empowered to collect and
receive the PLACEMENT (or so much thereof as may be necessary) and apply the
same in payment of the OBLIGATIONS. Furthermore, the ASSIGNOR agrees
that at any time, and from time to time, upon request by the ASSIGNEE, the
ASSIGNOR will promptly execute and deliver any and all such further
instruments and documents as may be necessary to effectuate this Assignment.
xxxx
5. This Assignment shall be considered as sufficient authority to FNCB
Finance to pay and deliver the PLACEMENT or so much thereof as may be
necessary to liquidate the OBLIGATIONS, to the ASSIGNEE in accordance with
terms and provisions hereof.130
Petitioner Citibank was only acting upon the authority granted to it under the
foregoing Deeds when it finally used the proceeds of PNs No. 20138 and 20139,
paid by petitioner FNCB Finance, to partly pay for respondent’s outstanding
loans. Strictly speaking, it did not effect a legal compensation or off-set under
Article 1278 of the Civil Code, but rather, it partly extinguished respondent’s
obligations through the application of the security given by the respondent for her
loans. Although the pertinent documents were entitled Deeds of Assignment, they
were, in reality, more of a pledge by respondent to petitioner Citibank of her
credit due from petitioner FNCB Finance by virtue of her money market
placements with the latter. According to Article 2118 of the Civil Code—
“ART. 2118. If a credit has been pledged becomes due before it is redeemed, the
pledgee may collect and receive the amount due. He shall apply the same to the
payment of his claim, and deliver the surplus, should there be any, to the
pledgor.”
_______________
130 Exhibits “13-E,” “14-G,” “15-D,” and “17-D,” defendants’ folder of exhibits,
pp. 65-66, 72-73, 77-78, 81-82.
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Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
PNs No. 20138 and 20139 matured on 3 September 1979, without them being
redeemed by respondent, so that petitioner Citibank collected from petitioner
FNCB Finance the proceeds thereof, which included the principal amounts and
interests earned by the money market placements, amounting to P1,022,916.66,
and applied the same against respondent’s outstanding loans, leaving no surplus
to be delivered to respondent.
Dollar accounts with Citibank-Geneva
Despite the legal compensation of respondent’s savings account and the total
application of the proceeds of PNs No. 20138 and 20139 to respondent’s
outstanding loans, there still remained a balance of P1,069,847.40. Petitioner
Citibank then proceeded to applying respondent’s dollar accounts with Citibank-
Geneva against her remaining loan balance, pursuant to a Declaration of Pledge
supposedly executed by respondent in its favor.
Certain principles of private international law should be considered herein
because the property pledged was in the possession of an entity in a foreign
country, namely, Citibank-Geneva. In the absence of any allegation and evidence
presented by petitioners of the specific rules and laws governing the constitution
of a pledge in Geneva, Switzerland, they will be presumed to be the same as
Philippine local or domestic laws; this is known as processual presumption.131
Upon closer scrutiny of the Declaration of Pledge, this Court finds the same
exceedingly suspicious and irregular.
First of all, it escapes this Court why petitioner Citibank took care to have the
Deeds of Assignment of the PNs notarized, yet left the Declaration of Pledge
unnotarized. This Court would think that petitioner Citibank would take greater
cautionary measures with the preparation and execu-
_______________
131 Wildvalley Shipping Co., Ltd. v. Court of Appeals, 396 Phil. 383, 396; 342
SCRA 213, 223 (2000).
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Credtrans pledge chattel
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472 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
tion of the Declaration of Pledge because it involved respondent’s “all present and
future fiduciary placements” with a Citibank branch in another country,
specifically, in Geneva, Switzerland. While there is no express legal requirement
that the Declaration of Pledge had to be notarized to be effective, even so, it could
not enjoy the same prima facie presumption of due execution that is extended to
notarized documents, and petitioner Citibank must discharge the burden of
proving due execution and authenticity of the Declaration of Pledge.
Second, petitioner Citibank was unable to establish the date when the
Declaration of Pledge was actually executed. The photocopy of the Declaration of
Pledge submitted by petitioner Citibank before the RTC was undated.132 It
presented only a photocopy of the pledge because it already forwarded the original
copy thereof to Citibank-Geneva when it requested for the remittance of
respondent’s dollar accounts pursuant thereto. Respondent, on the other hand,
was able to secure a copy of the Declaration of Pledge, certified by an officer of
Citibank-Geneva, which bore the date 24 September 1979.133 Respondent,
however, presented her passport and plane tickets to prove that she was out of
the country on the said date and could not have signed the pledge. Petitioner
Citibank insisted that the pledge was signed before 24 September 1979, but could
not provide an explanation as to how and why the said date was written on the
pledge. Although Mr. Tan testified that the Declaration of Pledge was signed by
respondent personally before him, he could not give the exact date when the said
signing took place. It is important to note that the copy of the Declaration of
Pledge submitted by the respondent to the RTC was certified by an officer of
Citibank-Geneva, which had possession of the original copy of the pledge. It is
dated 24 September 1979, and this Court shall abide by the presumption that the
written document is truly
_______________
Exhibit “38,” defendants’ folder of exhibits, pp. 109-110.
132
Exhibit “K-1,” plaintiff’s folder of exhibits, 54-55.
133
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Citibank, N.A. (Formerly First National City
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dated.134 Since it is undeniable that respondent was out of the country on 24
September 1979, then she could not have executed the pledge on the said date.
Third, the Declaration of Pledge was irregularly filled-out. The pledge was in
a standard printed form. It was constituted in favor of Citibank, N.A., otherwise
referred to therein as the Bank. It should be noted, however, that in the space
which should have named the pledgor, the name of petitioner Citibank was
typewritten, to wit—
“The pledge right herewith constituted shall secure all claims which the Bank
now has or in the future acquires against Citibank, N.A., Manila (full name and
address of the Debtor), regardless of the legal cause or the transaction (for
example current account, securities transactions, collections, credits, payments,
documentary credits and collections) which gives rise thereto, and including
principal, all contractual and penalty interest, commissions, charges, and costs.”
The pledge, therefore, made no sense, the pledgor and pledgee being the same
entity. Was a mistake made by whoever filled-out the form? Yes, it could be a
possibility. Nonetheless, considering the value of such a document, the mistake as
to a significant detail in the pledge could only be committed with gross
carelessness on the part of petitioner Citibank, and raised serious doubts as to the
authenticity and due execution of the same. The Declaration of Pledge had passed
through the hands of several bank officers in the country and abroad, yet,
surprisingly and implausibly, no one noticed such a glaring mistake.
Lastly, respondent denied that it was her signature on the Declaration of
Pledge. She claimed that the signature was a forgery. When a document is
assailed on the basis of forgery, the best evidence rule applies—
“Basic is the rule of evidence that when the subject of inquiry is the contents of a
document, no evidence is admissible other than
_______________
REVISED RULES OF COURT, Rule 131, Section 3(u).
134
474
474 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
the original document itself except in the instances mentioned in Section 3, Rule
130 of the Revised Rules of Court. Mere photocopies of documents are
inadmissible pursuant to the best evidence rule. This is especially true when
the issue is that of forgery.
As a rule, forgery cannot be presumed and must be proved by clear, positive
and convincing evidence and the burden of proof lies on the party alleging forgery.
The best evidence of a forged signature in an instrument is the instrument itself
reflecting the alleged forged signature. The fact of forgery can only be established
by a comparison between the alleged forged signature and the authentic and
genuine signature of the person whose signature is theorized upon to have been
forged. Without the original document containing the alleged forged signature,
one cannot make a definitive comparison which would establish forgery. A
comparison based on a mere xerox copy or reproduction of the document under
controversy cannot produce reliable results.”135
Respondent made several attempts to have the original copy of the pledge
produced before the RTC so as to have it examined by experts. Yet, despite
several Orders by the RTC,136 petitioner Citibank failed to comply with the
production of the original Declaration of Pledge. It is admitted that Citibank-
Geneva had possession of the original copy of the pledge. While petitioner
Citibank in Manila and its branch in Geneva may be separate and distinct
40
Credtrans pledge chattel
entities, they are still incontestably related, and between petitioner Citibank and
respondent, the former had more influence and resources to convince Citibank-
Geneva to return, albeit temporarily, the original Declaration of Pledge.
Petitioner Citibank did not present any evidence to convince this Court that it
had ex-
_______________
135 Heirs of Severa P. Gregorio v. Court of Appeals, 360 Phil. 753, 763; 300
SCRA 565, 574 (1998).
136 Order, dated 12 November 1985, penned by Judge Ansberto P. Paredes,
Records, Vol. I, p. 310; Order, dated 2 September 1988, Id. and penned by Judge
Francisco X. Velez, Records, Vol. I, p. 449; Order, dated 24 November 1988,
penned by Judge Francisco X. Velez, Records, Vol. I, p. 458; Order, dated 25 April
1989, penned by Judge Francisco X. Velez, Records, Vol. I, pp. 476-477.
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erted diligent efforts to secure the original copy of the pledge, nor did it proffer
the reason why Citibank-Geneva obstinately refused to give it back, when such
document would have been very vital to the case of petitioner Citibank. There is
thus no justification to allow the presentation of a mere photocopy of the
Declaration of Pledge in lieu of the original, and the photocopy of the pledge
presented by petitioner Citibank has nil probative value.137 In addition, even if
this Court cannot make a categorical finding that respondent’s signature on the
original copy of the pledge was forged, it is persuaded that petitioner Citibank
willfully suppressed the presentation of the original document, and takes into
consideration the presumption that the evidence willfully suppressed would be
adverse to petitioner Citibank if produced.138
Without the Declaration of Pledge, petitioner Citibank had no authority to
demand the remittance of respondent’s dollar accounts with Citibank-Geneva and
to apply them to her outstanding loans. It cannot effect legal compensation under
Article 1278 of the Civil Code since, petitioner Citibank itself admitted that
Citibank-Geneva is a distinct and separate entity. As for the dollar accounts,
respondent was the creditor and Citibank-Geneva is the debtor; and as for the
outstanding loans, petitioner Citibank was the creditor and respondent was the
debtor. The parties in these transactions were evidently not the principal creditor
of each other.
Therefore, this Court declares that the remittance of respondent’s dollar
accounts from Citibank-Geneva and the application thereof to her outstanding
loans with petitioner Citibank was illegal, and null and void. Resultantly,
petitioner Citibank is obligated to return to respondent the amount of
US$149,632,99 from her Citibank-Geneva accounts, or its present equivalent
value in Philippine currency; and, at the same time, respondent continues to be
obligated to
_______________
137 Security Bank & Trust Co. v. Triumph Lumber and Construction
Corporation, 361 Phil. 463, 477; 301 SCRA 537, 550 (1999).
138 REVISED RULES OF COURT, Rule 131, Section 3(e).
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476 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
petitioner Citibank for the balance of her outstanding loans which, as of 5
September 1979, amounted to P1,069,847.40.
V
The parties shall be liable for interests on their monetary obligations to each other,
as determined herein.
In summary, petitioner Citibank is ordered by this Court to pay respondent the
proceeds of her money market placements, represented by PNs No. 23356 and
23357, amounting to P318,897.34 and P203,150.00, respectively, earning an
interest of 14.5% per annum as stipulated in the PNs,139 beginning 17 March
1977, the date of the placements.
Petitioner Citibank is also ordered to refund to respondent the amount of
US$149,632.99, or its equivalent in Philippine currency, which had been remitted
from her Citibank-Geneva accounts. These dollar accounts, consisting of two
fiduciary placements and current accounts with Citibank-Geneva shall continue
earning their respective stipulated interests from 26 October 1979, the date of
their remittance by Citibank-Geneva to petitioner Citibank in Manila and applied
against respondent’s outstanding loans.
_______________
139 The stipulated interest shall apply as indemnity for the damages incurred
in the delay of payment as provided in Article 2209 of the CIVIL CODE which
reads—
ART. 2209. If the obligation consists in the payment of a sum of money, and the
debtor incurs delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed upon, and in the absence of a
stipulation, the legal interest, which is six percent per annum. [Emphasis
supplied.]
Note, however, that the legal interest has been increased from six percent to
twelve percent per annum by virtue of Central Bank Circulars No. 416, dated 29
July 1974, and No. 905, dated 10 December 1982.
477
VOL. 504, OCTOBER 16, 2006 477
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
As for respondent, she is ordered to pay petitioner Citibank the balance of her
outstanding loans, which amounted to P1,069,847.40 as of 5 September 1979.
These loans continue to earn interest, as stipulated in the corresponding PNs,
41
Credtrans pledge chattel

from the time of their respective maturity dates, since the supposed payment Respondent had been deprived of substantial amounts of her investments and
thereof using respondent’s dollar accounts from Citibank-Geneva is deemed deposits for more than two decades. During this span of years, respondent had
illegal, null and void, and, thus, ineffective. found herself in desperate need of the amounts wrongfully withheld from her. In
VI her testimony144 before the RTC, respondent narrated—
Petitioner Citibank shall be liable for damages to respondent.
_______________
Petitioners protest the award by the Court of Appeals of moral damages,
exemplary damages, and attorney’s fees in favor of respondent. They argued that
THE GENERAL BANKING LAW OF 2000, Section 2.
141
the RTC did not award any damages, and respondent, in her appeal before the
Philippine National Bank v. Court of Appeals, 373 Phil. 942, 948; 315
142
Court of Appeals, did not raise in issue the absence of such.
SCRA 309, 314 (1999).
While it is true that the general rule is that only errors which have been 143 Simex International (Manila), Inc, vs. Court of Appeals, G.R. No. 88013, 19
stated in the assignment of errors and properly argued in the brief shall be
March 1990, 183 SCRA 360, 367; Bank of Philippine Islands vs. Intermediate
considered, this Court has also recognized exceptions to the general rule, wherein
Appellate Court, G.R. No. 69162, 21 February 1992, 206 SCRA 408, 412-413.
it authorized the review of matters, even those not assigned as errors in the 144 TSN, 28 January 1986, Vol. I, pp. 5-7.
appeal, if the consideration thereof is necessary in arriving at a just decision of
479
the case, and there is a close inter-relation between the omitted assignment of
error and those actually assigned and discussed by the appellant. 140 Thus, the VOL. 504, OCTOBER 16, 2006 479
Court of Appeals did not err in awarding the damages when it already made Citibank, N.A. (Formerly First National City
findings that would justify and support the said award.
Bank) vs. Sabeniano
_______________ Q By the way Mrs. Witness will you
kindly tell us again, you said before that
Radio Communications of the Philippines, Inc. v. National Labor Relations
140
you are a businesswoman, will you tell
Commission, G.R. Nos. 101181-84, 22 June 1992, 210 SCRA 222, 226-
227; Ortigas, Jr. v. Lufthansa German Airlines, G.R. No. L-28773, 30 June us again what are the businesses you
1975, 64 SCRA 610, 633-634; Hernandez v. Andal, 78 Phil. 196, 209-210 (1947). are engaged into [sic]?
478 A I am engaged in real estate. I am the
478 SUPREME COURT REPORTS
owner of the Modesta Village 1 and 2
ANNOTATED
in San Mateo, Rizal. I am also the
Citibank, N.A. (Formerly First National City President and Chairman of the Board of
Bank) vs. Sabeniano Macador [sic] Co. and Business Inc.
Although this Court appreciates the right of petitioner Citibank to effect legal
compensation of respondent’s local deposits, as well as its right to the proceeds of which operates the Macador [sic]
PNs No. 20138 and 20139 by virtue of the notarized Deeds of Assignment, to International Palace Hotel. I am also the
partly extinguish respondent’s outstanding loans, it finds that petitioner Citibank President of the Macador [sic]
did commit wrong when it failed to pay and properly account for the proceeds of
respondent’s money market placements, evidenced by PNs No. 23356 and 23357, International Palace Hotel, and also the
and when it sought the remittance of respondent’s dollar accounts from Citibank- Treasures Home Industries, Inc. which I
Geneva by virtue of a highly-suspect Declaration of Pledge to be applied to the am the Chairm an and president of the
remaining balance of respondent’s outstanding loans. It bears to emphasize that
banking is impressed with public interest and its fiduciary character requires Board and also operating affiliated
high standards of integrity and performance.141 A bank is under the obligation to company in the name of Treasures
treat the accounts of its depositors with meticulous care whether such accounts Motor Sales engaged in car dealers [sic]
consist only of a few hundred pesos or of millions of pesos. 142 The bank must
record every single transaction accurately, down to the last centavo, and as like Delta Motors, we are the dealers of
promptly as possible.143 Petitioner Citibank evidently failed to exercise the the whole Northern Luzon and I am the
required degree of care and transparency in its transactions with respondent, president of the Disto Company, Ltd.,
thus, resulting in the wrongful deprivation of her property.

42
Credtrans pledge chattel
based in Hongkong licensed in
Honkong [sic] and now operating in
Los Angeles, California.
Q What is the business of that Disto
Company Ltd.?
A Disto Company, Ltd., is engaged in real
estate and construction.
Q Aside from those businesses are you a
member of any national or community
organization for social and civil
activities?
A Yes sir.
Q What are those?
A I am the Vice-President of thes [sic]
Subdivision Association of the
Philippines in 1976, I am also an officer
of the . . . Chamber of Real Estate
Business Association; I am also an
officer of the Chatholic [sic] Women’s
League and I am also a member of the
CMLI, I forgot the definition.
Q How about any political affiliation or
government position held if any?
A I was also a candidate for Mayor last
January 30, 1980.
Q Where?
A In Dagupan City, Pangasinan.
Q What else?
480
480 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
A I also ran as an Assemblywoman last May,
1984, Independent party in Regional I,
Pangasinan.
Q What happened to your businesses you
mentioned as a result of your failure to
recover you [sic] investments and bank
deposits from the defendants?
A They are not all operating, in short, I was
hampered to push through the businesses
that I have.
A [sic] Of all the businesses and enterprises
that you mentioned what are those that are
paralyzed and what remain inactive?
A Of all the company [sic] that I have, only
the Disto Company that is now operating in
California.
Q How about your candidacy as Mayor of
Dagupan, [sic] City, and later as
Assemblywoman of Region I, what
happened to this?
A I won by voting but when election comes
on [sic] the counting I lost and I protested
this, it is still pending and because I don’t
have financial resources I was not able to
push through the case. I just have it
pending in the Comelec.
Q Now, do these things also affect your
social and civic activities?
A Yes sir, definitely.
Q How?
A I was embarrassed because being a
businesswoman I would like to inform the
Honorable Court that I was awarded as the
most outstanding businesswoman of the
year in 1976 but when this money was not
given back to me I was not able to comply
with the commitments that I have promised
to these associations that I am engaged into
[sic], sir.
For the mental anguish, serious anxiety, besmirched reputation, moral shock and
social humiliation suffered by the respondent, the award of moral damages is but
43
Credtrans pledge chattel
proper. However, this Court reduces the amount thereof to P300,000.00, for the
award of moral damages is meant to compensate for
481
VOL. 504, OCTOBER 16, 2006 481
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
the actual injury suffered by the respondent, not to enrich her.145
Having failed to exercise more care and prudence than a private individual in
its dealings with respondent, petitioner Citibank should be liable for exemplary
damages, in the amount of P250,000.00, in accordance with Article 2229146 and
2234147 of the Civil Code.
With the award of exemplary damages, then respondent shall also be entitled
to an award of attorney’s fees.148 Additionally, attorney's fees may be awarded
when a party is compelled to litigate or to incur expenses to protect his interest by
reason of an unjustified act of the other party.149 In this case, an award of
P200,000.00 attorney’s fees shall be satisfactory.
In contrast, this Court finds no sufficient basis to award damages to
petitioners. Respondent was compelled to institute the present case in the
exercise of her rights and in the protection of her interests. In fact, although her
Complaint before the RTC was not sustained in its entirety, it did raise
meritorious points and on which this Court rules in her favor. Any injury
resulting from the exercise of one’s rights is damnum absque injuria.150
_______________
Tiongco v. Atty. Deguma, 375 Phil. 978, 994-995; 317 SCRA 527, 541
145
(1999); Zenith Insurance Corporation v. Court of Appeals, G.R. No. 85296, 14 May
1990, 185 SCRA 398, 402-403.
146 Exemplary or corrective damages are imposed, by way of example or
correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages.
147 While the amount of exemplary damages need not be proved, the plaintiff
must show that he is entitled to moral, temperate or compensatory damages
before the court may consider the question of whether or not exemplary damages
should be awarded. x x x
148 CIVIL CODE, Article 2208(1).
149 Ching Sen Ben vs. Court of Appeals, 373 Phil. 544, 555; 314 SCRA 762,
772-773 (1999).
150 ABS-CBN Broadcasting Corporation v. Court of Appeals, 361 Phil. 498,
531-532; 301 SCRA 572, 604 (1999); Tierra International Construction Corp. v.
National Labor Relations Commission, G.R.
482
482 SUPREME COURT REPORTS
ANNOTATED
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
IN VIEW OF THE FOREGOING, the instant Petition is PARTLY GRANTED.
The assailed Decision of the Court of Appeals in CA-G.R. No. 51930, dated 26
March 2002, as already modified by its Resolution, dated 20 November 2002, is
hereby AFFIRMED WITH MODIFICATION, as follows—
1. 1.PNs No. 23356 and 23357 are DECLARED subsisting and outstanding.
Petitioner Citibank is ORDERED to return to respondent the principal
amounts of the said PNs, amounting to Three Hundred Eighteen
Thousand Eight Hundred Ninety-Seven Pesos and Thirty-Four
Centavos (P318,897.34) and Two Hundred Three Thousand One
Hundred Fifty Pesos (P203,150.00), respectively, plus the stipulated
interest of Fourteen and a half percent (14.5%) per annum, beginning
17 March 1977;
2. 2.The remittance of One Hundred Forty-Nine Thousand Six Hundred
Thirty Two US Dollars and Ninety-Nine Cents (US$149,632.99) from
respondent’s Citibank-Geneva accounts to petitioner Citibank in
Manila, and the application of the same against respondent’s
outstanding loans with the latter, is DECLARED illegal, null and void.
Petitioner Citibank is ORDERED to refund to respondent the said
amount, or its equivalent in Philippine currency using the exchange
rate at the time of payment, plus the stipulated interest for each of the
fiduciary placements and current accounts involved, beginning 26
October 1979;
3. 3.Petitioner Citibank is ORDERED to pay respondent moral damages in
the amount of Three Hundred Thousand Pesos (P300,000.00);
exemplary damages in the amount of Two Hundred Fifty Thousand
Pesos (P250,000.00); and attorney’s fees in the amount of Two Hundred
Thousand Pesos (P200,000.00); and
4. 4.Respondent is ORDERED to pay petitioner Citibank the balance of her
outstanding loans, which, from the respec
_______________
No. 88912, 3 July 1992, 211 SCRA 73, 81; Saba v. Court of Appeals, G.R. No.
77950, 24 August 1990, 189 SCRA 50, 55.
483
VOL. 504, OCTOBER 16, 2006 483
Citibank, N.A. (Formerly First National City
Bank) vs. Sabeniano
1. tive dates of their maturity to 5 September 1979, was computed to be in
the sum of One Million Sixty-Nine Thousand Eight Hundred Forty-
Seven Pesos and Forty Centavos (P1,069,847.40), inclusive of interest.
These outstanding loans shall continue to earn interest, at the rates
stipulated in the corresponding PNs, from 5 September 1979 until
payment thereof.
44
Credtrans pledge chattel

SO ORDERED.
Panganiban (C.J., Chairperson), Ynares-Santiago, Austria-
Martinez and Callejo, Sr., JJ., concur.
Petition partly granted, assailed decision and resolution affirmed with
modification.
Notes.—It is the collecting bank which is bound to scrutinize the check and to
know its depositors before it could make the clearing indorsement “all prior
indorsements and/or lack of indorsement guaranteed.” (Philippine Commercial
International Bank vs. Court of Appeals, 350 SCRA 446 [2001])
A treasurer of a corporation whose negligence in signing a confirmation letter
for rediscounting of crossed checks, knowing fully well that the checks were
strictly endorsed for deposit only to the payee’s account and not to be further
negotiated, resulted in damage to the corporation may be personally liable
therefor. (Atrium Management Corporation vs. Court of Appeals, 353 SCRA
23 [2001])

——o0o——

45
Credtrans pledge chattel
CHATTEL MORTGAGE
Art. 2140. By a chattel mortgage, personal property is recorded in the
Chattel Mortgage Register as a security for the performance of an
obligation. If the movable, instead of being recorded, is delivered to the
creditor or a third person, the contract is a pledge and not a chattel
mortgage. (n)
Art. 2141. The provisions of this Code on pledge, insofar as they are not in
conflict with the Chattel Mortgage Law shall be applicable to chattel
mortgages. (n)
Section 2. All personal property shall be subject to mortgage, agreeably to
the provisions of this Act, and a mortgage executed in pursuance thereof
shall be termed chattel mortgage.
Section 3. Chattel mortgage defined. A chattel mortgage is a conditional
sale of personal property as security for the payment of a debt, or the
performance of some other obligation specified therein, the condition being
that the sale shall be void upon the seller paying to the purchaser a sum of
money or doing some other act named. If the condition is performed
according to its terms the mortgage and sale immediately become void, and
the mortgagee is thereby divested of his title.
Section 4. Validity. A chattel mortgage shall not be valid against any person
except the mortgagor, his executors or administrators, unless the
possession of the property is delivered to and retained by the mortgagee or
unless the mortgage is recorded in the office of the register of deeds of the
province in which the mortgagor resides at the time of making the same, or,
if he resides without the Philippine Islands, in the province in which the
property is situated: Provided, however, That if the property is situated in a
different province from that in which the mortgagor resides, the mortgage
shall be recorded in the office of the register of deeds of both the province
in which the mortgagor resides and that in which the property is situated,
and for the purposes of this Act the city of Manila shall be deemed to be a
province.
Section 5. Form. A chattel mortgage shall be deemed to be sufficient when
made substantially in accordance with the following form, and shall be
signed by the person or persons executing the same, in the presence of two
witnesses, who shall sign the mortgage as witnesses to the execution
thereof, and each mortgagor and mortgagee, or, in the absence of the
mortgagee, his agent or attorney, shall make and subscribe an affidavit in
substance as hereinafter set forth, which affidavit, signed by the parties to
the mortgage as above stated, and the certificate of the oath signed by the
authority administering the same, shall be appended to such mortgage and
recorded therewith.
FORM OF CHATTEL MORTGAGE AND AFFIDAVIT.
“This mortgage made this ____ day of ______19____ by _______________, a
resident of the municipality of ______________, Province of ____________,
Philippine Islands mortgagor, to ____________, a resident of the municipality of
___________, Province of ______________, Philippine Islands, mortgagee,
witnesseth:
“That the said mortgagor hereby conveys and mortgages to the said mortgagee all of
the following-described personal property situated in the municipality of
______________, Province of ____________ and now in the possession of said
mortgagor, to wit:
(Here insert specific description of the property mortgaged.)
“This mortgage is given as security for the payment to the said ______, mortgagee, of
promissory notes for the sum of ____________ pesos, with (or without, as the case
may be) interest thereon at the rate of ___________ per centum per annum,
according to the terms of __________, certain promissory notes, dated _________,
and in the words and figures following (here insert copy of the note or notes secured).
“(If the mortgage is given for the performance of some other obligation aside from the
payment of promissory notes, describe correctly but concisely the obligation to be
performed.)
“The conditions of this obligation are such that if the mortgagor, his heirs, executors,
or administrators shall well and truly perform the full obligation (or obligations) above
stated according to the terms thereof, then this obligation shall be null and void.
“Executed at the municipality of _________, in the Province of ________, this _____
day of 19_____
46
Credtrans pledge chattel

____________________
animals, together with the number and place of issue of such certificates of
(Signature of mortgagor.)
ownership.
“In the presence of

“_________________ If growing crops be mortgaged the mortgage may contain an agreement stipulating

“_________________ that the mortgagor binds himself properly to tend, care for and protect the crop while

(Two witnesses sign here.) growing, and faithfully and without delay to harvest the same, and that in default of

FORM OF OATH. the performance of such duties the mortgage may enter upon the premises, take all

“We severally swear that the foregoing mortgage is made for the purpose of securing the necessary measures for the protection of said crop, and retain possession thereof
the obligation specified in the conditions thereof, and for no other purpose, and that and sell the same, and from the proceeds of such sale pay all expenses incurred in
the same is a just and valid obligation, and one not entered into for the purpose of
fraud.” caring for, harvesting, and selling the crop and the amount of the indebtedness or

FORM OF CERTIFICATE OF OATH. obligation secured by the mortgage, and the surplus thereof, if any shall be paid to the

“At ___________, in the Province of _________, personally appeared mortgagor or those entitled to the same.
____________, the parties who signed the foregoing affidavit and made oath to the
truth thereof before me.
A chattel mortgage shall be deemed to cover only the property described therein
“_____________________________”
and not like or substituted property thereafter acquired by the mortgagor and placed
(Notary public, justice of the peace, 1 or other officer, as the case may be.)
in the same depository as the property originally mortgaged, anything in the mortgage

SECTION 7. Descriptions of property. The description of the mortgaged property to the contrary notwithstanding.

shall be such as to enable the parties to the mortgage, or any other person, after
SECTION 14. Sale of property at public auction; Officer’s return; Fees; Disposition of
reasonable inquiry and investigation, to identify the same.
proceeds. The mortgagee, his executor, administrator, or assign, may, after thirty

If the property mortgaged be large cattle,” as defined by section one of Act days from the time of condition broken, cause the mortgaged property, or any part

Numbered Eleven and forty-seven, 2 and the amendments thereof, the description of thereof, to be sold at public auction by a public officer at a public place in the

said property in the mortgage shall contain the brands, class, sex, age, knots of municipality where the mortgagor resides, or where the property is situated, provided

radiated hair commonly known as remolinos, or cowlicks, and other marks of at least ten days’ notice of the time, place, and purpose of such sale has been posted

ownership as described and set forth in the certificate of ownership of said animal or at two or more public places in such municipality, and the mortgagee, his executor,

administrator, or assign, shall notify the mortgagor or person holding under him and

the persons holding subsequent mortgages of the time and place of sale, either by
47
Credtrans pledge chattel
notice in writing directed to him or left at his abode, if within the municipality, or sent
by mail if he does not reside in such municipality, at least ten days previous to the
sale.
The officer making the sale shall, within thirty days thereafter, make in writing a
return of his doings and file the same in the office of the register of deeds where the
mortgage is recorded, and the register of deeds shall record the same. The fees of
the officer for selling the property shall be the same as in the case of sale on
execution as provided in Act Numbered One hundred and ninety, 4 and the
amendments thereto, and the fees of the register of deeds for registering the officer’s
return shall be taxed as a part of the costs of sale, which the officer shall pay to the
register of deeds. The return shall particularly describe the articles sold, and state the
amount received for each article, and shall operate as a discharge of the lien thereon
created by the mortgage. The proceeds of such sale shall be applied to the payment,
first, of the costs and expenses of keeping and sale, and then to the payment of the
demand or obligation secured by such mortgage, and the residue shall be paid to
persons holding subsequent mortgages in their order, and the balance, after paying
the mortgages, shall be paid to the mortgagor or person holding under him on
demand.
If the sale includes any “large cattle,” a certificate of transfer as required by section
sixteen of Act Numbered Eleven hundred and forty-seven 5 shall be issued by the
treasurer of the municipality where the sale was held to the purchaser thereof.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
A.M. No. 99-10-05-0 December 14, 1999
(Amended by A.M. 99-10-05-0, August 7, 2001)
PROCEDURE IN EXTRA-JUDICIAL FORECLOSURE OF MORTGAGE
In line with the responsibility of an Executive Judge under Administrative Order No. 6,
dated June 30, 1975, for the management of courts within his administrative area,
included in which is the task of supervising directly the work of the Clerk of Court, who
is also the Ex Officio Sheriff, and his staff, and the issuance of commissions to
notaries public and enforcement of their duties under the law, the following
procedures are hereby prescribed in extrajudicial foreclosure of mortgages:
1. All applications for extra-judicial foreclosure of mortgage whether under
the direction of the sheriff or a notary public, pursuant to Act 3135, as
amended by Act 4118, and Act 1508, as amended, shall be filed with the
Executive Judge, through the Clerk of Court who is also the Ex-
Officio Sheriff.
2. Upon receipt of an application for extra-judicial foreclosure of mortgage, it
shall be the duty of the Clerk of Court to:
a) receive and docket said application and to stamp thereon the
corresponding file number, date and time of filing;
b) collect the filing fees therefor and issue the corresponding official
receipt;
c) examine, in case of real estate mortgage foreclosure, whether
the applicant has complied with all the requirements before the
public auction is conducted under the direction of the sheriff or a
notary public, pursuant to Sec. 4 of Act 3135, as amended;
d) sign and issue the certificate of sale, subject to the approval of
the Executive Judge, or in his absence, the Vice-Executive Judge;
and
e) after the certificate of sale has been issued to the highest bidder,
keep the complete records, while awaiting any redemption within a
period of one (1) year from date of registration of the certificate of
sale with the Register of Deeds concerned, after which the records
shall be archived.
Where the application concerns the extrajudicial foreclosure of mortgages of
real estates and/or chattels in different locations covering one indebtedness,
only one filing fee corresponding to such indebtedness shall be collected.
The collecting Clerk of Court shall, apart from the official receipt of the fees,
issue a certificate of payment indicating the amount of indebtedness, the
filing fees collected, the mortgages sought to be foreclosed, the real estates
48
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and/or chattels mortgaged and their respective locations, which certificate mortgage, without the written consent of the mortgagee, or his executors,
shall serve the purpose of having the application docketed with the Clerks of
Court of the places where other properties are located and of allowing the administrators or assigns.chanrobles virtual law library
extrajudicial foreclosures to proceed thereat.
2. Any mortgagor who shall sell or pledge personal property already
3. The notices of auction sale in extrajudicial foreclosure for publication by pledged, or any part thereof, under the terms of the Chattel Mortgage
the sheriff or by a notary public shall be published in a newspaper of general
circulation pursuant to Section 1, Presidential Decree No. 1709, dated Law, without the consent of the mortgagee written on the back of the
January 26, 1977, and non-compliance therewith shall constitute a violation mortgage and noted on the record hereof in the office of the Register of
of Section 6 thereof.
Deeds of the province where such property is located.chanrobles virtual
4. The Executive Judge shall, with the assistance of the Clerk of Court, raffle law library
application for extrajudicial foreclosure of mortgage under the direction of the
sheriff among all sheriffs, including those assigned to the Office of the Clerk
of Court and Sheriffs IV assigned in the branches.

5. No auction sale shall be held unless there are at least two (2) participating
bidders, otherwise the sale shall be postponed to another date. If on the new
date set for the sale there shall not be at least two bidders, the sale shall
then proceed. The names of the bidders shall be reported by the sheriff or
the notary public who conducted the sale to the Clerk of Court before the
issuance of the certificate of sale.

This Resolution amends or modifies accordingly Administrative Order No. 3 issued by

then Chief Justice Enrique M. Fernando on 19 October 1984 and Administrative
Circular No. 3-98 issued by the Chief Justice Andres R. Narvasa on 5 February 1998.

The Court Administrator may issue the necessary guidelines for the effective
enforcement of this Resolution.

The Clerk of Court shall cause the publication of this Resolution in a newspaper of
general circulation not later than 27 December 1999 and furnish copies thereof to the
Integrated Bar of the Philippines.

This Resolution shall take effect on the fifteenth day of January year 2000.

Enacted this 14th day of December 1999 in the City of Manila.

Art. 319. Removal, sale or pledge of mortgaged property. — The penalty or

arresto mayor or a fine amounting to twice the value of the property shall
be imposed upon:

1. Any person who shall knowingly remove any personal property

mortgaged under the Chattel Mortgage Law to any province or city other
than the one in which it was located at the time of the execution of the

49
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714 SUPREME COURT REPORTS
ANNOTATED
Acme Shoe, Rubber & Plastic Corp. vs. Court of
Appeals
G.R. No. 103576. August 22, 1996.*
ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC,
petitioners, vs. HON. COURT OF APPEALS, PRODUCERS BANK OF THE
PHILIPPINES and REGIONAL SHERIFF OF CALOOCAN CITY, respondents.
Actions; Appeals; Pleadings and Practice; Except in criminal cases where the
penalty of reclusion perpetua or death is imposed which the Court so reviews as a
matter of course, an appeal from judgments of lower courts is not a matter of right
but of sound judicial discretion; Technical and procedural rules are intended to
help secure, not suppress, substantial evidence and a deviation from the rigid
enforcement of the rules may be allowed to attain the prime objective for, after all,
the dispensation of justice is the core reason for the existence of courts.—Except in
criminal cases where the penalty of reclusion perpetua or death is imposed which
the Court so reviews as a matter of course, an appeal from judgments of lower
courts is not a matter of right but of sound judicial discretion. The circulars of the
Court prescribing technical and other procedural requirements are meant to weed
out unmeritorious petitions that can unnecessarily clog the docket and needlessly
consume the time of the Court. These technical and procedural rules, however,
are intended to help secure, not suppress, substantial justice. A deviation from
the rigid enforcement of the rules may thus be allowed to attain the prime
objective for, after all, the dispensation of justice is the core reason for the
existence of courts. In this instance, once again, the Court is constrained to relax
the rules in order to give way to and uphold the paramount and overriding
interest of justice.
_______________
* FIRST DIVISION.
715
VOL. 260, AUGUST 22, 1996 7 borrower of the financing agreement whereon the promise is written but, of
15
Acme Shoe, Rubber & Plastic Corp. vs.
Court of Appeals
Contracts; Chattel Mortgages; Contracts of security are either personal or
real—in the former, the faithful performance of the obligation by the principal
debtor is secured by the personal commitment of another while in the latter, that
fulfillment is secured by an encumbrance of property.—Contracts of security are
either personal or real. In contracts of personal security, such as a guaranty or a
sure-tyship, the faithful performance of the obligation by the principal debtor is
secured by the personal commitment of another (the guarantor or surety). In
contracts of real security, such as a pledge, a mortgage or an antichresis, that
fulfillment is secured by an encumbrance of property—in pledge, the placing of
movable property in the possession of the creditor; in chattel mortgage, by the
execution of the corresponding deed substantially in the form prescribed by law;
in real estate mortgage, by the execution of a public instrument encumbering the
real property covered thereby; and in antichresis, by a written instrument
granting to the creditor the right to receive the fruits of an immovable property
with the obligation to apply such fruits to the payment of interest, if owing, and
thereafter to the principal of his credit—upon the essential condition that if the
principal obligation becomes due and the debtor defaults, then the property
encumbered can be alienated for the payment of the obligation, but that should
the obligation be duly paid, then the contract is automatically extinguished
proceeding from the accessory character of the agreement. As the law so puts it,
once the obligation is complied with, then the contract of security becomes, ipso
facto, null and void.
Same; Same; While a pledge, real estate mortgage, or antichre-sis may
exceptionally secure after-incurred obligations so long as these future debts are
accurately described, a chattel mortgage, however, can only cover obligations
existing at the time the mortgage is constituted.—While a pledge, real estate
mortgage, or antichresis may exceptionally secure after-incurred obligations so
long as these future debts are accurately described, a chattel mortgage, however,
can only cover obligations existing at the time the mortgage is constituted.
Although a promise expressed in a chattel mortgage to include debts that are yet
to be contracted can be a binding commitment that can be compelled upon, the
security itself, however, does not come into existence or arise until after a chattel
mortgage agreement covering the newly contracted debt is executed either by
concluding a fresh chattel mortgage or by amending the old contract conformably
with the form prescribed by the Chattel Mortgage Law.
716
7 SUPREME COURT REPORTS
16 ANNOTATED
Acme Shoe, Rubber & Plastic Corp. vs.
Court of Appeals
Refusal on the part of the borrower to execute the agreement so as to cover
the after-incurred obligation can constitute an act of default on the part of the
course, the remedy of foreclosure can only cover the debts extant at the time of
constitution and during the life of the chattel mortgage sought to be foreclosed.
Damages; Corporations; A corporation, being an artificial person and having
existence only in legal contemplation, has no feelings, no emotions, no senses—it
cannot, therefore, experience physical suffering and mental anguish.—We find no
merit in petitioner corporation’s other prayer that the case should be remanded to
the trial court for a specific finding on the amount of damages it has sustained “as
a result of the unlawful action taken by respondent bank against it.” This prayer
is not reflected in its complaint which has merely asked for the amount of
P3,000,000.00 by way of moral damages. In LBC Express, Inc. vs. Court of
Appeals, we have said: “Moral damages are granted in recompense for physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation,
50
Credtrans pledge chattel
wounded feelings, moral shock, social humiliation, and similar injury. A
corporation, being an artificial person and having existence only in legal
contemplation, has no feelings, no emotions, no senses; therefore, it cannot
experience physical suffering and mental anguish. Mental suffering can be
experienced only by one having a nervous system and it flows from real ills,
sorrows, and griefs of life—all of which cannot be suffered by respondent bank as
an artificial person.”
Courts; Attorneys; Lawyers should bear in mind their basic duty to observe
and maintain the respect due to the courts of justice and judicial officers and to
insist on similar conduct by others—the virtues of humility and of respect and
concern for others must still live on even in an age of materialism.—The Court
invites counsel’s attention to the admonition in Guerrero v. Villamor, thus:
“(L)awyers x x x should bear in mind their basic duty ‘to observe and maintain the
respect due to the courts of justice and judicial officers and x x x (to) insist on
similar conduct by others.’ This respectful attitude towards the court is to be
observed, ‘not for the sake of the temporary incumbent of the judicial office, but
for the maintenance of its supreme importance.’ And it is ‘through a scrupulous
preference for respectful language that a lawyer best demonstrates his observance
of the respect due to the courts and judicial officers x x x.’ ” The vir-
717
VOL. 260, AUGUST 22, 1996 7 obligations have been contracted before, during or after the constitution of this
17
Acme Shoe, Rubber & Plastic Corp. vs.
Court of Appeals
tues of humility and of respect and concern for others must still live on even
in an age of materialism.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Sotto & Sotto Law Offices for petitioners.
R.C. Domingo, Jr. & Associates for Producers Bank of the Philippines.
VITUG, J.:
Would it be valid and effective to have a clause in a chattel mortgage that
purports to likewise extend its coverage to obligations yet to be contracted or
incurred? This question is the core issue in the instant petition for review
on certiorari.
Petitioner Chua Pac, the president and general manager of co-petitioner
“Acme Shoe, Rubber & Plastic Corporation,” executed on 27 June 1978, for and in
behalf of the company, a chattel mortgage in favor of private respondent
Producers Bank of the Philippines. The mortgage stood by way of security for
petitioner’s corporate loan of three million pesos (P3,000,000.00). A provision in
the chattel mortgage agreement was to this effect—
“(c) If the MORTGAGOR, his heirs, executors or administrators shall well and
truly perform the full obligation or obligations above-stated according to the
terms thereof, then this mortgage shall be null and void. x x x.
“In case the MORTGAGOR executes subsequent promissory note or notes
either as a renewal of the former note, as an extension thereof, or as a new loan,
or is given any other kind of accommodations such as overdrafts, letters of credit,
acceptances and bills of exchange, releases of import shipments on Trust Receipts,
etc., this mortgage shall also stand as security for the payment of the said
promissory note or notes and/or accommodations without the necessity of
executing a new contract and this mortgage shall have the same force and effect
as if the said promissory note or notes and/or
718
718 SUPREME COURT REPORTS
ANNOTATED
Acme Shoe, Rubber & Plastic Corp. vs. Court of
Appeals
accommodations were existing on the date thereof. This mortgage shall also stand
as security for said obligations and any and all other obligations of the
MORTGAGOR to the MORTGAGEE of whatever kind and nature, whether such
mortgage.”1
In due time, the loan of P3,000,000.00 was paid by petitioner corporation.
Subsequently, in 1981, it obtained from respondent bank additional financial
accommodations totalling P2,700,000.00.2 These borrowings were on due date also
fully paid.
On 10 and 11 January 1984, the bank yet again extended to petitioner
corporation a loan of one million pesos (P1,000,000.00) covered by four promissory
notes for P250,000.00 each. Due to financial constraints, the loan was not settled
at maturity.3 Respondent bank thereupon applied for an extrajudicial foreclosure
of the chattel mortgage, hereinbefore cited, with the Sheriff of Caloocan City,
prompting petitioner corporation to forthwith file an action for injunction, with
damages and a prayer for a writ of preliminary injunction, before the Regional
Trial Court of Caloocan City (Civil Case No. C-12081). Ultimately, the court
dismissed the complaint and ordered the foreclosure of the chattel mortgage. It
held petitioner corporation bound by the stipulations, aforequoted, of the chattel
mortgage.
Petitioner corporation appealed to the Court of Appeals4 which, on 14 August
1991, affirmed, “in all respects,” the decision of the court a quo. The motion for
reconsideration was denied on 24 January 1992.
The instant petition interposed by petitioner corporation was initially denied
on 04 March 1992 by this Court for hav-
_______________
719
VOL. 260, AUGUST 22, 1996 719
51
Credtrans pledge chattel
Acme Shoe, Rubber & Plastic Corp. vs. Court of
Appeals
ing been insufficient in form and substance. Private respondent filed a motion to
dismiss the petition while petitioner corporation filed a compliance and an
opposition to private respondent’s motion to dismiss. The Court denied
petitioner’s first motion for reconsideration but granted a second motion for
reconsideration, thereby reinstating the petition and requiring private respondent
to comment thereon.5
Except in criminal cases where the penalty of reclusion perpetua or death is
imposed6 which the Court so reviews as a matter of course, an appeal from
judgments of lower courts is not a matter of right but of sound judicial discretion.
The circulars of the Court prescribing technical and other procedural
requirements are meant to weed out unmeritorious petitions that can
unnecessarily clog the docket and needlessly consume the time of the Court.
These technical and procedural rules, however, are intended to help secure, not
suppress, substantial justice. A deviation from the rigid enforcement of the rules
may thus be allowed to attain the prime objective for, after all, the dispensation of
justice is the core reason for the existence of courts. In this instance, once again,
the Court is constrained to relax the rules in order to give way to and uphold the
paramount and overriding interest of justice.
Contracts of security are either personal or real. In contracts of personal
security, such as a guaranty or a suretyship, the faithful performance of the
obligation by the principal debtor is secured by the personal commitment of
another (the guarantor or surety). In contracts of real security, such as a pledge, a
mortgage or an antichresis, that fulfillment is secured by an encumbrance of
property—in pledge, the placing of movable property in the possession of the
creditor; in chattel mortgage, by the execution of the corresponding deed
substantially in the form prescribed by law; in real estate mortgage, by the
execution of a public instrument encumbering the real property covered thereby;
and in antichresis, by a written instrument granting to the creditor the right to
receive the
______________
720
720 SUPREME COURT REPORTS
ANNOTATED
Acme Shoe, Rubber & Plastic Corp. vs. Court of
Appeals
fruits of an immovable property with the obligation to apply such fruits to the
payment of interest, if owing, and thereafter to the principal of his credit—upon
the essential condition that if the principal obligation becomes due and the debtor
defaults, then the property encumbered can be alienated for the payment of the
obligation,7 but that should the obligation be duly paid, then the contract is
automatically extinguished proceeding from the accessory character 8 of the
agreement. As the law so puts it, once the obligation is complied with, then the
contract of security becomes, ipso facto, null and void.9
While a pledge, real estate mortgage, or antichresis may exceptionally secure
after-incurred obligations so long as these future debts are accurately
described,10 a chattel mortgage, however, can only cover obligations existing at
the time the mortgage is constituted. Although a promise expressed in a chattel
mortgage to include debts that are yet to be contracted can be a binding
commitment that can be compelled upon, the security itself, however, does not
come into existence or arise until after a chattel mortgage agreement covering the
newly contracted debt is executed either by concluding a fresh chattel mortgage or
by amending the old contract conformably with the form prescribed by the Chattel
Mortgage Law.11 Refusal on the part of the borrower to execute the agreement so
as to cover the after-incurred obligation can constitute an act of default on the
part of the borrower of the financing agreement whereon the promise is written
but, of course, the remedy of foreclosure can only cover the debts extant at the
time of constitution and during the life of the chattel mortgage sought to be
foreclosed.
_____________
721
VOL. 260, AUGUST 22, 1996 721
Acme Shoe, Rubber & Plastic Corp. vs. Court of
Appeals
A chattel mortgage, as hereinbefore so intimated, must comply substantially with
the form prescribed by the Chattel Mortgage Law itself. One of the requisites,
under Section 5 thereof, is an affidavit of good faith. While it is not doubted that if
such an affidavit is not appended to the agreement, the chattel mortgage would
still be valid between the parties (not against third persons acting in good faith12),
the fact, however, that the statute has provided that the parties to the contract
must execute an oath that—
“x x x (the) mortgage is made for the purpose of securing the obligation specified
in the conditions thereof, and for no other purpose, and that the same is a just
and valid obligation, and one not entered into for the purpose of fraud.”13
makes it obvious that the debt referred to in the law is a current, not an
obligation that is yet merely contemplated. In the chattel mortgage here involved,
the only obligation specified in the chattel mortgage contract was the
P3,000,000.00 loan which petitioner corporation later fully paid. By virtue of
Section 3 of the Chattel Mortgage Law, the payment of the obligation
automatically rendered the chattel mortgage void or terminated. In Belgian
Catholic Missionaries, Inc. vs. Magallanes Press, Inc., et al.,14 the Court said—
“x x x A mortgage that contains a stipulation in regard to future advances in the
credit will take effect only from the date the same are made and not from the date
of the mortgage.”15
The significance of the ruling to the instant problem would be that since the 1978
chattel mortgage had ceased to exist coin-
________________
722
52
Credtrans pledge chattel

722 SUPREME COURT REPORTS “(L)awyers x x x should bear in mind their basic duty ‘to observe and maintain the
respect due to the courts of justice and judicial officers and x x x (to) insist on
ANNOTATED similar conduct by others.’ This respectful attitude towards the court is to be
Acme Shoe, Rubber & Plastic Corp. vs. Court of observed, ‘not for the sake of the temporary incumbent of the judicial office, but
Appeals for the maintenance of its supreme importance.’ And it is ‘through a scrupulous
preference for respectful language that a lawyer best demonstrates his observance
cidentally with the full payment of the P3,000,000.00 loan,16 there no longer was
of the respect due to the courts and judicial officers x x x.’ ”23
any chattel mortgage that could cover the new loans that were concluded
thereafter.
The virtues of humility and of respect and concern for others must still live on
We find no merit in petitioner corporation’s other prayer that the case should
even in an age of materialism.
be remanded to the trial court for a specific finding on the amount of damages it
WHEREFORE, the questioned decisions of the appellate court and the lower
has sustained “as a result of the unlawful action taken by respondent bank
court are set aside without prejudice to the appropriate legal recourse by private
against it.”17 This prayer is not reflected in its complaint which has merely asked
respondent as may still be warranted as an unsecured creditor. No costs. Atty.
for the amount of P3,000,000.00 by way of moral damages.18 In LBC Express, Inc.
Francisco R. Sotto, counsel for petitioners, is admonished to be circumspect in
vs. Court of Appeals,19 we have said:
dealing with the courts.
“Moral damages are granted in recompense for physical suffering, mental
SO ORDERED.
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral
Kapunan and Hermosisima, Jr., JJ., concur.
shock, social humiliation, and similar injury. A corporation, being an artificial
________________
person and having existence only in legal contemplation, has no feelings, no
emotions, no senses; therefore, it cannot experience physical suffering and mental 21 Rollo, p. 113.
anguish. Mental suffering can be experienced only by one having a nervous 22 179 SCRA 355, 362.
system and it flows from real ills, sorrows, and griefs of life—all of which cannot 23 At p. 362.
be suffered by respondent bank as an artificial person.”20

While Chua Pac is included in the case, the complaint, however, clearly states
that he has merely been so named as a party in representation of petitioner
corporation.
Petitioner corporation’s counsel could be commended for his zeal in pursuing
his client’s cause. It instead turned out to be, however, a source of disappointment
for this Court to read in petitioner’s reply to private respondent’s comment on the
petition his so-called “One Final Word;” viz:
________________
723
VOL. 260, AUGUST 22, 1996 723
Acme Shoe, Rubber & Plastic Corp. vs. Court of
Appeals
“In simply quoting in toto the patently erroneous decision of the trial court,
respondent Court of Appeals should be required to justify its decision which
completely disregarded the basic laws on obligations and contracts, as well as the
clear provisions of the Chattel Mortgage Law and well-settled jurisprudence of
this Honorable Court; that in the event that its explanation is wholly
unacceptable, this Honorable Court should impose appropriate sanctions on the
erring justices. This is one positive step in ridding our courts of law of incompetent
and dishonest magistrates especially members of a superior court of appellate
jurisdiction.”21 (Italics supplied)
724
7 SUPREME COURT REPORTS
24 ANNOTATED
People vs. Broncano
Padilla, J., No part in view of lessor-lessee relationship with respondent
bank.
Bellosillo, J., On leave.
Judgments of respondent court and court a quo set aside.
Notes.—Replevin is the appropriate action to recover possession preliminary
to the extrajudicial foreclosure of a chattel mortgage. (Filinvest Credit
Corporation vs. Court of Appeals, 248 SCRA 549 [1995])
The mortgagee, upon the mortgagor’s default, is constituted an attorney-in-
fact of the mortgagor enabling such mortgagee to act for and in behalf of the
owner and the fact that the defendant is not privy to the chattel mortgage is
inconsequential. (BA Finance Corporation vs. Court of Appeals, 258 SCRA
102 [1996])
——o0o——
© Copyright 2019 Central Book Supply, Inc. All rights reserved.

The statement is not called for. The Court invites counsel’s attention to the
admonition in Guerrero vs. Villamor;22 thus:
53
Credtrans pledge chattel
324 SUPREME COURT REPORTS
ANNOTATED
Tsai vs. Court of Appeals
G.R. No. 120098. October 2, 2001.*
RUBY L. TSAI, petitioner, vs. HON. COURT OF APPEALS, EVER TEXTILE
MILLS, INC. and MAMERTO R. VILLALUZ, respondents.
G.R. No. 120109. October 2, 2001*
PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs. HON. COURT OF
APPEALS, EVER TEXTILE MILLS and MAMERTO R. VILLALUZ, respondents.
Appeals: The jurisdiction of the Supreme Court in a petition for review on
certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only
errors of law, not of fact, unless the factual findings complained of are devoid of
support by the evidence on record or the assailed judgment is based on
misapprehension of facts.—Well settled is the rule that the jurisdiction of the
Supreme Court in a petition for review on certiorari under Rule 45 of the Revised
Rules of Court is limited to reviewing only errors of law, not of fact, unless the
factual findings complained of are devoid of support by the evidence on record or
the assailed judgment is based on misapprehension of facts. This rule is applied
more stringently when the findings of fact of the RTC is affirmed by the Court of
Appeals.
Property; Mortgages; The nature of the disputed machineries, i.e., that they
were heavy, bolted or cemented on the real property mortgaged, does not make
them ipso facto immovable under Article 415 (3) and (5) of the New Civil Code, as
the parties’ intent has to be looked into.—Petitioners contend that the nature of
the disputed machineries, i.e., that they were heavy, bolted or cemented on the
real property mortgaged by EVERTEX to PBCom, make them ipso
facto immovable under Article 415 (3) and (5) of the New Civil Code. This
assertion, however, does not settle the issue. Mere nuts and bolts do not foreclose
the controversy. We have to look at the parties’ intent. While it is true that the
controverted properties appear to be immobile, a perusal of the contract of Real
and Chattel Mortgage executed by the parties herein gives us a contrary
indication. In the case at bar, both the trial and the appellate courts reached the
same finding that the true intention of PBCom and the owner, EVERTEX, is to
treat machinery and equipment as chattels.
______________
* SECOND DIVISION.
325
VOL. 366, OCTOBER 2, 2001 3 title over the contested properties is a nullity, she is nevertheless a purchaser in
25
Tsai vs. Court of Appeals
Same; Same; Estoppel; Even if the properties are immovable by nature,
nothing detracts the parties from treating them as chattels to secure an obligation
under the principle of estoppel.—Too, assuming arguendo that the properties in
question are immovable by nature, nothing detracts the parties from treating it as
chattels to secure an obligation under the principle of estoppel. As far back
as Navarro v. Pineda, 9 SCRA 631 (1963), an immovable may be considered a
personal property if there is a stipulation as when it is used as security in the
payment of an obligation where a chattel mortgage is executed over it, as in the
case at bar.
Same; Same; Same; Where the facts, taken together, evince the conclusion
that the parties’ intention is to treat the units of machinery as chattels, a fortiori,
the after-acquired properties, which are of the same description as the units
referred to earlier, must also be treated as chattels.—In the instant case, the
parties herein: (1) executed a contract styled as “Real Estate Mortgage and
Chattel Mortgage,” instead of just “Real Estate Mortgage” if indeed their
intention is to treat all properties included therein as immovable, and (2)
attached to the said contract a separate “LIST OF MACHINERIES &
EQUIPMENT.” These facts, taken together, evince the conclusion that the
parties’ intention is to treat these units of machinery as chattels. A fortiori, the
contested after-acquired properties, which are of the same description as the units
enumerated under the title “LIST OF MACHINERIES & EQUIPMENT,” must
also be treated as chattels.
Same; Same; Chattel Mortgage; A chattel mortgage shall be deemed to cover
only the property described therein and not like or substituted property thereafter
acquired by the mortgagor and placed in the same depository as the property
originally mortgaged, anything in the mortgage to the contrary notwithstanding.—
Accordingly, we find no reversible error in the respondent appellate court’s ruling
that inasmuch as the subject mortgages were intended by the parties to involve
chattels, insofar as equipment and machinery were concerned, the Chattel
Mortgage Law applies, which provides in Section 7 thereof that: “a chattel
mortgage shall be deemed to cover only the property described therein and not like
or substituted property thereafter acquired by the mortgagor and placed in the
same depository as the property originally mortgaged, anything in the mortgage to
the contrary notwithstanding.” And, since the disputed machineries were
acquired in 1981 and could not have been involved in the 1975 or 1979 chattel
mortgages, it was consequently an error on the part of the Sheriff to include
subject machineries with the properties enumerated in said chattel mortgages.
326
3 SUPREME COURT REPORTS
26 ANNOTATED
Tsai vs. Court of Appeals
Sales; Purchaser in Good Faith; Well-settled is the rule that the person who
asserts the status of a purchaser in good faith and for value has the burden of
proving such assertion.—Petitioner Tsai also argued that assuming that PBCom’s
good faith and for value who now has a better right than EVERTEX. To the
contrary, however, are the factual findings and conclusions of the trial court that
she is not a purchaser in good faith. Well-settled is the rule that the person who
asserts the status of a purchaser in good faith and for value has the burden of
54
Credtrans pledge chattel
proving such assertion. Petitioner Tsai failed to discharge this burden
persuasively.
Same; Same; A purchaser in good faith and for value is one who buys the
property of another without notice that some other person has a right to or interest
in such property and pays a full and fair price for the same, at the time of
purchase, or before he has notice of the claims or interest of some other person in
the property.—A purchaser in good faith and for value is one who buys the
property of another without notice that some other person has a right to or interest
in such property and pays a full and fair price for the same, at the time of
purchase, or before he has notice of the claims or interest of some other person in
the property. Records reveal, however, that when Tsai purchased the controverted
properties, she knew of respondent’s claim thereon. As borne out by the records,
she received the letter of respondent’s counsel, apprising her of respondent’s
claim, dated February 27, 1987. She replied thereto on March 9, 1987. Despite her
knowledge of respondent’s claim, she proceeded to buy the contested units of
machinery on May 3, 1988. Thus, the RTC did not err in finding that she was not
a purchaser in good faith.
Same; Land Titles; Torrens System; The defense of indefeasibility of Torrens
Title refers to sale of lands and not to sale of properties situated therein; The mere
fact that the lot where a factory and disputed properties stand in a person’s name
does not automatically make such person the owner of everything found therein.—
Petitioner Tsai’s defense of indefeasibility of Torrens Title of the lot where the
disputed properties are located is equally unavailing. This defense refers to sale of
lands and not to sale of properties situated therein. Likewise, the mere fact that
the lot where the factory and the disputed properties stand is in PBCom’s name
does not automatically make PBCom the owner of everything found therein,
especially in view of EVERTEX’s letter to Tsai enunciating its claim.
327
VOL. 366, OCTOBER 2, 2001 3 CV No. 32986, affirming the decision2 of the Regional Trial Court of Manila,
27
Tsai vs. Court of Appeals
Laches; Doctrine of Stale Demands; The doctrine of stale demands would
apply only where by reason of the lapse of time, it would be inequitable to allow a
party to enforce his legal rights.—Petitioners’ defense of prescription and laches is
less than convincing. We find no cogent reason to disturb the consistent findings
of both courts below that the case for the reconveyance of the disputed properties
was filed within the reglementary period. Here, in our view, the doctrine of laches
does not apply. Note that upon petitioners’ adamant refusal to heed EVERTEX’s
claim, respondent company immediately filed an action to recover possession and
ownership of the disputed properties. There is no evidence showing any failure or
neglect on its part, for an unreasonable and unexplained length of time, to do that
which, by exercising due diligence, could or should have been done earlier. The
doctrine of stale demands would apply only where by reason of the lapse of time,
it would be inequitable to allow a party to enforce his legal rights. Moreover,
except for very strong reasons, this Court is not disposed to apply the doctrine of
laches to prejudice or defeat the rights of an owner.
Damages; In determining actual damages, the court cannot rely on mere
assertions, speculations, conjectures or guesswork but must depend on competent
proof and on the best evidence obtainable regarding the actual amount of loss.—
Basic is the rule that to recover actual damages, the amount of loss must not only
be capable of proof but must actually be proven with reasonable degree of
certainty, premised upon competent proof or best evidence obtainable of the
actual amount thereof. However, the allegations of respondent company as to the
amount of unrealized rentals due them as actual damages remain mere assertions
unsupported by documents and other competent evidence. In determining actual
damages, the court cannot rely on mere assertions, speculations, conjectures or
guesswork but must depend on competent proof and on the best evidence
obtainable regarding the actual amount of loss.
PETITIONS for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Eduardo C. Ong for petitioner R.L. Tsai.
Laogan, Silva, Baeza & Llantino Law Offices for petitioner PBCom in G.R.
No. 120109.
M.R. Villaluz & Associates for private respondents.
328
328 SUPREME COURT REPORTS
ANNOTATED
Tsai vs. Court of Appeals
QUISUMBING, J.:
These consolidated cases assail the decision1 of the Court of Appeals in CA-G.R.
Branch 7, in Civil Case No. 89-48265. Also assailed is respondent court’s
resolution denying petitioners’ motion for reconsideration.
On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX)
obtained a three million peso (P3,000,000.00) loan from petitioner Philippine
Bank of Communications (PBCom). As security for the loan, EVERTEX executed
in favor of PBCom, a deed of Real and Chattel Mortgage over the lot under TCT
No. 372097, where its factory stands, and the chattels located therein as
enumerated in a schedule attached to the mortgage contract. The pertinent
portions of the Real and Chattel Mortgage are quoted below:
MORTGAGE
(REAL AND CHATTEL)
xxx
The MORTGAGOR(S) hereby transfers) and convey(s), by way of First Mortgage,
to the MORTGAGEE, x x x certain parcel(s) of land, together with all the
buildings and improvements now existing or which may hereafter exist thereon,
situated in x x x.
55
Credtrans pledge chattel

“Annex A” 1. (a)Forty eight sets (48) Vayrow Knitting Machines x x x

2. (b)Sixteen sets (16) Vayrow Knitting Machines x x x
(Real and Chattel Mortgage executed by Ever Textile Mills in favor of 3. (c)Two (2) Circular Knitting Machines x x x
PBCommunications—continued) 4. (d)Two (2) Winding Machines x x x
5. (e)Two (2) Winding Machines x x x
LIST OF MACHINERIES & EQUIPMENT
1. IV.Any and all replacements, substitutions, additions, increases and
A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins made in accretions to above properties.
Hongkong:
x x x3
Serial Numbers Size of Machines
On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to EVERTEX.
xxx The loan was secured by a Chattel Mortgage over personal properties enumerated
in a list attached thereto. These listed properties were similar to those listed
_______________ in Annex A of the first mortgage deed.
After April 23, 1979, the date of the execution of the second mortgage
1 Rollo, G.R. No. 120109, pp. 23-45. mentioned above, EVERTEX purchased various machines and equipments.
2 Id., at 23-24. _______________

329 3 Folder of Exhibits, pp. 5-12.

VOL. 366, OCTOBER 2, 2001 329
330
Tsai vs. Court of Appeals
330 SUPREME COURT REPORTS

1. B.Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan. ANNOTATED

Tsai vs. Court of Appeals
xxx On November 19, 1982, due to business reverses, EVERTEX filed insolvency
proceedings docketed as SP Proc. No. LP-3091-P before the defunct Court of First
Instance of Pasay City, Branch XXVIII. The CFI issued an order on November 24,
1. C.Two (2) Circular Knitting Machines made in West Germany.
1982 declaring the corporation insolvent. All its assets were taken into the
custody of the Insolvency Court, including the collateral, real and personal,
xxx securing the two mortgages as abovementioned.
In the meantime, upon EVERTEX’s failure to meet its obligation to PBCom,
1. D.Four (4) Winding Machines. the latter commenced extrajudicial foreclosure proceedings against EVERTEX
under Act 3135, otherwise known as “An Act to Regulate the Sale of Property
xxx under Special Powers Inserted in or Annexed to Real Estate Mortgages” and Act
1506 or “The Chattel Mortgage Law.” A Notice of Sheriffs Sale was issued on
December 1, 1982.
SCHEDULE “A”
On December 15, 1982, the first public auction was held where petitioner
PBCom emerged as the highest bidder and a Certificate of Sale was issued in its
1. I.TCT # 372097—RIZAL favor on the same date. On December 23, 1982, another public auction was held
and again, PBCom was the highest bidder. The sheriff issued a Certificate of Sale
xxx on the same day.
On March 7, 1984, PBCom consolidated its ownership over the lot and all the
1. II.Any and all buildings and improvements now existing or hereafter to properties in it. In November 1986, it leased the entire factory premises to
exist on the above-mentioned lot. petitioner Ruby L. Tsai for P50,000.00 a month. On May 3, 1988, PBCom sold the
2. III.MACHINERIES & EQUIPMENT situated, located and/or installed on factory, lock, stock and barrel to Tsai for P9,000,000.00, including the contested
the above-mentioned lot located at x x x machineries.

56
Credtrans pledge chattel
On March 16, 1989, EVERTEX filed a complaint for annulment of sale,
reconveyance, and damages with the Regional Trial Court against PBCom,
alleging inter alia that the extrajudicial foreclosure of subject mortgage was in
violation of the Insolvency Law. EVERTEX claimed that no rights having been
transmitted to PBCom over the assets of insolvent EVERTEX, therefore Tsai
acquired no rights over such assets sold to her, and should reconvey the assets.
Further, EVERTEX averred that PBCom, without any legal or factual basis,
appropriated the contested properties, which were not included in the Real and
Chattel Mortgage of November 26,
331
VOL. 366, OCTOBER 2, 2001 331
Tsai vs. Court of Appeals
1975 nor in the Chattel Mortgage of April 23, 1979, and neither were those
properties included in the Notice of Sheriff’s Sale dated December 1, 1982 and
Certificate of Sale dated December 15, 1982.
The disputed properties, which were valued at P4,000,000.00, are: 14
Interlock Circular Knitting Machines, 1 Jet Drying Equipment, 1 Dryer
Equipment, 1 Raisin Equipment and 1 Heatset Equipment.
The RTC found that the lease and sale of said personal properties were
irregular and illegal because they were not duly foreclosed nor sold at the
December 15, 1982 auction sale since these were not included in the schedules
attached to the mortgage contracts. The trial court decreed:
WHEREFORE, judgment is hereby rendered in favor of plaintiff corporation and
against the defendants:
1. 1.Ordering the annulment of the sale executed by defendant Philippine
Bank of Communications in favor of defendant Ruby L. Tsai on May 3,
1988 insofar as it affects the personal properties listed in par. 9 of the
complaint, and their return to the plaintiff corporation through its
assignee, plaintiff Mamerto R. Villaluz, for disposition by the
Insolvency Court, to be done within ten (10) days from finality of this
decision;
2. 2.Ordering the defendants to pay jointly and severally the plaintiff
corporation the sum of P5,200,000.00 as compensation for the use and
possession of the properties in question from November 1986 to
February 1991 and P100,000.00 every month thereafter, with interest
thereon at the legal rate per annum until full payment;
3. 3.Ordering the defendants to pay jointly and severally the plaintiff
corporation the sum of P50,000.00 as and for attorney’s fees and
expenses of litigation;
4. 4.Ordering the defendants to pay jointly and severally the
plaintiffcorporation the sum of P200,000.00 by way of exemplary
damages;
5. 5.Ordering the dismissal of the counterclaim of the defendants; and
6. 6.Ordering the defendants to proportionately pay the costs of suit.
SO ORDERED.4
______________
4 Rollo, G.R. No. 120109, pp. 23-24.
332
332 SUPREME COURT REPORTS
ANNOTATED
Tsai vs. Court of Appeals
Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which
issued its decision dated August 31, 1994, the dispositive portion of which reads:
WHEREFORE, except for the deletion therefrom of the award for exemplary
damages, and reduction of the actual damages, from P100,000.00 to P20,000.00
per month, from November 1986 until subject personal properties are restored to
appellees, the judgment appealed from is hereby AFFIRMED, in all other
respects. No pronouncement as to costs.5
Motion for reconsideration of the above decision having been denied in the
resolution of April 28, 1995, PBCom and Tsai filed their separate petitions for
review with this Court.
In G.R. No. 120098, petitioner Tsai ascribed the following errors to the
respondent court:
I
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN
EFFECT MAKING A CONTRACT FOR THE PARTIES BY TREATING THE
1981 ACQUIRED MACHINERIES AS CHATTELS INSTEAD OF REAL
PROPERTIES WITHIN THEIR EARLIER 1975 DEED OF REAL AND
CHATTEL MORTGAGE OR 1979 DEED OF CHATTEL MORTGAGE.
II
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN
HOLDING THAT THE DISPUTED 1981 MACHINERIES ARE NOT REAL
PROPERTIES DEEMED PART OF THE MORTGAGE—DESPITE THE CLEAR
IMPORT OF THE EVIDENCE AND APPLICABLE RULINGS OF THE
SUPREME COURT.
III
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN
DEEMING PETITIONER A PURCHASER IN BAD FAITH.
_______________
5 Id. at 45.
333
57
Credtrans pledge chattel
VOL. 366, OCTOBER 2, 2001 333
Tsai vs. Court of Appeals
IV
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN
ASSESSING PETITIONER ACTUAL DAMAGES, ATTORNEY’S FEES AND
EXPENSES OF LITIGATION—FOR WANT OF VALID FACTUAL AND LEGAL
BASIS.
V erred in holding that the disputed 1981 machineries are not real
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN
HOLDING AGAINST PETITIONER’S ARGUMENTS ON PRESCRIPTION AND
LACHES.6
In G.R. No. 120109, PBCom raised the following issues:
I.
DID THE COURT OF APPEALS VALIDLY DECREE THE MACHINERIES
LISTED UNDER PARAGRAPH 9 OF THE COMPLAINT BELOW AS
PERSONAL PROPERTY OUTSIDE OF THE 1975 DEED OF REAL ESTATE
MORTGAGE AND EXCLUDED THEM FROM THE REAL PROPERTY
EXTRAJUDICIALLY FORECLOSED BY PBCOM DESPITE THE PROVISION
IN THE 1975 DEED THAT ALL AFTER-ACQUIRED PROPERTIES DURING
THE LIFETIME OF THE MORTGAGE SHALL FORM PART THEREOF, AND
DESPITE THE UNDISPUTED FACT THAT SAID MACHINERIES ARE BIG
AND HEAVY, BOLTED OR CEMENTED ON THE REAL PROPERTY
MORTGAGED BY EVER TEXTILE MILLS TO PBCOM, AND WERE
ASSESSED FOR REAL ESTATE TAX PURPOSES?
II.
CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN
QUESTION IN GOOD FAITH, EXTENDED CREDIT FACILITIES TO EVER
TEXTILE MILLS WHICH AS OF 1982 TOTALLED P9,547,095.28, WHO HAD
SPENT FOR MAINTENANCE AND SECURITY ON THE DISPUTED
MACHINERIES AND HAD TO PAY ALL THE BACK TAXES OF EVER
TEXTILE MILLS BE LEGALLY COMPELLED TO RETURN TO EVER THE
SAID MACHINERIES OR IN LIEU THEREOF BE ASSESSED DAMAGES. IS
THAT SITUATION TANTAMOUNT TO A CASE OF UNJUST ENRICHMENT?7
_______________
6 Rollo, G.R. No. 120098, pp. 23-25.
7 Rollo, G.R. No. 120109. pp. 9-10.
334
334 SUPREME COURT REPORTS
ANNOTATED
Tsai vs. Court of Appeals
The principal issue, in our view, is whether or not the inclusion of the questioned
properties in the foreclosed properties is proper. The secondary issue is whether
or not the sale of these properties to petitioner Ruby Tsai is valid.
For her part, Tsai avers that the Court of Appeals in effect made a contract for
the parties by treating the 1981 acquired units of machinery as chattels instead of
real properties within their earlier 1975 deed of Real and Chattel Mortgage or
1979 deed of Chattel Mortgage.8 Additionally, Tsai argues that respondent court
properties.9 Finally, she contends that the Court of Appeals erred in holding
against petitioner’s arguments on prescription and laches 10 and in assessing
petitioner actual damages, attorney’s fees and expenses of litigation, for want of
valid factual and legal basis.11
Essentially, PBCom contends that respondent court erred in affirming the
lower court’s judgment decreeing that the pieces of machinery in dispute were not
duly foreclosed and could not be legally leased nor sold to Ruby Tsai. It further
argued that the Court of Appeals’ pronouncement that the pieces of machinery in
question were personal properties have no factual and legal basis. Finally, it
asserts that the Court of Appeals erred in assessing damages and attorney’s fees
against PBCom.
In opposition, private respondents argue that the controverted units of
machinery are not “real properties” but chattels, and, therefore, they were not
part of the foreclosed real properties, rendering the lease and the subsequent sale
thereof to Tsai a nullity.12
Considering the assigned errors and the arguments of the parties, we find the
petitions devoid of merit and ought to be denied.
Well settled is the rule that the jurisdiction of the Supreme Court in a petition
for review on certiorari under Rule 45 of the Revised Rules of Court is limited to
reviewing only errors of law,
_______________
8 Rollo, G.R. No. 120098, p. 25.
9 Id. at 33.
10 Id. at 49.
11 Id. at 44.
12 Id. at 133.
335
VOL. 366, OCTOBER 2, 2001 335
Tsai vs. Court of Appeals
not of fact, unless the factual findings complained of are devoid of support by the
evidence on record or the assailed judgment is based on misapprehension of
facts.13 This rule is applied more stringently when the findings of fact of the RTC
is affirmed by the Court of Appeals.14
The following are the facts as found by the RTC and affirmed by the Court of
Appeals that are decisive of the issues: (1) the “controverted machineries” are not
covered by, or included in, either of the two mortgages, the Real Estate and
58
Credtrans pledge chattel
Chattel Mortgage, and the pure Chattel Mortgage; (2) the said machineries were
not included in the list of properties appended to the Notice of Sale, and neither
were they included in the Sheriff’s Notice of Sale of the foreclosed properties.15
Petitioners contend that the nature of the disputed machineries, i.e., that they
were heavy, bolted or cemented on the real property mortgaged by EVERTEX to
PBCom, make them ipso facto immovable under Article 415 (3) and (5) of the New
Civil Code. This assertion, however, does not settle the issue. Mere nuts and bolts
do not foreclose the controversy. We have to look at the parties’ intent.
While it is true that the controverted properties appear to be immobile, a
perusal of the contract of Real and Chattel Mortgage executed by the parties
herein gives us a contrary indication. In the case at bar, both the trial and the
appellate courts reached the same finding that the true intention of PBCom and
the owner, EVERTEX, is to treat machinery and equipment as chattels. The
pertinent portion of respondent appellate court’s ruling is quoted below:
As stressed upon by appellees, appellant bank treated the machineries as
chattels; never as real properties. Indeed, the 1975 mortgage contract, which was
actually real and chattel mortgage, militates against appellants’ posture. It
should be noted that the printed form used by appellant bank was mainly for real
estate mortgages. But reflective of the true intention of appellant PBCOM and
appellee EVERTEX was the typing in
_______________
13 Congregation of the Religious of the Virgin Mary v. Court of Appeals, 291
SCRA 385, 391-392 (1998).
14 Manlapaz vs. Court of Appeals, 147 SCRA 236, 239 (1987).
15 Rollo, G.R. No. 120109, pp. 62-63.
336
336 SUPREME COURT REPORTS
ANNOTATED
Tsai vs. Court of Appeals
capital letters, immediately following the printed caption of mortgage, of the
phrase “real and chattel.” So also, the “machineries and equipment” in the printed
form of the bank had to be inserted in the blank space of the printed contract and
connected with the word “building” by typewritten slash marks. Now, then, if the
machineries in question were contemplated to be included in the real estate
mortgage, there would have been no necessity to ink a chattel mortgage
specifically mentioning as part III of Schedule A a listing of the machineries
covered thereby. It would have sufficed to list them as immovables in the Deed of
Real Estate Mortgage of the land and building involved.
As regards the 1979 contract, the intention of the parties is clear and beyond
question. It refers solely to chattels. The inventory list of the mortgaged
properties is an itemization of sixty-three (63) individually described machineries
while the schedule listed only machines and 2,996,880.50 worth of finished cotton
fabrics and natural cotton fabrics.16
In the absence of any showing that this conclusion is baseless, erroneous or
uncorroborated by the evidence on record, we find no compelling reason to depart
therefrom.
Too, assuming arguendo that the properties in question are immovable by
nature, nothing detracts the parties from treating it as chattels to secure an
obligation under the principle of estoppel. As far back as Navarro v. Pineda, 9
SCRA 631 (1963), an immovable may be considered a personal property if there is
a stipulation as when it is used as security in the payment of an obligation where
a chattel mortgage is executed over it, as in the case at bar.
In the instant case, the parties herein: (1) executed a contract styled as “Real
Estate Mortgage and Chattel Mortgage,” instead of just “Real Estate Mortgage” if
indeed their intention is to treat all properties included therein as immovable,
and (2) attached to the said contract a separate “LIST OF MACHINERIES &
EQUIPMENT.” These facts, taken together, evince the conclusion that the
parties’ intention is to treat these units of machinery as chattels. A fortiori, the
contested after-acquired properties, which are of the same description as the units
enumerated under the title “LIST OF MACHINERIES & EQUIPMENT,” must
also be treated as chattels.
_______________
16 Rollo, G.R. No. 120098, pp. 68-69.
337
VOL. 366, OCTOBER 2, 2001 337
Tsai vs. Court of Appeals
Accordingly, we find no reversible error in the respondent appellate court’s ruling
that inasmuch as the subject mortgages were intended by the parties to involve
chattels, insofar as equipment and machinery were concerned, the Chattel
Mortgage Law applies, which provides in Section 7 thereof that: “a chattel
mortgage shall be deemed to cover only the property described therein and not like
or substituted property thereafter acquired by the mortgagor and placed in the
same depository as the property originally mortgaged, anything in the mortgage to
the contrary notwithstanding.”
And, since the disputed machineries were acquired in 1981 and could not have
been involved in the 1975 or 1979 chattel mortgages, it was consequently an error
on the part of the Sheriff to include subject machineries with the properties
enumerated in said chattel mortgages.
As the auction sale of the subject properties to PBCom is void, no valid title
passed in its favor. Consequently, the sale thereof to Tsai is also a nullity under
the elementary principle of nemo dat quod non habet, one cannot give what one
does not have.17
Petitioner Tsai also argued that assuming that PBCom’s title over the
contested properties is a nullity, she is nevertheless a purchaser in good faith and
for value who now has a better right than EVERTEX.
To the contrary, however, are the factual findings and conclusions of the trial
court that she is not a purchaser in good faith. Well-settled is the rule that the
person who asserts the status of a purchaser in good faith and for value has the
burden of proving such assertion.18 Petitioner Tsai failed to discharge this burden
persuasively.
59
Credtrans pledge chattel
Moreover, a purchaser in good faith and for value is one who buys the
property of another without notice that some other person has a right to or interest
in such property and pays a full and fair price for the same, at the time of
purchase, or before he has notice
_______________
17 Segura vs. Segura, 165 SCRA 368, 375 (1988); Noel vs. Court of
Appeals, G.R. No. 59550, 240 SCRA 78, 88 (1995).
18 Mathay v. Court of Appeals, 295 SCRA 556, 575 (1988).
338
338 SUPREME COURT REPORTS
ANNOTATED
Tsai vs. Court of Appeals
of the claims or interest of some other person in the property. 19 Records reveal,
however, that when Tsai purchased the controverted properties, she knew of
respondent’s claim thereon. As borne out by the records, she received the letter of
respondent’s counsel, apprising her of respondent’s claim, dated February 27,
1987.20 She replied thereto on March 9, 1987.21 Despite her knowledge of
respondent’s claim, she proceeded to buy the contested units of machinery on May
3, 1988. Thus, the RTC did not err in finding that she was not a purchaser in good
faith.
Petitioner Tsai’s defense of indefeasibility of Torrens Title of the lot where the
disputed properties are located is equally unavailing. This defense refers to sale of
lands and not to sale of properties situated therein. Likewise, the mere fact that
the lot where the factory and the disputed properties stand is in PBCom’s name
does not automatically make PBCom the owner of everything found therein,
especially in view of EVERTEX’s letter to Tsai enunciating its claim.
Finally, petitioners’ defense of prescription and laches is less than convincing.
We find no cogent reason to disturb the consistent findings of both courts below
that the case for the reconveyance of the disputed properties was filed within the
reglementary period. Here, in our view, the doctrine of laches does not apply.
Note that upon petitioners’ adamant refusal to heed EVERTEX’s claim,
respondent company immediately filed an action to recover possession and
ownership of the disputed properties. There is no evidence showing any failure or
neglect on its part, for an unreasonable and unexplained length of time, to do that
which, by exercising due diligence, could or should have been done earlier. The
doctrine of stale demands would apply only where by reason of the lapse of time,
it would be inequitable to allow a party to enforce his legal rights. Moreover,
except for very strong reasons, this Court is not disposed to apply the doctrine of
laches to prejudice or defeat the rights of an owner.22
_______________
19 Diaz-Duarte vs. Ong, 298 SCRA 388, 397 (1998).
20 Exhibit “U”, Folder of Exhibits, p. 64.
21 Exhibit “V”, Id. at 66.
22 Noel vs. Court of Appeals, 240 SCRA 78, 90 (1995).
339
VOL. 366, OCTOBER 2, 2001 339
Tsai vs. Court of Appeals
As to the award of damages, the contested damages are the actual compensation,
representing rentals for the contested units of machinery, the exemplary
damages, and attorney’s fees.
As regards said actual compensation, the RTC awarded P100,000.00
corresponding to the unpaid rentals of the contested properties based on the
testimony of John Chua, who testified that the P100,000.00 was based on the
accepted practice in banking and finance, business and investments that the
rental price must take into account the cost of money used to buy them. The
Court of Appeals did not give full credence to Chua’s projection and reduced the
award to P20,000.00.
Basic is the rule that to recover actual damages, the amount of loss must not
only be capable of proof but must actually be proven with reasonable degree of
certainty, premised upon competent proof or best evidence obtainable of the
actual amount thereof.23 However, the allegations of respondent company as to
the amount of unrealized rentals due them as actual damages remain mere
assertions unsupported by documents and other competent evidence. In
determining actual damages, the court cannot rely on mere assertions,
speculations, conjectures or guesswork but must depend on competent proof and
on the best evidence obtainable regarding the actual amount of loss. 24 However,
we are not prepared to disregard the following dispositions of the respondent
appellate court:
. . . In the award of actual damages under scrutiny, there is nothing on record
warranting the said award of P5,200,000.00, representing monthly rental income
of P100,000.00 from November 1986 to February 1991, and the additional award
of P100,000.00 per month thereafter.
As pointed out by appellants, the testimonial evidence, consisting of the
testimonies of Jonh (sic) Chua and Mamerto Villaluz, is shy of what is necessary
to substantiate the actual damages allegedly sustained by appellees, by way of
unrealized rental income of subject machineries and equipments.
_______________
23 Ace Haulers Corporation v. CA, et al., G.R. No. 127934, August 23, 2000, p.
11, 338 SCRA 572.
24 Barzaga vs. Court of Appeals, 268 SCRA 105, 113-114 (1997).
340
340 SUPREME COURT REPORTS
ANNOTATED
Tsai vs. Court of Appeals
The testimony of John Cua (sic) is nothing but an opinion or projection based on
what is claimed to be a practice in business and industry. But such a testimony
cannot serve as the sole basis for assessing the actual damages complained of.
What is more, there is no showing that had appellant Tsai not taken possession of
60
Credtrans pledge chattel
the machineries and equipments in question, somebody was willing and ready to
rent the same for P100,000.00 a month.
xxx
Then, too, even assuming arguendo that the said machineries and equipments
could have generated a rental income of P30,000.00 a month, as projected by
witness Mamerto Villaluz,’the same would have been a gross income. Therefrom
should be deducted or removed, expenses for maintenance and repairs. . . .
Therefore, in the determination of the actual damages or unrealized rental
income sued upon, there is a good basis to calculate that at least four months in a
year, the machineries in dispute would have been idle due to absence of a lessee
or while being repaired. In the light of the foregoing rationalization and
computation, We believe that a net unrealized rental income of P20,000.00 a
month, since November 1986, is more realistic and fair.25
As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX which the
Court of Appeals deleted. But according to the CA, there was no clear showing
that petitioners acted malevolently, wantonly and oppressively. The evidence,
however, shows otherwise.
It is a requisite to award exemplary damages that the wrongful act must be
accompanied by bad faith,26 and the guilty acted in a wanton, fraudulent,
oppressive, reckless or malevolent manner.27 As previously stressed, petitioner
Tsai’s act of purchasing the controverted properties despite her knowledge of
EVERTEX’s claim was oppressive and subjected the already insolvent respondent
to gross disadvantage. Petitioner PBCom also received the same letters of Atty.
Villaluz, responding thereto on March 24, 1987.28 Thus, PBCom’s act of taking all
the properties found in the factory of the financially handicapped respondent,
including those proper-
_______________
25 Rollo, G.R. No. 120109, pp. 43-44.
26 “J” Marketing Corp. vs. Sia, Jr., 285 SCRA 580, 583-584 (1998).
27 Cervantes vs. Court of Appeals, 304 SCRA 25, 33 (1997).
28 Exhibit “X”, Folder of Exhibits, p. 69.
341
VOL. 366, OCTOBER 2, 2001 341
Tsai vs. Court of Appeals
ties not covered by or included in the mortgages, is equally oppressive and tainted
with bad faith. Thus, we are in agreement with the RTC that an award of
exemplary damages is proper.
The amount of P200,000.00 for exemplary damages is, however, excessive.
Article 2216 of the Civil Code provides that no proof of pecuniary loss is necessary
for the adjudication of exemplary damages, their assessment being left to the
discretion of the court in accordance with the circumstances of each case. 29 While
the imposition of exemplary damages is justified in this case, equity calls for its
reduction. In Inhelder Corporation v. Court of Appeals, G.R. No. L-52358, 122
SCRA 576, 585, (May 30, 1983), we laid down the rule that judicial discretion
granted to the courts in the assessment of damages must always be exercised
wrtti balanced restraint and measured objectivity. Thus, here the award of
exemplary damages by way of example for the public good should be reduced to
P100,000.00.
By the same token, attorney’s fees and other expenses of litigation may be
recovered when exemplary damages are awarded.30 In our view, RTC’s award of
P50,000.00 as attorney’s fees and expenses of litigation is reasonable, given the
circumstances in these cases.
WHEREFORE, the petitions are DENIED. The assailed decision and
resolution of the Court of Appeals in CA-G.R. CV No. 32986 are AFFIRMED
WITH MODIFICATIONS. Petitioners Philippine Bank of Communications and
Ruby L. Tsai are hereby ordered to pay jointly and severally Ever Textile Mills,
Inc., the following: (1) P20,000.00 per month, as compensation for the use and
possession of the properties in question from November 1986 31 until subject
personal properties are restored to respondent corporation; (2)
_______________
29 Art. 2216. Civil Code. No proof of pecuniary loss is necessary in order that
moral, nominal, temperate, liquidated or exemplary damages may be adjudicated.
The assessment of such damages, except liquidated ones, is left to the discretion
of the court, according to the circumstances of each case.
30 Vital-Gozon v. Court of Appeals, 292 SCRA 124, 147 (1998).
31 The time when PBCom leased the disputed properties to Tsai, CA Rollo, p.
34.
342
342 SUPREME COURT REPORTS
ANNOTATED
People vs. De Guzman
P100,000.00 by way of exemplary damages, and (3) P50,000.00 as attorney’s fees
and litigation expenses. Costs against petitioners.
SO ORDERED.
Bellosillo (Chairman), Mendoza, Buena and De Leon, Jr., JJ., concur.
Petitions denied, judgment and resolution affirmed with modifications.
Notes.—One who deals with property subject of a notice of lis pendens cannot
invoke the right of a purchaser in good faith—neither can he acquire better rights
than those of his predecessor in interest. (Yu vs. Court of Appeals, 251 SCRA
509 [1995])
Where a purchases was fully aware of another person’s possession of the lot
he purchased, he cannot successfully pretend later to be an innocent purchaser for
value. (Heirs of Teodoro dela Cruz vs. Court of Appeals, 298 SCRA 172 [1998])
——o0o——
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61
Credtrans pledge chattel
[No. 34385. September 21, 1931]
ALEJANDRA TORRES ET AL., plaintiffs and appellees, vs. FRANCISCO
LIMJAP, Special Administrator of the estate of the deceased Jose B. Henson,
defendant and appellant.
[No. 34386. September ,21, 1931]
SABINA VERGARA VDA. DE TORRES ET AL., plaintiffs and
appellees, vs. FRANCISCO LIMJAP, Special Administrator of the estate of the
deceased Jose B. Henson, defendant and appellant.
CHATTEL MORTGAGE; PROPERTY COVERED THEREBY; AFTER-
ACQUIRED PROPERTY.—A stipulation in the chattel mortgage, extending
its scope and effect to after-acquired property, is valid and binding where the
after-acquired property is in renewal of, or in substitution for, goods on hand
when the mortgage was executed, or is purchased with the proceeds of the
sale of such goods. (11 C. J., p. 436.) A mortgage may, by express stipulations,
be drawn to cover goods put in stock in place of others sold out from time to
time. A mortgage may be made to include future acquisitions of goods to be
added to the original stock mortgaged, but the mortgage must expressly
provide that such -future acquisitions shall be held as included in the
mortgage. Where a mortgage covering the stock in trade, furniture, and
fixtures in the mortgagor's store provides that "all goods, stock in trade,
furniture, and fixtures hereafter purchased by the mortgagor shall be
included in and covered by the mortgage," the mortgage covers all after-
acquired property of the classes mentioned, and, upon foreclosure, such
property may be taken and sold by the mortgagee the same as the property in
possession of the mortgagor at the time the mortgage was executed. (Vol. I,
Cobbey on Chattel Mortgages, sec. 361, pp. 474, 475.)
APPEAL from a judgment of the Court of First Instance of Manila. Albert, J.
The facts are stated in the opinion of the court.
Duran, Lim & Tuason for appellant.
Guevara, Francisco & Recto for appellees.
142
142 PHILIPPINE REPORTS ANNOTATED
Torres vs. Limjap
JOHNSON, J.:
These two actions were commenced in the Court of First Instance of Manila on
April 16, 1930, for the purpose of securing from the defendant the possession of
two drug stores located in the City of Manila, covered by two chattel mortgages
executed by the deceased Jose B. Henson in favor of the plaintiffs.
In the first case the plaintiffs alleged that Jose B. Henson, in his lifetime,
executed in their favor a chattel mortgage (Exhibit A) on his drug store at Nos.
101-103 Calle Rosario, known as Farmacia Henson, to secure a loan of P7,000,
although it was made to appear in the instrument that the loan was for P20,000.
In the second case the plaintiffs alleged that they were the heirs of the late
Don Florentino Torres; and that Jose B. Henson, in his lifetime, executed in favor
of Don Florentino Torres a chattel mortgage (also Exhibit A) on his three drug
stores known as Henson's Pharmacy, Farmacia Henson and Botica Hensonina, to
secure a loan of P50,000, which was later reduced to P26,000, and for which,
Henson's Pharmacy at Nos. 71-73 Escolta, remained as the only security by
agreement of the parties.
In both cases the plaintiffs alleged that the defendant violated the terms of
the mortgage and that, in consequence thereof they became entitled to the
possession of the chattels and to foreclose their mortgages thereon. Upon the
petition of the plaintiffs and after the filing of the necessary bonds, the court
issued in each case an order directing the sheriff of the City of Manila to take
immediate possession of said drug stores.
The defendant filed practically the same answer to both complaints. He
denied generally and specifically the plaintiffs' allegations, and set up the
following special defenses:
(1) That the chattel mortgages (Exhibit A, in G. R. No. 34385 and Exhibit A,
in G. R. No. 34386) are null and void for lack of sufficient particularity in the
description of the property mortgaged; and
143
VOL. 56, SEPTEMBER 21, 1931 143
Torres vs. Limjap
(2) That the chattels which the plaintiffs sought to recover were not the same
property described in the mortgage.
The defendant also filed a counterclaim for damages in the sum of. P20,000 in
the first case and P100,000 in the second case.
Upon the issue thus raised by the pleadings, the two causes were tried
together by agreement of the parties. After hearing the evidence adduced during
the trial and on July 17, 1930, the Honorable Mariano Albert, judge, in a very
carefully prepared opinion, arrived at the conclusion (a) that the defendant
defaulted in the payment of interest on the loans secured by the mortgages, in
violation of the terms thereof; (b) that by reason of said failure said mortgages
became due, and (c) that the plaintiffs, as mortgagees, were entitled to the
possession of the drug stores Farmacia Henson at Nos. 101-103 Calle Rosario and
Henson's Pharmacy at Nos. 71-73 Escolta. Accordingly, a judgment was rendered
in favor of the plaintiffs and against the def endant, confirming the attachment of
said drug stores by the sheriff of the City of Manila and the delivery thereof to the
plaintiffs, The dispositive part of the decision reads as follows:
"En virtud de todo lo expuesto, el Juzgado dicta sentencia confirmando en todas
sus partes las órdenes de fechas 16 y 17 de abril del presente año, dictadas en las
causas Nos. 37096 y 37097, respectivamente, y declara definitiva la entrega hecha
a los demandantes por el Shériff de Manila de las boticas en cuestión. Se condena
en costas al demandado en ambas causas."
From that judgment the defendant appealed, and now makes the following
assignments of error:
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Credtrans pledge chattel
1. "I.The lower court erred in failing to make a finding on the question of
the sufficiency of the description of the chattels mortgaged and in
failing to hold that the chattel mortgages were null and void for lack of
particularity in the description of the chattels mortgaged.
144
144 PHILIPPINE REPORTS ANNOTATED
Torres vs. Limjap
1. "II.The lower court erred in refusing to allow the defendant to introduce
evidence tending to show that the stock of merchandise found in the
two drug stores was not in existence or owned by the mortgagor at the
time of the execution of the mortgages in question.
2. "III.The lower court erred in holding that the administrator of the
deceased is now estopped from contesting the validity of the mortgages
in question.
3. "IV.The lower court erred in failing to make a finding on the
counterclaims of the defendant."
With reference to the first assignment of error, we deem it unnecessary to discuss
the question therein raised, inasmuch as according to our view on the question of
estoppel, as we shall hereinafter set forth in our discussion of the third
assignment of error, the defendant is estopped from questioning the validity of
these chattel mortgages.
In his second assignment of error the appellant attacks the validity of the
stipulation in said mortgages authorizing the mortgagor to sell the goods covered
thereby and to replace them with other goods thereafter acquired. He insists that
a stipulation authorizing the disposal and substitution of the chattels mortgaged
does not operate to extend the mortgage to after-acquired property., and that such
stipulation is in contravention of the express provision of the last paragraph of
section 7 of Act No. 1508, which reads as follows:
"A chattel mortgage shall be deemed to cover only the property described therein
and not like or substituted property thereafter acquired by the mortgagor and
placed in the same depository as the property originally mortgaged, anything in
the mortgage to the contrary notwithstanding."
In order to give a correct construction to the above-quoted provision of our Chattel
Mortgage Law (Act No. 1508), the spirit and intent of the law must first be
ascertained. When said Act was placed on our statute books by the United States
Philippine Commission on July 2, 1906, the primary aim of that law-making body
was undoubtedly to
145
VOL. 56, SEPTEMBER 21, 1931 145
Torres vs. Limjap
promote business and trade in these Islands and to give impetus to the economic
development of the country. Bearing this in mind, it could not have been the
intention of the Philippine Commission to apply the provision of section 7 above
quoted to stores open to the public f or retail business, where the goods are
constantly sold and,substituted with new stock, such as drug stores, grocery
stores, dry-goods stores, etc. If said provision were intended to apply to this class
of business, it would be practically impossible to constitute a mortgage on such
stores without closing them, contrary to the very spirit and purpose of said Act.
Such a construction would bring about a handicap to trade and business, would
restrain the circulation of capital, and would defeat the purpose for which the law
was enacted, to wit, the promotion of business and the economic development of
the country.
In the interpretation and construction of a statute the intent of the law-maker
should always be ascertained and given effect, and courts will not follow the letter
of a statute when it leads away from the true intent and purpose of the
Legislature and to conclusions inconsistent with the spirit of the Act. On this
subject, Sutherland, the foremost authority on statutory construction, says:
"The Intent of a Statute is the Law.—If a statute is valid it is to have effect
according to the purpose and intent of the lawmaker. The intent is the vital part,
the essence of the law, and the primary rule of construction 19 to ascertain and
give effect to that intent. The intention of the legislature in enacting a law is the
law itself, and must be enforced when ascertained, although it may not be
consistent with the strict letter of the statute. Courts will not follow the letter of a
statute when it leads away from the true intent and purpose of the legislature
and to conclusions inconsistent with the general purpose of the act. Intent is the
spirit which gives life to a legislative enactment. In construing statutes the proper
course is to start out and follow the true intent of the legislature and
146
146 PHILIPPINE REPORTS ANNOTATED
Torres vs. Limjap
to adopt that sense which harmonizes best with the context and promotes in the
fullest manner the apparent policy and objects of the legislature." (Vol. II
Sutherland, Statutory Construction, pp. 693-695.)
A stipulation in the mortgage, extending its scope and effect to after-acquired
property, is valid and binding—
"* * * where the after-acquired property is in renewal of, or in substitution for,
goods on hand when the mortgage was executed, or is purchased with the
proceeds of the sale of such goods, etc." (11 C. J., p. 436.)
Cobbey, a well-known authority on Chattel Mortgages, recognizes the validity of
stipulations relating to after-acquired and substituted chattels. His views are
based on the decisions of the supreme courts of several states of the Union. He
says:
"A mortgage may, by express stipulations, be drawn to cover goods put in stock in
place of others sold out from time to time. A mortgage may be made to include
future acquisitions of goods to be added to the original stock mortgaged, but the
mortgage must expressly provide that such future acquisitions shall be held as
included in the mortgage. * * * Where a mortgage covering the stock in trade,
furniture, and fixtures in the mortgagor's store provides that 'all goods, stock in
trade, furniture, and fixtures hereafter purchased by the mortgagor shall be
included in and covered by the mortgage,' the mortgage covers all after-acquired
63
Credtrans pledge chattel

property of the classes mentioned, and, upon foreclosure, such property may be
taken and sold by the mortgagee the same as the property in possession of the
mortgagor at the time the mortgage was executed." (Vol. I, Cobbey on Chattel
Mortgages, sec. 361, pp. 474, 475.)

In harmony with the foregoing, we are of the opinion (a) that the provision of the
last paragraph of section 7 of Act No. 1508 is not applicable to drug stores, bazars
and all other stores in the nature of a revolving and floating business; (b) that the
stipulation in the chattel mortgages
147
VOL. 56, SEPTEMBER 21, 1931 147
El Oriente, Fabrica de Tabacos, Inc., vs.
Posadas
in question, extending their effect to after-acquired property, is valid and binding;
and (c) that the lower court committed no error in not permitting the defendant-
appellant to introduce evidence tending to show that the goods seized by the
sheriff were in the nature of after-acquired property.
With reference to the third assignment of error, we agree with the lower court
that, from the facts of record, the def endant-appellant is estopped from
contesting the validity of the mortgages in question. This feature of the case has
been very ably and fully discussed by the lower court in its decision, and said
discussion is made, by reference, a part of this opinion.
As to the fourth assignment of error regarding the counterclaims of the
defendant-appellant, it may be said that in view of the conclusions reached by the
lower court, which are sustained by this court, the lower court committed no error
in not making any express finding as to said counterclaims. As a matter of form,
however, the counterclaims should have been dismissed, but as the trial court
decided both cases in favor of the plaintiffs and confirmed and ratified the orders
directing the sheriff to take possession of the chattels on behalf of the plaintiffs,
there was, in effect, a dismissal of the defendant's counterclaims.
For all of the foregoing, we are of the opinion and so hold that the judgment
appealed from is in accordance with the facts and the law, and the same should be
and is hereby affirmed, with costs. So ordered.
Avanceña, C. J., Street, Malcolm, Villamor, Ostrand, Romualdez, Villa-
Real, and Imperial, JJ., concur.

Judgment affirmed.

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Credtrans pledge chattel
[No. 41506. March 25, 1935]
PHILIPPINE REFINING Co., INC., plaintiff and
appellant, vs. FRANCISCO JARQUE, JOSE COROMINAS, and ABOITIZ
& Co., defendants. JOSE COROMINAS, in his capacity as assignee of the estate
of the insolvent Francisco Jarque, appellee.
1. 1.COURTS; JURISDICTION ; ADMIRALTY.—The mere mortgage of a
ship does not confer admiralty jurisdiction.
1. 2.SHIPS AND SHIPPING; PROPERTY; CHATTEL
MORTGAGES; VESSELS, NATURE OF.—Vessels are considered
personal property under the civil law and the common law.
1. 3.ID.; ID.; ID. ; ID.—Vessels are subject to mortgage agreeably to the
provisions of the Chattel Mortgage Law.
230
2 PHILIPPINE REPORTS
30 ANNOTATED
Philippine Refining Co. vs, Jarque
1. 4.ID.; ID.; ID.; ID.—The only difference between a chattel mortgage of a
vessel and a chattel mortgage of other personalty is that it is not now
necessary for a chattel mortgage of a vessel to be noted in the registry
of the register of deeds, but it is essential that a record of documents
affecting the title to a vessel be entered in the record of the Collector of
Customs at the port of entry. Otherwise a mortgage on a vessel is
generally like other chattel mortgages as to its requisites and validity.
1. 5.ID. ; ID. ; ID. ; ID. ; EFFECT OF ABSENCE OF AFFIDAVIT OF
GOOD FAITH.—The Chattel Mortgage Law, in its section 5, in
describing what shall be deemed sufficient to constitute a good chattel
mortgage, includes the requirement of an affidavit of good faith
appended to the mortgage and recorded therewith. The absence of the
affidavit vitiates a mortgage as against creditors and subsequent
encumbrancers. As a consequence a chattel mortgage of a vessel
wherein the affidavit of good faith required by the Chattel Mortgage
Law is lacking, is unenforceable against third persons.
APPEAL from a judgment of the Court of First Instance of Cebu. Hontiveros, J.
The facts are stated in the opinion of the court.
Thos. G. Ingalls, Vicente Pelaez and DeWitt, Perkins & Brady for appellant.
D. G. McVean and Vicente L. Faelnar for appellee.
MALCOLM, J.;
First of all the reason why this case has been decided by the court in banc needs
explanation. A motion was presented by counsel for the appellant in which it was
asked that the case be heard and determined by the court sitting in banc because
the admiralty jurisdiction of the court was involved, and this motion was granted
in regular course.
On further investigation it appears that this was error. The mere mortgage of
a ship is a contract entered into by the parties to it without reference to
navigation or perils of the sea, and does not, therefore, confer admiralty
jurisdiction. (Bogart vs. Steamboat John Jay [1854], 17 How., 399.)
231
VOL. 61, MARCH 25, 1935 231
Philippine Refining Co. vs. Jarque
Coming now to the merits, it appears that on varying dates the Philippine
Refining Co., Inc., and Francisco Jarque executed three mortgages on the
motor vessels Pandan and Zaragoza. These documents were recorded in the
record of transfers and incumbrances of vessels for the port of Cebu and each was
therein denominated a "chattel mortgage". Neither of the first two mortgages had
appended an affidavit of good faith. The third mortgage contained such an
affidavit, but this mortgage was not registered in the customs house until May 17,
1932, or within the period of thirty days prior to the commencement of insolvency
proceedings against Francisco Jarque; also, while the last mentioned mortgage
was subscribed by Francisco Jarque and M. N. Brink, there was nothing to
disclose in what capacity the said M. N. Brink signed. A fourth mortgage was
executed by Francisco Jarque and Ramon Aboitiz on the
motorship Zaragoza and was entered in the chattel mortgage registry of the
register of deeds on May 12, 1932, or again within the thirty-day period before the
institution of insolvency proceedings. These proceedings were begun on June 2,
1932, when a petition was filed with the Court of First Instance of Cebu in which
it was prayed that Francisco Jarque be declared an insolvent debtor, which
soon thereafter was granted, with the result that an assignment of all the
properties of the insolvent was executed in favor of Jose Corominas.
On these f acts, Judge Jose M. Hontiveros declined to order the foreclosure of
the mortgages, but on the contrary sustained the special defenses of fatal
defectiveness of the mortgages, In so doing we believe that the trial judge acted
advisedly.
Vessels are considered personal property under the civil law. (Code of
Commerce, article 585.) Similarly under the common law, vessels are personal
property although occasionally referred to as a peculiar kind of personal property.
(Reynolds vs. Nielson [1903], 96 Am. Rep., 1000; Atlantic Maritime Co. vs. City of
Gloucester [1917], 117
232
232 PHILIPPINE REPORTS ANNOTATED
Philippine Refining Co. vs. Jarque
N. E., 924.) Since the term "personal property" includes vessels, they are subject
to mortgage agreeably to the provisions of the Chattel Mortgage Law. (Act No.
1508, section 2.) Indeed, it has heretofore been accepted without discussion that a
mortgage on a vessel is in nature a chattel mortgage. (McMicking vs. Banco
Español-Filipino [1909], 13 Phil., 429; Arroyo vs. Yu de Sane [1930], 54 Phil, 511.)
65
Credtrans pledge chattel

The only difference between a chattel mortgage of a vessel and a chattel mortgage
of other personalty is that it is not now necessary for a chattel mortgage of a
vessel to be noted in the registry of the register of deeds, but it is essential that a
record of documents affecting the title to a vessel be entered in the record of the
Collector of Customs at the port of entry. (Rubiso and Gelito vs. Rivera [1917], 37
Phil., 72; Arroyo vs. Yu de Sane, supra.) Otherwise a mortgage on a vessel is
generally like other chattel mortgages as to its requisites and validity. (58 C. J.,
92.)
The Chattel Mortgage Law in its section 5, in describing what shall be
deemed sufficient to constitute a good chattel mortgage, includes the requirement
of an affidavit of good faith appended to the mortgage and recorded therewith.
The absence of the affidavit vitiates a mortgage as against creditors and
subsequent encumbrancers. (Giberson vs. A. N. Jureidini Bros. [1922], 44 Phil.,
216; Benedicto de Tarrosa vs. F. M. Yap Tico & Co. and Provincial Sheriff of
Occidental Negros [1923], 46 Phil., 753.) As a consequence a chattel mortgage of a
vessel wherein the affidavit of good faith required by the Chattel Mortgage Law is
lacking, is unenforceable against third persons.
In effect appellant asks us to find that the documents appearing in the record
do not constitute chattel mortgages or at least to gloss over the failure to include
the affidavit of good faith made a requisite for a good chattel mortgage by the
Chattel Mortgage Law. Counsel would f urther have us disregard article 585 of
the Code of Commerce, but no reason is shown for holding this article not in force.
Counsel would further have us revise doctrines heretofore announced in a series
of cases, which it is not desirable to do
233
VOL. 61, MARCH 25, 1935 233
People vs. Aglahi
since those principles were confirmed after due deliberation and constitute a part
of the commercial law of the Philippines. And finally counsel would have us make
rulings on points entirely foreign to the issues of the case. As neither the facts nor
the law remains in doubt, the seven assigned errors will be overruled.
Judgment affirmed, the costs of this instance to be paid by the appellant.
Avanceña, C. J., Street, Villa-Real, Abad
Santos, Hull, Vickers, Imperial, Butte, and Goddard, JJ., concur.

Judgment affirmed.

66
Credtrans pledge chattel
296 SUPREME COURT REPORTS
ANNOTATED
Makati Leasing and Finance Corp. vs. Wearever
Textile Mills, Inc.
No. L-58469. May 16, 1983.*
MAKATI LEASING and FINANCE CORPORATION, petitioner, vs. WEAREVER
TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS, respondents.
Moot and Academic; Return by mortgage creditor of property seized on
replevin does not make moot and academic the action for judicial foreclosure where
the return was expressly made to be “without prejudice”.—The contention of
private respondent is without merit. When petitioner returned the subject motor
drive, it made itself unequivocably clear that said action was without prejudice to
a motion for reconsideration of the Court of Appeals decision, as shown by the
receipt duly signed by respondent’s representative. Considering that petitioner
has reserved its right to question the propriety of the Court of Appeals’ decision,
the contention of private respondent that this petition has been mooted by such
return may not be sustained.
Property, Mortgage; Replevin; Where a chattel mortgage is constituted on
machinery permanently attached to the ground the machinery is to be considered
as personal property and the chattel mortgage constituted thereon is not null and
void, regardless of who owns the land.—Examining the records of the instant case,
We find no logical justification to exclude and rule out, as the appellate court did,
the present case from the application of the abovequoted pronouncement. If a
house of strong materials, like what was involved in the above Tumalad case, may
be considered as personal property for purposes of executing a chattel mortgage
thereon as long as the parties to the contract so agree and no innocent third party
will be prejudiced thereby, there is absolutely no reason why a machinery, which
is movable in its nature and becomes immobilized only by destination or purpose,
may not be likewise treated as such. This is really because one who has so agreed
is estopped from denying the existence of the chattel mortgage.
Same; Same; Same; Same.—In rejecting petitioner’s assertion on the
applicability of the Tumalad doctrine, the Court of Appeals lays stress on the fact
that the house involved therein was built on a land that did not belong to the
owner of such house. But the law makes no
_______________
* SECOND DIVISION.
297
VOL. 122, MAY 16, 1983 2 Judge Ricardo J. Francisco, as Presiding Judge of the Court of First Instance of
97
Makati Leasing and Finance Corp. vs.
Wearever Textile Mills, Inc.
distinction with respect to the ownership of the land on which the house is
built and We should not lay down distinctions not contemplated by law.
Same: Same: Contracts: Equity; Execution of chattel mortgage on machinery
permanently attached to the ground is only an equitable ground for rendering the
contract voidable provided that the mortgagor has not been benefited by the
contract.—Private respondent contends that estoppel cannot apply against it
because it had never represented nor agreed that the machinery in suit be
considered as personal property but was merely required and dictated on by
herein petitioner to sign a printed form of chattel mortgage which was in a blank
form at the time of signing. This contention lacks persuasiveness. As aptly
pointed out by petitioner and not denied by the respondent, the status of the
subject machinery as movable or immovable was never placed in issue before the
lower court and the Court of Appeals except in a supplemental memorandum in
support of the petition filed in the appellate court. Moreover, even granting that
the charge is true, such fact alone does not render a contract void ab initio, but
can only be a ground for rendering said contract voidable, or annullable pursuant
to Article 1390 of the new Civil Code, by a proper action in court. There is nothing
on record to show that the mortgage has been annulled. Neither is it disclosed
that steps were taken to nullify the same. On the other hand, as pointed out by
petitioner and again not refuted by respondent, the latter has indubitably
benefited from said contract. Equity dictates that one should not benefit at the
expense of another. Private respondent could not now therefore, be allowed to
impugn the efficacy of the chattel mortgage after it has benefited therefrom.
PETITION for review on certiorari of the decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Loreto C. Baduan for petitioner.
Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.
Jose V. Mancella for respondent.
DE CASTRO, J.:
Petition for review on certiorari of the decision of the Court
298
298 SUPREME COURT REPORTS
ANNOTATED
Makati Leasing and Finance Corp. vs. Wearever
Textile Mills, Inc.
of Appeals (now Intermediate Appellate Court) promulgated on August 27, 1961
in CA-G.R. No. SP-12731, setting aside certain Orders later specified herein, of
Rizal, Branch VI, issued in Civil Case No. 36040, as well as the resolution dated
September 22, 1981 of the said appellate court, denying petitioner’s motion for
reconsideration.
It appears that in order to obtain financial accommodations from herein
petitioner Makati Leasing and Finance Corporation, the private respondent
67
Credtrans pledge chattel
Wearever Textile Mills, Inc., discounted and assigned several receivables with the
former under a Receivable Purchase Agreement. To secure the collection of the
receivables assigned, private respondent executed a Chattel Mortgage over
certain raw materials inventory as well as a machinery described as an Artos
Aero Dryer Stentering Range.
Upon private respondent’s default, petitioner filed a petition for extrajudicial
foreclosure of the properties mortgage to it. However, the Deputy Sheriff assigned
to implement the foreclosure failed to gain entry into private respondent’s
premises and was not able to effect the seizure of the aforedescribed machinery.
Petitioner thereafter filed a complaint for judicial foreclosure with the Court of
First Instance of Rizal, Branch VI, docketed as Civil Case No. 36040, the case
before the lower court.
Acting on petitioner’s application for replevin, the lower court issued a writ of
seizure, the enforcement of which was however subsequently restrained upon
private respondent’s filing of a motion for reconsideration. After several incidents,
the lower court finally issued on February 11, 1981, an order lifting the
restraining order for the enforcement of the writ of seizure and an order to break
open the premises of private respondent to enforce said writ. The lower court
reaffirmed its stand upon private respondent’s filing of a further motion for
reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the
premises of private respondent and removed the main drive motor of the subject
machinery.
299
VOL. 122, MAY 16, 1983 299
Makati Leasing and Finance Corp. vs. Wearever
Textile Mills, Inc.
The Court of Appeals, in certiorari and prohibition proceedings subsequently filed
by herein private respondent, set aside the Orders of the lower court and ordered
the return of the drive motor seized by the sheriff pursuant to said Orders, after
ruling that the machinery in suit cannot be the subject of replevin, much less of a
chattel mortgage, because it is a real property pursuant to Article 415 of the new
Civil Code, the same being attached to the ground by means of bolts and the only
way to remove it from respondents plant would be to drill out or destroy the
concrete floor, the reason why all that the sheriff could do to enforce the writ was
to take the main drive motor of said machinery. The appellate court rejected
petitioner’s argument that private respondent is estopped from claiming that the
machine is real property by constituting a chattel mortgage thereon.
A motion for reconsideration of this decision of the Court of Appeals having
been denied, petitioner has brought the case to this Court for review by writ of
certiorari. It is contended by private respondent, however, that the instant
petition was rendered moot and academic by petitioner’s act of returning the
subject motor drive of respondent’s machinery after the Court of Appeals’ decision
was promulgated.
The contention of private respondent is without merit. When petitioner
returned the subject motor drive, it made itself unequivocably clear that said
action was without prejudice to a motion for reconsideration of the Court of
Appeals decision, as shown by the receipt duly signed by respondent’s
representative.1 Considering that petitioner has reserved its right to question the
propriety of the Court of Appeals’ decision, the contention of private respondent
that this petition has been mooted by such return may not be sustained.
The next and the more crucial question to be resolved in this petition is
whether the machinery in suit is real or personal property from the point of view
of the parties, with petitioner arguing that it is a personality, while the
respondent claiming the contrary, and was sustained by the appellate court,
which
_______________
1 p. 52. Rollo.
300
300 SUPREME COURT REPORTS
ANNOTATED
Makati Leasing and Finance Corp. vs. Wearever
Textile Mills, Inc.
accordingly held that the chattel mortgage constituted thereon is null and void, as
contended by said respondent.
A similar, if not identical issue was raised in Tumalad v. Vicencio, 41 SCRA
143 where this Court, speaking through Justice J.B.L. Reyes, ruled:
“Although there is no specific statement referring to the subject house as personal
property, yet by ceding, selling or transferring a property by way of chattel
mortgage defendants-appellants could only have meant to convey the house as
chattel, or at least, intended to treat the same as such, so that they should not
now be allowed to make an inconsistent stand by claiming otherwise. Moreover,
the subject house stood on a rented lot to which defendants-appellants merely had
a temporary right as lessee, and although this can not in itself alone determine
the status of the property, it does so when combined with other factors to sustain
the interpretation that the parties, particularly the mortgagors, intended to treat
the house as personalty. Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. &
Plaza Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery & Williamson,
wherein third persons assailed the validity of the chattel mortgage, it is the
defendants-appellants themselves, as debtors-mortgagors, who are attacking the
validity of the chattel mortgage in this case. The doctrine of estoppel therefore
applies to the herein defendants-appellants, having treated the subject house as
personality.”
Examining the records of the instant case, We find no logical justification to
exclude the rule out, as the appellate court did, the present case from the
application of the abovequoted pronouncement. If a house of strong materials, like
what was involved in the above Tumalad case, may be considered as personal
property for purposes of executing a chattel mortgage thereon as long as the
parties to the contract so agree and no innocent third party will be prejudiced
thereby, there is absolutely no reason why a machinery, which is movable in its
nature and becomes immobilized only by destination or purpose, may not be
likewise treated as such. This is really because one who has so agreed is estopped
from denying the existence of the chattel mortgage.
68
Credtrans pledge chattel
In rejecting petitioner’s assertion on the applicability of the Tumalad doctrine,
the Court of Appeals lays stress on the fact
301
VOL. 122, MAY 16, 1983 301
Makati Leasing and Finance Corp. vs. Wearever
Textile Mills, Inc.
that the house involved therein was built on a land that did not belong to the
owner of such house. But the law makes no distinction with respect to the
ownership of the land on which the house is built and We should not lay down
distinctions not contemplated by law.
It must be pointed out that the characterization of the subject machinery as
chattel by the private respondent is indicative of intention and impresses upon
the property the character determined by the parties. As stated in Standard Oil
Co. of New York v. Jaramillo, 44 Phil. 630, it is undeniable that the parties to a
contract may by agreement treat as personal property that which by nature would
be real property, as long as no interest of third parties would be prejudiced
thereby.
Private respondent contends that estoppel cannot apply against it because it
had never represented nor agreed that the machinery in suit be considered as
personal property but was merely required and dictated on by herein petitioner to
sign a printed form of chattel mortgage which was in a blank form at the time of
signing. This contention lacks persuasiveness. As aptly pointed out by petitioner
and not denied by the respondent, the status of the subject machinery as movable
or immovable was never placed in issue before the lower court and the Court of
Appeals except in a supplemental memorandum in support of the petition filed in
the appellate court. Moreover, even granting that the charge is true, such fact
alone does not render a contract void ab initio, but can only be a ground for
rendering said contract voidable, or annullable pursuant to Article 1390 of the
new Civil Code, by a proper action in court. There is nothing on record to show
that the mortgage has been annulled. Neither is it disclosed that steps were taken
to nullify the same. On the other hand, as pointed out by petitioner and again not
refuted by respondent, the latter has indubitably benefited from said contract.
Equity dictates that one should not benefit at the expense of another. Private
respondent could not now therefore, be allowed to impugn the efficacy of the
chattel mortgage after it has benefited therefrom.
From what has been said above, the error of the appellate court in ruling that
the questioned machinery is real, not per-
302
302 SUPREME COURT REPORTS
ANNOTATED
Makati Leasing and Finance Corp. vs. Wearever
Textile Mills, Inc.
sonal property, becomes very apparent. Moreover, the case of Machinery and
Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by said court is
not applicable to the case at bar, the nature of the machinery and equipment
involved therein as real properties never having been disputed nor in issue, and
they were not the subject of a Chattel Mortgage. Undoubtedly, the Tumalad case
bears more nearly perfect parity with the instant case to be the more controlling
jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of Appeals
are hereby reversed and set aside, and the Orders of the lower court are hereby
reinstated, with costs against the private respondent.
SO ORDERED.
Makasiar (Chairman), Aquino, Concepcion, Jr., Guerrero and Escolin,
JJ., concur.
Abad Santos, J., in the result.
Decision and resolution reversed and set aside.
Notes.—The provisions of the Charter of the Philippine National Bank are to
be deemed included in all mortgage loan contracts of the PNB. (Co vs. Philippine
National Bank, 114 SCRA 671.)
For purposes of taxation, the term “real property” may include things which
should generally be regarded as personal property. (Manila Electric Co. vs.
Central Board of Assessment Appeals, 114 SCRA 273.)
The mere delivery of the mortgaged motor vehicle by the mortgagor does not
mean transfer of ownership to the mortgagee under the principle of dacion en
pago. What was transferred was merely possession of the property. (Filinvest
Credit Corp. vs. Philippine Acetylene Co., Inc., 11 SCRA 421.)
The filing of a guarantee bond to forestall foreclosure of mortgage does not
amount to a novation of the mortgage. (Santiago Syjuco, Inc. vs. Tecson, 116
SCRA 685.)
303
VOL. 122, MAY 16, 1983 303
Makati Leasing and Finance Corp. vs. Wearever
Textile Mills, Inc.
The CFI acting as a land registration court has jurisdiction to order the register of
deeds to cancel the annotation of mortgages on the Torrens titles covering the
mortgage lots. However, the issue of whether the foreclosure of the mortgage has
already prescribed should first be determined in a separate action before such
cancellation may be ordered. (In re: Nicanor T. Santos, 102 SCRA 747.)
——o0o——
304
© Copyright 2019 Central Book Supply, Inc. All rights reserved.
69
Credtrans pledge chattel

826 SUPREME COURT REPORTS This is a petition for review on certiorari seeking the reversal of the March 23,
1990 decision of the Court of Appeals which ruled that the petitioner’s purchase of
ANNOTATED a farm tractor was not validly consummated and ordered a complaint for its
Dy, Jr. vs. Court of Appeals recovery dismissed.
The facts as established by the records are as follows:
826 SUPREME COURT REPORTS
The petitioner, Perfecto Dy and Wilfredo Dy are brothers. Sometime in 1979,
ANNOTATED Wilfredo Dy purchased a truck and a farm tractor through financing extended by
Dy, Jr. vs. Court of Appeals Libra Finance and Investment Corporation (Libra). Both truck and tractor were
mortgaged to Libra as security for the loan.
G.R. No. 92989. July 8, 1991.* The petitioner wanted to buy the tractor from his brother so on August 20,
PERFECTO DY, JR. petitioner, vs. COURT OF APPEALS, GELAC TRADING 1979, he wrote a letter to Libra requesting that he be allowed to purchase from
INC., and ANTONIO V. GONZALES, respondents. Wilfredo Dy the said tractor and assume the mortgage debt of the latter.
In a letter dated August 27, 1979, Libra thru its manager, Cipriano Ares
Chattel Mortgage: Mortgagor retains ownership over the property given as
approved the petitioner’s request.
security, and has the right to sell it with the obligation to secure written consent of
Thus, on September 4, 1979, Wilfredo Dy executed a deed of absolute sale in
the mortgagee; Validity of the sale not affected if no consent was obtained from the
favor of the petitioner over the tractor in question.
mortgagee.—The mortgagor who gave the property as security under a chattel
At this time, the subject tractor was in the possession of Libra
mortgage did not part with the ownership over the same. He had the right to sell
828
it although he was under the obligation to secure the written consent of the
mortgagee or he lays himself open to criminal prosecution under the provision of 828 SUPREME COURT REPORTS
Article 319 par. 2 of the Revised Penal Code. And even if ANNOTATED
_______________
Dy, Jr. vs. Court of Appeals
Finance due to Wilfredo Dy’s failure to pay the amortizations.
* THIRD DIVISION.
Despite the offer of full payment by the petitioner to Libra for the tractor, the
immediate release could not be effected because Wilfredo Dy had obtained
827
financing not only for said tractor but also for a truck and Libra insisted on full
payment for both.
VOL. 198, JULY 8, 1991 8 The petitioner was able to convince his sister, Carol Dy-Seno, to purchase the
27 truck so that full payment could be made for both. On November 22, 1979, a PNB
Dy, Jr. vs. Court of Appeals check was issued in the amount of P22,000.00 in favor of Libra, thus settling in
full the indebtedness of Wilfredo Dy with the financing firm. Payment having
no consent was obtained from the mortgagee, the validity of the sale would
been effected through an out-of-town check, Libra insisted that it be cleared first
still not be affected.
before Libra could release the chattels in question.
Civil Law; Constructive delivery; There is constructive delivery upon the
Meanwhile, Civil Case No. R-16646 entitled “Gelac Trading, Inc. v. Wilfredo
thing sold; Case at bar.—In the instant case, actual delivery of the subject tractor
Dy”, a collection case to recover the sum of P12,269.80 was pending in another
could not be made. However, there was constructive delivery already upon the
court in Cebu.
execution of the public instrument pursuant to Article 1498 and upon the consent
On the strength of an alias writ of execution issued on December 27, 1979, the
or agreement of the parties when the thing sold cannot be immediately
provincial sheriff was able to seize and levy on the tractor which was in the
transferred to the possession of the vendee.
premises of Libra in Carmen, Cebu. The tractor was subsequently sold at public
auction where Gelac Trading was the lone bidder. Later, Gelac sold the tractor to
PETITION for certiorari to review the decision of the Court of Appeals.
one of its stockholders, Antonio Gonzales.
It was only when the check was cleared on January 17, 1980 that the
The facts are stated in the opinion of the Court. petitioner learned about GELAC having already taken custody of the subject
Zosa & Quijano Law Offices for petitioner. tractor. Consequently, the petitioner filed an action to recover the subject tractor
Expedito P. Bugarin for respondent GELAC Trading, Inc. against GELAC Trading with the Regional Trial Court of Cebu City.
On April 8, 1988, the RTC rendered judgment in favor of the petitioner. The
GUTIERREZ, JR., J.: dispositive portion of the decision reads as follows:
“WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against
the defendant, pronouncing that the plaintiff is the owner of the tractor, subject

70
Credtrans pledge chattel
matter of this case, and directing the defendants Gelac Trading Corporation and
Antonio Gonzales to return the same to the plaintiff herein; directing the
defendants jointly and severally to pay to the plaintiff the amount of P1,541.00 as
expenses for hiring a tractor; P50,000 for moral damages; P50,000 for exemplary
damages; and to pay the cost.” (Rollo, pp. 35-36)
On appeal, the Court of Appeals reversed the decision of the
829
VOL. 198, JULY 8, 1991 829
Dy, Jr. vs. Court of Appeals
RTC and dismissed the complaint with costs against the petitioner. The Court of
Appeals held that the tractor in question still belonged to Wilfredo Dy when it
was seized and levied by the sheriff by virtue of the alias writ of execution issued
in Civil Case No. R-16646.
The petitioner now comes to the Court raising the following questions:
A.
“WHETHER OR NOT THE HONORABLE COURT OF APPEALS MIS-
APPREHENDED THE FACTS AND ERRED IN NOT AFFIRMING THE TRIAL
COURT’S FINDING THAT OWNERSHIP OF THE FARM TRACTOR HAD
ALREADY PASSED TO HEREIN PETITIONER WHEN SAID TRACTOR WAS
LEVIED ON BY THE SHERIFF PURSUANT TO AN ALIAS WRIT OF
EXECUTION ISSUED IN ANOTHER CASE IN FAVOR OF RESPONDENT
GELAC TRADING INC.”
B.
“WHETHER OR NOT THE HONORABLE COURT OF APPEALS
EMBARKED ON MERE CONJECTURE AND SURMISE IN HOLD-ING THAT
THE SALE OF THE AFORESAID TRACTOR TO PETITIONER WAS DONE IN
FRAUD OF WILFREDO DY’S CREDITORS, THERE BEING NO EVIDENCE OF
SUCH FRAUD AS FOUND BY THE TRIAL COURT.”
C.
“WHETHER OR NOT THE HONORABLE COURT OF APPEALS
MISAPPREHENDED THE FACTS AND ERRED IN NOT SUSTAINING THE
FINDING OF THE TRIAL COURT THAT THE SALE OF THE TRACTOR BY
RESPONDENT GELAC TRADING TO ITS CO-RESPONDENT ANTONIO V.
GONZALES ON AUGUST 2, 1980—AT WHICH TIME BOTH RESPONDENTS
ALREADY KNEW OF THE FILING OF THE INSTANT CASE—WAS
VIOLATIVE OF THE HUMAN RELATIONS PROVISIONS OF THE CIVIL
CODE AND RENDERED THEM LIABLE FOR THE MORAL AND EXEMPLARY
DAMAGES SLAPPED AGAINST THEM BY THE TRIAL COURT.” (Rollo, p. 13)
The respondents claim that at the time of the execution of the deed of sale, no
constructive delivery was effected since the consummation of the sale depended
upon the clearance and
830
830 SUPREME COURT REPORTS
ANNOTATED
Dy, Jr. vs. Court of Appeals
encashment of the check which was issued in payment of the subject tractor.
In the case of Servicewide Specialists Inc. v. Intermediate Appellate
Court. (174 SCRA 80 [1989]), we stated that:
xxx xxx xxx
“The rule is settled that the chattel mortgagor continues to be the owner of
the property, and therefore, has the power to alienate the same; however, he is
obliged under pain of penal liability, to secure the written consent of the
mortgagee. (Francisco, Vicente, Jr., Revised Rules of Court in the Philippines,
(1972), Volume IV-B Part I, p. 525). Thus, the instruments of mortgage are
binding, while they subsist, not only upon the parties executing them but also
upon those who later, by purchase or otherwise, acquire the properties referred to
therein.
“The absence of the written consent of the mortgagee to the sale of the
mortgaged property in favor of a third person, therefore, affects not the validity of
the sale but only the penal liability of the mortgagor under the Revised Penal
Code and the binding effect of such sale on the mortgagee under the Deed of
Chattel Mortgage.”
The mortgagor who gave the property as security under a chattel mortgage did
not part with the ownership over the same. He had the right to sell it although he
was under the obligation to secure the written consent of the mortgagee or he lays
himself open to criminal prosecution under the provision of Article 319 par. 2 of
the Revised Penal Code. And even if no consent was obtained from the mortgagee,
the validity of the sale would still not be affected.
Thus, we see no reason why Wilfredo Dy, as the chattel mortgagor can not sell
the subject tractor. There is no dispute that the consent of Libra Finance was
obtained in the instant case. In a letter dated August 27, 1979, Libra allowed the
petitioner to purchase the tractor and assume the mortgage debt of his brother.
The sale between the brothers was therefore valid and binding as between them
and to the mortgagee, as well.
Article 1496 of the Civil Code states that the ownership of the thing sold is
acquired by the vendee from the moment it is delivered to him in any of the ways
specified in Articles 1497 to 1501 or in any other manner signifying an agreement
that the
831
VOL. 198, JULY 8, 1991 831
Dy, Jr. vs. Court of Appeals
possession is transferred from the vendor to the vendee. We agree with the
petitioner that Articles 1498 and 1499 are applicable in the case at bar.
Article 1498 states:
“Art. 1498. When the sale is made through a public instrument, the execution
thereof shall be equivalent to the delivery of the thing which is the object of the
contract, if from the deed the contrary does not appear or cannot clearly be
inferred.”
71
Credtrans pledge chattel
Article 1499 provides:
“Article 1499. The delivery of movable property may likewise be made by the
mere consent or agreement of the contracting parties, if the thing sold cannot be
transferred to the possession of the vendee at the time of the sale, or if the latter
already had it in his possession for any other reason. (1463a)”
In the instant case, actual delivery of the subject tractor could not be made.
However, there was constructive delivery already upon the execution of the public
instrument pursuant to Article 1498 and upon the consent or agreement of the
parties when the thing sold cannot be immediately transferred to the possession
of the vendee. (Art. 1499)
The respondent court avers that the vendor must first have control and
possession of the thing before he could transfer ownership by constructive
delivery. Here, it was Libra Finance which was in possession of the subject tractor
due to Wilfredo’s failure to pay the amortization as a preliminary step to
foreclosure. As mortgagee, he has the right of foreclosure upon default by the
mortgagor in the performance of the conditions mentioned in the contract of
mortgage. The law implies that the mortgagee is entitled to possess the
mortgaged property because possession is necessary in order to enable him to
have the property sold.
While it is true that Wilfredo Dy was not in actual possession and control of
the subject tractor, his right of ownership was not divested from him upon his
default. Neither could it be said that Libra was the owner of the subject tractor
because the mortgagee can not become the owner of or convert and appropriate to
832
832 SUPREME COURT REPORTS
ANNOTATED
Dy, Jr. vs. Court of Appeals
himself the property mortgaged. (Article 2088, Civil Code) Said property
continues to belong to the mortgagor. The only remedy given to the mortgagee is
to have said property sold at public auction and the proceeds of the sale applied to
the payment of the obligation secured by the mortgagee. (See Martinez v. PNB, 93
Phil. 765, 767 [1953]) There is no showing that Libra Finance has already
foreclosed the mortgage and that it was the new owner of the subject tractor.
Undeniably, Libra gave its consent to the sale of the subject tractor to the
petitioner. It was aware of the transfer of rights to the petitioner.
Where a third person purchases the mortgaged property, he automatically
steps into the shoes of the original mortgagor. (See Industrial Finance Corp. v.
Apostol, 177 SCRA 521 [1989]). His right of ownership shall be subject to the
mortgage of the thing sold to him. In the case at bar, the petitioner was fully
aware of the existing mortgage of the subject tractor to Libra. In fact, when he
was obtaining Libra’s consent to the sale, he volunteered to assume the remaining
balance of the mortgage debt of Wilfredo Dy which Libra undeniably agreed to.
The payment of the check was actually intended to extinguish the mortgage
obligation so that the tractor could be released to the petitioner. It was never
intended nor could it be considered as payment of the purchase price because the
relationship between Libra and the petitioner is not one of sale but still a
mortgage. The clearing or encashment of the check which produced the effect of
payment determined the full payment of the money obligation and the release of
the chattel mortgage. It was not determinative of the consummation of the sale.
The transaction between the brothers is distinct and apart from the transaction
between Libra and the petitioner. The contention, therefore, that the
consummation of the sale depended upon the encashment of the check is
untenable.
The sale of the subject tractor was consummated upon the execution of the
public instrument on September 4, 1979. At this time constructive delivery was
already effected. Hence, the subject tractor was no longer owned by Wilfredo Dy
when it was levied upon by the sheriff in December, 1979. Well settled is the rule
that only properties unquestionably owned by the judgment debtor and which are
not exempt by law from execution should be levied upon or sought to be levied
upon. For the power
833
VOL. 198, JULY 8, 1991 833
Dy, Jr. vs. Court of Appeals
of the court in the execution of its judgment extends only over properties
belonging to the judgment debtor. (Consolidated Bank and Trust Corp. v. Court of
Appeals, G.R. No. 78771, January 23, 1991).
The respondents further claim that at that time the sheriff levied on the
tractor and took legal custody thereof no one ever protested or filed a third party
claim.
It is inconsequential whether a third party claim has been filed or not by the
petitioner during the time the sheriff levied on the subject tractor. A person other
than the judgment debtor who claims ownership or right over levied properties is
not precluded, however, from taking other legal remedies to prosecute his claim.
(Consolidated Bank and Trust Corp. v. Court of Appeals, supra) This is precisely
what the petitioner did when he filed the action for replevin with the RTC.
Anent the second and third issues raised, the Court accords great respect and
weight to the findings of fact of the trial court. There is no sufficient evidence to
show that the sale of the tractor was in fraud of Wilfredo and creditors. While it is
true that Wilfredo and Perfecto are brothers, this fact alone does not give rise to
the presumption that the sale was fraudulent. Relationship is not a badge of
fraud (Goquiolay v. Sycip, 9 SCRA 663 [1963]). Moreover, fraud can not be
presumed; it must be established by clear convincing evidence.
We agree with the trial court’s findings that the actuations of GELAC Trading
were indeed violative of the provisions on human relations. As found by the trial
court, GELAC knew very well of the transfer of the property to the petitioners on
July 14, 1980 when it received summons based on the complaint for replevin filed
with the RTC by the petitioner. Notwithstanding said summons, it continued to
sell the subject tractor to one of its stockholders on August 2, 1980.
WHEREFORE, the petition is hereby GRANTED. The decision of the Court of
Appeals promulgated on March 23, 1990 is SET ASIDE and the decision of the
Regional Trial Court dated April 8, 1988 is REINSTATED.
SO ORDERED.
72
Credtrans pledge chattel

478 SUPREME COURT REPORTS the new assignee, petitioner’s consent is necessary before respondent spouses’
alienation of the vehicle can be considered as binding against third persons.
ANNOTATED Petitioner is considered a third person with respect to the sale with mortgage
Servicewide Specialists, Incorporated vs. Court between respondent spouses and third party defendant Conrado Tecson.
of Appeals
PETITION for review on certiorari of a decision of the Court of Appeals.
G.R. No. 116363. December 10, 1999.* The facts are stated in the opinion of the Court.
SERVICEWIDE SPECIALISTS, INCORPORATED, petitioner, vs. THE HON. Labaguis, Loyola, Atienza, Felipe, Santos and Associates for petitioner.
COURT OF APPEALS, JESUS PONCE, and ELIZABETH PONCE, respondents. Jesus M. Ponce for private respondents.

Civil Law; Mortgage; In case of assignment of credit, only notice to but not YNARES-SANTIAGO, J.:
the consent of the debtor-mortgagor is necessary to bind the latter.—When the
credit was assigned to petitioner, only notice to but not the consent of the debtor-
This controversy is between a mortgagor who alienated the mortgaged property
mortgagor was necessary to bind the latter. Applying Article 1627 of the Civil
without the consent of the mortgagee, on
Code, the assignment made to petitioner includes the accessory rights such as the
480
mortgage. Article 2141, on the other hand, states that the provisions concerning a
contract of pledge shall be applicable to a chattel mortgage, such as the one at 480 SUPREME COURT REPORTS
bar, insofar as there is no conflict with Act No. 1508, the Chattel Mortgage Law. ANNOTATED
As provided in Article 2096 in relation to Article 2141 of the Civil Code, a thing
Servicewide Specialists, Incorporated vs. Court
pledged may be
_______________ of Appeals
the one hand, and the assignee of the mortgagee to whom the latter assigned his
* FIRST DIVISION. credit without notice to the mortgagor, on the other hand.
Sometime in 1975, respondent spouses Atty. Jesus and Elizabeth Ponce
479 bought on installment a Holden Torana vehicle from C. R. Tecson Enterprises.
They executed a promissory note and a chattel mortgage on the vehicle dated
VOL. 320, DECEMBER 10, 1999 4 December 24, 1975 in favor of the C. R. Tecson Enterprises to secure payment of
the note. The mortgage was registered both in the Registry of Deeds and the Land
79 Transportation Office. On the same date, C. R. Tecson Enterprises, in turn,
Servicewide Specialists, Incorporated vs. executed a deed of assignment of said promissory note and chattel mortgage in
favor of Filinvest Credit Corporation with the conformity of respondent spouses.
Court of Appeals
The latter were aware of the endorsement of the note and the mortgage to
alienated by the pledgor or owner “with the consent of the pledgee.” This
Filinvest as they in fact availed of its financing services to pay for the car. In
provision is in accordance with Act No. 1508 which provides that “a mortgagor of
1976, respondent spouses transferred and delivered the vehicle to Conrado R.
personal property shall not sell or pledge such property, or any part thereof,
Tecson by way of sale with assumption of mortgage. Subsequently, in 1978,
mortgaged by him without the consent of the mortgagee in writing on the back of
Filinvest assigned all its rights and interest over the same promissory note and
the mortgage and on the margin of the record thereof in the office where such
chattel mortgage to petitioner Servicewide Specialists Inc. without notice to
mortgage is recorded.”
respondent spouses. Due to the failure of respondent spouses to pay the
Same; Same; A mortgage credit may be alienated or assigned to a third
installments under the promissory note from October 1977 to March 1978, and
person; The assignee’s consent is necessary in order to bind him of the alienation of
despite demands to pay the same or to return the vehicle, petitioner was
the mortgaged thing by the debtor-mortgagor.—Although this provision in the
constrained to file before the Regional Trial Court of Manila on May 22, 1978 a
chattel mortgage has been expressly repealed by Article 367 of the Revised Penal
complaint for replevin with damages against them, docketed as Civil Case No.
Code, yet under Article 319 (2) of the same Code, the sale of the thing mortgaged
115567. In their answer, respondent spouses denied any liability claiming they
may be made provided that the mortgagee gives his consent and that the same is
had already returned the car to Conrado Tecson pursuant to the Deed of Sale
recorded. In any case, applying by analogy Article 2128 of the Civil Code to a
with Assumption of Mortgage. Thus, they filed a third party complaint against
chattel mortgage, it appears that a mortgage credit may be alienated or assigned
Conrado Tecson praying that in case they are adjudged liable to petitioner,
to a third person. Since the assignee of the credit steps into the shoes of the
Conrado Tecson should reimburse them.
creditor-mortgagee to whom the chattel was mortgaged, it follows that the
After trial, the lower court found respondent spouses jointly and solidarily
assignee’s consent is necessary in order to bind him of the alienation of the
liable to petitioner, however, the third party defendant Conrado Tecson was
mortgaged thing by the debtor-mortgagor. This is tantamount to a novation. As
ordered to reimburse the respondent spouses for the sum that they would pay to
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Credtrans pledge chattel
481
VOL. 320, DECEMBER 10, 1999 481
Servicewide Specialists, Incorporated vs. Court
of Appeals
petitioner.1 On appeal, the Court of Appeals reversed and set aside the judgment
of the court a quo on the principal ground that respondent spouses were not
notified of the assignment of the promissory note and chattel mortgage to
petitioner.2 Hence, this petition for review.
The resolution of the petition hinges on whether the assignment of a credit
requires notice to the debtor in order to bind him. More specifically, is the debtor-
mortgagor who sold the property to another entitled to notice of the assignment of
credit made by the creditor to another party such that if the debtor was not
notified of the assignment, he can no longer be held liable since he already
alienated the property? Conversely, is the consent of the creditor-mortgagee
necessary when the debtor-mortgagor alienates the property to a third person?
________________
Decision dated November 8, 1989 of Regional Trial Court (RTC-Branch IX,
1 Mortgage Law. As provided in Article 2096 in relation to Article 2141 of the Civil
Manila), penned by Judge Edilberto G. Sandoval, pp. 11-12; Rollo, pp. 78-79,
reads: “WHEREFORE, judgment is hereby rendered, ordering the defendants to
pay the plaintiff jointly and severally the following sums:
1. a.)P26,633,09, plus interest at 14% per annum from April 26, 1978 until
fully paid;
2. b.)25% of the above sum in item (a) as liquidated damages;
3. c.)P5,000.00 as attorney’s fees; and
4. d.)costs of suit.
In connection with the Third Party Complaint of the defendants-third-party
plaintiffs, the third party defendant Conrado Tecson is hereby ordered to
reimburse defendants Ponce for all the sums the latter would pay to the plaintiff,
and attorney’s fees of P3,000.00.
SO ORDERED.”
2 The dispositive portion of the Court of Appeals (CA) Decision, promulgated
April 29, 1994 with Justice Ricardo J. Francisco, ponente, and Justices Montoya
and Barcelona, concurring, p. 6; Rollo, p. 59, reads: “WHEREFORE, premises
considered, the appealed decision is hereby REVERSED and SET ASIDE.”
482
482 SUPREME COURT REPORTS
ANNOTATED
Servicewide Specialists, Incorporated vs. Court
of Appeals
Only notice to the debtor of the assignment of credit is required. His consent is
not required. In contrast, consent of the creditor-mortgagee to the alienation of
the mortgaged property is necessary in order to bind said creditor. To evade
liability, respondent spouses invoked Article 1626 of the Civil Code which
provides that “the debtor who, before having knowledge of the assignment, pays
his creditor shall be released from the obligation.” They argue that they were not
notified of the assignment made to petitioner. This provision, however, is
applicable only where the debtor pays the creditor prior to acquiring knowledge of
the latter’s assignment of his credit. It does not apply, nor is it relevant, to cases
of non-payment after the debtor came to know of the assignment of credit. This is
precisely so since the debtor did not make any payment after the assignment.
In the case at bar, what is relevant is not the assignment of credit between
petitioner and its assignor, but the knowledge or consent of the creditor’s assignee
to the debtor-mortgagor’s sale of the property to another.
When the credit was assigned to petitioner, only notice to but not the consent
of the debtor-mortgagor was necessary to bind the latter. Applying Article 1627 of
the Civil Code,3 the assignment made to petitioner includes the accessory rights
such as the mortgage. Article 2141, on the other hand, states that the provisions
concerning a contract of pledge shall be applicable to a chattel mortgage, such as
the one at bar, insofar as there is no conflict with Act No. 1508, the Chattel
Code,4 a thing pledged may be alienated by the pledgor or owner “with the
consent of the pledgee.” This provision is in accordance with Act No. 1508 which
provides that “a mortgagor of personal property shall not sell or
________________
483
VOL. 320, DECEMBER 10, 1999 483
Servicewide Specialists, Incorporated vs. Court
of Appeals
pledge such property, or any part thereof, mortgaged by him without the consent
of the mortgagee in writing on the back of the mortgage and on the margin of the
record thereof in the office where such mortgage is recorded.”5 Although this
provision in the chattel mortgage has been expressly repealed by Article 367 of
the Revised Penal Code, yet under Article 319 (2) of the same Code, the sale of the
thing mortgaged may be made provided that the mortgagee gives his consent and
that the same is recorded.6 In any case, applying by analogy Article 2128 of the
Civil Code7 to a chattel mortgage, it appears that a mortgage credit may be
alienated or assigned to a third person. Since the assignee of the credit steps into
the shoes of the creditor-mortgagee to whom the chattel was mortgaged, it follows
that the assignee’s consent is necessary in order to bind him of the alienation of
the mortgaged thing by the debtor-mortgagor. This is tantamount to a novation.
As the new assignee, petitioner’s consent is necessary before respondent spouses’
alienation of the vehicle can be considered as binding against third persons.
Petitioner is considered a third person with respect to the sale with mortgage
between respondent spouses and third party defendant Conrado Tecson.
In this case, however, since the alienation by the respondent spouses of the
vehicle occurred prior to the assignment of credit to petitioner, it follows that the
former were not bound to obtain the consent of the latter as it was not yet an
assignee of the credit at the time of the alienation of the mortgaged vehicle.
74
Credtrans pledge chattel
The next question is whether respondent spouses needed to notify or secure
the consent of petitioner’s predecessor to the alienation of the vehicle. The sale
with assumption of mortgage made by respondent spouses is tantamount to a
substitution of debtors. In such case, mere notice to the creditor is not enough, his
consent is always necessary as provided in
________________
484
484 SUPREME COURT REPORTS
ANNOTATED
Servicewide Specialists, Incorporated vs. Court
of Appeals
Article 1293 of the Civil Code.8 Without such consent by the creditor, the
alienation made by respondent spouses is not binding on the former. On the other
hand, Articles 1625,9 162610 and 1627 of the Civil Code on assignment of credits
do not require the debtor’s consent for the validity thereof and so as to render him
liable to the assignee. The law speaks not of consent but of notice to the debtor,
the purpose of which is to inform the latter that from the date of assignment he
should make payment to the assignee and not to the original creditor. Notice is
thus for the protection of the assignee because before said date, payment to the
original creditor is valid.
When Tecson Enterprises assigned the promissory note and the chattel
mortgage to Filinvest, it was made with respondent spouses’ tacit approval. When
Filinvest in turn, as assignee, assigned it further to petitioner, the latter should
have notified the respondent spouses of the assignment in order to bind them.
This, they failed to do. The testimony of petitioner’s witness that notice of
assignment was sent to respondent spouses was stricken off the record. Having
asserted the affirmative on the issue of notice, petitioner should have
substantiated its allegations in order to obtain a favorable judgment. In civil
cases, the burden is on the party who would be defeated if no evidence is given on
either side.11 Being the plaintiff in the trial below, petitioner must establish its
case, relying on the strength of its own evidence and not upon the weakness of
that of its opponent.12 The consent to the assign-
_______________
Testate Estate of Mota v. Serra, 47 Phil. 464 (1925); Garcia v. Khu Yek
8
Chiong, 65 Phil. 466 (1938).
9 ART. 1625. An assignment of a credit, right or action shall produce no effect
as against third persons, unless it appears in a public instrument, or the
instrument is recorded in the Registry of Property in case the assignment
involves real property.
10 ART. 1626. The debtor who, before having knowledge of the assignment,
pays his creditor shall be released from the obligation.
11 Summa Insurance Corporation v. CA, 253 SCRA 175.
12 Trans-Pacific Supplies, Inc. v. CA, 235 SCRA 494; Geraldez v. CA, 231
SCRA 498.
485
VOL. 320, DECEMBER 10, 1999 485
Servicewide Specialists, Incorporated vs. Court
of Appeals
ment given by respondent spouses to Filinvest cannot be construed as the
spouses’ knowledge of the assignment to petitioner precisely because at the time
of the assignment to the latter, the spouses had earlier sold the vehicle to
another.
One thing, however, that militates against the posture of respondent spouses
is that although they are not bound to obtain the consent of the petitioner before
alienating the property, they should have obtained the consent of Filinvest since
they were already aware of the assignment to the latter. So that, insofar as
Filinvest is concerned, the debtor is still respondent spouses because of the
absence of its consent to the sale. Worse, Filinvest was not even notified of such
sale. Having subsequently stepped into the shoes of Filinvest, petitioner acquired
the same rights as the former had against respondent spouses. The defenses that
could have been invoked by Filinvest against the spouses can be successfully
raised by petitioner. Therefore, for failure of respondent spouses to obtain the
consent of Filinvest thereto, the sale of the vehicle to Conrado R. Tecson was not
binding on the former. When the credit was assigned by Filinvest to petitioner,
respondent spouses stood on record as the debtor-mortgagor.
WHEREFORE, the decision of the Court of Appeals is REVERSED and SET
ASIDE. The decision of the Regional Trial Court is AFFIRMED and
REINSTATED. Respondents Jesus Ponce and Elizabeth Ponce are ORDERED to
pay petitioner, jointly and severally, the following sums:
1. a)P26,633,09, plus interest at 14% per annum from April 26, 1978 until
fully paid;
2. b)25% of the above sum in item (a) as liquidated damages;
3. c)P5,000.00 as attorney’s fees; and
4. d)costs of suit.
In connection with the Third Party Complaint of the respondents, the third party
defendant Conrado Tecson is hereby ordered to reimburse respondents Ponce for
all the sums the latter would pay to petitioner, and attorney’s fees of P3,000.00.
486
486 SUPREME COURT REPORTS
ANNOTATED
Reyes vs. Court of Appeals
SO ORDERED.
Davide, Jr. (C.J., Chairman), Puno, Kapunan and Pardo, JJ., concur.
Judgment reversed and set aside, that of the court a quo affirmed and
reinstated.
Note.—In sales with assumption of mortgage, the assumption of mortgage is
a condition to the seller’s consent so that without approval by the mortgagee, no
sale is perfected. (Ramos vs. Court of Appeals, 279 SCRA 118 [1997])
75
Credtrans pledge chattel
SO ORDERED.
Ynares-Santiago,*** Peralta,**** Del Castillo and Abad, JJ., concur.
Judgment reversed and set aside, appellants acquitted.
Note.—It is difficult to affirm the trial court’s judgment of conviction which is
based on little regard for the issues raised by the defense and on a bare
declaration that the guilt of the accused has been proved. (People vs. Batoctoy, 401
SCRA 478 [2003])
——o0o——
October 2, 2009. G.R. No. 179756.*
RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs. ROYAL
CARGO CORPORATION, respondent.
Judgments; Res Judicata; Elements.—The respective decisions of the
appellate court in CA-G.R. SP No. 31125 and this Court in G.R. No. 115662 did
not conclusively settle the issue on the need to give a 10-day notice to respondent
of the holding of the public auction sale of the chattels. The elements of res
judicata are: (1) the judgment sought to bar the new action must be final; (2) the
decision must have been rendered by a court having jurisdiction over the subject
matter and the parties; (3) the disposition of the case must be a judgment on the
merits; and (4) there must be as between the first and second action, identity of
parties, subject matter, and causes of action.
Same; Same; Two Concepts; Words and Phrases; “Bar by Prior Judgment,”
and “Conclusiveness of Judgment,” Explained.—Res judicata has two concepts:
(1) bar by prior judgment as enunciated in Rule 39,
_______________
*** Additional member per Special Order No. 691.
**** Additional member per Special Order No. 711.
* SECOND DIVISION.
546Section 47 (b) of the Rules of Civil Procedure; and (2) conclusiveness of
judgment in Rule 39, Section 47 (c). There is bar by prior judgment when, as
between the first case where the judgment was rendered, and the second case
that is sought to be barred, there is identity of parties, subject matter, and causes
of action. Where there is identity of parties and subject matter in the first and
second cases, but no identity of causes of action, there is conclusiveness of
judgment. The first judgment is conclusive only as to those
matters actually and directly controverted and determined, not as to matters
merely involved therein.
Same; Same; Interlocutory Orders; An order denying a motion to dismiss is
merely interlocutory and cannot give rise to res judicata, hence, it is subject to
amendments until the rendition of the final judgment.—The Court of Appeals,
in CA G.R. SP No. 31125, resolved only the interlocutory issue of whether the trial
court’s Order of April 12, 1993 denying petitioner’s motion to dismiss respondent’s
petition for annulment was attended by grave abuse of discretion. The appellate
court did not rule on the merits of the petition as to establish a controlling legal
rule which has to be subsequently followed by the parties in the same case. It
merely held that respondent’s petition in the trial court stated a sufficient cause
of action. Its determination of respondent’s entitlement to notice of the public
auction sale was at best prima facie. Thus, the appellate court held: In view of the
above, We are of the considered view that the private respondent’s petition in the
court a quo prima facie states a sufficient cause of action and that the public
respondent in denying the petitioner’s motion to dismiss, had acted advisedly and
well within its powers and authority. We, therefore, find no cause to annul
the challenged order issued by the respondent court in Civil Case No. 92-
62106. An order denying a motion to dismiss is merely interlocutory and cannot
give rise to res judicata, hence, it is subject to amendments until the rendition of
the final judgment.
Chattel Mortgage Law; Redemption; Equity of Redemption; Section 13 of the
Chattel Mortgage Law allows the would-be redemptioner thereunder to redeem the
mortgaged property only before its sale; Unmistakably, the redemption cited in
Section 13 partakes of an equity of redemption, which is the right of the
mortgagor to redeem the mortgaged property after his default in the performance
of the conditions of the mortgage but before the sale of the property to clear it from
the encumbrance of the mortgage.—Section 13 of the Chattel Mortgage Law allows
the would-be redemptioner thereunder to redeem the mortgaged property
only before its sale. Con-
547sider the following pronouncement in Paray: [T]here is no law in our
statute books which vests the right of redemption over personal property. Act No.
1508, or the Chattel Mortgage Law, ostensibly could have served as the vehicle
for any legislative intent to bestow a right of redemption over personal property,
since that law governs the extrajudicial sale of mortgaged personal property, but
the statute is definitely silent on the point. And Section 39 of the 1997 Rules of
Civil Procedure, extensively relied upon by the Court of Appeals, starkly utters
that the right of redemption applies to real properties, not personal properties,
sold on execution. Unmistakably, the redemption cited in Section 13 partakes of
an equity of redemption, which is the right of the mortgagor to redeem the
mortgaged property after his default in the performance of the conditions of the
mortgage but before the sale of the property to clear it from the encumbrance of
the mortgage. It is not the same as right of redemption which is the right of the
mortgagor to redeem the mortgaged property after registration of the foreclosure
sale, and even after confirmation of the sale.
Same; Same; Same; The right or equity of redemption is an incorporeal
and intangible right, the value of which can neither be quantified nor equated with
the actual value of the properties upon which it may be exercised.—While
respondent had attached some of Terrymanila’s assets to secure the satisfaction of
a P296,662.16 judgment rendered in another case, what it effectively attached
was Terrymanila’s equity of redemption. That respondent’s claim is much lower
than the P1.5 million actual bid of petitioner at the auction sale does not defeat
respondent’s equity of redemption. Top Rate International Services, Inc. v. IAC,
142 SCRA 467 (1986) enlightens: It is, therefore, error on the part of the
petitioner to say that since private respondents’ lien is only a total of
P343,227.40, they cannot be entitled to the equity of redemption because
76
Credtrans pledge chattel
the exercise of such right would require the payment of an amount
which cannot be less than P40,000,000.00. When herein private respondents
prayed for the attachment of the properties to secure their respective claims
against Consolidated Mines, Inc., the properties had already been mortgaged to
the consortium of twelve banks to secure an obligation of US$62,062,720.66.
Thus, like subsequent mortgagees, the respondents’ liens on such properties
became inferior to that of banks, which claims in the event of foreclosure
proceedings, must first be satisfied. The appellate court, therefore, was
correct in holding that in reality, what was attached by the respondents
was merely Consolidated Mines’ . . . equity of redemption. x x x x x x x x We,
therefore, hold that the appellate court did not commit any error in ruling that
there
548was no over-levy on the disputed properties. What was actually
attached by respondents was Consolidated Mines’ right or equity of
redemption, an incorporeal and intangible right, the value of which can neither
be quantified nor equated with the actual value of the properties upon which it
may be exercised.
Same; Same; Same; The negligence or omission of a party to exercise its
equity of redemption within a reasonable time, or even on the day of the auction
sale, warrants a presumption that it had either abandoned it or opted not to assert
it.—Despite its window of opportunity to exercise its equity of redemption,
however, respondent chose to be technically shrewd about its chances, preferring
instead to seek annulment of the auction sale, which was the result of the
foreclosure of the mortgage, permission to conduct which it had early on opposed
before the insolvency court. Its negligence or omission to exercise its equity of
redemption within a reasonable time, or even on the day of the auction sale,
warrants a presumption that it had either abandoned it or opted not to assert it.
Equitable considerations thus sway against it.
Same; Same; Since the registration of a chattel mortgage is an effective and
binding notice to other creditors of its existence and creates a real right or lien that
follows the property wherever it may be, the right of an attaching creditor, or a
purchaser at the auction sale, is subordinate to the lien of the mortgagee who has
in his favor a valid chattel mortgage.—It bears noting that the chattel mortgage
in favor of petitioner was registered more than two years before the issuance of a
writ of attachment over some of Terrymanila’s chattels in favor of respondent.
This is significant in determining who between petitioner and respondent should
be given preference over the subject properties. Since the registration of a chattel
mortgage is an effective and binding notice to other creditors of its existence and
creates a real right or lien that follows the property wherever it may be, the right
of respondent, as an attaching creditor or as purchaser, had it purchased the
mortgaged chattel at the auction sale, is subordinate to the lien of the mortgagee
who has in his favor a valid chattel mortgage.
Same; Same; Foreclosure suits may be initiated even during insolvency
proceedings, as long as leave must first be obtained from the insolvency court.—
Contrary then to the appellate court’s ruling, petitioner is not liable for
constructive fraud for proceeding with the auction sale. Nor for subsequently
selling the chattel. For foreclosure suits may be initiated even during insolvency
proceedings, as long as leave must first be obtained from the insolvency court as
what petitioner did.549 Counterclaims; Attorney’s Fees; The cause of action of a
defendant’s counterclaim for damages and attorney’s fees arising from an
unfounded suit is not eliminated by the mere dismissal of the plaintiff’s
complaint.—As for petitioner’s prayer for attorney’s fees in its Compulsory
Counterclaim, the same is in order, the dismissal of respondent’s Complaint
nowithstanding. Perkin Elmer Singapore v. Dakila Trading, 530 SCRA 170 (2007)
citing Pinga v. Heirs of German Santiago, 494 SCRA 393 (2006) enlightens: It
bears to emphasize that petitioner’s counterclaim against respondent is for
damages and attorney’s fees arising from the unfounded suit. While respondent’s
Complaint against petitioner is already dismissed, petitioner may have very well
incurred damages and litigation expenses such as attorney’s fees since it was
forced to engage legal representation in the Philippines to protect its rights and to
assert lack of jurisdiction of the courts over its person by virtue of the improper
service of summons upon it. Hence, the cause of action of petitioner’s counterclaim
is not eliminated by the mere dismissal of respondent’s complaint. To the Court,
the amount of P250,000 prayed for by petitioner in its Counterclaim is just and
equitable, given the nature and extent of legal services employed in controverting
respondent’s unfounded claim.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Siguion Reyna, Montecillo & Ongsiako and Lapuz-Ureta, Ramos, Arches,
Miranda and Atienza Law Offices for petitioner.
Marilyn P. Cacho & Associates for respondent.
CARPIO-MORALES,** J.:
Terrymanila, Inc.1 (Terrymanila) filed a petition for voluntary insolvency with
the Regional Trial Court (RTC) of Bataan on February 13, 1991.2 One of its
creditors was Rizal Commercial Banking Corporation (petitioner) with which it
had an obligation of P3 Million that was secured by a chattel mortgage executed
on Febru-
_______________
** Per Special Order No. 690 in lieu of the sabbatical leave of Senior
Associate Justice Leonardo A. Quisumbing.
1 At times referred to as Terry Manila, Inc. in the Rollo and Records.
2 Records, Vol. I, pp. 2-3.
550ary 16, 1989. The chattel mortgage was duly recorded in the notarial register
of Amado Castano, a notary public for and in the Province of Bataan.3
Royal Cargo Corporation (respondent), another creditor of Terrymanila, filed
an action before the RTC of Manila for collection of sum of money and
preliminarily attached “some” of Terrymanila’s personal properties on March 5,
1991 to secure the satisfaction of a judgment award of P296,662.16, exclusive of
interests and attorney’s fees.4
On April 12, 1991, the Bataan RTC declared Terrymanila insolvent.
On June 11, 1991,5 the Manila RTC, by Decision of even date, rendered
judgment in the collection case in favor of respondent.
In the meantime, petitioner sought in the insolvency proceedings at the
Bataan RTC permission to extrajudicially foreclose the chattel mortgage which
77
Credtrans pledge chattel
was granted by Order of February 3, 1992.6 It appears that respondent, together
with its employees’ union, moved to have this Order reconsidered but the motion
was denied by Order of March 20, 1992 Order.7
The provincial sheriff of Bataan thereupon scheduled on June 16, 1992 the
public auction sale of the mortgaged personal properties at the Municipal
Building of Mariveles, Bataan. At the auction sale, petitioner, the sole bidder of
the properties, purchased them for P1.5 Million. Eventually, petitioner sold the
properties to Domingo Bondoc and Victoriano See.8
Respondent later filed on July 30, 1992 a petition before the RTC of Manila,
docketed as Civil Case No. 92-62106, against the Provincial Sheriff of the RTC
Bataan and petitioner, for annulment
_______________
3 Id., at p. 294.
4 Id., at p. 287.
5 Folder of Exhibits, pp. 7-9.
6 Records, Vol. I, p. 304.
7 Folder of Exhibits, p. 48.
8 Id., at p. 272.
551of the auction sale (annulment of sale case). Apart from questioning the
inclusion in the auction sale9 of some of the properties which it had attached,
respondent questioned the failure to duly notify it of the sale at least 10 days
before the sale, citing Section 14 of Act No. 1508 or the Chattel Mortgage
Law which reads:
The mortgagee, his executor, administrator or assign, may, after thirty days,
from the time of condition broken, cause the mortgaged property, or any part
thereof, to be sold at public auction by a public officer at a public place in the
municipality where the mortgagor resides, or where the property is situated,
provided at least ten days notice of the time, place, and purpose of such sale has
been posted at two or more public places in such municipality, and 14. “Sec. the
mortgagee, his executor, administrator or assignee shall notify the
mortgagor or person holding under him and the persons holding
subsequent mortgages of the time and place of sale, either by notice in
writing directed to him or left at his abode, if within the municipality, or
sent by mail if he does not reside in such municipality, at least ten days
previous to the date.” (Emphasis and underscoring supplied),
it claiming that its counsel received a notice only on the day of the sale.10
Petitioner, alleging that the annulment of sale case filed by respondent stated
no cause of action, filed on December 3, 1992 a Motion to Dismiss 11 which was,
however, denied by Branch 16 of the Manila RTC.12
Petitioner appealed the denial of the Motion to Dismiss via certiorari to the
Court of Appeals, docketed as CA-G.R. SP No. 31125. The appellate court
dismissed the petition, by Decision of February 21, 1994, it holding that
respondent’s petition for annulment “prima facie states a sufficient cause of
action and that the [trial court] in denying [herein petitioner RCBC’s] motion to
dis-
_______________
9 Id., at pp. 275, 292-305.
10 Records, Vol. I, pp. 2-3.
11 Id., at pp. 13-20.
12 Id., at pp. 39-41.
552miss, had acted advisedly and well within its powers and authority.”13
Petitioner thereupon filed before the Manila RTC its Answer Ex Abundante
Cautelam14 in the annulment of sale case in which it lodged a Compulsory
Counterclaim by seeking P1 Million for moral damages, P500,000 for exemplary
damages, and P250,000 for attorney’s fees. It thereafter elevated the case to this
Court via petition for review on certiorari, docketed as G.R. 115662. This Court
by minute Resolution of November 7, 1994,15 denied the petition for failure to
show that a reversible error was committed by the appellate court.16
Trial on the merits of the annulment of sale case thereupon ensued. By
Decision17 of October 15, 1997, Branch 16 of the Manila RTC rendered judgment
in favor of respondent, disposing as follows:
“WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
1. ORDERING . . . RCBC to pay plaintiff [herein respondent Royal
Cargo] the amount of P296,662.16 and P8,000.00 as reasonable
attorney’s fees.
2. No pronouncement as to costs.
3. DISMISSING the petition as to respondents Provincial Sheriff of
Balanga, Bataan RTC;
SO ORDERED.”
Both parties appealed to the Court of Appeals which, by Decision 18 of April 17,
2007, denied herein petitioner’s appeal and
_______________
13 Id., at pp. 137-146; CA G.R. SP No. 31125.
14 Records, pp. 87-96.
15 Entitled RCBC v. Court of Appeals, et al.
16 Rollo, p. 202.
17 Records, Vol. II, pp. 752-759.
18 Rollo, pp. 59-76; Penned by Associate Justice Josefina Guevara-Salonga
with Associate Justices Vicente Q. Roxas and Ramon R. Garcia concurring.
553partly granted herein respondent’s by increasing to P50,000 the attorney’s
fees awarded to it and additionally awarding it exemplary damages and imposing
interest on the principal amount payable to it. Thus it disposed:
“WHEREFORE, the foregoing considered, the appeal instituted by appellant
RCBC is hereby DENIED for lack of merit while the appeal of appellant Royal
Cargo is PARTLY GRANTED in that the amount of attorney’s fees awarded
by the RTC is increased to P50,000.00.
In addition, RCBC is ordered to pay Royal Cargo the amount of
P100,000.00 as exemplary damages. The principal amount of P296,662.18 [sic]
to be paid by RCBC to Royal Cargo shall likewise earn 12% interest per
annum from the time the petition was filed in the court a quo until fully paid.
The rest of the decision is AFFIRMED.
78
Credtrans pledge chattel
SO ORDERED.” (Emphasis and underscoring supplied)
In partly granting respondent’s appeal from the Decision of Br. 16 of RTC
Manila, the appellate court ratiocinated that respondent had a right to be “timely
informed” of the foreclosure sale.
“RCBC’s citations [sic] of numerous rulings on the matter more than supports
the fact that as mortgagee, it had preferential right over the chattels subject of
the foreclosure sale. This however is not at issue in this case. What is being
contested is the right of Royal Cargo to be timely informed of the foreclosure
sale as it too had interests over the mortgagee Terrymanila, Inc.’s assets. We note
that this matter had already been passed upon by this Court on February 21,
1994 in CA-G.R. SP No. 31125 as well as by the Supreme Court on November 7,
1994 in G.R. No. [1]15662. RCBC, by arguing about its preferential right as
mortgagee in the instant appeal merely reiterates what had already been
considered and ruled upon in earlier proceedings.
xxxx
Moreover, Section 14 of the Chattel Mortgage Law pertaining to the procedure
in the foreclosure of chattel mortgages provides, to wit:
xxxx
The above-quoted provision clearly requires that the mortgagee should notify
in writing the mortgagor or person holding under him of the time and place
of the sale by personal delivery of the notice. Thus,
554RCBC’s failure to comply with this requirement warranted a ruling against it
by the RTC.” (Italics in the original; emphasis partly in the original; underscoring
supplied)
Its motion for reconsideration having been denied by the appellate
court,19 petitioner lodged the present petition for review which raises the
following issues:
I 21 Id., at pp. 31-33.
WHETHER OR NOT RESPONDENT SHOULD HAVE BEEN GIVEN A TEN(10)-
DAY PRIOR NOTICE OF THE JUNE 16, 1992 FORECLOSURE SALE
II
WHETHER OR NOT THE TRIAL COURT AND THE COURT OF APPEALS
GRAVELY ERRED IN DECLARING PETITIONER GUILTY OF
CONSTRUCTIVE FRAUD IN FAILING TO PROVIDE RESPONDENT A TEN
(10)-DAY PRIOR NOTICE OF THE FORECLOSURE SALE.
III
WHETHER OR NOT THE PETITIONER WAS CORRECTLY HELD LIABLE TO
PAY RESPONDENT P296,662.[16] PLUS INTEREST THEREON, EXEMPLARY
DAMAGES AND ATTORNEY’S FEES.
IV
WHETHER OR NOT PETITIONER IS ENTITLED TO AN AWARD OF
ATTORNEY’S FEES.20 (Underscoring supplied)
Petitioner faults the appellate court in applying res judicata by holding that
respondent’s entitlement to notice of the auction sale had already been settled in
its Decision in CA-G.R. SP No. 31125 and in this Court’s Decision in G.R. No.
115662. For, so it contends, the decisions in these cases dealt
on interlocutory issues, viz: the issue of whether respondent’s petition for
annulment of the sale
_______________
19 Id., at pp. 78-79.
20 Id., at p. 21.
555stated a cause of action, and the issue of whether petitioner’s motion to
dismiss was properly denied.21
Arguing against respondent’s position that it was entitled to notice of the
auction sale, petitioner cites the Chattel Mortgage Law which enumerates who
are entitled to be notified under Section 14 thereof. It posits that “[h]ad the law
intended to include in said Section an attaching creditor or a judgment creditor
[like herein respondent], it could have so specifically stated therein, since in the
preceding section, Section 13, it already mentioned that a subsequent attaching
creditor may redeem.”22
Petitioner goes on to fault the appellate court in echoing its ruling in CA-G.R.
SP No. 31125 that Sections 1323 and 14 of the Chattel Mortgage Law should be
read in tandem since the right given to the attaching creditor under Section 13
“would not serve its purpose if we were to exclude the subsequent attaching
creditor from those who under Section 14 need to be notified of the foreclosure
sale ten days before it is held.”24
Petitioner likewise posits that Section 13 permits a subsequent attaching
creditor to “redeem” the mortgage only before the holding of the auction sale,
drawing attention to Paray v. Rodriguez25 which instructs that no right of
redemption exists over personal property as the Chattel Mortgage Law is silent
thereon.26
_______________
22 Id., at pp. 33-34.
23 Section 13 of the Chattel Mortgage Law reads: When the condition of a
chattel mortgage is broken, a mortgagor or person holding a subsequent
mortgage, or a subsequent attaching creditor may redeem the same by paying or
delivering to the mortgagee the amount due on such mortgage and the reasonable
costs and expenses incurred by such breach of condition before the sale thereof.
An attaching creditor who redeems shall be subrogated to the rights of the
mortgagee and entitled to foreclose the mortgage in the same manner that the
mortgagee could foreclose it by the terms of this Act. (Emphasis and underscoring
supplied)
24 Rollo, p. 34.
25 G.R. No. 132287, January 24, 2006, 479 SCRA 571.
26 Rollo, p. 35.
556 Even assuming arguendo, petitioner contends, that there exists an
obligation to furnish respondent a notice of the auction sale 10 days prior thereto,
“respondent’s judgment award of P296,662.16 with interest thereon at the legal
rate from the date of filing of the [c]omplaint and P10,000.00 as reasonable
attorney’s fees is very much less than the P1.5 [m]illion bid of petitioner…”27
79
Credtrans pledge chattel
As for the issue of constructive fraud-basis of the award of damages to
respondent, petitioner maintains that both the trial and appellate courts erred in
concluding that it (petitioner) was the one which sent the notice of sheriff’s sale
to, which was received on the day of the sale by, the counsel for respondent for, so
it contends, it had absolutely no participation in the preparation and sending of
such notice.28
In its Comment,29 respondent reiterates that the respective decisions of the
appellate court and this Court in CA-G.R. SP No. 31125 and G.R. No.
115662 are conclusive between the parties, hence, “the right of [respondent] to a
[ten-day] notice has a binding effect and must be adopted in any other controversy
between the same parties in which the very same question is raised.”30
And respondent maintains that the obligation to notify the mortgagor or
person holding under him and the persons holding subsequent mortgages falls
upon petitioner as the mortgagee.
The petition is MERITORIOUS.
The respective decisions of the appellate court in CA-G.R. SP No. 31125 and
this Court in G.R. No. 115662 did not conclusively settle the issue on the need to
give a 10-day notice to respondent of the holding of the public auction sale of the
chattels.
The elements of res judicata are: (1) the judgment sought to bar the new
action must be final; (2) the decision must have been rendered by a court having
jurisdiction over the subject matter and
_______________
27 Id., at p. 48.
28 Id., at p. 45.
29 Id., at pp. 222-233.
30 Id., at pp. 229-230
557the parties; (3) the disposition of the case must be a judgment on the merits;
and (4) there must be as between the first and second action, identity of parties,
subject matter, and causes of action.31
Res judicata has two concepts: (1) bar by prior judgment as enunciated in
Rule 39, Section 47 (b) of the Rules of Civil Procedure; and (2) conclusiveness of
judgment in Rule 39, Section 47 (c).32
There is bar by prior judgment when, as between the first case where the
judgment was rendered, and the second case that is sought to be barred, there is
identity of parties, subject matter, and causes of action. Where there is identity of
parties and subject matter in the first and second cases, but no identity of causes
of action, there is conclusiveness of judgment.33 The first judgment is
conclusive only as to those matters actually and directly
controverted and determined, not as to matters merely involved therein.
The Court of Appeals, in CA-G.R. SP No. 31125, resolved only
the interlocutory issue of whether the trial court’s Order of April 12, 1993 denying
petitioner’s motion to dismiss respondent’s petition for annulment was attended
by grave abuse of discretion. The appellate court did not rule on the merits of the
petition as to establish a controlling legal rule which has to be subsequently
followed by the parties in the same case. It merely held that respondent’s petition
in the trial court stated a sufficient cause of action.
_______________
31 Republic v. Court of Appeals, G.R. No. 103412, February 3, 2000, 324
SCRA 560, 565 citing Casil v. Court of Appeals, G.R. No. 121534, January 28,
1998, 285 SCRA 264, 276.
32x x x x. 47. SEC.
32In any other litigation between the same parties or their successors in
interest, that only is deemed to have been adjudged in a former judgment or final
order which appears upon its face to have been so adjudged, or which was actually
and necessarily included therein or necessary thereto. (c)
33 Padillo v. Court of Appeals, G.R. No. 119707, November 29, 2001, 371
SCRA 27, 39-40 citing Islamic Directorate of the Phils. v. Court of Appeals, G.R.
No. 117897, May 14, 1997, 272 SCRA 454, 466.
558Its determination of respondent’s entitlement to notice of the public auction
sale was at best prima facie. Thus, the appellate court held:
“In view of the above, We are of the considered view that the private
respondent’s petition in the court a quo prima facie states a sufficient cause
of action and that the public respondent in denying the petitioner’s motion to
dismiss, had acted advisedly and well within its powers and authority. We,
therefore, find no cause to annul the challenged order issued by the
respondent court in Civil Case No. 92-62106.” (Underscoring in the original;
emphasis and italics supplied)34
An order denying a motion to dismiss is merely interlocutory and cannot give
rise to res judicata, hence, it is subject to amendments until the rendition of the
final judgment.35
On respondent’s contention that petitioner, as mortgagee, had the duty to
notify it of the public auction sale, the Court finds the same immaterial to the
case.
Section 13 of the Chattel Mortgage Law allows the would-be redemptioner
thereunder to redeem the mortgaged property only before its sale. Consider the
following pronouncement in Paray:36
“[T]here is no law in our statute books which vests the right of redemption
over personal property. Act No. 1508, or the Chattel Mortgage Law, ostensibly
could have served as the vehicle for any legislative intent to bestow a right of
redemption over personal property, since that law governs the extrajudicial sale
of mortgaged personal property, but the statute is definitely silent on the point.
And Section 39 of the 1997 Rules of Civil Procedure, extensively relied upon by
the Court of Appeals, starkly utters that the right of redemption applies
to real properties, not personal properties, sold on execution.” (Emphasis, italics
and underscoring supplied)
_______________
34 Records I, pp. 145-146.
35 Macahilig v. Heirs of Grace M. Magalit, G.R. No. 141423, November 15,
2000, 344 SCRA 838, 852-853; 398 Phil. 802, 818; (2000) citing Manila Electric
Company v. Artiaga, 50 Phil. 144, 147 (1927).
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36 Supra note 24.
559 Unmistakably, the redemption cited in Section 13 partakes of
an equity of redemption, which is the right of the mortgagor to redeem the
mortgaged property after his default in the performance of the conditions of the
mortgage but before the sale of the property37 to clear it from the encumbrance of
the mortgage.38 It is not the same as right of redemption which is the right of the
mortgagor to redeem the mortgaged property after registration of the foreclosure
sale,39 and even after confirmation of the sale.40
While respondent had attached some of Terrymanila’s assets to secure the
satisfaction of a P296,662.16 judgment rendered in another case, what it
effectively attached was Terrymanila’s equity of redemption. That respondent’s
claim is much lower than the P1.5 million actual bid of petitioner at the auction
sale does not defeat respondent’s equity of redemption. Top Rate International
Services, Inc. v. IAC41 enlightens:
“It is, therefore, error on the part of the petitioner to say that since
private respondents’ lien is only a total of P343,227.40, they cannot be
entitled to the equity of redemption because the exercise of such right
would require the payment of an amount which cannot be less than
P40,000,000.00.
When herein private respondents prayed for the attachment of the properties
to secure their respective claims against Consolidated Mines, Inc., the properties
had already been mortgaged to the consortium of twelve banks to secure an
obligation of US$62,062,720.66. Thus, like subsequent mortgagees,
the respondents’ liens on such properties became inferior to that of banks, which
claims in the event of foreclosure proceedings, must first be satisfied. The
appellate court, therefore, was correct
_______________
37 Top Rate International Services, Inc. v. Intermediate Appellate Court, G.R.
No. L-67496, July 7, 1986, 142 SCRA 467; 226 Phil. 387, 394 citing
Moran, Comments on the Rules of Court, Vol. 3, pp. 283-284, 1980 Ed.;
and Quimson v. PNB, 36 SCRA 26 (1970).
38 55 Am Jur 2d, Mortgages, §866.
39 Limpin v. Intermediate Appellate Court, G.R. No. L-70987, September 29,
1988, 166 SCRA 87, 93.
40 Ibid.
41 Supra.
560in holding that in reality, what was attached by the respondents was
merely Consolidated Mines’ . . . equity of redemption. x x x x
xxxx
We, therefore, hold that the appellate court did not commit any error in ruling
that there was no over-levy on the disputed properties. What was actually
attached by respondents was Consolidated Mines’ right or equity of
redemption, an incorporeal and intangible right, the value of which can neither
be quantified nor equated with the actual value of the properties upon which it
may be exercised.”42 (Emphasis, italics and underscoring supplied)
Having thus attached Terrymanila’s equity of redemption, respondent had to
be informed of the date of sale of the mortgaged assets for it to exercise such
equity of redemption over some of those foreclosed properties, as provided for in
Section 13.
Recall, however, that respondent filed a motion to reconsider the February 3,
1992 Order of the RTC Bataan-insolvency court which granted leave to petitioner
to foreclose the chattel mortgage, which motion was denied. Notably, respondent
failed to allege this incident in his annulment of sale case before the RTC of
Manila.
Thus, even prior to receiving, through counsel, a mailed notice of the auction
sale on the date of the auction sale itself on June 16, 1992, respondent was
already put on notice of the impending foreclosure sale of the mortgaged chattels.
It could thus have expediently exercised its equity of redemption, at the earliest
when it received the insolvency court’s Order of March 20, 1992 denying its
Motion for Reconsideration of the February 3, 1992 Order.
Despite its window of opportunity to exercise its equity of redemption,
however, respondent chose to be technically shrewd about its chances, preferring
instead to seek annulment of the auction sale, which was the result of the
foreclosure of the mortgage, permission to conduct which it had early on opposed
before the insolvency court. Its negligence or omission to exercise its equity of
redemption within a reasonable time, or even on the day of the auction sale,
warrants a presumption that it had either aban-
_______________
42 Id., at pp. 394-395; 474-475.
561doned it or opted not to assert it.43 Equitable considerations thus sway
against it.
It is also not lost on the Court that as early as April 12, 1991, Terrymanila
had been judicially declared insolvent. Respondent’s recourse was thus to demand
the satisfaction of its judgment award before the insolvency court as its judgment
award is a preferred credit under Article 224444 of the Civil Code. To now allow
respondent have its way in annulling the auction sale and at the same time let it
proceed with its claims before the insolvency court would neither rhyme with
reason nor with justice.
Parenthetically, respondent has not shown that it was prejudiced by the
auction sale since the insolvency court already determined that even if the
mortgaged properties were foreclosed, there were still sufficient, unencumbered
assets of Terrymanila to cover the obligations owing to other creditors, including
that of respondent’s.45
_______________
43 Spouses Alfredo v. Spouses Borras, G.R. No. 144225, June 17, 2003, 404
SCRA 145, 167; 452 Phil. 178, 206-207.
44With reference to other property, real and personal of the debtor, the
following claims or credits shall be preferred in the order named: 2244. Art.
xxxx
(14) Credits which, without special privilege, appear in (a) a public
instrument; or (b) in a final judgment, if they have been the subject of litigation.
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These credits shall have preference among themselves in the order of priority of
the dates of the instruments and of the judgments, respectively. (Underscoring
supplied)
45 Vide: De Amuzategui v. Macleod, G.R. No. 10629, December 24, 1915, 33
Phil. 80. In this case, the Court held that “it is clear that, with the declaration of
insolvency, courts in insolvency obtain full and complete jurisdiction over all
property of the insolvent and of all claims by and against him, with full authority
to suspend, on the application of the debtor, a creditor, or the assignee, any action
or proceeding then pending in any court, to await the determination of the court
of insolvency on the question of the bankrupt’s discharge. The assignee in the case
at bar asked that the action be dismissed on the ground that the court in
insolvency having complete jurisdiction over the affairs of an insolvent debtor,
and
562In any event, even if respondent would have participated in the auction
sale and matched petitioner’s bid, the superiority of petitioner’s lien over the
mortgaged assets would preclude respondent from recovering the chattels.
“It has long been settled by this Court that “the right of those who acquire
said properties should not and can not be superior to that of the creditor
who has in his favor an instrument of mortgage executed with the
formalities of the law, in good faith, and without the least indication of
fraud. x x x. In purchasing it, with full knowledge that such circumstances
existed, it should be presumed that he did so, very much willing to respect the
lien existing thereon, since he should not have expected that with the purchase,
he would acquire a better right than that which the vendor then had.” (Emphasis
and underscoring supplied)46
It bears noting that the chattel mortgage in favor of petitioner was registered
more than two years before the issuance of a writ of attachment over some of
Terrymanila’s chattels in favor of respondent. This is significant in determining
who between petitioner and respondent should be given preference over the
subject properties. Since the registration of a chattel mortgage is an effective and
binding notice to other creditors of its existence and creates a real right or lien
that follows the property wherever it may
_______________
particularly the distribution of his estate for the payment of his debts, an action
begun in another court which tends in any material way to interfere with the
exercise of that jurisdiction is prohibited either expressly or impliedly by the
Insolvency Law and cannot, therefore, be maintained when appropriate objection
by the proper parties is interposed. It is evident that if the various courts of the
Islands may by action or other proceeding intervene in the affairs of an insolvent
debtor and with the administration of the court in insolvency, great confusion
would result and the termination of the insolvency proceeding might be delayed
unduly. We believe it to be the policy of the Insolvency Law to place the insolvent
debtor and all his assets and liabilities completely within the jurisdiction and
control of the court in insolvency and not to permit the intervention of any other
court in the bankrupt’s concerns or in the administration of his estate.”
46 Cabral v. Evangelista, G.R. No. L-26860, July 30, 1969, 28 SCRA 1000,
1005-1006; 139 Phil. 300, 306-307.
563be,47 the right of respondent, as an attaching creditor or as purchaser, had it
purchased the mortgaged chattel at the auction sale, is subordinate to the lien of
the mortgagee who has in his favor a valid chattel mortgage.48
Contrary then to the appellate court’s ruling, petitioner is not liable for
constructive fraud for proceeding with the auction sale. Nor for subsequently
selling the chattel. For foreclosure suits may be initiated even during insolvency
proceedings, as long as leave must first be obtained from the insolvency court 49 as
what petitioner did.
The appellate court’s award of exemplary damages and attorney’s fees for
respondent, given petitioner’s good faith, is thus not warranted.
As for petitioner’s prayer for attorney’s fees in its Compulsory Counterclaim,
the same is in order, the dismissal of respondent’s Complaint
nowithstanding.50 Perkin Elmer Singapore v. Dakila Trading,51 citing Pinga v.
Heirs of German Santiago,52 enlightens:
“It bears to emphasize that petitioner’s counterclaim against respondent is for
damages and attorney’s fees arising from the unfounded suit. While respondent’s
Complaint against petitioner is already dismissed, petitioner may have very well
incurred damages and litigation expenses such as attorney’s fees since it
was forced to engage legal representation in the Philippines to protect its rights
and to assert lack of jurisdiction of the courts over its person by virtue of the
improper service of summons upon it. Hence, the cause of action of petitioner’s
counterclaim is not eliminated by the mere dismissal of respondent’s
complaint.”53 (Underscoring supplied)
_______________
564To the Court, the amount of P250,000 prayed for by petitioner in its
Counterclaim is just and equitable, given the nature and extent of legal services
employed in controverting respondent’s unfounded claim.
WHEREFORE, the petition for review is GRANTED. The challenged Decision
and Resolution of the Court of Appeals are REVERSED and SET ASIDE. Civil
Case No. 92-62106 lodged before the Regional Trial Court of Manila, Branch 16, is
DISMISSED for lack of merit.
Respondent, Royal Cargo Corporation, is ORDERED to pay petitioner, Rizal
Commercial Banking Corporation, P250,000 as and for attorney’s fees.
No costs.
SO ORDERED.
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Contempt of court has been defined as “some act or conduct which tends to
interfere with the business of the court, by a refusal to obey some lawful order of
the court, or some act of disrespect to the dignity of the court which in some way
tends to interfere with or hamper the orderly proceedings of the court and thus
lessens the general efficiency of the same”—simply put, it is despising of the
authority, justice, or dignity of the court. (Español vs. Formoso, 525 SCRA 216
[2007])
——o0o——
August 20, 2008. G.R. No. 145408.*
CALIFORNIA BUS LINES, INC., petitioner, vs. COURT OF APPEALS, HON.
PRISCILLA C. MIJARES, in her Capacity as Presiding Judge of the Regional
Trial Court of Pasay City, Branch 108, SP Civil Action No. 98-2004, HON. MARIA
A. CANCINO-ERUM, in her capacity as Presiding Judge of Metropolitan Trial
Court of Pasay City, Branch 46, Civil Case No. 127-93, SHERIFF RONNIE
LAMPITOC, and MANILA INTERNATIONAL AIRPORT AUTHORITY,
respondents.
Appeals; Special Civil Actions; Requisites; The party aggrieved by a decision
of the Court of Appeals is proscribed from assailing the decision or final order of
said court via Rule 65 because such recourse is proper only if the party has no
plain, speedy and adequate remedy in the course of law.—For a special civil action
on certiorari to prosper, the following requisites must concur: (1) the writ is
directed against a tribunal, a board or an officer exercising judicial or quasi-
judicial functions; (2) such tribunal, board or officer has acted without or in excess
of jurisdiction, or with grave abuse of discretion amounting to lack or excess of
jurisdiction; and (3) there is no appeal or any plain, speedy and adequate remedy
in the ordinary course of law. The general rule is that a writ of certiorari will not
issue where
_______________
* FIRST DIVISION.
404
4 SUPREME COURT REPORTS
04 ANNOTATED
California Bus Lines, Inc. vs. Court of
Appeals
the remedy of appeal is available to the aggrieved party. The party
aggrieved by a decision of the CA is proscribed from assailing the decision or final
order of said court via Rule 65 because such recourse is proper only if the party
has no plain, speedy and adequate remedy in the course of law.
Same; Rule 45 of the Rules of Court is clear that decisions, final orders or
resolutions of the Court of Appeals in any case may be appealed to the Supreme
Court by filing a petition for review, which would be but a continuation of the
appellate process over the original case.—Rule 45 of the Rules of Court is clear
that decisions, final orders or resolutions of the CA in any case, i.e., regardless of
the nature of the action or proceeding involved, may be appealed to the Supreme
Court by filing a petition for review, which would be but a continuation of the
appellate process over the original case. Thus, contrary to CBL’s assertions, it has
a plain, speedy and adequate remedy in the course of law.
Same; Judgments; Compromise Agreements; A court is authorized to modify
or alter a judgment after the same has become executory, whenever the
circumstances transpire rendering its execution unjust and equitable.—CBL
contends that when the Compromise Agreement was approved by the MTC, its
earlier decision dated July 30, 1993 was already final and executory. Thus, the
Compromise Agreement substantially altered the July 30, 1993 MTC decision,
and the subsequent application for an Alias Writ of Execution after more than
seven (7) years cannot be entertained since “it is fundamental that a final and
executory decision cannot be amended or corrected except for clerical errors or
mistakes.” The argument is specious. As correctly emphasized by the CA in its
Decision, “it is also well-settled that the court is authorized to modify or alter a
judgment after the same has become executory, whenever the circumstances
transpire rendering its execution unjust and equitable.” The Compromise
Agreement, thus, explicitly justified the amicable settlement reached by the
parties after “having seriously considered in all good faith, the financial position
and the capacity of the defendant CBL to fulfill its obligation under the decision
promulgated in this case and cognizant over the fate of almost seven hundred
employees and the riding public in the event the decision is executed . . . .”405
VOL. 562, AUGUST 20, 2008 4
05
California Bus Lines, Inc. vs. Court of
Appeals
Same; Same; Execution of Judgments; In computing the time for suing out
an execution, the time during which the execution is stayed should be excluded,
and the time will be extended by any delay occasioned by the debtor.—MIAA
correctly contend that CBL’s dilatory tactics and legal maneuverings to evade
payment of its obligations suspended the running of the five-year reglementary
period within which to enforce the judgment by motion. The Court previously had
the occasion to rule that in computing the time for suing out an execution, the
time during which the execution is stayed should be excluded, and the time will
be extended by any delay occasioned by the debtor. In cases where the delays
were occasioned by the judgment obligor’s own initiatives and for his advantage,
which were beyond the judgment obligee’s control, the five (5)-year period allowed
for enforcement of the judgment by motion was deemed to have been effectively
interrupted or suspended.
Same; Same; Same; Procedural Rules and Technicalities; The purpose of the
law in prescribing time limitations for enforcing judgments or actions is to prevent
obligors from sleeping on their rights; Procedural rules are liberally construed in
order to promote their objective and to assist the parties in obtaining just, speedy,
and inexpensive determination of every action and proceeding.—The purpose of
the law in prescribing time limitations for enforcing judgments or actions is to
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prevent obligors from sleeping on their rights. Far from sleeping on their rights,
MIAA persistently pursued their rights of action. It is utterly unjust to allow CBL
to further evade the satisfaction of its obligation because of sheer literal
adherence to technicality, which CBL itself had put aside to serve its own
interest, the well-being of its employees and the interest of the riding public. After
all, procedural rules are liberally construed in order to promote their objective
and to assist the parties in obtaining just, speedy, and inexpensive determination
of every action and proceeding.
Ejectment; Jurisdiction; Attorney’s Fees; Autonomy of Contracts; The
Metropolitan Trial Court’s jurisdictional amount of P20,000.00 is mandated only
when the trial court itself awards the attorney’s fees absent any valid stipulation
between the parties relative thereto; Parties to a contract have the freedom to enter
into any kind of contract they choose and to establish such stipulations, clauses,
terms and conditions as they may deem convenient, subject only to basic
limitations as provided under Article 1306 of the Civil Code.—MIAA’s counsel, the
OGCC, is legally authorized to receive
406
4 SUPREME COURT REPORTS
06 ANNOTATED
California Bus Lines, Inc. vs. Court of
Appeals
payment of attorney’s fees by virtue of Section 10, Chapter 3, Title III, Book
IV of Executive Order No. 292, otherwise known as the Administrative Code of
1987. There is likewise no jurisdictional impediment if the MTC awards the
amount of One Million Pesos (P1,000,000.00) as attorney’s fees despite the
Twenty Thousand Pesos (P20,000.00) limit provided under the applicable rules.
As we see it, the foregoing jurisdictional amount of P20,000.00 is mandated only
when the trial court itself awards the attorney’s fees absent any valid stipulation
between the parties relative thereto. To our mind, a contrary interpretation would
counter the principles of freedom of the parties to enter into any kind of contract
they choose and to establish such stipulations, clauses, terms and conditions as
they may deem convenient, subject only to basic limitations as provided under
Article 1306 of the Civil Code: Article 1306. The contracting parties may establish
such stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order, or
public policy.
Contempt; A charge of indirect contempt must be filed in the form of a
verified petition instituted as a special civil action if it is not initiated directly by
the court.—We now rule on CBL’s Urgent Motion for Contempt against MIAA’s
counsel in connection with the filing of an Urgent Motion for the Issuance of Alias
Writ of Execution with the MTC while the instant petition is still pending with
this Court which CBL posits as violative of paragraphs (c) and (d) of Section 3,
Rule 71 of the 1997 Revised Rules on Civil Procedure. Under the second
paragraph of Section 4 of the same Rule, a charge of indirect contempt must be
filed in the form of a verified petition instituted as a special civil action if it is not
initiated directly by the court.
Judgments; Execution; The petitioner’s obstinate efforts to stay the execution
of a valid judgment is an unjustifiable use of the processes of the legal system.—It
is high time to write finis to this case. Litigation must at some time be terminated
for public policy dictates that once a judgment becomes final, executory and
unappealable, the prevailing party should not be denied the fruits of his victory
by some subterfuge devised by the losing party. The Court finds CBL’s obstinate
efforts to stay the execution of a valid judgment as an unjustifiable use of the
processes of our legal system. CBL and counsel so far only succeeded in unduly
delaying the complete execution of the judgment based on the Compromise
Agreement to which it had voluntarily acceded.
407
VOL. 562, AUGUST 20, 2008 407
California Bus Lines, Inc. vs. Court of Appeals
SPECIAL CIVIL ACTION in the Supreme Court. Certiorari.
The facts are stated in the opinion of the Court.
Alentajan Law Office for petitioner.
The Government Corporate Counsel for respondent.
LEONARDO-DE CASTRO,J.:
Petitioner California Bus Lines, Inc. (CBL) filed this Petition
for Certiorari under Rule 65 of the Rules of Court with application for writ of
preliminary injunction and prayer for temporary restraining order to prohibit
public respondent Judge PRISCILLA C. MIJARES (JUDGE MIJARES), Regional
Trial Court (RTC), Branch 108, and public respondent Judge MARIA A.
CANCINO-ERUM (JUDGE ERUM), Metropolitan Trial Court (MTC) of Pasay
City, Branch 46, from implementing the Alias Writ of Execution, dated January
13, 1998, in Civil Case No. 127-93, and private respondent MANILA
INTERNATIONAL AIRPORT AUTHORITY (MIAA) and its officers, directors,
agents and representatives from implementing and enforcing said writ while the
instant petition is pending before this Court. The petition seeks the nullification
of (1) the Resolution1 dated August 22, 2000, and the Resolution2 dated October
11, 2000, both issued by the Court of Appeals (CA), in relation to its
Decision3 in CA-G.R. Sp. No. 51664, entitled California Bus Line, Inc. v. Hon.
Priscilla C. Mijares, et al.; (2) the Alias Writ of Execution,4 dated January 13,
1998, issued by the Pasay City MTC, Branch 46 in Civil Case No. 127-93,
entitled Manila International Airport Authority v. California Bus Lines, Inc.; and
(3) the Compromise
_______________
1 Rollo, pp. 21-24.
2 Id., at pp. 25-27.
3 Penned by Associate Justice Eugenio S. Labitoria Dacudao (ret.), with
Associate Justices Marina L. Buzon (ret) and Edgar P. Cruz (ret.) concurring, id.,
at pp. 95-103.
4 Id., at pp. 28-30.
408
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408 SUPREME COURT REPORTS
ANNOTATED
California Bus Lines, Inc. vs. Court of Appeals
Agreement,5 dated November 3, 1993, which was the subject of the
aforementioned Alias Writ of Execution. Furthermore, the petition also prays that
judgment be rendered making the preliminary injunction permanent.
The factual antecedents of this case are as follows:
On May 20, 1993, MIAA filed a civil action for ejectment, docketed as Civil
Case No. 127-93, against CBL with the Pasay City MTC, Branch 46. The MTC
rendered a decision,6 dated July 30, 1993, in favor of MIAA, and ordered CBL to
vacate the leased premises and to pay rental in arrears, attorney’s fees and costs.
The dispositive portion of the said decision reads:
“WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendants:
Ordering the defendant and all other persons/parties claiming possession
under it to vacate and surrender to the plaintiff the premises known as,
1. California Bus Lines, Inc. Bus Terminal located at Domestic Road, MIA, Pasay
City;
Ordering the defendant to pay the amount of 2. P27,017,295.95 as rentals in
legal arrears, interest, penalties and other charges;
Ordering the defendant to pay the sum of 3. P430,462.60 a month
commencing February, 1993 as reasonable rentals on the premises with interest
at a legal rate until such time defendant and all other parties claiming under it
shall have finally vacated the premises;
Ordering the defendant to pay the sum of 4. P20,000.00 for and as attorney’s
fees;
Ordering the defendant to pay the costs of the suit. 5.
Defendant’s counterclaim is hereby dismissed for lack of merit.”
_______________
5 Id., at pp. 32-35.
6 Id., at pp. 36-49.
409
VOL. 562, AUGUST 20, 2008 409
California Bus Lines, Inc. vs. Court of Appeals
The MTC decision became final and executory for failure of CBL to appeal the
same. Thus, MIAA filed a Motion for the Issuance of Writ of Execution dated
August 2, 1993 which was granted on August 9, 1993.
On November 3, 1993, the parties entered into a Compromise
Agreement7 which was approved by the MTC in the decision8 dated December 13,
1993, the dispositive portion of which reads:
“WHEREFORE, finding said Compromise Agreement to be in
accordance with law and not contrary to public policy, the same is
hereby approved and judgment is hereby rendered in consonance
thereto and the parties are enjoined to follow the terms and conditions
thereof.”
However, CBL failed to comply with the terms and conditions of the
Compromise Agreement. Hence, MIAA filed a Motion for Issuance of Writ of
Execution, which was granted by the MTC on February 10, 1994. 9 The properties
of CBL were levied upon by the MTC Sheriff but this levy was subsequently lifted
when CBL issued postdated checks to secure payment of the debt pursuant to the
Compromise Agreement.10
Again, CBL failed to comply with the schedule of payment stipulated in the
Compromise Agreement prompting MIAA to file a Motion for the Issuance of
Alias Writ of Execution.11 This was granted by the MTC on December 12, 1997
and the assailed Alias Writ of Execution was issued on January 13, 1998.12
_______________
7 Id., at pp. 32-35.
8 Id., at pp. 106-108.
9 Id., at pp. 109-112.
10 Id., at p. 97.
11 Id., at pp. 112-114.
12 Supra note 4.
410
410 SUPREME COURT REPORTS
ANNOTATED
California Bus Lines, Inc. vs. Court of Appeals
In reaction to the issuance of the aforementioned writ, CBL filed a Petition
for Certiorari under Rule 65 of the Revised Rules of Civil Procedure with the
Pasay City RTC, Branch 108.
In the RTC, CBL insisted that the alias writ of execution was issued by the
MTC with grave abuse of discretion amounting to lack of jurisdiction. CBL argued
that the decision dated July 30, 1993 of the MTC had already attained finality;
that CBL overpaid the same by seven million pesos; and that the Compromise
Agreement is void because it was entered into in its behalf by a person not
authorized to do so and because it was entered into after the finality of the
decision dated July 30, 1993 of the MTC.13
The RTC dismissed the petition which prompted CBL to file a Petition for
Review on Certiorari under Rule 42 with the CA. While the said petition was
pending before the CA, MIAA filed another Motion for Issuance of Alias Writ of
Execution with Notice of Change of Address14 dated June 30, 1999.
On August 23, 1999, the CA rendered a Decision15 dismissing CBL’s petition.
CBL filed a motion for reconsideration but the same was denied for lack of merit
in the Resolution16 dated October 19, 1999.
Unperturbed, CBL filed an Urgent Motion for Issuance of Temporary
Restraining Order and Writ of Preliminary Injunction which the CA denied in its
subsequent Resolution17 dated August 22, 2000. Petitioner also filed a Motion to
Set Aside Entry of Judgment which the CA likewise denied via the
Resolution18 dated October 11, 2000.
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_______________ ANNOTATED

13 Rollo, p. 97. California Bus Lines, Inc. vs. Court of Appeals

14 Id., at pp. 64-66. September 17, 2001. Both parties had since then filed their respective
15 Supra note 3. memoranda.
16 Rollo, p. 104. On December 18, 2007, MIAA filed a Manifestation with Fifth (5th Motion for
17 Supra note 1. Early Resolution24 informing the Court that on October 2, 2007, CBL filed a
18 Supra note 2. Petition for Voluntary Insolvency before the Pasay City RTC, Branch 117, which
declared CBL insolvent on October 15, 2007 and that MIAA filed its Notice of
411 Claim thereat.
We resolve to dismiss the petition.
VOL. 562, AUGUST 20, 2008 411
At the outset, private respondent questioned the appropriateness of the
California Bus Lines, Inc. vs. Court of Appeals instant petition as a remedy to review the assailed CA decision and resolution.
CBL is now before us, via this special civil action under Rule 65 of the Revised MIAA argues that the petition for review under Rule 42 was filed by CBL with
Rules of Court with application for writ of preliminary injunction and prayer for the CA pursuant to its appellate jurisdiction over the final Orders of the RTC.
temporary restraining order.19 Therefore, the assailed Decision and its related Resolutions of the CA which are
In the Resolution20 dated November 20, 2000, the Court denied the petition considered the judgment and final order of the CA should have been elevated
for “failure of the petition to sufficiently show that any grave abuse of discretion before this Court through an appeal by certiorari under Rule 45 and not through a
was committed by the CA in rendering the challenged resolutions which, on the special civil action under Rule 65.
contrary, appear to be in accord with the facts and the applicable law and CBL maintains that the herein petition is not based on the ground of error of
jurisprudence.” judgment or errors of law which are the proper subject matter of ordinary appeal
Undeterred, CBL filed a Motion for Reconsideration 21 on December 22, 2000 under Rule 45. Instead, it claims that the same is based on lack or excess of
raising the following issues: jurisdiction or grave abuse of discretion amounting to lack of jurisdiction, which is
I. the issue to be resolved under Rule 65. According to CBL, the MTC exceeded its
THE COMPROMISE AGREEMENT ENTERED INTO BY THE PARTIES jurisdiction in issuing the challenged Alias Writ of Execution and there is no
SUBSTANTIALLY ALTERED THE JUDGMENT DATED JULY 30, 1993, appeal or any other plain, speedy, and adequate remedy in the ordinary course of
HENCE THE WRIT OF EXECUTION BASED ON THE COMPROMISE law. Additionally, CBL maintains that the CA acted with grave abuse of
AGREEMENT WAS NULL AND VOID. discretion amounting to lack of jurisdiction in rendering its decision and in
II. issuing the two (2) assailed Resolutions dated August 22, 2000 and October 11,
THE MOTION FOR AN ALIAS WRIT OF EXECUTION WHICH WAS FILED 2000, which denied respectively CBL’s Urgent Motion for Issuance of Temporary
AFTER MORE THAN FIVE (5) YEARS FROM THE FINALITY OF JUDGMENT Restraining Order and Writ of Pre-
HAD ALREADY PRESCRIBED. _______________
III.
THE AWARD OF ONE MILLION PESOS (P1,000,000.00) AS ATTORNEY’S FEE 24 Id., at pp. 324-327.
IS UNCONSCIONABLE.
413
In the Resolution22 dated June 20, 2001, the Court granted CBL’s motion for VOL. 562, AUGUST 20, 2008 413
reconsideration and reinstated its petition, which was later on given due course in
the Resolution23 dated California Bus Lines, Inc. vs. Court of Appeals
_______________ liminary Injunction and Motion to Set Aside Entry of Judgment.
For a special civil action on certiorari to prosper, the following requisites must
19 Rollo, pp. 3-50. concur: (1) the writ is directed against a tribunal, a board or an officer exercising
20 Id., at p. 51. judicial or quasi-judicial functions; (2) such tribunal, board or officer has acted
21 Id., at pp. 52-69. without or in excess of jurisdiction, or with grave abuse of discretion amounting to
22 Id., at pp. 157-158. lack or excess of jurisdiction; and (3) there is no appeal or any plain, speedy and
23 Id., at pp. 188-189. adequate remedy in the ordinary course of law.25 The general rule is that a writ
of certiorari will not issue where the remedy of appeal is available to the
412 aggrieved party.26 The party aggrieved by a decision of the CA is proscribed from
assailing the decision or final order of said court via Rule 65 because such
412 SUPREME COURT REPORTS

86
Credtrans pledge chattel
recourse is proper only if the party has no plain, speedy and adequate remedy in
the course of law.27
Here, it is apparent that CBL’s immediate issue is with the CA’s Decision and
its related Resolutions which denied CBL’s erroneously filed petition for review
under Rule 42 against the RTC which earlier denied CBL’s petition for certiorari
under Rule 65 against the MTC. The proper remedy for CBL in this situation, as
correctly pointed out by the CA, should have been an ordinary appeal to the CA
since the RTC decision was made in the exercise of the RTC’s original jurisdiction.
Moreover, Rule 45 of the Rules of Court is clear that decisions, final orders or
resolutions of the CA in any case, i.e., regardless of the nature of the action or
proceeding involved, may be appealed to the Supreme Court by filing a petition
for
_______________
25 Triad Security & Allied Services, Inc. v. Ortega, Jr., 481 SCRA 591
(2006); Joson III v. Court of Appeals, 482 SCRA 360 (2006); and Soriano v.
Marcelo, 507 SCRA 571 (2006).
26 Cathay Pacific Steel Corporation v. Court of Appeals, 500 SCRA 226 (2006).
27 Hanjin Engineering and Construction Co., Ltd. v. Court of Appeals, 487
SCRA 78 (2006).
414
414 SUPREME COURT REPORTS
ANNOTATED
California Bus Lines, Inc. vs. Court of Appeals
review, which would be but a continuation of the appellate process over the
original case.28 Thus, contrary to CBL’s assertions, it has a plain, speedy and
adequate remedy in the course of law.
Even if we assume for the sake of argument that the instant petition is
proper, the petition still fails to persuade as regards the remaining issues.
CBL contends that when the Compromise Agreement was approved by the
MTC, its earlier decision dated July 30, 1993 was already final and executory.
Thus, the Compromise Agreement substantially altered the July 30, 1993 MTC
decision, and the subsequent application for an Alias Writ of Execution after more
than seven (7) years cannot be entertained since “it is fundamental that a final
and executory decision cannot be amended or corrected except for clerical errors
or mistakes.”29
The argument is specious. As correctly emphasized by the CA in its
Decision,30 “it is also well-settled that the court is authorized to modify or alter a
judgment after the same has become executory, whenever the circumstances
transpire rendering its execution unjust and equitable.”31 The Compromise
Agreement, thus, explicitly justified the amicable settlement reached by the
parties after “having seriously considered in all good faith, the financial position
and the capacity of the defendant CBL to fulfill its obligation under the decision
promulgated in this case and cognizant over the fate of almost seven hundred
employees and the riding public in the event the decision is executed . . .”.
_______________
28 Davao Merchant Marine Academy v. Court of Appeals, 487 SCRA 396
(2006).
29 Yu v. National Labor Relations Commission, 245 SCRA 134 (1995).
30 Supra note 3.
31 Aboitiz Shipping Employees Asso. v. Trajano, 278 SCRA 387 (1997)
and Cabrias v. Adil, 135 SCRA 354 (1985).
415
VOL. 562, AUGUST 20, 2008 415
California Bus Lines, Inc. vs. Court of Appeals
The parties voluntarily entered into the Compromise Agreement which
accorded to each party mutually acceptable concessions. MIAA agreed that the
obligation of CBL be paid in installments in accordance with a schedule of
installments disputed by the parties and CBL was allowed to stay in the leased
premises provided the rentals mentioned in the Agreement are paid.
Furthermore, the parties themselves invoked the jurisdiction of the MTC by
submitting with the assistance of their counsel the Compromise Agreement for
approval after the July 30, 1993 MTC decision has become final and executory.
Considering the foregoing circumstance, it would be highly inequitable to rule
that the MTC has no jurisdiction to amend the final and executory July 30, 1993
MTC decision, when the MTC decision of December 13, 1993, approving the
Compromise Agreement, was rendered at the instance of both CBL and MIAA
and for their mutual benefit.
Moreover, CBL had complied with the terms of said Compromise Agreement
for a period of five (5) years from its execution on November 3, 1993 until
November 1998. CBL cannot question the MTC decision based on said
Compromise Agreement and insist upon the execution of the July 30, 1993 MTC
decision without trifling with court processes. Accordingly, we find the December
13, 1993 MTC decision, based on the Compromise Agreement, to be valid and
binding upon the parties thereto.
Having upheld the validity and binding effect of the December 13, 1993 MTC
decision, MIAA was well within the five-year reglementary period dictated by
Section 6, Rule 39 of the Rules of Court32 when it filed its first Motion for the
_______________
32 Execution by motion or by independent action.—A final and executory
judgment or order may be executed on motion within five (5) years from the date
of its entry. After the lapse of such time, and before it is barred by the statute of
limitations, a judgment may be enforced by action. The revived judgment may
also be enforced by motion within five (5) years from the date of its entry and
thereafter
416
416 SUPREME COURT REPORTS
ANNOTATED
California Bus Lines, Inc. vs. Court of Appeals
87
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Issuance of a Writ of Execution of the said decision on February 3, 1994 due to
CBL’s non-compliance with the terms of the Compromise Agreement. This
resulted in the issuance of the Writ of Execution dated February 10, 1994. A levy
on CBL’s property was made but this was later on lifted when the latter issued
postdated checks to secure payment of its monetary obligation under the
Compromise Agreement. Subsequently, CBL failed again to pay the outstanding
balance of its obligation. MIAA filed another Motion for the Issuance of Alias Writ
of Execution on January 31, 1996, which led to the issuance of the Alias Writ of
Execution dated January 13, 1998. However, the same was not enforced up to this
day.
MIAA correctly contend that CBL’s dilatory tactics and legal maneuverings to
evade payment of its obligations suspended the running of the five-year
reglementary period within which to enforce the judgment by motion. The Court
previously had the occasion to rule that in computing the time for suing out an
execution, the time during which the execution is stayed should be excluded, and
the time will be extended by any delay occasioned by the debtor. 33 In cases where
the delays were occasioned by the judgment obligor’s own initiatives and for his
advantage, which were beyond the judgment obligee’s control, the five (5)-year
period allowed for enforcement of the judgment by motion was deemed to have
been effectively interrupted or suspended.34
Here, CBL made several acts that constituted delay which redounded to its
benefit. The judgment based on the Compromise Agreement was promulgated on
December 13, 1993. It became final and executory because CBL did not appeal
therefrom. The first writ of execution issued on February 10, 1994 was stalled
because CBL issued postdated checks as
_______________
by action before it is barred by the statute of limitations. (Section 6, Rule 39,
Rules of Court.)
33 Blouse Potenciano v. Mariano, 96 SCRA 463, 464 (1980) and De la Rosa v.
Fernandez, 172 SCRA 371 (1989).
34 Camacho v. Court of Appeals, 287 SCRA 611 (1998).
417
VOL. 562, AUGUST 20, 2008 417
California Bus Lines, Inc. vs. Court of Appeals
security for its outstanding obligation. The second writ of execution issued on
January 13, 1998 was likewise never enforced because CBL filed a petition
for certiorari under Rule 65 with the RTC and, subsequently after being rebuffed
by the said trial court, an erroneous remedy of petition for review under Rule 42
was filed by CBL with the CA which likewise dismissed the said petition. The
latter development occasioned the filing of CBL’s present petition under Rule 65.
Undoubtedly, CBL was benefited by the continued deferment of the payment
of its long-established outstanding balance of its monetary obligation to MIAA
due to its incessant but futile resort to the review processes of our justice system.
CBL successfully evaded the payment of its debt under the shield of
technicalities, at the expense of MIAA.
The assailed Alias Writ of Execution dated January 13, 1998 was validly
issued by the RTC and is still enforceable because the prescriptive period by
which it can be enforced by motion has been effectively suspended beginning
November 23, 1998 when CBL filed with the RTC its petition for certiorari under
Rule 65.35
The purpose of the law in prescribing time limitations for enforcing judgments
or actions is to prevent obligors from sleeping on their rights. Far from sleeping
on their rights, MIAA persistently pursued their rights of action. It is utterly
unjust to allow CBL to further evade the satisfaction of its obligation because of
sheer literal adherence to technicality, which CBL itself had put aside to serve its
own interest, the well-being of its employees and the interest of the riding public.
After all, procedural rules are liberally construed in order to promote their
objective and to assist the parties in obtaining just, speedy, and inexpensive
determination of every action and proceeding.36
_______________
35 CA Records, pp. 103-108.
36 Radiowealth Finance Company v. Del Rosario, 335 SCRA 288 (2000).
418
418 SUPREME COURT REPORTS
ANNOTATED
California Bus Lines, Inc. vs. Court of Appeals
As stated at the threshold, the present controversy sprung from an ejectment
suit initiated on May 20, 1993 during the effectivity of the 1991 Revised Rules of
Summary Procedure. The belated argument of CBL raised for the first time in its
memorandum filed with this Court that this involves a case for collection of sum
of money, not an unlawful detainer, and therefore is outside the jurisdiction of the
MTC and the coverage of the Rules of Summary Procedure deserves scant
consideration.
With regard to the attorney’s fees in the amount of One Million Pesos
(P1,000,000.00) that was awarded by the MTC in the challenged Alias Writ of
Execution, dated January 13, 1998, CBL asserts that the amount of said fees was
not only unconscionable and unreasonable but beyond the MTC’s jurisdiction.
CBL also underscores the fact that the dispositive portion of the July 30, 1993
MTC Decision has awarded attorney’s fees only in the amount of P20,000.00
which is the maximum monetary limit that an MTC can award in cases under its
jurisdiction, pursuant to Section 1(A), Paragraph 137 of the aforestated rules.
CBL ignored the fact that the increase in the award of attorney’s fees was
occasioned by no less than its consent to the Compromise Agreement which was
executed by both parties on November 3, 1993, approved by the MTC upon motion
of the parties with assistance of counsel, in its December 13, 1993 decision and
partially complied with by the said parties.
_______________
37 1. Sec. Scope.—This rule shall govern the summary procedure in the
Metropolitan Trial Courts, the Municipal Trial Courts in Cities, the Municipal
88
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Trial Courts, and the Municipal Circuit Trial Courts in the following cases falling
within their jurisdiction:
A.Civil Cases:
All cases of forcible entry and unlawful detainer, irrespective of the amount of
damages or unpaid rentals sought to be recovered. Where attorney’s fees are
awarded, the same shall not exceed twenty thousand pesos (P20,000.00). (1)
419
VOL. 562, AUGUST 20, 2008 419
California Bus Lines, Inc. vs. Court of Appeals
MIAA’s counsel, the OGCC, is legally authorized to receive payment of
attorney’s fees by virtue of Section 10, Chapter 3, Title III, Book IV of Executive
Order No. 292, otherwise known as the Administrative Code of 1987.38 There is
likewise no jurisdictional impediment if the MTC awards the amount of One
Million Pesos (P1,000,000.00) as attorney’s fees despite the Twenty Thousand
Pesos (P20,000.00) limit provided under the applicable rules.
As we see it, the foregoing jurisdictional amount of P20,000.00 is mandated
only when the trial court itself awards the attorney’s fees absent any valid
stipulation between the parties relative thereto. To our mind, a contrary
interpretation would counter the principles of freedom of the parties to enter into
any kind of contract they choose and to establish such stipulations, clauses, terms
and conditions as they may deem convenient, subject only to basic limitations as
provided under Article 1306 of the Civil Code:
The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy.” 1306. “Article
To be sure, the Civil Code implements the autonomy and obligatory nature of
contracts,39 guaranteed by Article III, Section 10 of the Constitution.
The amount of attorney’s fees agreed upon in the Compromise Agreement is
not determinative of jurisdiction in this ejectment suit. Such amount is merely
incidental to the main question of whether or not CBL should be allowed to
continue
_______________
420
420 SUPREME COURT REPORTS
ANNOTATED
California Bus Lines, Inc. vs. Court of Appeals
its occupancy of MIAA’s property. The trial court’s jurisdiction is perforce not lost
by the fact that the amount of attorney’s fees agreed upon is beyond the limit set
by the Rules.
We now rule on CBL’s Urgent Motion for Contempt against MIAA’s counsel in
connection with the filing of an Urgent Motion for the Issuance of Alias Writ of
Execution40 with the MTC while the instant petition is still pending with this
Court which CBL posits as violative of paragraphs (c) and (d) of Section 3, Rule 71
of the 1997 Revised Rules on Civil Procedure.41
Under the second paragraph of Section 4 of the same Rule, a charge of indirect
contempt must be filed in the form of a verified petition instituted as a special
civil action if it is not initiated directly by the court.42 Section 4 of Rule 71 reads:
“How proceedings commenced.—Proceedings for indirect contempt may be
initiated motu proprio by the court against which the contempt was committed by
order or any other formal charge requiring the respondent to show cause why he
should not be punished for contempt.
_______________
421
VOL. 562, AUGUST 20, 2008 421
California Bus Lines, Inc. vs. Court of Appeals
In all other cases, charges for indirect contempt shall be commenced by a
verified petition with supporting particulars and certified true copies of
documents or papers involved therein, and upon full compliance with the
requirements for filing initiatory pleadings for civil actions in the court concerned.
If the contempt charges arose out of or are related to a principal action pending in
the court, the petition for contempt shall allege that fact but said petition shall be
docketed, heard and decided separately, unless the court in its discretion orders
the consolidation of the contempt charges and the principal action for joint
hearing and decision.”
For failure to comply with the requirement set by the aforequoted Rule, the
Court is constrained to take no action on CBL’s motion for contempt.
It is high time to write finis to this case. Litigation must at some time be
terminated for public policy dictates that once a judgment becomes final,
executory and unappealable, the prevailing party should not be denied the fruits
of his victory by some subterfuge devised by the losing party.
The Court finds CBL’s obstinate efforts to stay the execution of a valid
judgment as an unjustifiable use of the processes of our legal system. CBL and
counsel so far only succeeded in unduly delaying the complete execution of the
judgment based on the Compromise Agreement to which it had voluntarily
acceded.
WHEREFORE, the instant petition is hereby DISMISSED for lack of merit.
Costs against the petitioner.
SO ORDERED.
Puno (C.J., Chairperson), Carpio, Corona and Azcuna, JJ., concur.
Petition dismissed.
Notes.—For the extraordinary remedy of certiorari to lie by reason of grave
abuse of discretion, the abuse of discretion
© Copyright 2019 Central Book Supply, Inc. All rights reserved.
89
Credtrans pledge chattel
VOL. 310, JULY 14, 1999 281
PAMECA Wood Treatment Plant, Inc. vs. Court
of Appeals
G.R. No. 106435. July 14, 1999.*
PAMECA WOOD TREATMENT PLANT, INC., HERMINIO G. TEVES,
VICTORIA V. TEVES and HIRAM DIDAY R. PULIDO, petitioners, vs. HON.
COURT OF APPEALS and DEVELOPMENT BANK OF THE PHILIPPINES,
respondents.
Chattel Mortgage; Pledge; Whereas, in pledge, the sale of the thing pledged
extinguishes the entire principal obligation, such that the pledgor may no longer
recover proceeds of the sale in excess of the amount of the principal obligation,
Section 14 of the Chattel Mortgage Law expressly entitles the mortgagor to the
balance of the proceeds, upon satisfaction of the principal obligation and costs.—It
is clear from the above provision that the effects of foreclosure under the Chattel
Mortgage Law run inconsistent with those of pledge under Article 2115. Whereas,
in pledge, the sale of the thing pledged extinguishes the entire principal
obligation, such that the pledgor may no longer recover proceeds of the sale in
excess of the amount of the principal obligation, Section 14 of the Chattel
Mortgage Law expressly entitles the mortgagor to the balance of the proceeds,
upon satisfaction of the principal obligation and costs. Since the Chattel Mortgage
Law bars the creditor-mortgagee from retaining the excess of the sale proceeds
there is a corollary obligation on the part of the debtor-mortgagee to pay the
deficiency in case of a reduction in the price at public auction.
Same; Article 1484 of the Civil Code applies clearly and solely to the sale of
personal property the price of which is payable in installments.—Neither do We
find tenable the application by analogy of Article 1484 of the Civil Code to the
instant case. As correctly pointed out by the trial court, the said article applies
clearly and solely to the sale of personal property the price of which is payable in
installments. Although Article 1484, paragraph (3) expressly bars any further
action against the purchaser to recover an unpaid balance of the price, where the
vendor opts to foreclose the chattel mortgage on the thing sold, should the
vendee’s failure to pay cover two or more installments, this provision is
specifically applicable to a sale on installments.
_______________
* THIRD DIVISION.
282
282 SUPREME COURT REPORTS
ANNOTATED
PAMECA Wood Treatment Plant, Inc. vs. Court
of Appeals
Same; Public Auctions; Fraud; Appeals; Pleadings and Practice; Basic is the
rule that parties may not bring on appeal issues that were not raised on trial.—We
are also unable to find merit in peti-tioners’ submission that the public auction
sale is void on grounds of fraud and inadequacy of price. Petitioners never
assailed the validity of the sale in the RTC, and only in the Court of Appeals did
they attempt to prove inadequacy of price through the documents, i.e., the “Open-
End Mortgage on Inventory” and inventory dated March 31, 1980, likewise
attached to their Petition before this Court. Basic is the rule that parties may not
bring on appeal issues that were not raised on trial.
Same; Same; Same; The mere fact that the mortgagee-bank was the sole
bidder for the mortgaged properties in the public sale does not warrant the
conclusion that the transaction was attended with fraud.—The mere fact that
respondent bank was the sole bidder for the mortgaged properties in the public
sale does not warrant the conclusion that the transaction was attended with
fraud. Fraud is a serious allegation that requires full and convincing evidence,
and may not be inferred from the lone circumstance that it was only respondent
bank that bid in the sale of the foreclosed properties. The sparseness of
petitioners’ evidence in this regard leaves Us no discretion but to uphold the
presumption of regularity in the conduct of the public sale.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Americo H. Acosta for petitioners.
Bonifacio M. Abad & Vicente Cuison for private respondent.
GONZAGA-REYES, J.:
Before Us for review on certiorari is the decision of the respondent Court of
Appeals in CA G.R. CV No. 27861, promul-
283
VOL. 310, JULY 14, 1999 283
PAMECA Wood Treatment Plant, Inc. vs. Court
of Appeals
gated on April 23, 1992,1 affirming in toto the decision of the Regional Trial Court
of Makati2 to award respondent bank’s deficiency claim, arising from a loan
secured by chattel mortgage.
The antecedents of the case are as follows:
On April 17, 1980, petitioner PAMECA Wood Treatment Plant, Inc.
(PAMECA) obtained a loan of US$267,881.67, or the equivalent of P2,000,000.00
from respondent Bank. By virtue of this loan, petitioner PAMECA, through its
President, petitioner Herminio C. Teves, executed a promissory note for the said
amount, promising to pay the loan by installment. As security for the said loan, a
chattel mortgage was also executed over PAMECA’s properties in Dumaguete
90
Credtrans pledge chattel
City, consisting of inventories, furniture and equipment, to cover the whole value
of the loan.
On January 18, 1984, and upon petitioner PAMECA’s failure to pay,
respondent bank extrajudicially foreclosed the chattel mortgage, and, as sole
bidder in the public auction, purchased the foreclosed properties for a sum of
P322,350.00. On June 29, 1984, respondent bank filed a complaint for the
collection of the balance of P4,366,332.463 with Branch 132 of the Regional Trial
Court of Makati City against petitioner PAMECA and private petitioners herein,
as solidary debtors with PAMECA under the promissory note.
On February 8, 1990, the RTC of Makati rendered a decision on the case, the
dispositive portion of which we reproduce as follows:
“WHEREFORE, judgment is hereby rendered ordering the defendants to pay
jointly and severally plaintiff the (1) sum of
_______________
Penned by Justice Lorna S. Lombos-dela Fuente, with the concurrence of
1
Justices Salome A. Montoya and Quirino D. Abad-Santos, Jr.
2 Civil Case No. 7734, Branch 132, presided over by Judge Herminio I. Benito.
3 Representing the deficiency claim of respondent bank, inclusive of interest
charges, as of March 31, 1984.
284
284 SUPREME COURT REPORTS
ANNOTATED
PAMECA Wood Treatment Plant, Inc. vs. Court
of Appeals
P4,366,332.46 representing the deficiency claim of the latter as of March 31, 1984,
plus 21% interest per annum and other charges from April 1, 1984 until the whole
amount is fully paid and (2) the costs of the suit. SO ORDERED.”4
The Court of Appeals affirmed the RTC decision. Hence, this Petition.
The petition raises the following grounds:
1. “1.Respondent appellate court gravely erred in not reversing the decision
of the trial court, and in not holding that the public auction sale of
petitioner PAMECA’s chattels were tainted with fraud, as the chattels
of the said petitioner were bought by private respondent as sole bidder
in only 1/6 of the market value of the property, hence unconscionable
and inequitable, and therefore null and void.
2. 2.Respondent appellate court gravely erred in not applying by analogy
Article 1484 and Article 2115 of the Civil Code by reading the spirit of
the law, and taking into consideration the fact that the contract of loan
was a contract of adhesion.
3. 3.The appellate court gravely erred in holding the petitioners Herminio
Teves, Victoria Teves and Hiram Diday R. Pulido solidarily liable with
PAMECA Wood Treatment Plant, Inc. when the intention of the parties
was that the loan is only for the corporation’s benefit.”
Relative to the first ground, petitioners contend that the amount of
P322,350.00 at which respondent bank bid for and purchased the mortgaged
properties was unconscionable and inequitable considering that, at the time of the
public sale, the mortgaged properties had a total value of more than
P2,000,000.00. According to petitioners, this is evident from an inventory dated
March 31, 1980,5 which valued the properties at P2,518,621.00, in accordance
with the terms of the chattel mortgage contract6 between the parties that
required
_______________
4 Rollo, 47; Decision of the RTC, 4.
5 Rollo, 11; Annex “F” of the Petition.
6 Ibid., Open-End Mortgage on Inventory, Annex “G” of the Pe tition, 1.
285
VOL. 310, JULY 14, 1999 285
PAMECA Wood Treatment Plant, Inc. vs. Court
of Appeals
that the inventories “be maintained at a level no less than P2 million.” Petitioners
argue that respondent bank’s act of bidding and purchasing the mortgaged
properties for P322,350.00 or only about 1/6 of their actual value in a public sale
in which it was the sole bidder was fraudulent, unconscionable and inequitable,
and constitutes sufficient ground for the annulment of the auction sale.
To this, respondent bank contends that the above-cited inventory and chattel
mortgage contract were not in fact submitted as evidence before the RTC of
Makati, and that these documents were first produced by petitioners only when
the case was brought to the Court of Appeals.7 The Court of Appeals, in turn,
disregarded these documents for petitioners’ failure to present them in evidence,
or to even allude to them in their testimonies before the lower court.8 Instead,
respondent court declared that it is not at all unlikely for the chat-tels to have
sufficiently deteriorated as to have fetched such a low price at the time of the
auction sale.9 Neither did respondent court find anything irregular or fraudulent
in the circumstance that respondent bank was the sole bidder in the sale, as all
the legal procedures for the conduct of a foreclosure sale have been complied with,
thus giving rise to the presumption of regularity in the performance of public
duties.10 Petitioners also question the ruling of respondent court, affirming the
RTC, to hold private petitioners, officers and stockholders of petitioner PAMECA,
liable with PAMECA for the obligation under the loan obtained from respondent
bank, contrary to the doctrine of separate and distinct corporate
personality.11 Private petitioners contend that they became signatories to the
promissory note “only as a matter of practice by the respondent bank,” that the
promissory note was in
_______________
91
Credtrans pledge chattel
7 Ibid., 69; Comment of Private Respondents, 2.
8 Ibid., 28; Decision of the Court of Appeals, 3.
9 Ibid.
10 Ibid., 28-29; Decision of the Court of Appeals, 3-4.
11 Ibid., 18-21; Petition, 13-16.
286
286 SUPREME COURT REPORTS
ANNOTATED
PAMECA Wood Treatment Plant, Inc. vs. Court
of Appeals
the nature of a contract of adhesion, and that the loan was for the benefit of the
corporation, PAMECA, alone.12
Lastly, invoking the equity jurisdiction of the Supreme Court, petitioners
submit that Articles 148413 and 211514 of the Civil Code be applied in analogy to
the instant case to preclude the recovery of a deficiency claim.15
Petitioners are not the first to posit the theory of the applicability of Article
2115 to foreclosures of chattel mortgage. In the leading case of Ablaza vs.
Ignacio,16 the lower court dismissed the complaint for collection of deficiency
judgment in view of Article 2141 of the Civil Code, which provides that the
provisions of the Civil Code on pledge shall also apply to chattel mortgages,
insofar as they are not in conflict with the Chattel Mortgage Law. It was the
lower court’s opinion that, by virtue of Article 2141, the provisions of Article 2115
which deny the creditor-pledgee the right to recover deficiency in
_______________
Ibid.
12
“Art. 1484. In a contract of sale of personal property the price of which is
13
payable in installments, the vendor may exercise the following remedies:
1. (1)Exact fulfillment of the obligation, should the vendee fail to pay;
2. (2)Cancel the sale, should the vendee’s failure to pay cover two or more
installments;
3. (3)Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee’s failure to pay cover two or more
installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to
the contrary shall be void.” (Emphasis supplied)
“Art. 2115. The sale of the thing pledged shall extinguish the principal
14
obligation, whether or not the proceeds of the sale are equal to the amount of the
obligation, interest and expenses in a proper case. If the price of the sale is more
than said amount, the debtor shall not be entitled to the excess, unless otherwise
agreed. If the price of the sale is less, neither shall the creditor be entitled to
recover the deficiency notwithstanding any stipulation to the contrary.” (Emphasis
supplied)
15 Rollo, 14-18; Petition, 9-13.
16 G.R. No. L-11466, May 23, 1958 (unpublished).
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PAMECA Wood Treatment Plant, Inc. vs. Court
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case the proceeds of the foreclosure sale are less than the amount of the principal
obligation, will apply.
This Court reversed the ruling of the lower court and held that the provisions
of the Chattel Mortgage Law regarding the effects of foreclosure of chattel
mortgage, being contrary to the provisions of Article 2115, Article 2115 in relation
to Article 2141, may not be applied to the case.
Section 14 of Act No. 1508, as amended, or the Chattel Mortgage Law, states:
“x x x
The officer making the sale shall, within thirty days thereafter, make in
writing a return of his doings and file the same in the office of the Registry of
Deeds where the mortgage is recorded, and the Register of Deeds shall record the
same. The fees of the officer for selling the property shall be the same as the case
of sale on execution as provided in Act Numbered One Hundred and Ninety, and
the amendments thereto, and the fees of the Register of Deeds for registering the
officer’s return shall be taxed as a part of the costs of sale, which the officer shall
pay to the Register of Deeds. The return shall particularly describe the articles
sold, and state the amount received for each article, and shall operate as a
discharge of the lien thereon created by the mortgage. The proceeds of such sale
shall be applied to the payment, first, of the costs and expenses of keeping and sale,
and then to the payment of the demand or obligation secured by such mortgage,
and the residue shall be paid to persons holding subsequent mortgages in their
order, and the balance, after paying the mortgage, shall be paid to the mortgagor
or persons holding under him on demand.” (Emphasis supplied)
It is clear from the above provision that the effects of foreclosure under the
Chattel Mortgage Law run inconsistent with those of pledge under Article 2115.
Whereas, in pledge, the sale of the thing pledged extinguishes the entire principal
obligation, such that the pledgor may no longer recover proceeds of the sale in
excess of the amount of the principal obligation, Section 14 of the Chattel
Mortgage Law expressly entitles the mortgagor to the balance of the proceeds,
upon satisfaction of the principal obligation and costs.
288
288 SUPREME COURT REPORTS
ANNOTATED
PAMECA Wood Treatment Plant, Inc. vs. Court
of Appeals
Since the Chattel Mortgage Law bars the creditor-mortgagee from retaining
the excess of the sale proceeds there is a corollary obligation on the part of the
debtor-mortgagee to pay the deficiency in case of a reduction in the price at public
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auction. As explained in Manila Trading and Supply Co. vs. Tamaraw Plantation
Co.,17 cited in Ablaza vs. Ignacio, supra:
“While it is true that section 3 of Act No. 1508 provides that ‘a chattel
mortgage is a conditional sale,’ it further provides that it ‘is a conditional sale of
personal property as security for the payment of a debt, or for the performance of
some other obligation specified therein.’ The lower court overlooked the fact that
the chattels included in the chattel mortgage are only given as security and not as
a payment of the debt, in case of a failure of payment.
The theory of the lower court would lead to the absurd conclusion that if the
chattels mentioned in the mortgage, given as security, should sell for more than
the amount of the indebtedness secured, that the creditor would be entitled to the
full amount for which it might be sold, even though that amount was greatly in
excess of the indebtedness. Such a result certainly was not contemplated by the
legislature when it adopted Act No. 1508. There seems to be no reason supporting
that theory under the provision of the law. The value of the chattels changes
greatly from time to time, and sometimes very rapidly. If, for example, the
chattels should greatly increase in value and a sale under that condition should
result in largely overpaying the indebtedness, and if the creditor is not permitted
to retain the excess, then the same token would require the debtor to pay the
deficiency in case of a reduction in the price of the chattels between the date of
the contract and a breach of the condition.
Mr. Justice Kent, in the 12th Edition of his Commentaries, as well as other
authors on the question of chattel mortgages, have said, that ‘in case of a sale
under a foreclosure of a chattel mortgage, there is no question that the mortgagee
or creditor may maintain an action for the deficiency, if any should occur.’ And
the fact that Act No. 1508 permits a private sale, such sale is not, in fact, a
satisfaction of the debt, to any greater extent than the value of the property at the
time of the sale. The amount received at the time of the sale,
_______________
17 47 Phil. 513.
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of course, always requiring good faith and honesty in the sale, is only a
payment, pro tanto, and an action may be maintained for a deficiency in the debt.”
We find no reason to disturb the ruling in Ablaza vs. Ignacio, and the cases
reiterating it.18
Neither do We find tenable the application by analogy of Article 1484 of the
Civil Code to the instant case. As correctly pointed out by the trial court, the said
article applies clearly and solely to the sale of personal property the price of which
is payable in installments. Although Article 1484, paragraph (3) expressly bars
any further action against the purchaser to recover an unpaid balance of the
price, where the vendor opts to foreclose the chattel mortgage on the thing sold,
should the vendee’s failure to pay cover two or more installments, this provision is
specifically applicable to a sale on installments.
To accommodate petitioners’ prayer even on the basis of equity would be to
expand the application of the provisions of Article 1484 to situations beyond its
specific purview, and ignore the language and intent of the Chattel Mortgage
Law. Equity, which has been aptly described as “justice outside legality,” is
applied only in the absence of, and never against, statutory law or judicial rules of
procedure.19
We are also unable to find merit in petitioners’ submission that the public
auction sale is void on grounds of fraud and inadequacy of price. Petitioners never
assailed the validity of the sale in the RTC, and only in the Court of Appeals did
they attempt to prove inadequacy of price through the documents, i.e., the “Open-
End Mortgage on Inventory” and inventory dated March 31, 1980, likewise
attached to their Petition before this Court. Basic is the rule that parties may not
bring on appeal issues that were not raised on trial.
_______________
18 See Garrido vs. Tuason, 133 Phil. 717; Philippine National Bank vs. Manila
Investment and Construction, Inc., 38 SCRA 462.
19 Conte vs. Commission on Audit, 264 SCRA 19; Mendiola vs. Court of
Appeals, 258 SCRA 492; Causapin vs. Court of Appeals, 233 SCRA 615.
290
290 SUPREME COURT REPORTS
ANNOTATED
PAMECA Wood Treatment Plant, Inc. vs. Court
of Appeals
Having nonetheless examined the inventory and chattel mortgage document
as part of the records, We are not convinced that they effectively prove that the
mortgaged properties had a market value of at least P2,000,000.00 on January 18,
1984, the date of the foreclosure sale. At best, the chattel mortgage contract only
indicates the obligation of the mortgagor to maintain the inventory at a value of
at least P2,000,000.00, but does not evidence compliance therewith. The
inventory, in turn, was as of March 31, 1980, or even prior to April 17, 1980, the
date when the parties entered into the contracts of loan and chattel mortgage,
and is far from being an accurate estimate of the market value of the properties at
the time of the foreclosure sale four years thereafter. Thus, even assuming that
the inventory and chattel mortgage contract were duly submitted as evidence
before the trial court, it is clear that they cannot suffice to substantiate
petitioners’ allegation of inadequacy of price.
Furthermore, the mere fact that respondent bank was the sole bidder for the
mortgaged properties in the public sale does not warrant the conclusion that the
transaction was attended with fraud. Fraud is a serious allegation that requires
full and convincing evidence,20 and may not be inferred from the lone
circumstance that it was only respondent bank that bid in the sale of the
foreclosed properties. The sparse-ness of petitioners’ evidence in this regard
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leaves Us no discretion but to uphold the presumption of regularity in the conduct
of the public sale.
We likewise affirm private petitioners’ joint and several liability with
petitioner corporation in the loan. As found by the trial court and the Court of
Appeals, the terms of the promissory note unmistakably set forth the solidary
nature of private petitioners’ commitment. Thus:
_______________
20 P.T. Cerna Corporation vs. Court of Appeals, 221 SCRA 19; Benitez vs.
Intermediate Appellate Court, 154 SCRA 41; Filinvest Corporation vs.
Relova, 117 SCRA 420.
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“On or before May 12, 1980, for value received, PAMECA WOOD
TREATMENT PLANT, INC., a corporation organized and existing under the laws
of the Philippines, with principal office at 304 El Hogar Filipina Building, San
Juan, Manila, promise to pay to the order of DEVELOPMENT BANK OF THE
PHILIPPINES at its office located at corner Buendia and Makati Avenues,
Makati, Metro Manila, the principal sum of TWO HUNDRED SIXTY SEVEN
THOUSAND EIGHT HUNDRED AND EIGHTY ONE & 67/100 US DOLLARS
(US$267,881.67) with interest at the rate of three per cent (3%) per annum over
DBP’s borrowing rate for these funds. Before the date of maturity, we hereby bind
ourselves, jointly and severally, to make partial payments as follows:”
xxx
“In case of default in the payment of any installment above, we bind ourselves
to pay DBP for advances x x x”
xxx
“We further bind ourselves to pay additional interest and penalty charges on
loan amortizations or portion thereof in arrears as follows:”
xxx
“In addition to the above, we also bind ourselves to pay for bank advances for
insurance premiums, taxes x x x”
xxx
“We further bind ourselves to reimburse DBP on a pro-rata basis for all costs
incurred by DBP on the foreign currency borrowings from where the loan shall be
drawn x x x”
xxx
“In case of non-payment of the amount of this note or any portion of it on
demand, when due, or any other amount or amounts due on account of this note,
the entire obligation shall become due and demandable, and if, for the
enforcement of the payment thereof, the DEVELOPMENT BANK OF THE
PHILIPPINES is constrained to entrust the case to its attorneys, we jointly and
severally bind ourselves to pay for attorney’s fees as provided for in the mortgage
contract, in addition to the legal fees and other incidental expenses. In the event of
foreclosure of the mortgage securing this note, we further
292
292 SUPREME COURT REPORTS
ANNOTATED
PAMECA Wood Treatment Plant, Inc. vs. Court
of Appeals
bind ourselves jointly and severally to pay the deficiency, if any.” (Emphasis
supplied)21
The promissory note was signed by private petitioners in the following
manner:
“PAMECA WOOD TREATMENT PLANT, INC.
By:
(Sgd.) HERMINIO G. TEVES
(For himself & as President of above-named corporation)
(Sgd.) HIRAM DIDAY PULIDO
(Sgd.) VICTORIA V. TEVES”22
From the foregoing, it is clear that private petitioners intended to bind
themselves solidarily with petitioner PAMECA in the loan. As correctly submitted
by respondent bank, private petitioners are not made to answer for the corporate
act of petitioner PAMECA, but are made liable because they made themselves co-
makers with PAMECA under the promissory note.
IN VIEW OF THE FOREGOING, the Petition is DENIED and the Decision of
the Court of Appeals dated April 23, 1992 in CA G.R. CV No. 27861 is hereby
AFFIRMED. Costs against petitioners.
SO ORDERED.
Romero (Chairman), Vitug, Panganiban and Purisima, JJ., concur.
Petition denied; Reviewed decision affirmed.
Notes.—While a pledge, real estate mortgage, or antichresis may
exceptionally secure after-incurred obligations so long
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21 Rollo, 29-30, 34-35; Annex “C” of the Petition; Decision of the CA, 4-5.
22 Rollo, 35; Annex “C” of the Petition; Decision of the CA, 5.

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as these future debts are accurately described, a chattel mort-gage, however, can
only cover obligations existing at the time the mortgage is constituted. (Acme
Shoe, Rubber & Plastic Corporation vs. Court of Appeals, 260 SCRA 714 [1996])
The contracting parties to a pledge agreement may stipulate that the said
pledge will also stand as security for any future advancements (or renewals
thereof) that the pledgor may procure from the pledgee. (China Banking
Corporation vs. Court of Appeals, 270 SCRA 503 [1997])
Where the mortgagor plainly refuses to deliver the chattel subject of the
mortgage upon his failure to pay two or more installments, or if he conceals the
chattel to place it beyond the reach of the mortgagee, the necessary expenses
incurred in the prosecution by the mortgagee of the action for replevin so that he
can regain possession of the chattel should be borne by the mortgagor. (Agustin
vs. Court of Appeals, 271 SCRA 457 [1997])
A creditor’s failure to register a chattel mortgage does not release a guarantor
from his obligation where in the Continuing Guaranty the latter bound itself to
the contract irrespective of the existence of any collateral. (E. Zobel, Inc. vs. Court
of Appeals, 290 SCRA 1 [1998])

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