Professional Documents
Culture Documents
Violago v. BA Finance
Pedro on August 8, 1983. The spouses were unaware that the same car had already
been sold in 1982 to Esmeraldo Violago, another cousin of Avelino, and registered in
Esmeraldos name by the LTO-San Rafael Branch. Despite the spouses demand for
the car and Avelinos repeated assurances, there was no delivery of the vehicle. Since
VMSC failed to deliver the car, Pedro did not pay any monthly amortization to BA
Finance. [5]
On March 1, 1984, BA Finance filed with the Regional Trial Court (RTC),
Branch 116 in Pasay City a complaint for Replevin with Damages against the
spouses. The complaint, docketed as Civil Case No. 1628-P, prayed for the delivery of
the vehicle in favor of BA Finance or, if delivery cannot be effected, for the payment of
PhP 199,049.41 plus penalty at the rate of 3% per month from February 15, 1984 until
fully paid. BA Finance also asked for the payment of attorneys fees, liquidated
damages, replevin bond premium, expenses in the seizure of the vehicle, and costs of
suit. The RTC issued an Order of Replevin on March 28, 1984. The Violago spouses,
as defendants a quo, were declared in default for failing to file an answer. Eventually, the
RTC rendered on December 3, 1984 a decision in favor of BA Finance. A writ of
execution was thereafter issued on January 11, 1985, followed by an alias writ of
execution.[6]
In the meantime, Esmeraldo conveyed the vehicle to Jose V. Olvido who was
then issued Certificate of Registration No. 0014830-4 by the LTO-Cebu City Branch
on April 29, 1985. On May 8, 1987, Jose executed a Chattel Mortgage over the vehicle
in favor of Generoso Lopez as security for a loan covered by a promissory note in the
amount of PhP 260,664. This promissory note was later endorsed to BA
Finance, CebuCity branch.[7]
On August 21, 1989, the spouses Violago filed a Motion for Reconsideration
and Motion to Quash Writ of Execution on the basis of lack of a valid service of
summons on them, among other reasons. The RTC denied the motions; hence, the
spouses filed a petition for certiorari under Rule 65 before the CA, docketed as CA G.R.
No. 2002-SP. On May 31, 1991, the CA nullified the RTCs order. This CA decision
became final and executory.
On January 28, 1992, the spouses filed their Answer before the RTC, alleging
the following: they never received the vehicle from VMSC; the vehicle was previously
sold to Esmeraldo; BA Finance was not a holder in due course under Section 59 of
the Negotiable Instruments Law(NIL); and the recourse of BA Finance should be against
VMSC. On February 25, 1995, the Violago spouses, with prior leave of court, filed a
Third Party Complaint against Avelino praying that he be held liable to them in the
event that they be held liable to BA Finance, as well as for damages. VMSC was not
impleaded as third party defendant. In his Motion to Dismiss and Answer, Avelino
contended that he was not a party to the transaction personally, but VMSC. Avelinos
motion was denied and the third party complaint against him was entertained by the trial
court. Subsequently, the spouses belabored to prove that they affixed their signatures on
the promissory note and chattel mortgage in favor of VMSC in blank.[8]
The RTC rendered a Decision on March 5, 1994, finding for BA Finance but
against the Violago spouses. The RTC, however, declared that they are entitled to be
indemnified by Avelino. The dispositive portion of the RTCs decision reads:
WHEREFORE, defendant-[third]-party plaintiffs spouses
Pedro F. Violago and Florencia R. Violago are ordered to deliver to
plaintiff BA Finance Corporation, at its principal office the BAFC
Building, Gamboa St., Legaspi Village, Makati, Metro Manila the
Toyota Cressida car, model 1983, bearing Engine No. 21R-02854117,
and with Serial No. RX60-804614, covered by the deed of chattel
mortgage dated August 4, 1983; or if such delivery cannot be made,
to pay, jointly and severally, to the plaintiff the sum of P198,003.06
together with the penalty [thereon] at three percent (3%) a month,
from March 1, 1984, until the amount is fully paid.
In either case, the defendant-third-party plaintiffs are
required to pay, jointly and severally, to the plaintiff a sum equivalent
to twenty-five percent (25%) of P198,003.06 as attorneys fees, and
another amount also equivalent to twenty five percent (25%) of the
said unpaid balance, as liquidated damages. The defendant-third
party-plaintiffs are also required to shoulder the litigation expenses
and costs.
As indemnification, third-party defendant Avelino Violago is
ordered to deliver to defendants-third-party plaintiffs spouses Pedro
F. Violago and Florencia R. Violago the aforedescribed motor
vehicle; or if such delivery is not possible, to pay to the said spouses
the sum of P198,003.06, together with the penalty thereon at three
(3%) a month from March 1, 1984, until the amount is entirely paid.
In either case, the third-party defendant should pay to the
defendant-third-party plaintiffs spouses a sum equivalent to twentyfive percent (25%) of P198,003.06 as attorneys fees, and another
sum equivalent also to twenty-five percent (25%) of the said unpaid
balance, as liquidated damages.
consent was vitiated by fraud, and, thus, the promissory note does not carry any legal
effect despite its negotiation. Either way, the petitioners arguments deserve no merit.
The spouses Violago sought but were denied reconsideration by the CA per its
Resolution of May 15, 2003.
The Issues
Petitioners raise the following issues:
WHETHER OR NOT THE HOLDER OF AN INVALID
NEGOTIABLE PROMISSORY NOTE MAY BE CONSIDERED
A HOLDER IN DUE COURSE
WHETHER OR NOT A CHATTEL MORTGAGE SHOULD BE
CONSIDERED VALID DESPITE VITIATION OF CONSENT
OF, AND THE FRAUD COMMITTED ON, THE
MORTGAGORS BY AVELINO, AND THE CLEAR ABSENCE
OF OBJECT CERTAIN
WHETHER OR NOT THE VEIL OF CORPORATE ENTITY
MAY BE INVOKED AND SUSTAINED DESPITE THE
FRAUD AND DECEPTION OF AVELINO
The Courts Ruling
The ruling of the appellate court is set aside insofar as it dismissed, without
prejudice, the third party complaint of petitioners against Avelino thereby effectively
absolving Avelino from any liability under the third party complaint.
In addressing the threshold issue of whether BA Finance is a holder in due
course of the promissory note, we must determine whether the note is a negotiable
instrument and, hence, covered by the NIL. In their appeal to the CA, petitioners
argued that the promissory note is a negotiable instrument and that the provisions of
the NIL, not the Civil Code, should be applied. In the present petition, however,
petitioners claim that Article 1318 of the Civil Code [14] should be applied since their
The promissory note is clearly negotiable. The appellate court was correct in
finding all the requisites of a negotiable instrument present. The NIL provides:
(Sgd.)
FLORENCIA R.
same
(Address)
(Sgd.)
Jesus Tuazon
(WITNESS)
to BA Finance. Petitioners likewise pray for damages for the fraud committed upon
them.
In Concept Builders, Inc. v. NLRC, we held:
It is a fundamental principle of corporation law that a
corporation is an entity separate and distinct from its stockholders
and from other corporations to which it may be connected. But, this
separate and distinct personality of a corporation is merely a fiction
created by law for convenience and to promote justice. So, when the
notion of separate juridical personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime, or is used
as a device to defeat the labor laws, this separate personality of the
corporation may be disregarded or the veil of corporate fiction
pierced. This is true likewise when the corporation is merely an
adjunct, a business conduit or an alter ego of another corporation.
xxxx
The test in determining the applicability of the doctrine of
piercing the veil of corporate fiction is as follows:
1.
2.
3.
spouses, still proceeded with the sale and collected the down payment from
petitioners. The trial court found that the vehicle was not delivered to the spouses.
Avelino clearly defrauded petitioners. His actions were the proximate cause of
petitioners loss. He cannot now hide behind the separate corporate personality of
VMSC to escape from liability for the amount adjudged by the trial court in favor of
petitioners.
The fact that VMSC was not included as defendant in petitioners third party
complaint does not preclude recovery by petitioners from Avelino; neither would such
non-inclusion constitute a bar to the application of the piercing-of-the-corporate-veil
doctrine. We suggested as much in Arcilla v. Court of Appeals, an appellate proceeding
involving petitioner Arcillas bid to avoid the adverse CA decision on the argument that
he is not personally liable for the amount adjudged since the same constitutes a
corporate liability which nevertheless cannot even be enforced against the corporation
which has not been impleaded as a party below. In that case, the Court found as welltaken the CAs act of disregarding the separate juridical personality of the corporation
and holding its president, Arcilla, liable for the obligations incurred in the name of the
corporation although it was not a party to the collection suit before the trial court. An
excerpt from Arcilla:
x x x In short, even if We are to assume arguendo that the
obligation was incurred in the name of the corporation, the petitioner
[Arcilla] would still be personally liable therefor because for all legal
intents and purposes, he and the corporation are one and the same.
Csar Marine Resources, Inc. is nothing more than his business
conduit and alter ego. The fiction of separate juridical personality
conferred upon such corporation by law should be disregarded.
Significantly, petitioner does not seriously challenge the [CAs]
application of the doctrine which permits the piercing of the
corporate veil and the disregarding of the fiction of a separate
juridical personality; this is because he knows only too well that from
the beginning, he merely used the corporation for his personal
purposes.[23]
WHEREFORE, the CAs August 20, 2002 Decision and May 15,
2003 Resolution in CA-G.R. CV No. 48489 are SET ASIDE insofar as they dismissed
without prejudice the third party complaint of petitioners-spouses Pedro and Florencia
Violago against respondent Avelino Violago. The March 5, 1994 Decision of the RTC
is REINSTATED and AFFIRMED. Costs against Avelino Violago.
SO ORDERED.
Anacleto R. Chi, while the others were not (Exhibits X-2 to X11,Ibid., pp. 66 to 76).
Upon the arrival of the machineries, the Prudential Bank indorsed the
shipping documents to the defendant-appellant which accepted
delivery of the same. To enable the defendant-appellant to take
delivery of the machineries, it executed, by prior arrangement with
the Prudential Bank, a trust receipt which was signed by Anacleto R.
Chi in his capacity as President (sic) of defendant-appellant company
(Exhibit C, Ibid., p. 13).
At the back of the trust receipt is a printed form to be accomplished
by two sureties who, by the very terms and conditions thereof, were
to be jointly and severally liable to the Prudential Bank should the
defendant-appellant fail to pay the total amount or any portion of the
drafts issued by Nissho and paid for by Prudential Bank. The
defendant-appellant was able to take delivery of the textile
machineries and installed the same at its factory site at 69 Obudan
Street, Quezon City.
Sometime in 1967, the defendant-appellant ceased business operation
(sic). On December 29, 1969, defendant-appellant's factory was leased
by Yupangco Cotton Mills for an annual rental of P200,000.00
(Exhibit I, Ibid., p. 22). The lease was renewed on January 3, 1973
(Exhibit J, Ibid., p. 26). On January 5, 1974, all the textile machineries
in the defendant-appellant's factory were sold to AIC Development
Corporation for P300,000.00 (Exhibit K, Ibid., p. 29).
The obligation of the defendant-appellant arising from the letter of
credit and the trust receipt remained unpaid and unliquidated.
Repeated formal demands (Exhibits U, V, and W, Ibid., pp. 62, 63,
64) for the payment of the said trust receipt yielded no result Hence,
the present action for the collection of the principal amount of
P956,384.95 was filed on October 3, 1974 against the defendantappellant and Anacleto R. Chi. In their respective answers, the
defendants interposed identical special defenses, viz., the complaint
states no cause of action; if there is, the same has prescribed; and the
plaintiff is guilty of laches. 2
On 15 June 1978, the trial court rendered its decision the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered sentencing the
defendant Philippine Rayon Mills, Inc. to pay plaintiff the sum of
P153,645.22, the amounts due under Exhibits "X" & "X-1", with
interest at 6% per annum beginning September 15, 1974 until fully
paid.
Insofar as the amounts involved in drafts Exhs. "X" (sic) to "X-11",
inclusive, the same not having been accepted by defendant Philippine
Rayon Mills, Inc., plaintiff's cause of action thereon has not accrued,
hence, the instant case is premature.
Insofar as defendant Anacleto R. Chi is concerned, the case is
dismissed. Plaintiff is ordered to pay defendant Anacleto R. Chi the
sum of P20,000.00 as attorney's fees.
With costs against defendant Philippine Rayon Mills, Inc.
SO ORDERED. 3
Petitioner appealed the decision to the then Intermediate Appellate Court. In urging the
said court to reverse or modify the decision, petitioner alleged in its Brief that the trial
court erred in (a) disregarding its right to reimbursement from the private respondents
for the entire unpaid balance of the imported machines, the total amount of which was
paid to the Nissho Company Ltd., thereby violating the principle of the third party
payor's right to reimbursement provided for in the second paragraph of Article 1236 of
the Civil Code and under the rule against unjust enrichment; (b) refusing to hold
Anacleto R. Chi, as the responsible officer of defendant corporation, liable under
Section 13 of P.D No 115 for the entire unpaid balance of the imported machines
covered by the bank's trust receipt (Exhibit "C"); (c) finding that the solidary guaranty
clause signed by Anacleto R. Chi is not a guaranty at all; (d) controverting the judicial
admissions of Anacleto R. Chi that he is at least a simple guarantor of the said trust
receipt obligation; (e) contravening, based on the assumption that Chi is a simple
guarantor, Articles 2059, 2060 and 2062 of the Civil Code and the related evidence and
jurisprudence which provide that such liability had already attached; (f) contravening the
judicial admissions of Philippine Rayon with respect to its liability to pay the petitioner
the amounts involved in the drafts (Exhibits "X", "X-l" to "X-11''); and (g) interpreting
"sight" drafts as requiring acceptance by Philippine Rayon before the latter could be
held liable thereon. 4
In its decision, public respondent sustained the trial court in all respects. As to the first
and last assigned errors, it ruled that the provision on unjust enrichment, Article 2142 of
the Civil Code, applies only if there is no express contract between the parties and there
is a clear showing that the payment is justified. In the instant case, the relationship
existing between the petitioner and Philippine Rayon is governed by specific contracts,
namely the application for letters of credit, the promissory note, the drafts and the trust
receipt. With respect to the last ten (10) drafts (Exhibits "X-2" to "X-11") which had
not been presented to and were not accepted by Philippine Rayon, petitioner was not
justified in unilaterally paying the amounts stated therein. The public respondent did not
agree with the petitioner's claim that the drafts were sight drafts which did not require
presentment for acceptance to Philippine Rayon because paragraph 8 of the trust receipt
presupposes prior acceptance of the drafts. Since the ten (10) drafts were not presented
and accepted, no valid demand for payment can be made.
Public respondent also disagreed with the petitioner's contention that private
respondent Chi is solidarily liable with Philippine Rayon pursuant to Section 13 of P.D.
No. 115 and based on his signature on the solidary guaranty clause at the dorsal side of
the trust receipt. As to the first contention, the public respondent ruled that the civil
liability provided for in said Section 13 attaches only after conviction. As to the second,
it expressed misgivings as to whether Chi's signature on the trust receipt made the latter
automatically liable thereon because the so-called solidary guaranty clause at the dorsal
portion of the trust receipt is to be signed not by one (1) person alone, but by two (2)
persons; the last sentence of the same is incomplete and unsigned by witnesses; and it is
not acknowledged before a notary public. Besides, even granting that it was executed
and acknowledged before a notary public, Chi cannot be held liable therefor because the
records fail to show that petitioner had either exhausted the properties of Philippine
Rayon or had resorted to all legal remedies as required in Article 2058 of the Civil Code.
As provided for under Articles 2052 and 2054 of the Civil Code, the obligation of a
guarantor is merely accessory and subsidiary, respectively. Chi's liability would therefore
arise only when the principal debtor fails to comply with his obligation. 5
Its motion to reconsider the decision having been denied by the public respondent in its
Resolution of 11 June 1986, 6petitioner filed the instant petition on 31 July 1986
submitting the following legal issues:
I. WHETHER OR NOT THE RESPONDENT APPELLATE
COURT GRIEVOUSLY ERRED IN DENYING PETITIONER'S
In the Resolution of 12 March 1990, 8 this Court gave due course to the petition after
the filing of the Comment thereto by private respondent Anacleto Chi and of the Reply
to the latter by the petitioner; both parties were also required to submit their respective
memoranda which they subsequently complied with.
As We see it, the issues may be reduced as follows:
Paragraph 8 of the Trust Receipt which reads: "My/our liability for payment at
maturity of any accepted draft, bill of exchange or indebtedness shall not be
extinguished or modified" 17 does not, contrary to the holding of the public
respondent, contemplate prior acceptance by Philippine Rayon, but by the
petitioner. Acceptance, however, was not even necessary in the first place
because the drafts which were eventually issued were sight drafts And even if
these were not sight drafts, thereby necessitating acceptance, it would be the
petitioner and not Philippine Rayon which had to accept the same for
the latter was not the drawee. Presentment for acceptance is defined an the
production of a bill of exchange to a drawee for acceptance. 18 The trial court
and the public respondent, therefore, erred in ruling that presentment for
acceptance was an indispensable requisite for Philippine Rayon's liability on
the drafts to attach. Contrary to both courts' pronouncements, Philippine
Rayon immediately became liable thereon upon petitioner's payment thereof.
Such is the essence of the letter of credit issued by the petitioner. A different
conclusion would violate the principle upon which commercial letters of credit
are founded because in such a case, both the beneficiary and the issuer, Nissho
Company Ltd. and the petitioner, respectively, would be placed at the mercy of
Philippine Rayon even if the latter had already received the imported
machinery and the petitioner had fully paid for it. The typical setting and
purpose of a letter of credit are described in Hibernia Bank and Trust
Co. vs. J. Aron & Co., Inc., 19 thus:
Commercial letters of credit have come into general use in
international sales transactions where much time necessarily elapses
between the sale and the receipt by a purchaser of the merchandise,
during which interval great price changes may occur. Buyers and
sellers struggle for the advantage of position. The seller is desirous of
being paid as surely and as soon as possible, realizing that the vendee
at a distant point has it in his power to reject on trivial grounds
merchandise on arrival, and cause considerable hardship to the
shipper. Letters of credit meet this condition by affording celerity and
certainty of payment. Their purpose is to insure to a seller payment of
a definite amount upon presentation of documents. The bank deals
only with documents. It has nothing to do with the quality of the
merchandise. Disputes as to the merchandise shipped may arise and
be litigated later between vendor and vendee, but they may not
impede acceptance of drafts and payment by the issuing bank when
the proper documents are presented.
The trial court and the public respondent likewise erred in disregarding the trust receipt
and in not holding that Philippine Rayon was liable thereon. In People vs. Yu Chai
Ho, 20 this Court explains the nature of a trust receipt by quoting In re Dunlap Carpet
Co., 21 thus:
By this arrangement a banker advances money to an intending
importer, and thereby lends the aid of capital, of credit, or of business
facilities and agencies abroad, to the enterprise of foreign commerce.
Much of this trade could hardly be carried on by any other means,
and therefore it is of the first importance that the fundamental factor
in the transaction, the banker's advance of money and credit, should
receive the amplest protection. Accordingly, in order to secure that
the banker shall be repaid at the critical point that is, when the
imported goods finally reach the hands of the intended vendee the
banker takes the full title to the goods at the very beginning; he takes
it as soon as the goods are bought and settled for by his payments or
acceptances in the foreign country, and he continues to hold that title
as his indispensable security until the goods are sold in the United
States and the vendee is called upon to pay for them. This security is
not an ordinary pledge by the importer to the banker, for the
importer has never owned the goods, and moreover he is not able to
deliver the possession; but the security is the complete title vested
originally in the bankers, and this characteristic of the transaction has
again and again been recognized and protected by the courts. Of
course, the title is at bottom a security title, as it has sometimes been
called, and the banker is always under the obligation to reconvey; but
only after his advances have been fully repaid and after the importer
has fulfilled the other terms of the contract.
As further stated in National Bank vs. Viuda e Hijos de Angel Jose, 22 trust receipts:
. . . [I]n a certain manner, . . . partake of the nature of a conditional
sale as provided by the Chattel Mortgage Law, that is, the importer
becomes absolute owner of the imported merchandise as soon an he
has paid its price. The ownership of the merchandise continues to be
vested in the owner thereof or in the person who has advanced
payment, until he has been paid in full, or if the merchandise has
already been sold, the proceeds of the sale should be turned over to
him by the importer or by his representative or successor in interest.
Under P.D. No. 115, otherwise known an the Trust Receipts Law, which took effect on
29 January 1973, a trust receipt transaction is defined as "any transaction by and
between a person referred to in this Decree as the entruster, and another person
referred to in this Decree as the entrustee, whereby the entruster, who owns or holds
absolute title or security interests' over certain specified goods, documents or
instruments, releases the same to the possession of the entrustee upon the latter's
execution and delivery to the entruster of a signed document called the "trust receipt"
wherein the entrustee binds himself to hold the designated goods, documents or
instruments in trust for the entruster and to sell or otherwise dispose of the goods,
documents or instruments with the obligation to turn over to the entruster the proceeds
thereof to the extent of the amount owing to the entruster or as appears in the trust
receipt or the goods, instruments themselves if they are unsold or not otherwise
disposed of, in accordance with the terms and conditions specified in the trusts receipt,
or for other purposes substantially equivalent to any one of the following: . . ."
We also conclude, for the reason hereinafter discussed, and not for that adduced by the
public respondent, that private respondent Chi's signature in the dorsal portion of the
trust receipt did not bind him solidarily with Philippine Rayon. The statement at the
dorsal portion of the said trust receipt, which petitioner describes as a "solidary guaranty
clause", reads:
It is alleged in the complaint that private respondents "not only have presumably put
said machinery to good use and have profited by its operation and/or disposition but
very recent information that (sic) reached plaintiff bank that defendants already sold the
machinery covered by the trust receipt to Yupangco Cotton Mills," and that "as trustees
of the property covered by the trust receipt, . . . and therefore acting in fiduciary (sic)
capacity, defendants have willfully violated their duty to account for the whereabouts of
the machinery covered by the trust receipt or for the proceeds of any lease, sale or other
disposition of the same that they may have made, notwithstanding demands therefor;
defendants have fraudulently misapplied or converted to their own use any money
realized from the lease, sale, and other disposition of said machinery." 23 While there is
no specific prayer for the delivery to the petitioner by Philippine Rayon of the proceeds
of the sale of the machinery covered by the trust receipt, such relief is covered by the
general prayer for "such further and other relief as may be just and equitable on the
premises." 24 And although it is true that the petitioner commenced a criminal action for
the violation of the Trust Receipts Law, no legal obstacle prevented it from enforcing
the civil liability arising out of the trust, receipt in a separate civil action. Under Section
13 of the Trust Receipts Law, the failure of an entrustee to turn over the proceeds of
the sale of goods, documents or instruments covered by a trust receipt to the extent of
the amount owing to the entruster or as appear in the trust receipt or to return said
goods, documents or instruments if they were not sold or disposed of in accordance
with the terms of the trust receipt shall constitute the crime of estafa, punishable under
the provisions of Article 315, paragraph 1(b) of the Revised Penal Code. 25 Under
Article 33 of the Civil Code, a civil action for damages, entirely separate and distinct
from the criminal action, may be brought by the injured party in cases of defamation,
fraud and physical injuries. Estafa falls under fraud.
We further agree that the PRUDENTIAL BANK AND TRUST COMPANY does not
have to take any steps or exhaust its remedy against aforesaid:
before making demand on me/us.
Petitioner insists that by virtue of the clear wording of the statement, specifically the
clause ". . . we jointly and severally agree and undertake . . .," and the concluding
sentence on exhaustion, Chi's liability therein is solidary.
In holding otherwise, the public respondent ratiocinates as follows:
With respect to the second argument, we have our misgivings as to
whether the mere signature of defendant-appellee Chi of (sic) the
guaranty agreement, Exhibit "C-1", will make it an actionable
document. It should be noted that Exhibit "C-1" was prepared and
printed by the plaintiff-appellant. A perusal of Exhibit "C-1" shows
that it was to be signed and executed by two persons. It was signed
only by defendant-appellee Chi. Exhibit "C-1" was to be witnessed by
two persons, but no one signed in that capacity. The last sentence of
the guaranty clause is incomplete. Furthermore, the plaintiff-appellant
also failed to have the purported guarantee clause acknowledged
before a notary public. All these show that the alleged guaranty
provision was disregarded and, therefore, not consummated.
But granting arguendo that the guaranty provision in Exhibit "C-1" was
fully executed and acknowledged still defendant-appellee Chi cannot
be held liable thereunder because the records show that the plaintiffappellant had neither exhausted the property of the defendantappellant nor had it resorted to all legal remedies against the said
defendant-appellant as provided in Article 2058 of the Civil Code.
The obligation of a guarantor is merely accessory under Article 2052
of the Civil Code and subsidiary under Article 2054 of the Civil Code.
Therefore, the liability of the defendant-appellee arises only when the
principal debtor fails to comply with his obligation. 27
Our own reading of the questioned solidary guaranty clause yields no other conclusion
than that the obligation of Chi is only that of a guarantor. This is further bolstered by the
last sentence which speaks of waiver of exhaustion, which, nevertheless, is ineffective in
this case because the space therein for the party whose property may not be exhausted
was not filled up. Under Article 2058 of the Civil Code, the defense of exhaustion
(excussion) may be raised by a guarantor before he may be held liable for the obligation.
Petitioner likewise admits that the questioned provision is asolidary guaranty clause, thereby
clearly distinguishing it from a contract of surety. It, however, described the guaranty as
solidary between the guarantors; this would have been correct if two (2) guarantors had
signed it. The clause "we jointly and severally agree and undertake" refers to the
undertaking of the two (2) parties who are to sign it or to the liability existing between
themselves. It does not refer to the undertaking between either one or both of them on
the one hand and the petitioner on the other with respect to the liability described under
the trust receipt. Elsewise stated, their liability is not divisible as between them, i.e., it
can be enforced to its full extent against any one of them.
Furthermore, any doubt as to the import, or true intent of the solidary guaranty clause
should be resolved against the petitioner. The trust receipt, together with the questioned
solidary guaranty clause, is on a form drafted and prepared solely by the petitioner; Chi's
participation therein is limited to the affixing of his signature thereon. It is, therefore, a
contract of adhesion; 28 as such, it must be strictly construed against the party
responsible for its preparation. 29
Neither can We agree with the reasoning of the public respondent that this solidary
guaranty clause was effectively disregarded simply because it was not signed and
witnessed by two (2) persons and acknowledged before a notary public. While indeed,
the clause ought to have been signed by two (2) guarantors, the fact that it was only Chi
who signed the same did not make his act an idle ceremony or render the clause totally
meaningless. By his signing, Chi became the sole guarantor. The attestation by witnesses
and the acknowledgement before a notary public are not required by law to make a
party liable on the instrument. The rule is that contracts shall be obligatory in whatever
form they may have been entered into, provided all the essential requisites for their
validity are present; however, when the law requires that a contract be in some form in
order that it may be valid or enforceable, or that it be proved in a certain way, that
requirement is absolute and indispensable. 30 With respect to a guaranty, 31 which is a
promise to answer for the debt or default of another, the law merely requires that it, or
some note or memorandum thereof, be in writing. Otherwise, it would be
unenforceable unless ratified. 32 While the acknowledgement of a surety before a notary
public is required to make the same a public document, under Article 1358 of the Civil
Code, a contract of guaranty does not have to appear in a public document.
And now to the other ground relied upon by the petitioner as basis for the solidary
liability of Chi, namely the criminal proceedings against the latter for the violation of
P.D. No. 115. Petitioner claims that because of the said criminal proceedings, Chi would
be answerable for the civil liability arising therefrom pursuant to Section 13 of P.D. No.
115. Public respondent rejected this claim because such civil liability presupposes prior
conviction as can be gleaned from the phrase "without prejudice to the civil liability
arising from the criminal offense." Both are wrong. The said section reads:
Sec. 13. Penalty Clause. The failure of an entrustee to turn over the
proceeds of the sale of the goods, documents or instruments covered
by a trust receipt to the extent of the amount owing to the entruster
or as appears in the trust receipt or to return said goods, documents
or instruments if they were not sold or disposed of in accordance
with the terms of the trust receipt shall constitute the crime of estafa,
punishable under the provisions of Article Three hundred and
fifteen, paragraph one (b) of Act Numbered Three thousand eight
hundred and fifteen, as amended, otherwise known as the Revised
Penal Code. If the violation or offense is committed by a
corporation, partnership, association or other juridical entities, the
penalty provided for in this Decree shall be imposed upon the
directors, officers, employees or other officials or persons therein
responsible for the offense, without prejudice to the civil liabilities
arising from the criminal offense.
A close examination of the quoted provision reveals that it is the last sentence which
provides for the correct solution. It is clear that if the violation or offense is committed
by a corporation, partnership, association or other juridical entities, the penalty shall be
imposed upon the directors, officers, employees or other officials or persons therein
responsible for the offense. The penalty referred to is imprisonment, the duration of
which would depend on the amount of the fraud as provided for in Article 315 of the
Revised Penal Code. The reason for this is obvious: corporations, partnerships,
associations and other juridical entities cannot be put in jail. However, it is these entities
which are made liable for the civil liability arising from the criminal offense. This is the
import of the clause "without prejudice to the civil liabilities arising from the criminal
offense." And, as We stated earlier, since that violation of a trust receipt constitutes
fraud under Article 33 of the Civil Code, petitioner was acting well within its rights in
filing an independent civil action to enforce the civil liability arising therefrom against
Philippine Rayon.
The remaining issue to be resolved concerns the propriety of the dismissal of the case
against private respondent Chi. The trial court based the dismissal, and the respondent
Court its affirmance thereof, on the theory that Chi is not liable on the trust receipt in
any capacity either as surety or as guarantor because his signature at the dorsal
portion thereof was useless; and even if he could be bound by such signature as a simple
guarantor, he cannot, pursuant to Article 2058 of the Civil Code, be compelled to pay
until
after petitioner has exhausted and resorted to all legal remedies against the principal
debtor, Philippine Rayon. The records fail to show that petitioner had done
so 33 Reliance is thus placed on Article 2058 of the Civil Code which provides:
Art. 2056. The guarantor cannot be compelled to pay the creditor
unless the latter has exhausted all the property of the debtor, and has
resorted to all the legal remedies against the debtor.
Simply stated, there is as yet no cause of action against Chi.
We are not persuaded. Excussion is not a condition sine qua non for the institution of an
action against a guarantor. InSouthern Motors, Inc. vs. Barbosa, 34 this Court stated:
4. Although an ordinary personal guarantor not a mortgagor or
pledgor may demand the aforementioned exhaustion, the creditor
may, prior thereto, secure a judgment against said guarantor, who
shall be entitled, however, to a deferment of the execution of said
judgment against him until after the properties of the principal debtor
In the light of the foregoing, it would no longer necessary to discuss the other issues
raised by the petitioner
WHEREFORE, the instant Petition is hereby GRANTED.
The appealed Decision of 10 March 1986 of the public respondent in AC-G.R.
CV No. 66733 and, necessarily, that of Branch 9 (Quezon City) of the then
Court of First Instance of Rizal in Civil Case No. Q-19312 are hereby
REVERSED and SET ASIDE and another is hereby entered:
In its answer the First National City Bank of New York claims that, while it admits that
various savings deposits, pre-war inactive accounts, and sundry accounts contained in its
report submitted to the Treasurer of the Philippines pursuant to Act No. 3936, totalling
more than P100,000.00, which remained dormant for 10 years or more, are subject to
escheat however, it has inadvertently included in said report certain items amounting to
P18,589.89 which, properly speaking, are not credits or deposits within the
contemplation of Act No. 3936. Hence, it prayed that said items be not included in the
claim of plaintiff.
The Republic of the Philippines filed on September 25, 1957 before the Court of First
Instance of Manila a complaint for escheat of certain unclaimed bank deposits balances
under the provisions of Act No. 3936 against several banks, among them the First
National City Bank of New York. It is alleged that pursuant to Section 2 of said Act
defendant banks forwarded to the Treasurer of the Philippines a statement under oath
of their respective managing officials of all the credits and deposits held by them in
favor of persons known to be dead or who have not made further deposits or
withdrawals during the period of 10 years or more. Wherefore, it is prayed that said
credits and deposits be escheated to the Republic of the Philippines by ordering
defendant banks to deposit them to its credit with the Treasurer of the Philippines.
After hearing the court a quo rendered judgment holding that cashier's is or manager's
checks and demand drafts as those which defendant wants excluded from the complaint
come within the purview of Act No. 3936, but not the telegraphic transfer payment
which orders are of different category. Consequently, the complaint was dismissed with
regard to the latter. But, after a motion to reconsider was filed by defendant, the court a
quo changed its view and held that even said demand drafts do not come within the
purview of said Act and so amended its decision accordingly. Plaintiff has
appealed.lawphil.net
order by, one person on another to pay a sum of money therein mentioned to a third
person, on demand or at a future time therein specified (13 Words and Phrases, 371). As
a matter of fact, the term "draft" is often used, and is the common term, for all bills of
exchange. And the words "draft" and "bill of exchange" are used indiscriminately (Ennis
vs. Coshoctan Nat. Bank, 108 S.E., 811; Hinnemann vs. Rosenback, 39 N.Y. 98, 100,
101; Wilson vs. Bechenau, 48 Supp. 272, 275).
On the other hand, a bill of exchange within the meaning of our Negotiable
Instruments Law (Act No. 2031) does not operate as an assignment of funds in the
hands of the drawee who is not liable on the instrument until he accepts it. This is the
clear import of Section 127. It says: "A bill of exchange of itself does not operate as an
assignment of the funds in the hands of the drawee available for the payment thereon
and the drawee is not liable on the bill unless and until he accepts the same." In other
words, in order that a drawee may be liable on the draft and then become obligated to
the payee it is necessary that he first accepts the same. In fact, our law requires that with
regard to drafts or bills of exchange there is need that they be presented either for
acceptance or for payment within a reasonable time after their issuance or after their last
negotiation thereof as the case may be (Section 71, Act 2031). Failure to make such
presentment will discharge the drawer from liability or to the extent of the loss caused
by the delay (Section 186, Ibid.)
Since it is admitted that the demand drafts herein involved have not been presented
either for acceptance or for payment, the inevitable consequence is that the appellee
bank never had any chance of accepting or rejecting them. Verily, appellee bank never
became a debtor of the payee concerned and as such the aforesaid drafts cannot be
considered as credits subject to escheat within the meaning of the law.
But a demand draft is very different from a cashier's or manager's cheek, contrary to
appellant's pretense, for it has been held that the latter is a primary obligation of the
bank which issues it and constitutes its written promise to pay upon demand. Thus, a
cashier's check has been clearly characterized in In Re Bank of the United States, 277
N.Y.S. 96. 100, as follows:
A cashier's check issued by a bank, however, is not an ordinary draft. The latter
is a bill of exchange payable demand. It is an order upon a third party
purporting to drawn upon a deposit of funds. Drinkall v. Movious State Bank, 11
N.D. 10, 88 N.W. 724, 57 L.R.A. 341, 95 Am. St. Rep. 693; State v. Tyler
County State Bank (Tex. Com. App.) 277 S.W. 625, 42 A.L.R. 1347. A cashier's
check is of a very different character. It is the primary obligation of the bank
which issues it (Nissenbaum v. State, 38 Ga. App. 253, S.E. 776) and
WHEREFORE, the decision of the trial court is hereby modified in the sense that the
items specifically referred to and listed under paragraph 3 of appellee bank's answer
representing telegraphic transfer payment orders should be escheated in favor of the
Republic of the Philippines. No costs.
April 4, 2007
INDUSTRY ISSUES
1. DOCUMENTARY STAMP TAX (DST) On Government Securities PurchasedRRPA and Savings Deposits - SD totaling P25,180,492.15.
Government Securities Purchased-RRP amounting to P3,584,098,013.35 is subject to
DST under Section 180 of the NIRC, as amended, since this falls under the
classification of Deposits Substitutes as defined by RR 3-97.
Savings Deposit-FSD amounting to P9,845,497,800.27 should be treated as time
deposits considering that its features are very much the same as time deposits (interest
rates; terms). In substance, these are certificate[s] of deposits subject to Documentary
Stamp Tax under Section 180 of the NIRC which provides among others that
certificate[s] of deposits bearing interest and others not payable on sight or demand are
subject to DST.7
Details of Discrepancies
(Taxable Year 1997)
INDUSTRY ISSUES
1. DOCUMENTARY STAMP TAX (DST) On Government Securities PurchasedRRPA and Savings Deposits-FSD totaling P75,383,751.55.
Government Securities Purchased-RRP amounting to P12,180.427,820.44 is subject to
DST under Sec. 180 of the NIRC, as amended, since this falls under the classification of
Deposit Substitutes as defined by RR 3-97.
Savings Deposits-FSD amounting to P28,024,239,673.35 should be treated as time
deposits considering that its features are very much the same as time deposits (interest
rates; terms). In substance, these are certificates of deposit subject to Documentary
Stamp Tax under Section 180 of the NIRC which provides among others that
certificate[s] of deposit bearing interest and others not payable on sight or demand are
subject to DST.8 (Underscoring in the original)
The PAN advised petitioner that in case it was not agreeable to the above-quoted
findings, it may "see the Assistant Commissioner-Enforcement Service to clarify issues
arising from the investigation and/or review," and its failure to do so within 15 days
from receipt of the PAN would mean that it was agreeable.9
On January 12, 2000, petitioner received a Formal Assessment Notice10 (FAN) for
deficiency DST on its RRPA and FSD, including surcharges, in the amounts
of P25,180,492.15 for 1996 and P75,383,751.55 for 1997, and an accompanying demand
letter11 requesting payment thereof within 30 days.
Acting on the FAN, petitioner filed on February 11, 2000 a protest letter12 alleging that
the assessments should be reconsidered on the grounds that: (1) the assessments are null
and void for having been issued without any authority and due process, and were made
beyond the prescribed period for making assessments; (2) there is no law imposing DST
on RRPA, and assuming that DST was payable, it is the Bangko Sentral ng Pilipinas
which is liable therefor; (3) there is no law imposing DST on its FSD; and (4) assuming
the deficiency assessments for DST were proper, the imposition of surcharges was
patently without legal authority.
Respondent failed to act on the protest, prompting petitioner to file a petition for
review before the Court of Tax Appeals (CTA).
By Decision13 of October 26, 2004, the First Division of the CTA (CTA Division)
disposed as follows:
WHEREFORE, petitioners deficiency assessments pertaining to the reverse purchase
agreements in the amounts ofP6,720,183.77 and P22,838,302.16 inclusive of surcharges,
for the years 1996 and 1997, respectively, are hereby CANCELLED and
WITHDRAWN. However, the deficiency assessments pertaining to savings depositsFSD are hereby UPHELD and petitioner is ORDERED to PAY the respondent the
amount of P71,005,757.77 representing deficiency documentary stamp tax for the years
1996 and 1997. In addition thereto, petitioner is ORDERED to PAY respondent 20%
delinquency interest from February 12, 2000 until fully paid pursuant to Section 249 of
the 1997 NIRC.14 (Emphasis and underscoring supplied)
Petitioner moved for reconsideration of the CTA Division decision. Respondent moved
too for a partial review of the decision.
Petitioner argued that its FSD is not subject to DST since it was not one of the
documents enumerated either under the 1977 Tax Code (Tax Code) or the 1997
National Internal Revenue Code (NIRC). Respondent on the other hand argued that
petitioner should be liable not only for DST on its FSD but also on its RRPA.
For lack of merit, the CTA Division, by Resolution15 of April 20, 2005, denied
petitioners motion for reconsideration and respondents motion for partial
reconsideration.
Only petitioner appealed to the CTA En Banc before which it proffered that its FSD
cannot be considered a certificate of deposit subject to DST under Section 180 of the
Tax Code for, unlike a certificate of deposit which is a negotiable instrument, the
passbook it issued for its FSD was not payable to the order of the depositor or to some
other person as the deposit could only be withdrawn by the depositor or by a duly
authorized representative.16
Petitioner likewise proffered that the legislative deliberations on the bill that was to
become Republic Act No. (R.A.) 924317showed that the definition of certificates of
deposit was amended to include "other evidences of deposits that are either drawing
interest significantly higher than the regular savings deposit taking into consideration the
size of the deposit and the risks involved or drawing interest and having a specific
maturity date" in order to plug a revenue loophole caused by the term "certificates of
deposit" provided under the Tax Code and the NIRC.18
Furthermore, petitioner argued that a "deposits [sic] evidenced by a passbook [which]
have features akin to a time deposit," such as petitioners FSD, is not subject to DST
under the Tax Code and the NIRC.19
Finally, petitioner argued that the FAN for 1996 and 1997 were issued in violation of its
right to due process, they having been issued even before it could respond to the PAN;
and that the 1996 assessment is null and void for having been issued beyond the 3-year
prescriptive period.
By Decision20 of January 30, 2006, the CTA En Banc affirmed the decision of the CTA
Division finding petitioner liable for payment of deficiency DST for its FSD.
In affirming the CTA Division Decision, the CTA En Banc held that a time deposit is a
type of a certificate of deposit drawing interest, and petitioners FSD has the same
nature and characteristics as those of a time deposit; that the requirement of due process
had been substantially complied with; and the 1996 assessment was not barred by
prescription because there was no requirement for the filing of a DST return under the
Tax Code.
Hence, the present petition for review on certiorari, petitioner reiterating the same
grounds advanced before the CTA En Banc.
The issue, in the main, is whether petitioners FSD is subject to DST for the years
assessed.
The applicable provision is Section 180 of the Tax Code, as amended by R.A.
7660,21 which reads:
Sec. 180. Stamp tax on all loan agreements, promissory notes, bills of exchange, drafts,
instruments and securities issued by the government or any of its instrumentalities,
certificates of deposit bearing interest and others not payable on sight or demand. - On
all loan agreements signed abroad wherein the object of the contract is located or used
in the Philippines; bills of exchange (between points within the Philippines), drafts,
instruments and securities issued by the Government or any of its instrumentalities
or certificates of deposits drawing interest, or orders for the payment of any sum of
moneyotherwise than at sight or on demand, or on all promissory notes, whether
negotiable or non-negotiable, except bank notes issued for circulation, and on each
renewal of any such note, there shall be collected a documentary stamp tax of Thirty
centavos (P0.30) on each two hundred pesos, or fractional part thereof, of the face value
of any such agreement, bill of exchange, draft, certificate of deposit, or note: Provided,
That only one documentary stamp tax shall be imposed on either loan agreement, or
promissory notes issued to secure such loan, whichever will yield a higher tax: Provided,
however, That loan agreements or promissory notes the aggregate of which does not
exceed Two hundred fifty thousand pesos (P250,000) executed by an individual for his
purchase on installment for his personal use or that of his family and not for business,
resale, barter or hire of a house, lot, motor vehicle, appliance or furniture shall be
exempt from the payment of the documentary stamp tax provided under this section.
(Emphasis and underscoring supplied)
Petitioner posits that based on this Courts definition of a certificate of deposit in Far
East Bank and Trust Company v. Querimit, 22 viz:
A certificate of deposit is defined as a written acknowledgment by a bank or banker of
the receipt of a sum of money on deposit which the bank or banker promises to pay to
the depositor, to the order of the depositor, or to some other person or his order,
whereby the relation of debtor and creditor between the bank and the depositor is
created. . . .23
its FSD is not a certificate of deposit since there is nothing in the terms and conditions
printed on the passbook evidencing it that can be construed to mean that the bank or
banker acknowledges the receipt of a sum of money on deposit.24
Petitioner moreover posits that the FSD, unlike a certificate of deposit, is not negotiable
or payable to the order of some other person or his order but is "only withdrawable by
the depositor or his authorized representative."25
Petitioners position does not lie.
As correctly found by the CTA En Banc, a passbook representing an interest earning
deposit account issued by a bank qualifies as a certificate of deposit drawing interest.26
A document to be deemed a certificate of deposit requires no specific form as long as
there is some written memorandum that the bank accepted a deposit of a sum of money
from a depositor.27 What is important and controlling is the nature or meaning
conveyed by the passbook and not the particular label or nomenclature attached to it,
inasmuch as substance, not form, is paramount.28
Contrary to petitioners claim, not all certificates of deposit are negotiable. A certificate
of deposit may or may not be negotiable as gathered from the use of the conjunction or,
instead of and, in its definition. A certificate of deposit may be payable to the depositor,
to the order of the depositor, or to some other person or his order.
In any event, the negotiable character of any and all documents under Section 180 is
immaterial for purposes of imposing DST.
Orders for the payment of sum of money payable at sight or on demand are of course
explicitly exempted from the payment of DST. Thus, a regular savings account with a
passbook which is withdrawable at any time is not subject to DST, unlike a time deposit
which is payable on a fixed maturity date.
As for petitioners argument that its FSD is similar to a regular savings deposit because
it is evidenced by a passbook,29and that based on the legislative deliberations on the bill
which was to become R.A. 9243 which amended Section 180 of the NIRC (which is to a
large extent the same as Section 180 of the Tax Code, as amended by R.A. 7660),
Congress admitted that deposits evidenced by passbooks which have features akin to
time deposits are not subject to DST,30 the same does not lie.
The FSD, like a time deposit, provides for a higher interest rate when the deposit is not
withdrawn within the required fixed period; otherwise, it earns interest pertaining to a
regular savings deposit. Having a fixed term and the reduction of interest rates in case of
pre-termination are essential features of a time deposit. Thus explains the CTA En
Banc:
It is well-settled that certificates of time deposit are subject to the DST and that a
certificate of time deposit is but a type of a certificate of deposit drawing interest. Thus,
in resolving the issue before Us, it is necessary to determine whether petitioners Savings
Account-Fixed Savings Deposit (SA-FSD) has the same nature and characteristics as a
time deposit. In this regard, the findings of fact stated in the assailed Decision [of the
CTA Division] are as follows:
"In this case, a depositor of a savings deposit-FSD is required to keep the money with
the bank for at least thirty (30) days in order to yield a higher interest rate. Otherwise,
the deposit earns interest pertaining only to a regular savings deposit.
The same feature is present in a time deposit. A depositor is allowed to withdraw his
time deposit even before its maturity subject to bank charges on its pre[-]termination
and the depositor loses his entitlement to earn the interest rate corresponding to the
time deposit. Instead, he earns interest pertaining only to a regular savings deposit.
Thus, petitioners argument that the savings deposit-FSD is withdrawable anytime as
opposed to a time deposit which has a maturity date, is not tenable. In both cases, the
deposit may be withdrawn anytime but the depositor gets to earn a lower rate of
interest.The only difference lies on the evidence of deposit, a savings deposit-FSD is
evidenced by a passbook, while a time deposit is evidenced by a certificate of time
deposit."
In order for a depositor to earn the agreed higher interest rate in a SA-FSD, the amount
of deposit must be maintained for a fixed period. Such being the case, We agree with
the finding that the SA-FSD is a deposit account with a fixed term. Withdrawal before
the expiration of said fixed term results in the reduction of the interest rate. Having a
fixed term and reduction of interest rate in case of pre-termination are essentially the
features of a time deposit. Hence, this Court concurs with the conclusion reached in the
assailed Decision that petitioners SA-FSD and time deposit are substantially the same. .
. .31 (Italics in the original; underscoring supplied)
The findings and conclusions reached by the CTA which, by the very nature of its
function, is dedicated exclusively to the consideration of tax problems and has
necessarily developed an expertise on the subject, and unless there has been an abuse or
improvident exercise of authority,32 and none has been shown in the present case,
deserves respect.
It bears emphasis that DST is levied on the exercise by persons of certain privileges
conferred by law for the creation, revision, or termination of specific legal relationships
through the execution of specific instruments.33 It is an excise upon the privilege,
opportunity or facility offered at exchanges for the transaction of the business. 34
While tax avoidance schemes and arrangements are not prohibited, tax laws cannot be
circumvented in order to evade payment of just taxes. 35 To claim that time deposits
evidenced by passbooks should not be subject to DST is a clear evasion of the rule on
equality and uniformity in taxation that requires the imposition of DST on documents
evidencing transactions of the same kind, in this particular case, on all certificates of
deposits drawing interest.36
The further amendment of Section 180 of the NIRC and its renumbering as Section 179
by R.A. 9243, which was approved on February 17, 2004, viz:
SEC. 5. Section 180 of the National Internal Revenue Code of 1997, as amended, is
hereby renumbered as Section 179 and further amended to read as follows:
SEC. 179. Stamp Tax on All Debt Instruments. On every original issue of debt
instruments, there shall be collected a documentary stamp tax of One peso (P1.00) on
each Two hundred pesos (P200), or fractional part thereof, of the issue price of any
such debt instruments: Provided, That for such debt instruments with terms of less than
one (1) year, the documentary stamp tax to be collected shall be of a proportional
amount in accordance with the ratio of its term in number of days to three hundred
sixty-five (365) days: Provided, further, That only one documentary stamp tax shall be
imposed on either loan agreement, or promissory notes issued to secure such loan.
For purposes of this section, the term debt instrument shall mean instruments
representing borrowing and lending transactions including but not limited to
debentures, certificates of indebtedness, due bills, bonds, loan agreements, including
those signed abroad wherein the object of contract is located or used in the Philippines,
instruments and securities issued by the government of any of its instrumentalities,
deposit substitute debt instruments, certificates or other evidences of deposits that are
either drawing interest significantly higher than the regular savings deposit taking into
consideration the size of the deposit and the risks involved or drawing interest and
having a specific maturity date, orders for payment of any sum of money otherwise than
II. The trial court erred in not exempting defendant-appellant Go Tiong for
the loss of the palay deposited, pursuant to the provisions of the New Civil
Code.".
xxx
xxx
xxx
I. The trial court erred in not declaring that the amicable settlement by and
between plaintiff-appellee and defendant Go Tiong constituted a material
alteration of the surety bond of appellant Luzon Surety which extinguished
and discharged its liability.
II. The trial court erred in bolding that the receipts for the palay received by
Go Tiong, though not in the form of "quedans" or warehouse receipts are
chargeable against the surety bond filed under the provisions of the General
Bonded Warehouse Act (Act No. 3893 as amended by Republic Act No. 247)
as a result of a loss.
III. The trial court erred in not holding that the plaintiff had renounced and
abandoned his rights under the Bonded Warehouse Act by the withdrawal of
his claim from the Bureau of Commerce and the execution of the "amicable
settlement".
IV. The trial court erred in not holding that the palay delivered to Go Tiong
constitutes gratuitous deposit which was extinguished upon the loss and
destruction of the subject matter.
V. The trial court erred in not declaring that the transaction between defendant
Go Tiong and plaintiff was more of a sale rather than a deposit.
VI. The trial court erred in declaring that the Luzon Surety Co., Inc., had not
complied with its undertaking despite the liquidation of all the claims by the
Bureau of Commerce.
VII. The lower court erred in adjudging the herein surety liable under the
terms of the Bond.
We shall discuss the assigned errors at the same time, considering the close relation
between them, although we do not propose to discuss and rule upon all of them. Both
appellants urge that plaintiff's claim is governed by the Civil Code and not by the
Bonded Warehouse Act (Act No. 3893, as amended by Republic Act No. 247), for the
reason that, as already stated, what Go Tiong issued to plaintiff were ordinary receipts,
not the warehouse receipts contemplated by the Warehouse Receipts Law, and because
the deposits of palay of plaintiff were gratuitous.
Act No. 3893 as amended is a special law regulating the business of receiving
commodities for storage and defining the rights and obligations of a bonded
warehouseman and those transacting business with him. Consequently, any deposit
made with him as a bonded warehouseman must necessarily be governed by the
provisions of Act No. 3893. The kind or nature of the receipts issued by him for the
deposits is not very material much less decisive. Though it is desirable that receipts
issued by a bonded warehouseman should conform to the provisions of the Warehouse
Receipts Law, said provisions in our opinion are not mandatory and indispensable in the
sense that if they fell short of the requirements of the Warehouse Receipts Act, then the
commodities delivered for storage become ordinary deposits and will not be governed
by the provisions of the Bonded Warehouse Act. Under Section 1 of the Warehouse
Receipts Act, one would gather the impression that the issuance of a warehouse receipt
in the form provided by it is merely permissive and directory and not obligatory:
SECTION 1. Persons who may issue receipts. Warehouse receipts may be issued
by any warehouseman.,
and the Bonded Warebouse Act as amended permits the warehouseman to issue any
receipt, thus:
. . . . "receipt" as any receipt issued by a warehouseman for commodity
delivered to him.
As the trial court well observed, as far as Go Tiong was concerned, the fact that the
receipts issued by him were not "quedans" is no valid ground for defense because he
was the principal obligor. Furthermore, as found by the trial court, Go Tiong had
repeatedly promised plaintiff to issue to him "quedans" and had assured him that he
should not worry; and that Go Tiong was in the habit of issuing ordinary receipts (not
"quedans") to his depositors.
As to the contention that the deposits made by the plaintiff were free because he paid
no fees therefor, it would appear that Go Tiong induced plaintiff to deposit his palay in
the warehouse free of charge in order to promote his business and to attract other
depositors, it being understood that because of this accommodation, plaintiff would
convince other palay owners to deposit with Go Tiong.
Appellants contend that the burning of the warehouse was a fortuitous event and not
due to any fault of Go Tiong and that consequently, he should not be held liable,
appellants supporting the contention with the ruling in the case of La Sociedad Dalisay vs.
De los Reyes, 55 Phil. 452, reading as follows:
Inasmuch as the fire, according to the judgment appealed from, was neither
intentional nor due to the negligence of the appellant company or its officials;
and it appearing from the evidence that the then manager attempted to save
the palay, the appellant company should not be held responsible for damages
resulting from said fire. . . . .
The trial court correctly disposed of this same contention, thus:
The defense that the palay was destroyed by fire neither does the Court
consider to be good for while the contract was in the nature of a deposit and
the loss of the thing would exempt the obligor in a contract of deposit to
return the goods, this exemption from the responsibility for the damages must
be conditioned in his proof that the loss was by force majeure, and without his
fault. The Court does not see from the evidence that the proof is clear on the
legal exemption. On the contrary, the fact that he exceeded the limit of the
authorized deposit must have increased the risk and would militate against his
defense of non-liability. For this reason, the Court does not follow La
Sociedadvs. De Los Santos, 55 Phil. 42 quoted by Go Tiong. (p. 3, Decision).
Considering the fact, as already stated, that prior to the burning of the warehouse,
plaintiff demanded the payment of the value of his palay from Go Tiong on two
occasions but was put off without any valid reason, under the circumstances, the better
rule which we accept is the following:
. . . . This rule proceeds upon the theory that the facts surrounding the care of
the property by a bailee are peculiarly within his knowledge and power to
prove, and that the enforcement of any other rule would impose great
difficulties upon the bailors. ... It is illogical and unreasonable to hold that the
presumption of negligence in case of this kind is rebutted by the bailee by
simply proving that the property bailed was destroyed by an ordinary fire
which broke out on the bailee's own premises, without regard to the care
exercised by the latter to prevent the fire, or to save the property after the
commencement of the fire. All the authorities seem to agree that the rule that
there shall be a presumption of negligence in bailment cases like the present
one, where there is default in delivery or accounting, for the goods is just a
necessary one. . . . (9 A.L.R. 566; see also Hanes vs. Shapiro, 84 S.E. 33; J.
Russel Mfg. Co. vs. New Haven, S.B. Co., 50 N.Y. 211; Beck vs. Wilkins-Ricks
Co., 102 S.E. 313, Fleishman vs. Southern R. Co., 56 S.E. 974).
Besides, as observed by the trial court, the defendant violated the terms of his license by
accepting for deposit palay in excess of the limit authorized by his license, which fact
must have increased the risk.
The Luzon Surety claims that the amicable settlement by and between Gonzales and Go
Tiong constituted a material alteration of its bond, thereby extinguishing and
discharging its liability. It is evident, however, that while there was an attempt to settle
the case amicably, the settlement was never consummated because Go Tiong failed to
settle the accounts of Gonzales to the latter's satisfaction. Consequently, said nonconsummated compromise settlement does not discharge the surety:
A compromise or settlement between the creditor or obligee and the principal,
by which the latter is discharged from liability, discharges the surety, . . . . But
an unconsummated . . . agreement to compromise, falling short of an effective
settlement, will not discharge the surety. (50 C. J. 185)
In relation to the failure of Go Tiong to issue the warehouse receipts contemplated by
the Warehouse Receipts Act, which failure, according to appellants, precluded plaintiff
from suing on the bond, reference may be made to Section 2 of Act No. 3893, defining
receipt as any receipt issued by a warehouseman for commodity delivered to him,
showing that the law does not require as indispensable that a warehouse receipt be
issued. Furthermore, Section 7 of said law provides that as long as the depositor is
injured by a breach of any obligation of the warehouseman, which obligation is secured
by a bond, said depositor may sue on said bond. In other words, the surety cannot avoid
liability from the mere failure of the warehouseman to issue the prescribed receipt. In
the case of Andreson vs. Krueger, 212 N.W. 198, 199, it was held:
The surety company concedes that the bond which it gave contains the
statutory conditions. The statute . . . requires that the bond shall be
conditioned upon the faithful performance of the public local grain
warehouseman of all the provisions of law relating to the storage of grain by
such warehouseman.
The surety company thereby made itself responsible for the performance by
the warehouseman of all the duties and obligations imposed upon him by the
statute; and, if he failed to perform any such duty to the loss or detriment of
those who delivered grain for storage, the surety company became liable
therefor. Where the warehouseman receives grain for storage and refuses to
return or pay it, the fact that he failed to issue the receipt, when the statute
required him to issue on receiving it, is not available to the surety as a defense
against an action on the bond. The obligation of the surety covers the duty of
the warehouseman to issue the prescribed receipt, as well as the other duties
imposed upon him by the statute.
We deem it unnecessary to discuss and rule upon the other questions raised in the
appeal.
In view of the foregoing, the appealed decision is hereby affirmed, with costs.
On April 26,1976, the petitioner demanded the return of his stock certificates from
respondent Macasaet who failed to produce them because he had given them to the
other private respondent Jacobo Feliciano, another officer of Monte Oro, allegedly in
connection with a contemplated joint venture with the group of one Leonilo Esguerra.
On April 28, 1976, respondent Macasaet replaced the petitioner's Stock Certificate No.
026 with his own Stock Certificate No. 025 covering 42,578,700 shares. The petitioner
duly acknowledged the receipt of the said replacement (Exhibit "3").
On May 4, 1976, Stock Certificate No. 002 was returned by respondent Macasaet to the
petitioner as evidenced by the handwritten receipt signed by the latter (Exhibit "2") who
likewise made a handwritten notation stating "all cleared" at the left hand margin
thereof.
On August 12, 1976, the petitioner filed a complaint for damages against the private
respondents alleging, among others, that at the time he demanded his Stock Certificate
Nos. 002 and 026 totalling 56,588,358 shares from respondent Macasaet the petitioner
had a ready buyer for 0.014 per share for all shares; that due to the private respondents'
failure to return the said stock certificates upon demand, the petitioner lost P306,115.25
representing the difference between the amount of P792,237.01 which he would have
realized had his stock certificates been promptly given back and the sum of
P486,121.76, the actual net proceeds from the subsequent sale of P42,550,000 shares at
various prices after respondent Macasaet delivered his own Stock Certificate No. 025 in
exchange for the petitioners Stock Certificate No. 026; that the aforesaid amount of P
306,115.25 had long been overdue and unpaid and despite repeated demands from the
private respondents for the payment thereof, the latter had failed and refused to pay the
same to the petitioner's damage and prejudice; and that due to the private respondents'
intentional, deliberate and malicious acts, moral and exemplary damages could be
awarded to the petitioner.
Respondent Macasaet counter-alleged, among others, that he had in turn entrusted
Stock Certificate Nos. 002 and 026 of the petitioner to his co-defendant, respondent
Feliciano to be shown to a certain group for the purpose of a joint venture; that
respondent Macasaet had actually made several demands for the return of the said stock
certificates from respondent Feliciano who refused and failed to do so; that two days
after the petitioner made the demand, respondent Macasaet replaced the petitioner's
Stock Certificate No. 026 with his own Stock Certificate No. 025 which covered
149,925 shares more than those of the petitioner's Stock Certificate No. 026; that the
respondent Macasaet returned the petitioner's Stock Certificate No. 002 on May 4, 1976
after he recovered the game from respondent Feliciano; and that the words "ALL
The instant case was given due course to enable a more thorough presentation by the
parties and review of the records considering the petitioner's stress on the disparity
between the factual findings of the trial court which found respondent Macasaet liable
for actual, moral and exemplary damages and the respondent appellate court which
discharged the said respondent from any liability regarding the petitioner's Stock
Certificate Nos. 002 and 026.
It is true that when the petitioner delivered Stock Certificate Nos. 002 and 026 to
respondent Macasaet the latter acknowledged receiving them "in trust and for
safekeeping only." This acknowledgment, however, cannot outweigh the legal effects of
the stock certificates having been "already indorsed". There is no dispute that
respondent Macasaet received the petitioner's certificates in that condition as evidenced
by the same Acknowledgment Receipt dated February 18, 1976.
Certificates of stocks are considered as "quasi-negotiable" instruments. When the owner
or shareholder of these certificates signs the printed form of sale or assignment at the
back of every stock certificate without filling in the blanks provided for the name of the
transferee as well as for the name of the attorney-in-fact, the said owner or shareholder,
in effect, confers on another all the indicia of ownership of the said stock certificates.
(Campos and Lopez-Campos, Notes and Selected Cases on Negotiable Instruments
Law, 1971 ed., p. 605). In the case at bar, the petitioner signed the printed form at the
back of both Stock Certificate Nos. 002 and 026 without filling in the blanks at the time
the said stock certificates were delivered to respondent Macasaet. Hence, the petitioner's
acts of indorsement and delivery conferred on respondent Macasaet the right to hold
them as though they were his own. On account of this apparent transfer of ownership,
it was not irregular on the part of respondent Macasaet to deliver the stock certificates
in question to respondent Feliciano for consideration in connection with a
contemplated tie-up between two business groups.
At this juncture, it is worth noting that in view of the petitioner's concurrent positions
as director, Executive Vice-President and General Manager of Monte Oro at the time of
the incident under consideration, he could not have been unaware of the consequences
of the delivery coupled with the indorsement of his two stock certificates to respondent
Macasaet, notwithstanding the tenor of the Acknowledgment Receipt. Moreover, it is
hard to believe that the petitioner's delivery of the subject stock certificates to
respondent Macasaet was strictly for safe-keeping purposes only because if that were his
real and only intention, there is neither logic nor reason for the indorsement of the said
certificates.
After a careful perusal and examination of the records of this case, we find no legal
ground that will constrain us to depart from the rule that the Court of Appeals' findings
of fact are deemed final, conclusive and binding on us if supported by substantial
evidence. We reiterate our ruling in the case of Hermo v. Court of Appeals, (155 SCRA 24
[1987]) that:
At once apparent is that the factual findings of the Court of Appeals
are diametrically at odds with those of the Trial Court,.... And basic is
the rule that the conclusions of fact of a trial court are entitled to
great weight, and should not generally be disturbed on appeal,
because it is in a better position than the appellate tribunal to
examine the evidence directly, and to observe the demeanor of the
witnesses while testifying. Withal, its findings of fact, though entitled
to great respect, are not conclusive on the Court of Appeals. In the
exercise of its appellate jurisdiction, the Court of Appeals may affirm,
reverse, or modify the judgment or order appealed from, and may
direct a new trial or further proceeding to be had. It is indeed the
duty of that Court chiefly though not exclusively to review a Trial
Court's findings of fact and correct such serious errors affecting them
as may have been properly assigned and as may be established by a
reexamination of the recorded evidence. And it is the findings of fact of
the Court of Appeals, not those of the trial court that are as a rule deemed final,
and conclusive even on this Court. (Emphasis Supplied) (At p. 27)
We find no reversible error in the respondent Court's holding that the petitioner failed
to support his claim that he suffered the claimed damages as a result of respondent
Macasaet's failure to return Stock Certificate Nos. 002 and 026 upon demand. The
alleged "unrealized profits" representing actual and compensatory damages must be
supported by substantial and convincing proof. The records are bereft of such kind of
proof. Mere allegation that there was a "ready and willing buyer' of all the petitioners
shares covered by Stock Certificate Nos. 002 and 026 for P0.014 per share at the time
the demand for the return of the said certificates was made cannot suffice to allow the
petitioners claim for unrealized profits to prosper. Such claim is clearly speculative in
nature.
Actual or compensatory damages are those recoverable because of pecuniary loss in
business, trade, property, profession, job or occupation, and the same must be proved;
otherwise, if the proof is flimsy and non-substantial, no damages will be given (Danao v.
Court of Appeal, 154 SCRA 447 [19871]; Rubio v. Court of Appeals, 141 SCRA 488
[1986]; Perfecto v. Gonzales, 128 SCRA 635 [1984]). Actual and compensatory damages
require evidentiary proof. They cannot be presumed. (Dee Hua Liong Electrical
Equipment Corporation v. Reyes, 145 SCRA 713 [1986])
The good faith of respondent Macasaet is shown by the fact that after trying to recover
the missing certificates, he immediately substituted Stock Certificate No. 026 with his
own Stock Certificate No. 025 which covered more shares than the petitioner's replaced
certificate. The petitioner's other Stock Certificate No. 002 was subsequently returned
and received by the petitioner with the notation "All Cleared" on the acknowledgment
receipt duly signed and personally written by him. We agree with the respondent court's
ruling that the said notation meant to discharge respondent Macasaet' together with his
co-respondent Feliciano) from any liability with respect to the stock certificates in
question as there can be no other plausible interpretation therefor. He would not have
written "all cleared" if he was unhappy at that time about the substitution of the higher
value certificate for his other certificate.
In fine, considering that in the absence of malice and bad faith, moral damages cannot
be awarded (Philippine National Bank v. Court of Appeals, 159 SCRA 433 [19881) and
that the grant of moral and exemplary damages has no basis if not predicated upon any
of the cases enumerated in the Civil Code (Bagumbayan Corporation v. Intermediate
Appellate Court, 132 SCRA 441 [19841), we hold that the respondent court properly set
aside the award of actual, moral and exemplary damages given by the trial court in favor
of the petitioner.
WHEREFORE, in view of the foregoing, the petition is hereby DISMISSED. The
assailed decision dated June 19, 1989 and the resolution dated October 23, 1989 of the
Court of Appeals are AFFIRMED.
SO ORDERED.
Bidin and Cortes, JJ., concur.
Fernan (Chairman), is on leave.
Separate Opinions
GANCAYCO, J.:
This is a petition for review on certiorari of a decision of the Regional Trial Court of
Quezon City promulgated on March 24, 1986 in Civil Case No. Q-46517 entitled Banco
de Oro Savings and Mortgage Bank versus Equitable Banking Corporation and the
Philippine Clearing House Corporation after a review of the Decision of the Board of
Directors of the Philippine Clearing House Corporation (PCHC) in the case of
Equitable Banking Corporation (EBC) vs. Banco de Oro Savings and Mortgage (BCO),
ARBICOM Case No. 84033.
The undisputed facts are as follows:
It appears that some time in March, April, May and August 1983,
plaintiff through its Visa Card Department, drew six crossed
Manager's check (Exhibits "A" to "F", and herein referred to as
Checks) having an aggregate amount of Forty Five Thousand Nine
Hundred and Eighty Two & 23/100 (P45,982.23) Pesos and payable
to certain member establishments of Visa Card. Subsequently, the
Checks were deposited with the defendant to the credit of its
depositor, a certain Aida Trencio.
Following normal procedures, and after stamping at the back of the
Checks the usual endorsements. All prior and/or lack of
endorsement guaranteed the defendant sent the checks for clearing
through the Philippine Clearing House Corporation (PCHC).
Accordingly, plaintiff paid the Checks; its clearing account was
debited for the value of the Checks and defendant's clearing account
was credited for the same amount,
Thus, a petition for review was filed with the Regional Trial Court of Quezon City,
Branch XCII, wherein in due course a decision was rendered affirming in toto the
decision of the PCHC.
Hence this petition.
The petition is focused on the following issues:
1. Did the PCHC have any jurisdiction to give due course to and adjudicate Arbicom
Case No. 84033?
2. Were the subject checks non-negotiable and if not, does it fall under the ambit of the
power of the PCHC?
3. Is the Negotiable Instrument Law, Act No. 2031 applicable in deciding controversies
of this nature by the PCHC?
4. What law should govern in resolving controversies of this nature?
5. Was the petitioner bank negligent and thus responsible for any undue payment?
Petitioner maintains that the PCHC is not clothed with jurisdiction because the Clearing
House Rules and Regulations of PCHC cover and apply only to checks that are
genuinely negotiable. Emphasis is laid on the primary purpose of the PCHC in the
Articles of Incorporation, which states:
To provide, maintain and render an effective, convenient, efficient,
economical and relevant exchange and facilitate service limited to
check processing and sorting by way of assisting member banks,
entities inclearing checks and other clearing items as defined in existing and
in future Central Bank of the Philippines circulars, memoranda,
circular letters, rules and regulations and policies in pursuance to the
provisions of Section 107 of R.A. 265. ...
and Section 107 of R.A. 265 which provides:
xxx xxx xxx
In a previous case, this Court had occasion to rule: "Ubi lex non distinguish nec nos
distinguere debemos." 2 It was enunciated in Loc Cham v. Ocampo, 77 Phil. 636 (1946):
The rule, founded on logic is a corollary of the principle that general
words and phrases in a statute should ordinarily be accorded their
natural and general significance. In other words, there should be no
distinction in the application of a statute where none is indicated.
There should be no distinction in the application of a statute where none is indicated for
courts are not authorized to distinguish where the law makes no distinction. They
should instead administer the law not as they think it ought to be but as they find it and
without regard to consequences. 3
The term check as used in the said Articles of Incorporation of PCHC can only connote
checks in general use in commercial and business activities. It cannot be conceived to be
limited to negotiable checks only.
Checks are used between banks and bankers and their customers, and are designed to
facilitate banking operations. It is of the essence to be payable on demand, because the
contract between the banker and the customer is that the money is needed on demand. 4
The participation of the two banks, petitioner and private respondent, in the clearing
operations of PCHC is a manifestation of their submission to its jurisdiction. Sec. 3 and
36.6 of the PCHC-CHRR clearing rules and regulations provide:
SEC. 3. AGREEMENT TO THESE RULES. It is the general
agreement and understanding that any participant in the Philippine
Clearing House Corporation, MICR clearing operations by the mere
fact of their participation, thereby manifests its agreement to these
Rules and Regulations and its subsequent amendments."
Sec 36.6. (ARBITRATION) The fact that a bank participates in
the clearing operations of the PCHC shall be deemed its written and
subscribed consent to the binding effect of this arbitration agreement
as if it had done so in accordance with section 4 of the Republic Act
No. 876, otherwise known as the Arbitration Law.
Further Section 2 of the Arbitration Law mandates:
the petitioner stamping thereon its guarantee, in order that it can clear the said checks
with the respondent bank. By such deliberate and positive attitude of the petitioner it
has for all legal intents and purposes treated the said cheeks as negotiable instruments
and accordingly assumed the warranty of the endorser when it stamped its guarantee of
prior endorsements at the back of the checks. It led the said respondent to believe that
it was acting as endorser of the checks and on the strength of this guarantee said
respondent cleared the checks in question and credited the account of the petitioner.
Petitioner is now barred from taking an opposite posture by claiming that the disputed
checks are not negotiable instrument.
This Court enunciated in Philippine National Bank vs. Court of Appeals 5 a point relevant to
the issue when it stated the doctrine of estoppel is based upon the grounds of public
policy, fair dealing, good faith and justice and its purpose is to forbid one to speak
against his own act, representations or commitments to the injury of one to whom they
were directed and who reasonably relied thereon.
A commercial bank cannot escape the liability of an endorser of a check and which may
turn out to be a forged endorsement. Whenever any bank treats the signature at the
back of the checks as endorsements and thus logically guarantees the same as such there
can be no doubt said bank has considered the checks as negotiable.
Apropos the matter of forgery in endorsements, this Court has succinctly emphasized
that the collecting bank or last endorser generally suffers the loss because it has the duty
to ascertain the genuineness of all prior endorsements considering that the act of
presenting the check for payment to the drawee is an assertion that the party making the
presentment has done its duty to ascertain the genuineness of the endorsements. This is
laid down in the case of PNB vs. National City Bank. 6 In another case, this court held
that if the drawee-bank discovers that the signature of the payee was forged after it has
paid the amount of the check to the holder thereof, it can recover the amount paid from
the collecting bank. 7
A truism stated by this Court is that "The doctrine of estoppel precludes a party
from repudiating an obligation voluntarily assumed after having accepted benefits
therefrom. To countenance such repudiation would be contrary to equity and put
premium on fraud or misrepresentation". 8
We made clear in Our decision in Philippine National Bank vs. The National City Bank
of NY & Motor Service Co. that:
The court reproduces with approval the following disquisition of the PCHC in its
decision
II. Payments To Persons Other
Than The Payees Are Not Valid
And Give Rise To An Obligation
To Return Amounts Received
Nothing is more clear than that neither the defendant's depositor nor
the defendant is entitled to receive payment payable for the Checks.
As the checks are not payable to defendant's depositor, payments to
persons other than payees named therein, their successor-in-interest
or any person authorized to receive payment are not valid. Article
1240, New Civil Code of the Philippines unequivocably provides
that:
"Art. 1240. Payment shall be made to the person in
whose favor the obligation has been constituted,
or his successo-in-interest, or any person
authorized to receive it. "
Considering that neither the defendant's depositor nor the defendant
is entitled to receive payments for the Checks, payments to any of
them give rise to an obligation to return the amounts received.
Section 2154 of the New Civil Code mandates that:
Article 2154. If something is received when there
is no right to demand it, and it was unduly
delivered through mistake, the obligation to return
it arises.
It is contended that plaintiff should be held responsible for issuing
the Checks notwithstanding that the underlying transactions were
fictitious This contention has no basis in our jurisprudence.
Wherefore, the court approves this stipulation and orders the parties to observe and
comply strictly with the conditions thereof, without pronouncement as to the costs. So
ordered.
Malolos, Bulacan, today November 5, 1936.
(Sgd.) PEDRO MA. SISON
Judge (B. E., p. 7.)
On the night of December 4, 1936, the date of the expiration of the period granted to
the plaintiff to pay the repurchase price, the latter offered to the defendant the check
No. D-8695 for P421.04, issued by Ramon Meneses against the Bank of the Philippines
Islands in payment of the repurchase price. As the defendant refused to accept the
check on the allegation that the payment should be made in money or legal tender, the
plaintiff, through counsel, deposited the check with the clerk of court who received the
same, and at the same time put in a motion asking that the payment be deemed effected
and the two parcels of land redeemed, and, further, that the defendant be ordered to pay
her the sum of P120 as damages. After hearing the motion, the court on April 30, 1937,
issued the aforementioned order from which the plaintiff appealed.
In her sole assigned error the plaintiff contends that the court erred in holding that the
consignation of the check with the clerk of court was invalid and that it did not have the
effect of paying her obligation. The court correctly held that the consignation was
unavailing and that it did not produce any legal effect because the defendant did not
accept it and it was not in the form of money or legal tender. Article 1170 of the Civil
Code provides that payment of debts of money shall be made in the specie stipulation
and, should it not be possible to deliver such specie, in silver or gold coin legally
current; and provides, further, that the delivery of promissory notes payable to order, or
drafts or other commercial paper, shall produce the effects of payment only when
realized or when, by the fault of the creditor, the privileges inherent in their negotiable
character have been lost. Under this legal provision the defendant was not under a duty
to accept the check because it is known that it does not constitute legal tender, and the
consignation having been refused, it did not produce any legal effect and could not be
considered as payment made by the plaintiff of the repurchase price. In Belisario vs.
Natividad ([1934]), 60 Phil., 156), it was held that a creditor is not bound to accept a
check in satisfaction of his demand, because a check, even if good when offered, does
not meet the requirements of a legal tender.
The defendant, in turn, alleges that the court erred in concluding that he testified that
the plaintiff's indebtedness was P421.04, and in not holding that the consignation was
invalid because the plaintiff's debt was P422.29 and the check only amounted to
P421.04. These assigned errors can neither be considered nor passed for the simple
reason that the defendant did not appeal from any part of the court's order.
In view of the foregoing, the appealed order is affirmed, with the costs of this instance
to the plaintiff-appellant. So ordered.
Petitioner Citibank, N.A. (formerly known as the First National City Bank) is a
banking corporation duly authorized and existing under the laws of the United States of
America and licensed to do commercial banking activities and perform trust functions
in the Philippines.
Petitioner Investors Finance Corporation, which did business under the name
and style of FNCB Finance, was an affiliate company of petitioner Citibank, specifically
handling money market placements for its clients. It is now, by virtue of a merger,
doing business as part of its successor-in-interest, BPI Card Finance
Corporation. However, so as to consistently establish its identity in the Petition at bar,
the said petitioner shall still be referred to herein as FNCB Finance. [4]
Respondent Modesta R. Sabeniano was a client of both petitioners Citibank
and FNCB Finance. Regrettably, the business relations among the parties subsequently
went awry.
On 8 August 1985, respondent filed a Complaint[5] against petitioners,
docketed as Civil Case No. 11336, before the Regional Trial Court (RTC) of Makati
City. Respondent claimed to have substantial deposits and money market placements
with the petitioners, as well as money market placements with the Ayala Investment and
Development Corporation (AIDC), the proceeds of which were supposedly deposited
automatically and directly to respondents accounts with petitioner
Citibank. Respondent alleged that petitioners refused to return her deposits and the
proceeds of her money market placements despite her repeated demands, thus,
compelling respondent to file Civil Case No. 11336 against petitioners for Accounting,
Sum of Money and Damages. Respondent eventually filed an Amended
Complaint[6] on 9 October 1985 to include additional claims to deposits and money
market placements inadvertently left out from her original Complaint.
In their joint Answer[7] and Answer to Amended Complaint,[8] filed on 12
September 1985 and 6 November 1985, respectively, petitioners admitted that
respondent had deposits and money market placements with them, including dollar
no interest and penalty charges from the time the illegal setoff was
effected on 31 October 1979;
(3) Dismissing all other claims and counterclaims interposed
by the parties against each other.
Costs against the defendant Bank.
All the parties appealed the foregoing Decision of the RTC to the Court of
Appeals, docketed as CA-G.R. CV No. 51930. Respondent questioned the findings of
the RTC that she was still indebted to petitioner Citibank, as well as the failure of the
RTC to order petitioners to render an accounting of respondents deposits and money
market placements with them. On the other hand, petitioners argued that petitioner
Citibank validly compensated respondents outstanding loans with her dollar accounts
with Citibank-Geneva, in accordance with the Declaration of Pledge she executed in its
favor. Petitioners also alleged that the RTC erred in not declaring respondent liable for
damages and interest.
On 26 March 2002, the Court of Appeals rendered its Decision[12] affirming with
modification the RTC Decision in Civil Case No. 11336, dated 24 August 1995, and
ruling entirely in favor of respondent in this wise
Wherefore, premises considered, the assailed 24 August
1995 Decision of the court a quo is hereby AFFIRMED with
MODIFICATION, as follows:
1.
Declaring as illegal, null and void the set-off effected
by the defendant-appellant Bank of the plaintiff-appellants dollar
deposit with Citibank, Switzerland, in the amount of US$149,632.99,
and ordering defendant-appellant Citibank to refund the said amount
to the plaintiff-appellant with legal interest at the rate of twelve
percent (12%) per annum, compounded yearly, from 31 October
1979 until fully paid, or its peso equivalent at the time of payment;
2.
As defendant-appellant Citibank failed to establish
by competent evidence the alleged indebtedness of plaintiff-appellant,
the set-off ofP1,069,847.40 in the account of Ms. Sabeniano is hereby
declared as without legal and factual basis;
3.
As defendants-appellants failed to account the
following plaintiff-appellants money market placements, savings
account and current accounts, the former is hereby ordered to return
the same, in accordance with the terms and conditions agreed upon
by the contending parties as evidenced by the certificates of
investments, to wit:
(i)
Citibank NNPN Serial No.
023356 (Cancels and Supersedes NNPN No.
22526) issued on 17 March 1977,P318,897.34 with
14.50% interest p.a.;
(ii)
Citibank NNPN Serial No. 23357
(Cancels and Supersedes NNPN No. 22528)
issued on 17 March 1977, P203,150.00 with 14.50
interest p.a.;
(iii) FNCB NNPN Serial No. 05757
(Cancels and Supersedes NNPN No. 04952),
issued on 02 June 1977, P500,000.00 with 17%
interest p.a.;
(iv) FNCB NNPN Serial No. 05758
(Cancels and Supersedes NNPN No. 04962),
issued on 02 June 1977, P500,000.00 with 17%
interest per annum;
(v)
The Two Million (P2,000,000.00)
money market placements of Ms. Sabeniano with
the Ayala Investment & Development Corporation
(AIDC) with legal interest at the rate of twelve
percent (12%) per annum compounded yearly,
from 30 September 1976 until fully paid;
4.
Ordering defendants-appellants to jointly and
severally pay the plaintiff-appellant the sum of FIVE HUNDRED
THOUSAND PESOS (P500,000.00) by way of moral damages,
FIVE HUNDRED THOUSAND PESOS (P500,000.00) as
exemplary damages, and ONE HUNDRED THOUSAND PESOS
(P100,000.00) as attorneys fees.
Apparently, the parties to the case, namely, the respondent, on one hand, and the
petitioners, on the other, made separate attempts to bring the aforementioned Decision
of the Court of Appeals, dated 26 March 2002, before this Court for review.
G.R. No. 152985
Respondent no longer sought a reconsideration of the Decision of the Court of
Appeals in CA-G.R. CV No. 51930, dated 26 March 2002, and instead, filed
immediately with this Court on 3 May 2002 a Motion for Extension of Time to File a
Petition for Review,[13] which, after payment of the docket and other lawful fees, was
assigned the docket number G.R. No. 152985. In the said Motion, respondent alleged
that she received a copy of the assailed Court of Appeals Decision on 18 April 2002 and,
thus, had 15 days therefrom or until 3 May 2002 within which to file her Petition for
Review. Since she informed her counsel of her desire to pursue an appeal of the Court
of Appeals Decision only on 29 April 2002, her counsel neither had enough time to file
a motion for reconsideration of the said Decision with the Court of Appeals, nor a
Petition forCertiorari with this Court. Yet, the Motion failed to state the exact extension
period respondent was requesting for.
Since this Court did not act upon respondents Motion for Extension of Time
to file her Petition for Review, then the period for appeal continued to run and still
expired on 3 May 2002.[14] Respondent failed to file any Petition for Review within the
prescribed period for appeal and, hence, this Court issued a Resolution,[15] dated 13
November 2002, in which it pronounced that
pleadings on record, as well as her numerous personal and unofficial letters to this
Court which were no longer made part of the record, that the Decision of the Court of
Appeals in CA-G.R. CV No. 51930, dated 26 March 2002, had already become final and
executory by virtue of the Resolution of this Court in G.R. No. 152985, dated 13
November 2002.
G.R. No. 152985 was the docket number assigned by this Court to
respondents Motion for Extension of Time to File a Petition for Review. Respondent,
though, did not file her supposed Petition. Thus, after the lapse of the prescribed
period for the filing of the Petition, this Court issued the Resolution, dated 13
November 2002, declaring the Decision of the Court of Appeals, dated 26 March 2002,
final and executory. It should be pointed out, however, that the Resolution, dated 13
November 2002, referred only to G.R. No. 152985, respondents appeal, which she
failed to perfect through the filing of a Petition for Review within the prescribed
period. The declaration of this Court in the same Resolution would bind respondent
solely, and not petitioners which filed their own separate appeal before this Court,
docketed as G.R. No. 156132, the Petition at bar. This would mean that respondent, on
her part, should be bound by the findings of fact and law of the Court of Appeals,
including the monetary amounts consequently awarded to her by the appellate court in
its Decision, dated 26 March 2002; and she can no longer refute or assail any part
thereof. [19]
This Court already explained the matter to respondent when it issued a
Resolution[20] in G.R. No. 156132, dated 2 February 2004, which addressed her Urgent
Motion for the Release of the Decision with the Implementation of the Entry of
Judgment in the following manner
[A]cting on Citibanks and FNCB Finances Motion for Reconsideration,
we resolved to grant the motion, reinstate the petition and require
Sabeniano to file a comment thereto in our Resolution of June 23,
2003. Sabeniano filed a Comment dated July 17, 2003 to which
Citibank and FNCB Finance filed a Reply dated August 20, 2003.
From the foregoing, it is clear that Sabeniano had knowledge
of, and in fact participated in, the proceedings in G.R. No.
156132. She cannot feign ignorance of the proceedings therein and
claim that the Decision of the Court of Appeals has become final and
executory. More
precisely,
the Decision became
final
and
executory only with regard to Sabeniano in view of her failure to
file a petition for review within the extended period granted by the
Court, and not to Citibank and FNCB Finance whose Petition for
Review was duly reinstated and is now submitted for decision.
Accordingly, the instant Urgent Motion is hereby DENIED.
(Emphasis supplied.)
To sustain the argument of respondent would result in an unjust and incongruous
situation wherein one party may frustrate the efforts of the opposing party to appeal the
case by merely filing with this Court a Motion for Extension of Time to File a Petition
for Review, ahead of the opposing party, then not actually filing the intended
Petition.[21] The party who fails to file its intended Petition within the reglementary or
extended period should solely bear the consequences of such failure.
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
terminated, and the therein assailed Court of Appeals Decision final and
executory. G.R. No. 152985, therefore, did not progress and respondents appeal was
unperfected.
The Petition for Review would constitute the initiatory pleading before this
Court, upon the timely filing of which, the case before this Court commences; much in
the same way a case is initiated by the filing of a Complaint before the trial court. The
Petition for Review establishes the identity of parties, rights or causes of action, and
relief sought from this Court, and without such a Petition, there is technically no case
before this Court. The Motion filed by respondent seeking extension of time within
which to file her Petition for Review does not serve the same purpose as the Petition
for Review itself. Such a Motion merely presents the important dates and the
justification for the additional time requested for, but it does not go into the details of
the appealed case.
said Petition, any reason attributed to the respondent for appealing the 26 March 2002
Decision would be grounded on mere speculations, to which this Court cannot give
credence.
II
As an exception to the
general rule, this Court takes
cognizance of questions of
fact raised in the Petition at
bar.
It is already a well-settled rule that the jurisdiction of this Court in cases
brought before it from the Court of Appeals by virtue of Rule 45 of the Revised Rules
of Court is limited to reviewing errors of law. Findings of fact of the Court of Appeals
are conclusive upon this Court. There are, however, recognized exceptions to the
foregoing rule, namely: (1) when the findings are grounded entirely on speculation,
surmises, or conjectures; (2) when the interference made is manifestly mistaken, absurd,
or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6)
when in making its findings, the Court of Appeals went beyond the issues of the case,
or its findings are contrary to the admissions of both the appellant and the appellee; (7)
when the findings are contrary to those of the trial court; (8) when the findings are
conclusions without citation of specific evidence on which they are based; (9) when the
facts set forth in the petition as well as in the petitioners main and reply briefs are not
disputed by the respondent; and (10) when the findings of fact are premised on the
supposed absence of evidence and contradicted by the evidence on record.[24]
Several of the enumerated exceptions pertain to the Petition at bar.
It is indubitable that the Court of Appeals made factual findings that are
contrary to those of the RTC,[25] thus, resulting in its substantial modification of the trial
courts Decision, and a ruling entirely in favor of the respondent. In addition,
petitioners invoked in the instant Petition for Review several exceptions that would
justify this Courts review of the factual findings of the Court of Appeals, i.e., the Court
of Appeals made conflicting findings of fact; findings of fact which went beyond the
issues raised on appeal before it; as well as findings of fact premised on the supposed
absence of evidence and contradicted by the evidence on record.
On the basis of the foregoing, this Court shall proceed to reviewing and reevaluating the evidence on record in order to settle questions of fact raised in the
Petition at bar.
149,632.99
318,897.34
203,150.00
500,000.00
500,000.00
This Court is tasked to determine whether petitioners are indeed liable to return the
foregoing amounts, together with the appropriate interests and penalties, to
respondent. It shall trace respondents transactions with petitioners, from her money
market placements with petitioner Citibank and petitioner FNCB Finance, to her
savings and current accounts with petitioner Citibank, and to her dollar accounts with
Citibank-Geneva.
Money market placements with petitioner Citibank
The history of respondents money market placements with petitioner Citibank
began on 6 December 1976, when she made a placement ofP500,000.00 as principal
amount, which was supposed to earn an interest of 16% p.a. and for which PN No.
20773 was issued. Respondent did not yet claim the proceeds of her placement and,
instead, rolled-over or re-invested the principal and proceeds several times in the
succeeding years for which new PNs were issued by petitioner Citibank to replace the
ones which matured. Petitioner Citibank accounted for respondents original placement
and the subsequent roll-overs thereof, as follows
Date
(mm/dd/yyyy)
12/06/1976
01/14/1977
02/09/1977
Amount
$
03/17/1977
PN
No.
Cancels
PN No.
20773
21686
22526
22528
23356
23357
None
20773
21686
21686
22526
22528
Maturity Date
(mm/dd/yyyy)
01/13/1977
02/08/1977
03/16/1977
03/16/1977
04/20/1977
04/20/1977
Amount
(P)
Interest
(p.a.)
500,000.00
508,444.44
313,952.59
200,000.00
318,897.34
203,150.00
16%
15%
15-3/4%
15-3/4%
14-1/2%
14-1/2%
Petitioner Citibank alleged that it had already paid to respondent the principal
amounts and proceeds of PNs No. 23356 and 23357, upon their maturity. Petitioner
Citibank further averred that respondent used the P500,000.00 from the payment of
PNs No. 23356 and 23357, plusP600,000.00 sourced from her other funds, to open two
time deposit (TD) accounts with petitioner Citibank, namely, TD Accounts No. 17783
and 17784.
Petitioner Citibank did not deny the existence nor questioned the authenticity
of PNs No. 23356 and 23357 it issued in favor of respondent for her money market
placements. In fact, it admitted the genuineness and due execution of the said PNs, but
qualified that they were no longer outstanding.[31] In Hibberd v. Rohde and
McMillian,[32] this Court delineated the consequences of such an admission
By the admission of the genuineness and due execution of
an instrument, as provided in this section, is meant that the party
whose signature it bears admits that he signed it or that it was signed
by another for him with his authority; that at the time it was signed it
was in words and figures exactly as set out in the pleading of the
party relying upon it; that the document was delivered; and that any
formal requisites required by law, such as a seal, an acknowledgment,
or revenue stamp, which it lacks, are waived by him. Hence, such
defenses as that the signature is a forgery (Puritan Mfg. Co. vs. Toti &
Gradi, 14 N. M., 425; Cox vs. Northwestern Stage Co., 1 Idaho, 376;
Woollen vs. Whitacre, 73 Ind., 198; Smith vs. Ehnert, 47 Wis., 479;
Faelnar vs.Escao, 11 Phil. Rep., 92); or that it was unauthorized, as
in the case of an agent signing for his principal, or one signing in
behalf of a partnership (Country Bank vs. Greenberg, 127 Cal., 26;
Henshaw vs. Root, 60 Inc., 220; Naftzker vs. Lantz, 137 Mich., 441) or
of a corporation (Merchant vs. International Banking Corporation, 6
Phil Rep., 314; Wanita vs. Rollins, 75 Miss., 253; Barnes vs. Spencer &
Barnes Co., 162 Mich., 509); or that, in the case of the latter, that the
corporation was authorized under its charter to sign the instrument
(Merchant vs. International Banking Corporation, supra); or that the
party charged signed the instrument in some other capacity than that
alleged in the pleading setting it out (Payne vs. National Bank, 16
Kan., 147); or that it was never delivered (Hunt vs. Weir, 29 Ill., 83;
Elbring vs. Mullen, 4 Idaho, 199; Thorp vs. Keokuk Coal Co., 48 N.Y.,
253; Fire Association of Philadelphia vs.Ruby, 60 Neb., 216) are cut
off by the admission of its genuineness and due execution.
The effect of the admission is such that in the case of a
promissory note a prima facie case is made for the plaintiff which
dispenses with the necessity of evidence on his part and entitles him
to a judgment on the pleadings unless a special defense of new matter,
such as payment, is interposed by the defendant (Papa vs. Martinez,
The relevant portion[37] of Mr. Pujedas testimony as to PNs No. 23356 and
23357 (referred to therein as Exhibits No. 47 and 48, respectively) is reproduced
below
Atty. Mabasa:
Okey [sic]. Now Mr. Witness, you were asked to testify in this
case and this case is [sic] consist [sic] of several documents
involving transactions between the plaintiff and the
defendant. Now, were you able to make your own
memorandum regarding all these transactions?
A
Court:
Are you trying to say that you have personal knowledge or
participation to these transactions?
A
Yes, your Honor, I was the officer-in charge of the unit that
was processing these transactions. Some of the documents
bear my signature.
Court:
And this resume or summary that you have prepared is based
on purely your recollection or documents?
A
Court:
Atty. Mabasa:
Yes, your Honor, that is why your Honor.
Atty. Mabasa:
Q
Yes, sir.
And how much was the amount booked as time deposit with
defendant Citibank?
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.
Court:
Better present the documents.
Yes, sir.
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?
What are you saying Mr. Witness is that the P600,000 is a [sic]
fresh money coming from Mrs. Modesta Sabeneano [sic]?
That is right.
In his deposition in Hong Kong, Mr. Tan recounted what happened to PNs
No. 23356 and 23357 (referred to therein as Exhibits E and F, respectively), as
follows
Atty. Mabasa :
Mr. Tan :
Yes, Sir.
Atty. Mabasa :
Mr. Tan :
Atty. Mabasa :
Exhibits E and F?
Before anything else, it should be noted that when Mr. Pujedas testimony
before the RTC was made on 12 March 1990 and Mr. Tans deposition in Hong Kong
was conducted on 3 September 1990, more than a decade had passed from the time the
transactions they were testifying on took place. This Court had previously recognized
the frailty and unreliability of human memory with regards to figures after the lapse of
five years.[38] Taking into consideration the substantial length of time between the
transactions and the witnesses testimonies, as well as the undeniable fact that bank
officers deal with multiple clients and process numerous transactions during their tenure,
this Court is reluctant to give much weight to the testimonies of Mr. Pujeda and Mr.
Tan regarding the payment of PNs No. 23356 and 23357 and the use by respondent of
the proceeds thereof for opening TD accounts. This Court finds it implausible that
they should remember, after all these years, this particular transaction with respondent
involving her PNs No. 23356 and 23357 and TD accounts. Both witnesses did not give
any reason as to why, from among all the clients they had dealt with and all the
transactions they had processed as officers of petitioner Citibank, they specially
remembered respondent and her PNs No. 23356 and 23357. Their testimonies likewise
lacked details on the circumstances surrounding the payment of the two PNs and the
opening of the time deposit accounts by respondent, such as the date of payment of the
two PNs, mode of payment, and the manner and context by which respondent relayed
her instructions to the officers of petitioner Citibank to use the proceeds of her two
PNs in opening the TD accounts.
Moreover, while there are documentary evidences to support and trace
respondents money market placements with petitioner Citibank, from the original PN
No. 20773, rolled-over several times to, finally, PNs No. 23356 and 23357, there is an
evident absence of any documentary evidence on the payment of these last two PNs
and the use of the proceeds thereof by respondent for opening TD accounts. The
paper trail seems to have ended with the copies of PNs No. 23356 and
23357. Although both Mr. Pujeda and Mr. Tan said that they based their testimonies,
not just on their memories but also on the documents on file, the supposed documents
on which they based those portions of their testimony on the payment of PNs No.
23356 and 23357 and the opening of the TD accounts from the proceeds thereof, were
never presented before the courts nor made part of the records of the
case. Respondents money market placements were of substantial amounts consisting
of the principal amount of P500,000.00, plus the interest it should have earned during
the years of placement and it is difficult for this Court to believe that petitioner
Citibank would not have had documented the payment thereof.
When Mr. Pujeda testified before the RTC on 6 February 1990,[39] petitioners
counsel attempted to present in evidence a document that would supposedly support
the claim of petitioner Citibank that the proceeds of PNs No. 23356 and 23357 were
used by respondent to open one of her two TD accounts in the amount
of P500,000.00. Respondents counsel objected to the presentation of the document
since it was a mere xerox" copy, and was blurred and hardly readable. Petitioners
counsel then asked for a continuance of the hearing so that they can have time to
produce a better document, which was granted by the court. However, during the next
Feati Bank and Trust Co., as evidenced by the rubber stamp mark of the latter found at
the back of both MCs. In exchange, petitioner FNCB Finance booked the amounts
received as money market placements, and accordingly issued PNs No. 4952 and 4962,
for the amounts of P500,000.00 and P600,000.00, respectively, payable to respondents
savings account with petitioner Citibank, S/A No. 25-13703-4, upon their maturity on 1
June 1977. Once again, respondent rolled-over several times the principal amounts of
her money market placements with petitioner FNCB Finance, as follows
Date
(mm/dd/yyyy)
04/29/1977
06/02/1977
08/31/1977
PN
No.
Cancels
PN No.
4952
4962
5757
5758
8167
8169
None
None
4952
4962
5757
5752
Maturity Date
(mm/dd/yyyy)
06/01/1977
06/01/1977
08/31/1977
08/31/1977
08/25/1978
08/25/1978
Amount
(P)
Interest
(p.a.)
500,000.00
600,000.00
500,000.00
500,000.00
500,000.00
500,000.00
17%
17%
17%
17%
14%
14%
As presented by the petitioner FNCB Finance, respondent rolled-over only the principal
amounts of her money market placements as she chose to receive the interest income
therefrom. Petitioner FNCB Finance also pointed out that when PN No. 4962, with
principal amount of P600,000.00, matured on 1 June 1977, respondent received a partial
payment of the principal which, together with the interest, amounted
to P102,633.33;[44]thus, only the amount of P500,000.00 from PN No. 4962 was rolledover to PN No. 5758.
Based on the foregoing records, the principal amounts of PNs No. 5757 and
5758, upon their maturity, were rolled over to PNs No. 8167 and 8169,
respectively. PN No. 8167[45] expressly canceled and superseded PN No. 5757, while
PN No. 8169[46] also explicitly canceled and superseded PN No. 5758. Thus, it is
patently erroneous for the Court of Appeals to still award to respondent the principal
amounts and interests covered by PNs No. 5757 and 5758 when these were already
canceled and superseded. It is now incumbent upon this Court to determine what
subsequently happened to PNs No. 8167 and 8169.
Petitioner FNCB Finance presented four checks as proof of payment of the
principal amounts and interests of PNs No. 8167 and 8169 upon their maturity. All the
checks were payable to respondents savings account with petitioner Citibank, with the
following details
Date of Issuance
(mm/dd/yyyy)
09/01/1978
Check
No.
76962
09/01/1978
Amount
(P)
Notation
12,833.34
76961
12,833.34
09/05/1978
77035
500,000.00
09/05/ 1978
77034
500,000.00
Then again, Checks No. 77035 and 77034 were later returned to petitioner FNCB
Finance together with a memo,[47] dated 6 September 1978, from Mr. Tan of petitioner
Citibank, to a Mr. Bobby Mendoza of petitioner FNCB Finance. According to the
memo, the two checks, in the total amount of P1,000,000.00, were to be returned to
respondents account with instructions to book the said amount in money market
placements for one more year. Pursuant to the said memo, Checks No. 77035 and
77034 were invested by petitioner FNCB Finance, on behalf of respondent, in money
market placements for which it issued PNs No. 20138 and 20139. The PNs each
covered P500,000.00, to earn 11% interest per annum, and to mature on 3 September
1979.
On 3 September 1979, petitioner FNCB Finance issued Check No. 100168, pay
to the order of Citibank N.A. A/C Modesta Sabeniano, in the amount
of P1,022,916.66, as full payment of the principal amounts and interests of both PNs
No. 20138 and 20139 and, resultantly, canceling the said PNs. [48] Respondent actually
admitted the issuance and existence of Check No. 100168, but with the qualification
that the proceeds thereof were turned over to petitioner Citibank.[49] Respondent did
not clarify the circumstances attending the supposed turn over, but on the basis of the
allegations of petitioner Citibank itself, the proceeds of PNs No. 20138 and 20139,
amounting to P1,022,916.66, was used by it to liquidate respondents outstanding
loans. Therefore, the determination of whether or not respondent is still entitled to the
return of the proceeds of PNs No. 20138 and 20139 shall be dependent on the
resolution of the issues raised as to the existence of the loans and the authority of
petitioner Citibank to use the proceeds of the said PNs, together with respondents
other deposits and money market placements, to pay for the same.
Savings and current accounts with petitioner Citibank
Respondent presented and submitted before the RTC deposit slips and bank
statements to prove deposits made to several of her accounts with petitioner Citibank,
particularly, Accounts No. 00484202, 59091, and 472-751, which would have amounted
to a total of P3,812,712.32, had there been no withdrawals or debits from the said
accounts from the time the said deposits were made.
Although the RTC and the Court of Appeals did not make any definitive findings
as to the status of respondents savings and current accounts with petitioner Citibank,
the Decisions of both the trial and appellate courts effectively recognized only
the P31,079.14 coming from respondents savings account which was used to off-set
her alleged outstanding loans with petitioner Citibank.[50]
Since both the RTC and the Court of Appeals had consistently recognized only
the P31,079.14 of respondents savings account with petitioner Citibank, and that
respondent failed to move for reconsideration or to appeal this particular finding of fact
by the trial and appellate courts, it is already binding upon this Court. Respondent is
already precluded from claiming any greater amount in her savings and current accounts
with petitioner Citibank. Thus, this Court shall limit itself to determining whether or
not respondent is entitled to the return of the amount of P31,079.14 should the off-set
thereof by petitioner Citibank against her supposed loans be found invalid.
Dollar accounts with Citibank-Geneva
Respondent made an effort of preparing and presenting before the RTC her own
computations of her money market placements and dollar accounts with CitibankGeneva, purportedly amounting to a total of United States (US) $343,220.98, as of 23
June 1985.[51] In her Memorandum filed with the RTC, she claimed a much bigger
amount of deposits and money market placements with Citibank-Geneva, totaling
US$1,336,638.65.[52] However, respondent herself also submitted as part of her formal
offer of evidence the computation of her money market placements and dollar accounts
with Citibank-Geneva as determined by the latter.[53] Citibank-Geneva accounted for
respondents money market placements and dollar accounts as follows
MODESTA SABENIANO &/OR
==================
US$
+ US$
- US$
30000.-339.06
95.--
US$
30244.06
US$
+ US$
- US$
114000.-1358.50
41.17
US$
115317.33
US$
+ US$
145561.39
11381.31
US$
156942.70
- US$
149632.99
US$
7309.71
- US$
6998.84
US$
310.87
she did not perfect an appeal of the Decision of the Court of Appeals, dated 26 March
2002, which found that she is entitled only to the return of the said amount, as far as her
accounts with Citibank-Geneva is concerned.
III
Amount
P
1,022,916.66
31,079.14
1,102,944.78
2,156,940.58
PN No.
Date of Issuance
(mm/dd/yyyy)
Date of Maturity
(mm/dd/yyyy)
Principal
Amount
P 400,000.00
100,000.00
100,000.00
150,000.00
250,000.00
100,000.00
300,000.00
150,000.00
150,000.00
220,000.00
All the PNs stated that the purpose of the loans covered thereby is To liquidate
Date of Release existing obligation, except for PN No. 34534, which stated for its purpose personal
(mm/dd/yyyy) investment.
MC No.
34612
34741
35689
35694
35695
356946
35697
Total
07/20/1978
10/13/1978
10/19/1978
11/15/1978
11/21/1978
12/04/1978
12/26/1978
01/09/1979
01/17/1979
01/30/1979
01/19/1979
01/26/1979
02/23/1979
03/19/1979
03/19/1979
03/20/1979
03/30/1979
09/18/1978
12/12/1978
11/03/1978
01/15/1979
01/19/1979
01/18/1979
02/23/1979
03/09/1979
03/19/1979
03/30/1979
03/16/1979
03/12/1979
05/29/1979
05/29/1979
05/29/1979
05/29/1979
05/29/1979
150,000.00
100,000.00
300,000.00
150,000.00
100,000.00
250,000.00
220,000.00
P
1,920,000.00
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 hand,
and the representatives of petitioners, on the other.
The first letter[62] was dated 5 April 1979, addressed to respondent and signed by
Mr. Tan, as the manager of petitioner Citibank, which stated, in part, that
Despite our repeated requests and follow-up, we regret you have not
granted us with any response or payment.
Re:
1979. She stated therein that the loan obligation shall be paid within 60 days from
receipt of the statement of account.
2,123,843.20
(1,022,916.66)
(31,079.14)
1,069,847.40
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
andP500,000.00, respectively, for liquidation of loan.
She borrowed another P150,000.00 from petitioner Citibank for personal
investment, and for which she executed PN No. 34534, on 9 January 1979. Thus, she
admitted to receiving the proceeds of this loan via MC No. 228270. She invested the
loan amount in another money market placement with petitioner FNCB Finance. In
turn, she used the very same money market placement with petitioner FNCB Finance as
security for her P150,000.00 loan from petitioner Citibank. When she failed to pay the
loan when it became due, petitioner Citibank allegedly forfeited her money market
placement with petitioner FNCB Finance and, thus, the loan was already paid.[75]
Respondent likewise questioned the MCs presented by petitioners, except for
one (MC No. 228270 in particular), as proof that she received the proceeds of the loans
covered by the first set of PNs. As recounted in the preceding paragraph, respondent
admitted to obtaining a loan ofP150,000.00, 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 ofP250,000.00, covered by PN No.
34079), and pointed out that the checks did not bear her indorsements. She did not
deny receiving all other checks but she interposed that she received these checks, not as
proceeds of loans, but as payment of the principal amounts and/or interests from her
money market placements with petitioner Citibank. She also raised doubts as to the
notation on each of the checks that reads RE: Proceeds of PN#[corresponding PN
No.], saying that such notation did not appear on the MCs when she originally received
them and that the notation appears to have been written by a typewriter different from
that used in writing all other information on the checks (i.e., date, payee, and
amount).[76] She even testified that MCs were not supposed to bear notations indicating
the purpose for which they were issued.
As to the second set of PNs, respondent acknowledged having signed them
all. However, she asserted that she only executed these PNs as part of the simulated
loans she and Mr. Tan of petitioner Citibank concocted. Respondent explained that she
had a pending loan application for a big amount with the Development Bank of the
Philippines (DBP), and when Mr. Tan found out about this, he suggested that they
could make it appear that the respondent had outstanding loans with petitioner Citibank
and the latter was already demanding payment thereof; this might persuade DBP to
approve respondents loan application. Mr. Tan made the respondent sign the second
set of PNs, so that he may have something to show the DBP investigator who might
inquire with petitioner Citibank as to respondents loans with the latter. On her own
copies of the said PNs, respondent wrote by hand the notation, This isa (sic) simulated
non-negotiable note, signed copy given to Mr. Tan., (sic) per agreement to be shown to
DBP representative. itwill (sic) be returned to me if the P11=M (sic) loan for MC Adore
Palace Hotel is approved by DBP.[77]
Findings of this Court as to the existence of the loans
After going through the testimonial and documentary evidence presented by both
sides to this case, it is this Courts assessment that respondent did indeed have
outstanding loans with petitioner Citibank at the time it effected the off-set or
compensation on 25 July 1979 (using respondents savings deposit with petitioner
Citibank), 5 September 1979 (using the proceeds of respondents money market
placements with petitioner FNCB Finance) and 26 October 1979 (using respondents
dollar accounts remitted from Citibank-Geneva). The totality of petitioners evidence as
to the existence of the said loans preponderates over respondents. Preponderant
evidence means that, as a whole, the evidence adduced by one side outweighs that of the
adverse party.[78]
Respondents outstanding obligation for P1,920,000.00 had been sufficiently
documented by petitioner Citibank.
The second set of PNs is a mere renewal of the prior loans originally covered by
the first set of PNs, except for PN No. 34534. The first set of PNs is supported, in turn,
by the existence of the MCs that represent the proceeds thereof received by the
respondent.
It bears to emphasize that the proceeds of the loans were paid to respondent in
MCs, with the respondent specifically named as payee. MCs checks are drawn by the
banks manager upon the bank itself and regarded to be as good as the money it
represents.[79] Moreover, the MCs were crossed checks, with the words Payees
Account Only.
In general, a crossed check cannot be presented to the drawee bank for payment
in cash. Instead, the check can only be deposited with the payees bank which, in turn,
must present it for payment against the drawee bank in the course of normal banking
hours. The crossed check cannot be presented for payment, but it can only be
deposited and the drawee bank may only pay to another bank in the payees or
indorsers account.[80] The effect of crossing a check was described by this Court
in Philippine Commercial International Bank v. Court of Appeals[81]
[T]he crossing of a check with the phrase Payees Account Only is
a warning that the check should be deposited in the account of the
payee. Thus, it is the duty of the collecting bank PCI Bank to
ascertain that the check be deposited in payees account only. It is
bound to scrutinize the check and to know its depositors before it
can make the clearing indorsement all prior indorsements and/or
lack of indorsement guaranteed.
The crossed MCs presented by petitioner Bank were indeed deposited in several
different bank accounts and cleared by the Clearing Office of the Central Bank of the
Philippines, as evidenced by the stamp marks and notations on the said checks. The
crossed MCs are already in the possession of petitioner Citibank, the drawee bank,
which was ultimately responsible for the payment of the amount stated in the
checks. Given that a check is more than just an instrument of credit used in commercial
transactions for it also serves as a receipt or evidence for the drawee bank of the
cancellation of the said check due to payment,[82] then, the possession by petitioner
Citibank of the said MCs, duly stamped Paid gives rise to the presumption that the
said MCs were already paid out to the intended payee, who was in this case, the
respondent.
This Court finds applicable herein the presumptions that private transactions
have been fair and regular,[83] and that the ordinary course of business has been
followed.[84] There is no question that the loan transaction between petitioner Citibank
and the respondent is a private transaction. The transactions revolving around the
crossed MCs from their issuance by petitioner Citibank to respondent as payment of
the proceeds of her loans; to its deposit in respondents accounts with several different
banks; to the clearing of the MCs by an independent clearing house; and finally, to the
payment of the MCs by petitioner Citibank as the drawee bank of the said checks are
all private transactions which shall be presumed to have been fair and regular to all the
parties concerned. In addition, the banks involved in the foregoing transactions are also
presumed to have followed the ordinary course of business in the acceptance of the
crossed MCs for deposit in respondents accounts, submitting them for clearing, and
their eventual payment and cancellation.
must be noted that the MCs were crossed, for payees account only, and the payee
named in both checks was none other than respondent. The crossing of the MCs was
already a warning to BPI to receive said checks for deposit only in respondents
account. It was up to BPI to verify whether it was receiving the crossed MCs in
accordance with the instructions on the face thereof. If, indeed, the MCs were deposited
in accounts other than respondents, then the respondent would have a cause of action
against BPI.[90]
BPI further stamped its guarantee on the back of the checks to the effect that,
All prior endorsement and/or Lack of endorsement guaranteed. Thus, BPI became
the indorser of the MCs, and assumed all the warranties of an indorser,[91] specifically,
that the checks were genuine and in all respects what they purported to be; that it had a
good title to the checks; that all prior parties had capacity to contract; and that the
checks were, at the time of their indorsement, valid and subsisting.[92] So even if the
MCs deposited by BPI's client, whether it be by respondent herself or some other
person, lacked the necessary indorsement, BPI, as the collecting bank, is bound by its
warranties as an indorser and cannot set up the defense of lack of indorsement as
against petitioner Citibank, the drawee bank.[93]
Furthermore, respondents bare and unsubstantiated denial of receipt of the MCs
in question and their deposit in her account is rendered suspect when MC No. 220701
was actually deposited in Account No. 0123-0572-28 of BPI Cubao Branch, the very
same account in which MC No. 228270 (which respondent admitted to receiving as
proceeds of her loan from petitioner Citibank), and MCs No. 228203, 228357, and
228400 (which respondent admitted to receiving as proceeds from her money market
placements) were deposited. Likewise, MC No. 226467 was deposited in Account No.
0121-002-43 of BPI Cubao Branch, to which MCs No. 226285 and 226439 (which
respondent admitted to receiving as proceeds from her money market placements) were
deposited. It is an apparent contradiction for respondent to claim having received the
proceeds of checks deposited in an account, and then deny receiving the proceeds of
another check deposited in the very same account.
Another inconsistency in respondents denial of receipt of MC No. 226467 and
her deposit of the same in her account, is her presentation of Exhibit HHH, a
provisional receipt which was supposed to prove that respondent turned
over P500,000.00 to Mr. Tan of petitioner Citibank, that the said amount was split into
three money market placements, and that MC No. 226467 represented the return on her
investment from one of these placements.[94] Because of her Exhibit HHH,
respondent effectively admitted receipt of MC No. 226467, although for reasons other
than as proceeds of a loan.
Neither can this Court give credence to respondents contention that the
notations on the MCs, stating that they were the proceeds of particular PNs, were not
there when she received the checks and that the notations appeared to be written by a
typewriter different from that used to write the other information on the checks. Once
more, respondents allegations were uncorroborated by any other evidence. Her and
her counsels observation that the notations on the MCs appear to be written by a
typewriter different from that used to write the other information on the checks hardly
convinces this Court considering that it constitutes a mere opinion on the appearance of
the notation by a witness who does not possess the necessary expertise on the
matter. In addition, the notations on the MCs were written using both capital and small
letters, while the other information on the checks were written using capital letters only,
such difference could easily confuse an untrained eye and lead to a hasty conclusion that
they were written by different typewriters.
Respondents testimony, that based on her experience transacting with banks, the
MCs were not supposed to include notations on the purpose for which the checks were
issued, also deserves scant consideration. While respondent may have extensive
experience dealing with banks, it still does not qualify her as a competent witness on
banking procedures and practices. Her testimony on this matter is even belied by the
fact that the other MCs issued by petitioner Citibank (when it was still named First
National City Bank) and by petitioner FNCB Finance, the existence and validity of
which were not disputed by respondent, also bear similar notations that state the reason
for which they were issued.
Respondent presented several more pieces of evidence to substantiate her claim
that she received MCs No. 226285, 226439, 226467, 226057, 228357, and 228400, not
as proceeds of her loans from petitioner Citibank, but as the return of the principal
amounts and payment of interests from her money market placements with
petitioners. Part of respondents exhibits were personal checks[95] drawn by respondent
on her account with Feati Bank & Trust Co., which she allegedly invested in separate
money market placements with both petitioners, the returns from which were paid to
her via MCs No. 226285 and 228400. Yet, to this Court, the personal checks only
managed to establish respondents issuance thereof, but there was nothing on the face
of the checks that would reveal the purpose for which they were issued and that they
were actually invested in money market placements as respondent claimed.
Respondent further submitted handwritten notes that purportedly computed
and presented the returns on her money market placements, corresponding to the
amount stated in the MCs she received from petitioner Citibank. Exhibit HHH1[96] was a handwritten note, which respondent attributed to Mr. Tan of petitioner
Citibank, showing the breakdown of her BPI Check for P500,000.00 into three different
money market placements with petitioner Citibank. This Court, however, noticed
several factors which render the note highly suspect. One, it was written on the
reversed side of Provisional Receipt No. 12724 of petitioner Citibank which bore the
initials of Mr. Tan acknowledging receipt of respondents BPI Check No. 120989
for P500,000.00; but the initials on the handwritten note appeared to be that of Mr.
Bobby Mendoza of petitioner FNCB Finance.[97] Second, according to Provisional
Receipt No. 12724, BPI Check No. 120989 for P500,000.00 was supposed to be
invested in three money market placements with petitioner Citibank for the period of 60
days. Since all these money market placements were made through one check deposited
on the same day, 10 November 1978, it made no sense that the handwritten note at the
back of Provisional Receipt No. 12724 provided for different dates of maturity for each
of the money market placements (i.e., 16 November 1978, 17 January 1979, and 21
November 1978), and such dates did not correspond to the 60 day placement period
stated on the face of the provisional receipt. And third, the principal amounts of the
money market placements as stated in the handwritten note P145,000.00, P145,000.00
and P242,000.00 totaledP532,000.00, and was obviously in excess of the P500,000.00
acknowledged on the face of Provisional Receipt No. 12724.
Exhibits III and III-1, the front and bank pages of a handwritten note of
Mr. Bobby Mendoza of petitioner FNCB Finance,[98] also did not deserve much
evidentiary weight, and this Court cannot rely on the truth and accuracy of the
computations presented therein. Mr. Mendoza was not presented as a witness during
the trial before the RTC, so that the document was not properly authenticated nor its
contents sufficiently explained. No one was able to competently identify whether the
initials as appearing on the note were actually Mr. Mendozas.
Also, going by the information on the front page of the note, this Court
observes that payment of respondents alleged money market placements with petitioner
FNCB Finance were made using Citytrust Checks; the MCs in question, including MC
No. 228057, were issued by petitioner Citibank. Although Citytrust (formerly Feati
Bank & Trust Co.), petitioner FNCB Finance, and petitioner Citibank may be affiliates
of one another, they each remained separate and distinct corporations, each having its
own financial system and records. Thus, this Court cannot simply assume that one
corporation, such as petitioner Citibank or Citytrust, can issue a check to discharge an
obligation of petitioner FNCB Finance. It should be recalled that when petitioner
FNCB Finance paid for respondents money market placements, covered by its PNs No.
8167 and 8169, as well as PNs No. 20138 and 20139, petitioner FNCB Finance issued
its own checks.
As a last point on this matter, if respondent truly had money market
placements with petitioners, then these would have been evidenced by PNs issued by
uncorroborated testimony. The notations on the second set of PNs, that they were
non-negotiable simulated notes, were admittedly made by respondent herself and were,
thus, self-serving. Equally self-serving was respondents letter, written on 7 October
1985, or more than six years after the execution of the second set of PNs, in which she
demanded return of the simulated or fictitious PNs, together with the letters relating
thereto, which Mr. Tan purportedly asked her to execute. Respondent further failed to
present any proof of her alleged loan application with the DBP, and of any
circumstance or correspondence wherein the simulated or fictitious PNs were indeed
used for their supposed purpose.
In contrast, petitioner Citibank, as supported by the testimonies of its officers
and available documentation, consistently treated the said PNs as regular loans
accepted, approved, and paid in the ordinary course of its business.
The PNs executed by the respondent in favor of petitioner Citibank to cover her
loans were duly-filled out and signed, including the disclosure statement found at the
back of the said PNs, in adherence to the Central Bank requirement to disclose the full
finance charges to a loan granted to borrowers.
Mr. Tan, then an account officer with the Marketing Department of petitioner
Citibank, testified that he dealt directly with respondent; he facilitated the loans; and the
PNs, at least in the second set, were signed by respondent in his presence. [105]
Mr. Pujeda, the officer who was previously in charge of loans and placements,
confirmed that the signatures on the PNs were verified against respondents specimen
signature with the bank.[106]
Ms. Cristina Dondoyano, who worked at petitioner Citibank as a loan
processor, was responsible for booking respondents loans. Booking the loans means
recording it in the General Ledger. She explained the procedure for booking loans, as
follows: The account officer, in the Marketing Department, deals directly with the
clients who wish to borrow money from petitioner Citibank. The Marketing
Department will forward a loan booking checklist, together with the borrowing clients
PNs and other supporting documents, to the loan pre-processor, who will check
whether the details in the loan booking checklist are the same as those in the PNs. The
documents are then sent to Signature Control for verification of the clients signature in
the PNs, after which, they are returned to the loan pre-processor, to be forwarded
finally to the loan processor. The loan processor shall book the loan in the General
Ledger, indicating therein the client name, loan amount, interest rate, maturity date, and
the corresponding PN number. Since she booked respondents loans personally, Ms.
Dondoyano testified that she saw the original PNs. In 1986, Atty. Fernandez of
if it is collateralized. The loan is then recorded in the General Ledger. The Loans and
Placements Department will not book the loans without the PNs. When the PNs are
liquidated, whether they are paid or rolled-over, they are returned to the client.[109] Ms.
Rubio further explained that she was familiar with respondents accounts since, while
she was still the Head of the Loan and Placements Unit, she was asked by Mr. Tan to
prepare a list of respondents outstanding obligations.[110] She thus calculated
respondents outstanding loans, which was sent as an attachment to Mr. Tans letter to
respondent, dated 28 September 1979, and presented before the RTC as Exhibits 34-B
and 34-C.[111]
Lastly, the exchange of letters between petitioner Citibank and respondent, as
well as the letters sent by other people working for respondent, had consistently
recognized that respondent owed petitioner Citibank money.
In consideration of the foregoing discussion, this Court finds that the
preponderance of evidence supports the existence of the respondents loans, in the
principal sum of P1,920,000.00, as of 5 September 1979. While it is well-settled that
the term preponderance of evidence should not be wholly dependent on the number
of witnesses, there are certain instances when the number of witnesses become the
determining factor
The preponderance of evidence may be determined, under
certain conditions, by the number of witnesses testifying to a
particular fact or state of facts. For instance, one or two witnesses
may testify to a given state of facts, and six or seven witnesses of
equal candor, fairness, intelligence, and truthfulness, and equally well
corroborated by all the remaining evidence, who have no greater
interest in the result of the suit, testify against such state of facts.
Then the preponderance of evidence is determined by the number of
witnesses. (Wilcox vs. Hines, 100 Tenn. 524, 66 Am. St. Rep.,
761.)[112]
Best evidence rule
This Court disagrees in the pronouncement made by the Court of Appeals
summarily dismissing the documentary evidence submitted by petitioners based on its
broad and indiscriminate application of the best evidence rule.
In general, the best evidence rule requires that the highest available degree of
proof must be produced. Accordingly, for documentary evidence, the contents of a
document are best proved by the production of the document itself,[113] to the exclusion
of any secondary or substitutionary evidence.[114]
The best evidence rule has been made part of the revised Rules of Court, Rule
130, Section 3, which reads
SEC. 3. Original document must be produced; exceptions. When
the subject of inquiry is the contents of a document, no evidence
shall be admissible other than the original document itself, except in
the following cases:
(a) When the original has been lost or destroyed, or cannot
be produced in court, without bad faith on the part of the offeror;
(b) When the original is in the custody or under the control
of the party against whom the evidence is offered, and the latter fails
to produce it after reasonable notice;
(c) When the original consists of numerous accounts or
other documents which cannot be examined in court without great
loss of time and the fact sought to be established from them is only
the general result of the whole; and
(d) When the original is a public record in the custody of a
public officer or is recorded in a public office.
As the afore-quoted provision states, the best evidence rule applies only when the
subject of the inquiry is the contents of the document. The scope of the rule is more
extensively explained thus
But even with respect to documentary evidence, the best
evidence rule applies only when the content of such document is the
subject of the inquiry. Where the issue is only as to whether such
document was actually executed, or exists, or on the circumstances
relevant to or surrounding its execution, the best evidence rule does
not apply and testimonial evidence is admissible (5 Moran, op. cit., pp.
76-66; 4 Martin, op. cit., p. 78). Any other substitutionary evidence is
likewise admissible without need for accounting for the original.
Thus, when a document is presented to prove its existence
or condition it is offered not as documentary, but as real,
evidence. Parol evidence of the fact of execution of the documents is
allowed (Hernaez, et al. vs. McGrath, etc., et al., 91 Phil 565). x x x [115]
In Estrada v. Desierto,[116] this Court had occasion to rule that
It is true that the Court relied not upon the original but only
copy of the Angara Diary as published in the Philippine Daily Inquirer
on February 4-6, 2001. In doing so, the Court, did not, however, violate the
best evidence rule. Wigmore, in his book on evidence, states that:
Production of the original may be dispensed with, in the
trial courts discretion, whenever in the case in hand the opponent does
not bona fide dispute the contents of the document and no other useful
purpose will be served by requiring production.24
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 respondents loans. The terms
or contents of these documents were never the point of contention in the Petition at
bar. It was respondents position that the PNs in the first set (with the exception of PN
No. 34534) never existed, while the PNs in the second set (again, excluding PN No.
34534) were merely executed to cover simulated loan transactions. As for the MCs
representing the proceeds of the loans, the respondent either denied receipt of certain
MCs or admitted receipt of the other MCs but for another purpose. Respondent
further admitted the letters she wrote personally or through her representatives to Mr.
Tan of petitioner Citibank acknowledging the loans, except that she claimed that these
letters were just meant to keep up the ruse of the simulated loans. Thus, respondent
questioned the documents as to their existence or execution, or when the former is
admitted, as to the purpose for which the documents were executed, matters which are,
undoubtedly, external to the documents, and which had nothing to do with the contents
thereof.
Alternatively, even if it is granted that the best evidence rule should apply to
the evidence presented by petitioners regarding the existence of respondents loans, it
should be borne in mind that the rule admits of the following exceptions under Rule
130, Section 5 of the revised Rules of Court
SEC. 5. When the original document is unavailable. When the
original document has been lost or destroyed, or cannot be produced
in court, the offeror, upon proof of its execution or existence and the
cause of its unavailability without bad faith on his part, may prove its
contents by a copy, or by a recital of its contents in some authentic
document, or by the testimony of witnesses in the order stated.
The execution or existence of the original copies of the documents was
established through the testimonies of witnesses, such as Mr. Tan, before whom most
of the documents were personally executed by respondent. The original PNs also went
through the whole loan booking system of petitioner Citibank from the account
officer in its Marketing Department, to the pre-processor, to the signature verifier, back
to the pre-processor, then to the processor for booking.[117] The original PNs were seen
by Ms. Dondoyano, the processor, who recorded them in the General Ledger. Mr.
Pujeda personally saw the original MCs, proving respondents receipt of the proceeds of
her loans from petitioner Citibank, when he helped Attys. Cleofe and Fernandez, the
banks legal counsels, to reconstruct the records of respondents loans. The original
MCs were presented to Atty. Cleofe who used the same during the preliminary
investigation of the case, sometime in years 1986-1987. The original MCs were
subsequently turned over to the Control and Investigation Division of petitioner
Citibank.[118]
It was only petitioner FNCB Finance who claimed that they lost the original
copies of the PNs when it moved to a new office. Citibank did not make a similar
contention; instead, it explained that the original copies of the PNs were returned to the
borrower upon liquidation of the loan, either through payment or roll-over. Petitioner
Citibank proffered the excuse that they were still looking for the documents in their
storage or warehouse to explain the delay and difficulty in the retrieval thereof, but not
their absence or loss. The original documents in this case, such as the MCs and letters,
were destroyed and, thus, unavailable for presentation before the RTC only on 7
October 1987, when a fire broke out on the 7thfloor 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.
before this Court, but the transactions are absolutely independent and unrelated to
those in the instant Petition.
In the Dy case, Severino Chua Caedo managed to obtain loans from herein
petitioner Citibank amounting to P7,000,000.00, secured to the extent of P5,000,000.00
by a Third Party Real Estate Mortgage of the properties of Caedos aunt, Rosalind
Dy. It turned out that Rosalind Dy and her husband were unaware of the said loans and
the mortgage of their properties. The transactions were carried out exclusively between
Caedo and Mr. Tan of petitioner Citibank. The RTC found Mr. Tan guilty of fraud for
his participation in the questionable transactions, essentially because he allowed Caedo
to take out the signature cards, when these should have been signed by the Dy spouses
personally before him. Although the Dy spouses signatures in the PNs and Third Party
Real Estate Mortgage were forged, they were approved by the signature verifier since
the signature cards against which they were compared to were also forged. Neither the
RTC nor the Court of Appeals, however, categorically declared Mr. Tan personally
responsible for the forgeries, which, in the narration of the facts, were more likely
committed by Caedo.
In the Petition at bar, respondent dealt with Mr. Tan directly, there was no third
party involved who could have perpetrated any fraud or forgery in her loan
transactions. Although respondent attempted to raise suspicion as to the authenticity of
her signatures on certain documents, these were nothing more than naked allegations
with no corroborating evidence; worse, even her own allegations were replete with
inconsistencies. She could not even establish in what manner or under what
circumstances the fraud or forgery was committed, or how Mr. Tan could have been
directly responsible for the same.
While the Court of Appeals can take judicial notice of the Decision of its Third
Division in the Dy case, it should not have given the said case much weight when it
rendered the assailed Decision, since the former does not constitute a precedent. The
Court of Appeals, in the challenged Decision, did not apply any legal argument or
principle established in the Dy case but, rather, adopted the findings therein of
wrongdoing or misconduct on the part of herein petitioner Citibank and Mr. Tan. Any
finding of wrongdoing or misconduct as against herein petitioners should be made
based on the factual background and pieces of evidence submitted in this case, not
those in another case.
It is apparent that the Court of Appeals took judicial notice of the Dy case not as
a legal precedent for the present case, but rather as evidence of similar acts committed
by petitioner Citibank and Mr. Tan. A basic rule of evidence, however, states that,
Evidence that one did or did not do a certain thing at one time is not admissible to
prove that he did or did not do the same or similar thing at another time; but it may be
received to prove a specific intent or knowledge, identity, plan, system, scheme, habit,
custom or usage, and the like.[120] The rationale for the rule is explained thus
The rule is founded upon reason, public policy, justice and
judicial convenience. The fact that a person has committed the same
or similar acts at some prior time affords, as a general rule, no logical
guaranty that he committed the act in question. This is so because,
subjectively, a mans mind and even his modes of life may change;
and, objectively, the conditions under which he may find himself at a
given time may likewise change and thus induce him to act in a
different way. Besides, if evidence of similar acts are to be invariably
admitted, they will give rise to a multiplicity of collateral issues and
will subject the defendant to surprise as well as confuse the court and
prolong the trial.[121]
The factual backgrounds of the two cases are so different and unrelated that the Dy case
cannot be used to prove specific intent, knowledge, identity, plan, system, scheme, habit,
custom or usage on the part of petitioner Citibank or its officer, Mr. Tan, to defraud
respondent in the present case.
IV
The
liquidation
of
respondents
outstanding
loans were valid in so far as
petitioner Citibank used
respondents savings account
with the bank and her money
market placements with
petitioner FNCB Finance;
but illegal and void in so far
as petitioner Citibank used
respondents dollar accounts
with Citibank-Geneva.
Savings Account with petitioner Citibank
What petitioner Citibank actually did was to exercise its rights to the proceeds
of respondents money market placements with petitioner FNCB Finance by virtue of
the Deeds of Assignment executed by respondent in its favor.
The Court of Appeals did not consider these Deeds of Assignment because of
petitioners failure to produce the original copies thereof in violation of the best
evidence rule. This Court again finds itself in disagreement in the application of the
best evidence rule by the appellate court.
To recall, the best evidence rule, in so far as documentary evidence is
concerned, requires the presentation of the original copy of the document only when
the context thereof is the subject of inquiry in the case. Respondent does not question
the contents of the Deeds of Assignment. While she admitted the existence and
execution of the Deeds of Assignment, dated 2 March 1978 and 9 March 1978, covering
PNs No. 8169 and 8167 issued by petitioner FNCB Finance, she claimed, as defense,
that the loans for which the said Deeds were executed as security, were already
paid. She denied ever executing both Deeds of Assignment, dated 25 August 1978,
covering PNs No. 20138 and 20139. These are again issues collateral to the contents of
the documents involved, which could be proven by evidence other than the original
copies of the said documents.
Moreover, the Deeds of Assignment of the money market placements with
petitioner FNCB Finance were notarized documents, thus, admissible in evidence. Rule
132, Section 30 of the Rules of Court provides that
explained that he could not bring to the RTC the Notarial Registries containing the
original copies of the Deeds of Assignment, because the Department of Justice (DOJ)
Circular No. 97, dated 8 November 1968, prohibits the bringing of original documents
to the courts to prevent the loss of irreplaceable and priceless documents.[128]
Accordingly, this Court gives the Deeds of Assignment grave importance in
establishing the authority given by the respondent to petitioner Citibank to use as
security for her loans her money her market placements with petitioner FNCB Finance,
represented by PNs No. 8167 and 8169, later to be rolled-over as PNs No. 20138 and
20139. These Deeds of Assignment constitute the law between the parties, and the
obligations arising therefrom shall have the force of law between the parties and should
be complied with in good faith.[129] Standard clauses in all of the Deeds provide that
The ASSIGNOR and the ASSIGNEE hereby further agree
as follows:
xxxx
2. In the event the OBLIGATIONS are not paid at
maturity or upon demand, as the case may be, the ASSIGNEE is
fully authorized and empowered to collect and receive the
PLACEMENT (or so much thereof as may be necessary) and apply
the same in payment of the OBLIGATIONS. Furthermore, the
ASSIGNOR agrees that at any time, and from time to time, upon
request by the ASSIGNEE, the ASSIGNOR will promptly execute
and deliver any and all such further instruments and documents as
may be necessary to effectuate this Assignment.
xxxx
5. This Assignment shall be considered as sufficient
authority to FNCB Finance to pay and deliver the PLACEMENT or
so much thereof as may be necessary to liquidate the
OBLIGATIONS, to the ASSIGNEE in accordance with terms and
provisions hereof.[130]
Petitioner Citibank was only acting upon the authority granted to it under the
foregoing Deeds when it finally used the proceeds of PNs No. 20138 and 20139, paid
by petitioner FNCB Finance, to partly pay for respondents outstanding loans. Strictly
speaking, it did not effect a legal compensation or off-set under Article 1278 of the Civil
Code, but rather, it partly extinguished respondents obligations through the application
of the security given by the respondent for her loans. Although the pertinent
documents were entitled Deeds of Assignment, they were, in reality, more of a pledge
by respondent to petitioner Citibank of her credit due from petitioner FNCB Finance
by virtue of her money market placements with the latter. According to Article 2118 of
the Civil Code
ART. 2118. If a credit has been pledged becomes due
before it is redeemed, the pledgee may collect and receive the amount
due. He shall apply the same to the payment of his claim, and deliver
the surplus, should there be any, to the pledgor.
PNs No. 20138 and 20139 matured on 3 September 1979, without them being
redeemed by respondent, so that petitioner Citibank collected from petitioner FNCB
Finance the proceeds thereof, which included the principal amounts and interests
earned by the money market placements, amounting to P1,022,916.66, and applied the
same against respondents outstanding loans, leaving no surplus to be delivered to
respondent.
Dollar accounts with Citibank-Geneva
Despite the legal compensation of respondents savings account and the total
application of the proceeds of PNs No. 20138 and 20139 to respondents outstanding
loans, there still remained a balance of P1,069,847.40. Petitioner Citibank then
proceeded to applying respondents dollar accounts with Citibank-Geneva against her
remaining loan balance, pursuant to a Declaration of Pledge supposedly executed by
respondent in its favor.
Certain principles of private international law should be considered herein
because the property pledged was in the possession of an entity in a foreign country,
namely, Citibank-Geneva. In the absence of any allegation and evidence presented by
petitioners of the specific rules and laws governing the constitution of a pledge in
Geneva, Switzerland, they will be presumed to be the same as Philippine local or
domestic laws; this is known as processual presumption.[131]
Upon closer scrutiny of the Declaration of Pledge, this Court finds the same
exceedingly suspicious and irregular.
First of all, it escapes this Court why petitioner Citibank took care to have the
Deeds of Assignment of the PNs notarized, yet left the Declaration of Pledge
unnotarized. This Court would think that petitioner Citibank would take greater
cautionary measures with the preparation and execution of the Declaration of Pledge
because it involved respondents all present and future fiduciary placements with a
Citibank branch in another country, specifically, in Geneva, Switzerland. While there is
no express legal requirement that the Declaration of Pledge had to be notarized to be
effective, even so, it could not enjoy the same prima facie presumption of due execution
that is extended to notarized documents, and petitioner Citibank must discharge the
burden of proving due execution and authenticity of the Declaration of Pledge.
Second, petitioner Citibank was unable to establish the date when the Declaration
of Pledge was actually executed. The photocopy of the Declaration of Pledge submitted
by petitioner Citibank before the RTC was undated.[132] It presented only a photocopy
of the pledge because it already forwarded the original copy thereof to Citibank-Geneva
when it requested for the remittance of respondents dollar accounts pursuant
thereto. Respondent, on the other hand, was able to secure a copy of the Declaration of
Pledge, certified by an officer of Citibank-Geneva, which bore the date 24 September
1979.[133] Respondent, however, presented her passport and plane tickets to prove that
she was out of the country on the said date and could not have signed the
pledge. Petitioner Citibank insisted that the pledge was signed before 24 September
1979, but could not provide an explanation as to how and why the said date was written
on the pledge. Although Mr. Tan testified that the Declaration of Pledge was signed by
respondent personally before him, he could not give the exact date when the said
signing took place. It is important to note that the copy of the Declaration of Pledge
submitted by the respondent to the RTC was certified by an officer of Citibank-Geneva,
which had possession of the original copy of the pledge. It is dated 24 September 1979,
and this Court shall abide by the presumption that the written document is truly
dated.[134] Since it is undeniable that respondent was out of the country on 24
September 1979, then she could not have executed the pledge on the said date.
Third, the Declaration of Pledge was irregularly filled-out. The pledge was in a
standard printed form. It was constituted in favor of Citibank, N.A., otherwise referred
to therein as the Bank. It should be noted, however, that in the space which should
have named the pledgor, the name of petitioner Citibank was typewritten, to wit
The pledge right herewith constituted shall secure all claims which
the Bank now has or in the future acquires against Citibank, N.A.,
Manila (full name and address of the Debtor), regardless of the legal
cause or the transaction (for example current account, securities
transactions, collections, credits, payments, documentary credits and
collections) which gives rise thereto, and including principal, all
contractual and penalty interest, commissions, charges, and costs.
The pledge, therefore, made no sense, the pledgor and pledgee being the same
entity. Was a mistake made by whoever filled-out the form? Yes, it could be a
possibility. Nonetheless, considering the value of such a document, the mistake as to a
significant detail in the pledge could only be committed with gross carelessness on the
part of petitioner Citibank, and raised serious doubts as to the authenticity and due
execution of the same. The Declaration of Pledge had passed through the hands of
several bank officers in the country and abroad, yet, surprisingly and implausibly, no one
noticed such a glaring mistake.
Lastly, respondent denied that it was her signature on the Declaration of
Pledge. She claimed that the signature was a forgery. When a document is assailed on
the basis of forgery, the best evidence rule applies
Basic is the rule of evidence that when the subject of inquiry
is the contents of a document, no evidence is admissible other than
the original document itself except in the instances mentioned in
Section 3, Rule 130 of the Revised Rules of Court. Mere photocopies
of documents are inadmissible pursuant to the best evidence
rule. This is especially true when the issue is that of forgery.
As a rule, forgery cannot be presumed and must be proved
by clear, positive and convincing evidence and the burden of proof
lies on the party alleging forgery. The best evidence of a forged
signature in an instrument is the instrument itself reflecting the
alleged forged signature. The fact of forgery can only be established
by a comparison between the alleged forged signature and the
authentic and genuine signature of the person whose signature is
theorized upon to have been forged. Without the original document
containing the alleged forged signature, one cannot make a definitive
comparison which would establish forgery. A comparison based on a
mere xerox copy or reproduction of the document under controversy
cannot produce reliable results.[135]
Respondent made several attempts to have the original copy of the pledge
produced before the RTC so as to have it examined by experts. Yet, despite several
Orders by the RTC,[136] petitioner Citibank failed to comply with the production of the
original Declaration of Pledge. It is admitted that Citibank-Geneva had possession of
the original copy of the pledge. While petitioner Citibank in Manila and its branch in
Geneva may be separate and distinct entities, they are still incontestably related, and
between petitioner Citibank and respondent, the former had more influence and
resources to convince Citibank-Geneva to return, albeit temporarily, the original
Declaration of Pledge. Petitioner Citibank did not present any evidence to convince
this Court that it had exerted diligent efforts to secure the original copy of the pledge,
nor did it proffer the reason why Citibank-Geneva obstinately refused to give it back,
when such document would have been very vital to the case of petitioner
Citibank. There is thus no justification to allow the presentation of a mere photocopy
of the Declaration of Pledge in lieu of the original, and the photocopy of the pledge
presented by petitioner Citibank has nil probative value.[137] In addition, even if this
Court cannot make a categorical finding that respondents signature on the original copy
of the pledge was forged, it is persuaded that petitioner Citibank willfully suppressed the
presentation of the original document, and takes into consideration the presumption
that the evidence willfully suppressed would be adverse to petitioner Citibank if
produced.[138]
Without the Declaration of Pledge, petitioner Citibank had no authority to
demand the remittance of respondents dollar accounts with Citibank-Geneva and to
apply them to her outstanding loans. It cannot effect legal compensation under Article
1278 of the Civil Code since, petitioner Citibank itself admitted that Citibank-Geneva is
a distinct and separate entity. As for the dollar accounts, respondent was the creditor
and Citibank-Geneva is the debtor; and as for the outstanding loans, petitioner Citibank
was the creditor and respondent was the debtor. The parties in these transactions were
evidently not the principal creditor of each other.
Therefore, this Court declares that the remittance of respondents dollar accounts
from Citibank-Geneva and the application thereof to her outstanding loans with
petitioner Citibank was illegal, and null and void. Resultantly, petitioner Citibank is
obligated to return to respondent the amount of US$149,632,99 from her CitibankGeneva accounts, or its present equivalent value in Philippine currency; and, at the same
time, respondent continues to be obligated to petitioner Citibank for the balance of her
outstanding loans which, as of 5 September 1979, amounted toP1,069,847.40.
V
No. 20138 and 20139 by virtue of the notarized Deeds of Assignment, to partly
extinguish respondents outstanding loans, it finds that petitioner Citibank did commit
wrong when it failed to pay and properly account for the proceeds of respondents
money market placements, evidenced by PNs No. 23356 and 23357, and when it sought
the remittance of respondents dollar accounts from Citibank-Geneva by virtue of a
highly-suspect Declaration of Pledge to be applied to the remaining balance of
respondents outstanding loans. It bears to emphasize that banking is impressed with
public interest and its fiduciary character requires high standards of integrity and
performance.[141] A bank is under the obligation to treat the accounts of its depositors
with meticulous care whether such accounts consist only of a few hundred pesos or of
millions of pesos.[142] The bank must record every single transaction accurately, down to
the last centavo, and as promptly as possible.[143] Petitioner Citibank evidently failed to
exercise the required degree of care and transparency in its transactions with respondent,
thus, resulting in the wrongful deprivation of her property.
Respondent had been deprived of substantial amounts of her investments and
deposits for more than two decades. During this span of years, respondent had found
herself in desperate need of the amounts wrongfully withheld from her. In her
testimony[144] before the RTC, respondent narrated
Q
By the way Mrs. Witness will you kindly tell us again, you said
before that you are a businesswoman, will you tell us again
what are the businesses you are engaged into [sic]?
Of all the company [sic] that I have, only the Disto Company
that is now operating in California.
Yes sir.
How?
Where?
What else?
A [sic] Of all the businesses and enterprises that you mentioned what
are those that are paralyzed and what remain inactive?
For the mental anguish, serious anxiety, besmirched reputation, moral shock and social
humiliation suffered by the respondent, the award of moral damages is but
proper. However, this Court reduces the amount thereof to P300,000.00, for the award
of moral damages is meant to compensate for the actual injury suffered by the
respondent, not to enrich her.[145]
Having failed to exercise more care and prudence than a private individual in
its dealings with respondent, petitioner Citibank should be liable for exemplary damages,
in the amount of P250,000.00, in accordance with Article 2229[146] and 2234[147] of the
Civil Code.
With the award of exemplary damages, then respondent shall also be entitled to
an award of attorneys fees.[148] Additionally, attorney's fees may be awarded when a
party is compelled to litigate or to incur expenses to protect his interest by reason of an
unjustified act of the other party.[149] In this case, an award of P200,000.00 attorneys
fees shall be satisfactory.
In contrast, this Court finds no sufficient basis to award damages to
petitioners. Respondent was compelled to institute the present case in the exercise of
her rights and in the protection of her interests. In fact, although her Complaint before
the RTC was not sustained in its entirety, it did raise meritorious points and on which
this Court rules in her favor. Any injury resulting from the exercise of ones rights
is damnum absque injuria.[150]
IN VIEW OF THE FOREGOING, the instant Petition is PARTLY
GRANTED. The assailed Decision of the Court of Appeals in CA-G.R. No. 51930,
dated 26 March 2002, as already modified by its Resolution, dated 20 November 2002,
is hereby AFFIRMED WITH MODIFICATION, as follows
1.
PNs No. 23356 and 23357 are DECLARED subsisting and
outstanding. Petitioner Citibank is ORDERED to return to respondent the principal
amounts of the said PNs, amounting to Three Hundred Eighteen Thousand Eight
Hundred Ninety-Seven Pesos and Thirty-Four Centavos (P318,897.34) and Two
Hundred Three Thousand One Hundred Fifty Pesos (P203,150.00), respectively, plus
the stipulated interest of Fourteen and a half percent (14.5%) per annum, beginning 17
March 1977;
2.
The remittance of One Hundred Forty-Nine Thousand Six Hundred
Thirty Two US Dollars and Ninety-Nine Cents (US$149,632.99) from respondents
Citibank-Geneva accounts to petitioner Citibank in Manila, and the application of the
same against respondents outstanding loans with the latter, is DECLARED illegal, null
and void. Petitioner Citibank is ORDERED to refund to respondent the said amount,
or its equivalent in Philippine currency using the exchange rate at the time of payment,
plus the stipulated interest for each of the fiduciary placements and current accounts
involved, beginning 26 October 1979;
3.
Petitioner Citibank is ORDERED to pay respondent moral damages in
the amount of Three Hundred Thousand Pesos (P300,000.00); exemplary damages in
the amount of Two Hundred Fifty Thousand Pesos (P250,000.00); and attorneys fees
in the amount of Two Hundred Thousand Pesos (P200,000.00); and
4.
Respondent is ORDERED to pay petitioner Citibank the balance of
her outstanding loans, which, from the respective dates of their maturity to 5 September
1979, was computed to be in the sum of One Million Sixty-Nine Thousand Eight
Hundred Forty-Seven Pesos and Forty Centavos (P1,069,847.40), inclusive of
interest. These outstanding loans shall continue to earn interest, at the rates stipulated
in the corresponding PNs, from 5 September 1979 until payment thereof.
SO ORDERED.
FERNANDEZ, J.:
The defendant, Jose M. Aruego, appealed to the Court of Appeals from the order of the
Court of First Instance of Manila, Branch XIII, in Civil Case No. 42066 denying his
motion to set aside the order declaring him in default, 1 and from the order of said court
in the same case denying his motion to set aside the judgment rendered after he was
declared in default. 2These two appeals of the defendant were docketed as CA-G.R.
NO. 27734-R and CA-G.R. NO. 27940-R, respectively.
Upon motion of the defendant on July 25, 1960, 3 he was allowed by the Court of
Appeals to file one consolidated record on appeal of CA-G.R. NO. 27734-R and CAG.R. NO. 27940-R. 4
In a resolution promulgated on March 1, 1966, the Court of Appeals, First Division,
certified the consolidated appeal to the Supreme Court on the ground that only
questions of law are involved. 5
On December 1, 1959, the Philippine Bank of Commerce instituted against Jose M.
Aruego Civil Case No. 42066 for the recovery of the total sum of about P35,000.00 with
daily interest thereon from November 17, 1959 until fully paid and commission
equivalent to 3/8% for every thirty (30) days or fraction thereof plus attorney's fees
equivalent to 10% of the total amount due and costs. 6 The complaint filed by the
Philippine Bank of Commerce contains twenty-two (22) causes of action referring to
twenty-two (22) transactions entered into by the said Bank and Aruego on different
dates covering the period from August 28, 1950 to March 14, 1951. 7 The sum sought to
be recovered represents the cost of the printing of "World Current Events," a periodical
published by the defendant. To facilitate the payment of the printing the defendant
obtained a credit accommodation from the plaintiff. Thus, for every printing of the
"World Current Events," the printer, Encal Press and Photo Engraving, collected the
cost of printing by drawing a draft against the plaintiff, said draft being sent later to the
defendant for acceptance. As an added security for the payment of the amounts
advanced to Encal Press and Photo-Engraving, the plaintiff bank also required
defendant Aruego to execute a trust receipt in favor of said bank wherein said defendant
undertook to hold in trust for plaintiff the periodicals and to sell the same with the
promise to turn over to the plaintiff the proceeds of the sale of said publication to
answer for the payment of all obligations arising from the draft. 8
Aruego received a copy of the complaint together with the summons on December 2,
1959. 9 On December 14, 1959 defendant filed an urgent motion for extension of time
to plead, and set the hearing on December 16, 1959. 10 At the hearing, the court denied
defendant's motion for extension. Whereupon, the defendant filed a motion to dismiss
the complaint on December 17, 1959 on the ground that the complaint states no cause
of action because:
a) When the various bills of exchange were presented to the defendant as drawee for
acceptance, the amounts thereof had already been paid by the plaintiff to the drawer
(Encal Press and Photo Engraving), without knowledge or consent of the defendant
drawee.
b) In the case of a bill of exchange, like those involved in the case at bar, the defendant
drawee is an accommodating party only for the drawer (Encal Press and PhotoEngraving) and win be liable in the event that the accommodating party (drawer) fails to
pay its obligation to the plaintiff. 11
The complaint was dismissed in an order dated December 22, 1959, copy of which was
received by the defendant on December 24, 1959. 12
On January 13, 1960, the plaintiff filed a motion for reconsideration. 13 On March 7,
1960, acting upon the motion for reconsideration filed by the plaintiff, the trial court set
aside its order dismissing the complaint and set the case for hearing on March 15, 1960
at 8:00 in the morning. 14 A copy of the order setting aside the order of dismissal was
received by the defendant on March 11, 1960 at 5:00 o'clock in the afternoon according
to the affidavit of the deputy sheriff of Manila, Mamerto de la Cruz. On the following
day, March 12, 1960, the defendant filed a motion to postpone the trial of the case on
the ground that there having been no answer as yet, the issues had not yet been
joined. 15 On the same date, the defendant filed his answer to the complaint interposing
the following defenses: That he signed the document upon which the plaintiff sues in
his capacity as President of the Philippine Education Foundation; that his liability is only
secondary; and that he believed that he was signing only as an accommodation party. 16
On March 15, 1960, the plaintiff filed an ex parte motion to declare the defendant in
default on the ground that the defendant should have filed his answer on March 11,
1960. He contends that by filing his answer on March 12, 1960, defendant was one day
late. 17 On March 19, 1960 the trial court declared the defendant in default. 18 The
defendant learned of the order declaring him in default on March 21, 1960. On March
22, 1960 the defendant filed a motion to set aside the order of default alleging that
although the order of the court dated March 7, 1960 was received on March 11, 1960 at
5:00 in the afternoon, it could not have been reasonably expected of the defendant to
file his answer on the last day of the reglementary period, March 11, 1960, within office
hours, especially because the order of the court dated March 7, 1960 was brought to the
attention of counsel only in the early hours of March 12, 1960. The defendant also
alleged that he has a good and substantial defense. Attached to the motion are the
affidavits of deputy sheriff Mamerto de la Cruz that he served the order of the court
dated March 7, 1960 on March 11, 1960, at 5:00 o'clock in the afternoon and the
affidavit of the defendant Aruego that he has a good and substantial defense. 19 The trial
court denied the defendant's motion on March 25, 1960. 20 On May 6, 1960, the trial
court rendered judgment sentencing the defendant to pay to the plaintiff the sum of
P35,444.35 representing the total amount of his obligation to the said plaintiff under the
twenty-two (22) causes of action alleged in the complaint as of November 15, 1957 and
the sum of P10,000.00 as attorney's fees. 21
On May 9, 1960 the defendant filed a notice of appeal from the order dated March 25,
1961 denying his motion to set aside the order declaring him in default, an appeal bond
in the amount of P60.00, and his record on appeal. The plaintiff filed his opposition to
the approval of defendant's record on appeal on May 13, 1960. The following day, May
14, 1960, the lower court dismissed defendant's appeal from the order dated March 25,
1960 denying his motion to set aside the order of default. 22 On May 19, 1960, the
defendant filed a motion for reconsideration of the trial court's order dismissing his
appeal.23 The plaintiff, on May 20, 1960, opposed the defendant's motion for
reconsideration of the order dismissing appeal. 24 On May 21, 1960, the trial court
reconsidered its previous order dismissing the appeal and approved the defendant's
record on appeal. 25 On May 30, 1960, the defendant received a copy of a notice from
the Clerk of Court dated May 26, 1960, informing the defendant that the record on
appeal filed ed by the defendant was forwarded to the Clerk of Court of Appeals. 26
On June 1, 1960 Aruego filed a motion to set aside the judgment rendered after he was
declared in default reiterating the same ground previously advanced by him in his
motion for relief from the order of default. 27 Upon opposition of the plaintiff filed on
June 3, 1960, 28 the trial court denied the defendant's motion to set aside the judgment
by default in an order of June 11, 1960. 29 On June 20, 1960, the defendant filed his
notice of appeal from the order of the court denying his motion to set aside the
judgment by default, his appeal bond, and his record on appeal. The defendant's record
on appeal was approved by the trial court on June 25, 1960. 30 Thus, the defendant had
two appeals with the Court of Appeals: (1) Appeal from the order of the lower court
denying his motion to set aside the order of default docketed as CA-G.R. NO. 27734-R;
(2) Appeal from the order denying his motion to set aside the judgment by default
docketed as CA-G.R. NO. 27940-R.
In his brief, the defendant-appellant assigned the following errors:
I
THE LOWER COURT ERRED IN HOLDING THAT THE
DEFENDANT WAS IN DEFAULT.
II
THE LOWER COURT ERRED IN ENTERTAINING THE
MOTION TO DECLARE DEFENDANT IN DEFAULT
ALTHOUGH AT THE TIME THERE WAS ALREADY ON
FILE AN ANSWER BY HIM WITHOUT FIRST DISPOSING OF
SAID ANSWER IN AN APPROPRIATE ACTION.
III
THE LOWER COURT ERRED IN DENYING DEFENDANT'S
PETITION FOR RELIEF OF ORDER OF DEFAULT AND
FROM JUDGMENT BY DEFAULT AGAINST DEFENDANT. 31
It has been held that to entitle a party to relief from a judgment taken against him
through his mistake, inadvertence, surprise or excusable neglect, he must show to the
court that he has a meritorious defense. 32 In other words, in order to set aside the order
of default, the defendant must not only show that his failure to answer was due to fraud,
accident, mistake or excusable negligence but also that he has a meritorious defense.
The record discloses that Aruego received a copy of the complaint together with the
summons on December 2, 1960; that on December 17, 1960, the last day for filing his
answer, Aruego filed a motion to dismiss; that on December 22, 1960 the lower court
dismissed the complaint; that on January 23, 1960, the plaintiff filed a motion for
reconsideration and on March 7, 1960, acting upon the motion for reconsideration, the
trial court issued an order setting aside the order of dismissal; that a copy of the order
was received by the defendant on March 11, 1960 at 5:00 o'clock in the afternoon as
shown in the affidavit of the deputy sheriff; and that on the following day, March 12,
1960, the defendant filed his answer to the complaint.
The failure then of the defendant to file his answer on the last day for pleading is
excusable. The order setting aside the dismissal of the complaint was received at 5:00
o'clock in the afternoon. It was therefore impossible for him to have filed his answer on
that same day because the courts then held office only up to 5:00 o'clock in the
afternoon. Moreover, the defendant immediately filed his answer on the following day.
However, while the defendant successfully proved that his failure to answer was due to
excusable negligence, he has failed to show that he has a meritorious defense. The
defendant does not have a good and substantial defense.
Defendant Aruego's defenses consist of the following:
a) The defendant signed the bills of exchange referred to in the plaintiff's complaint in a
representative capacity, as the then President of the Philippine Education Foundation
Company, publisher of "World Current Events and Decision Law Journal," printed by
Encal Press and Photo-Engraving, drawer of the said bills of exchange in favor of the
plaintiff bank;
b) The defendant signed these bills of exchange not as principal obligor, but as
accommodation or additional party obligor, to add to the security of said plaintiff bank.
The reason for this statement is that unlike real bills of exchange, where payment of the
face value is advanced to the drawer only upon acceptance of the same by the drawee, in
the case in question, payment for the supposed bills of exchange were made before
acceptance; so that in effect, although these documents are labelled bills of exchange,
legally they are not bills of exchange but mere instruments evidencing indebtedness of
the drawee who received the face value thereof, with the defendant as only additional
security of the same. 33
The first defense of the defendant is that he signed the supposed bills of exchange as an
agent of the Philippine Education Foundation Company where he is president. Section
20 of the Negotiable Instruments Law provides that "Where the instrument contains or
a person adds to his signature words indicating that he signs for or on behalf of a
principal or in a representative capacity, he is not liable on the instrument if he was duly
authorized; but the mere addition of words describing him as an agent or as filing a
representative character, without disclosing his principal, does not exempt him from
personal liability."
An inspection of the drafts accepted by the defendant shows that nowhere has he
disclosed that he was signing as a representative of the Philippine Education
Foundation Company. 34 He merely signed as follows: "JOSE ARUEGO (Acceptor)
(SGD) JOSE ARGUEGO For failure to disclose his principal, Aruego is personally
liable for the drafts he accepted.
The defendant also contends that he signed the drafts only as an accommodation party
and as such, should be made liable only after a showing that the drawer is incapable of
paying. This contention is also without merit.
An accommodation party is one who has signed the instrument as maker, drawer,
indorser, without receiving value therefor and for the purpose of lending his name to
some other person. Such person is liable on the instrument to a holder for value,
notwithstanding such holder, at the time of the taking of the instrument knew him to be
only an accommodation party. 35 In lending his name to the accommodated party, the
accommodation party is in effect a surety for the latter. He lends his name to enable the
accommodated party to obtain credit or to raise money. He receives no part of the
consideration for the instrument but assumes liability to the other parties thereto
because he wants to accommodate another. In the instant case, the defendant signed as
a drawee/acceptor. Under the Negotiable Instrument Law, a drawee is primarily liable.
Thus, if the defendant who is a lawyer, he should not have signed as an
acceptor/drawee. In doing so, he became primarily and personally liable for the drafts.
The defendant also contends that the drafts signed by him were not really bills of
exchange but mere pieces of evidence of indebtedness because payments were made
before acceptance. This is also without merit. Under the Negotiable Instruments Law, a
bill of exchange is an unconditional order in writting addressed by one person to
another, signed by the person giving it, requiring the person to whom it is addressed to
pay on demand or at a fixed or determinable future time a sum certain in money to
order or to bearer. 36 As long as a commercial paper conforms with the definition of a
bill of exchange, that paper is considered a bill of exchange. The nature of acceptance is
important only in the determination of the kind of liabilities of the parties involved, but
not in the determination of whether a commercial paper is a bill of exchange or not.
It is evident then that the defendant's appeal can not prosper. To grant the defendant's
prayer will result in a new trial which will serve no purpose and will just waste the time
of the courts as well as of the parties because the defense is nil or ineffective. 37
WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court of First
Instance of Manila denying the petition for relief from the judgment rendered in said
case is hereby affirmed, without pronouncement as to costs.
SO ORDERED.
P 18,480,000.00
27,720.00
300.00
P
28,020.00
Petitioner BPI received the Assessment, together with the attached Assessment
Notice,[4] on 20 October 1989.
JR.[5]
PADILLA
LAW
By:
(signed)
SABINO PADILLA,
Petitioner BPI did not receive any immediate reply to its protest
letter. However, on 15 October 1992, the BIR issued a Warrant of Distraint and/or
Levy[6] against petitioner BPI for the assessed deficiency DST for taxable year 1985,
in the amount of P27,720.00 (excluding the compromise penalty of P300.00). It
served the Warrant on petitioner BPI only on 23 October 1992.[7]
Then again, petitioner BPI did not hear from the BIR until 11 September
1997, when its counsel received a letter, dated 13 August 1997, signed by then BIR
Commissioner Liwayway Vinzons-Chato, denying its request for reconsideration,
and addressing the points raised by petitioner BPI in its protest letter, dated 16
November 1989, thus
In reply, please be informed that after a thorough and
careful study of the facts of the case as well as the law and
jurisprudence pertinent thereto, this Office finds the above argument
to be legally untenable. It is admitted that while industry practice or
market convention has the force of law between the members of a
particular industry, it is not binding with the BIR since it is not a
party thereto. The same should, therefore, not be allowed to
prejudice the Bureau of its lawful task of collecting revenues
necessary to defray the expenses of the government. (Art. 11 in
relation to Art. 1306 of the New Civil Code.)
Moreover, let it be stated that even before the amendment
of Sec. 222 (now Sec. 173) of the Tax Code, as amended, the same
was already interpreted to hold that the other party who is not
exempt from the payment of documentary stamp tax liable from the
tax. This interpretation was further strengthened by the following
BIR Rulings which in substance state:
1.
Upon receipt of the above-cited letter from the BIR, petitioner BPI
proceeded to file a Petition for Review with the CTA on 10 October 1997; [9] to
which respondent BIR Commissioner, represented by the Office of the Solicitor
General, filed an Answer on 08 December 1997.[10]
Petitioner BPI raised in its Petition for Review before the CTA, in addition
to the arguments presented in its protest letter, dated 16 November 1989, the
defense of prescription of the right of respondent BIR Commissioner to enforce
collection of the assessed amount. It alleged that respondent BIR Commissioner
only had three years to collect on Assessment No. FAS-5-85-89-002054, but she
waited for seven years and nine months to deny the protest. In her Answer and
subsequent Memorandum, respondent BIR Commissioner merely reiterated her
position, as stated in her letter to petitioner BPI, dated 13 August 1997, which
denied the latters protest; and remained silent as to the expiration of the
prescriptive period for collection of the assessed deficiency DST.
After due trial, the CTA rendered a Decision on 02 February 1999, in
which it identified two primary issues in the controversy between petitioner BPI and
respondent BIR Commissioner: (1) whether or not the right of respondent BIR
Commissioner to collect from petitioner BPI the alleged deficiency DST for taxable
year 1985 had prescribed; and (2) whether or not the sales of US$1,000,000.00 on 06
June 1985 and 14 June 1985 by petitioner BPI to the Central Bank were subject to
DST.
The CTA answered the first issue in the negative and held that the statute
of limitations for respondent BIR Commissioner to collect on the Assessment had
not yet prescribed. In resolving the issue of prescription, the CTA reasoned that
In the case of Commissioner of Internal Revenue vs.
Wyeth Suaco Laboratories, Inc., G.R. No. 76281, September 30,
1991, 202 SCRA 125, the Supreme Court laid to rest the first issue. It
categorically ruled that a protest is to be treated as request for
reinvestigation or reconsideration and a mere request for
reexamination or reinvestigation tolls the prescriptive period of the
Commissioner to collect on an assessment. . .
...
In the case at bar, there being no dispute that petitioner
filed its protest on the subject assessment on November 17, 1989,
there can be no conclusion other than that said protest stopped the
running of the prescriptive period of the Commissioner to collect.
Section 320 (now 223) of the Tax Code, clearly states that a
request for reinvestigation which is granted by the Commissioner,
shall suspend the prescriptive period to collect. The underscored
portion above does not mean that the Commissioner will cancel the
subject assessment but should be construed as when the same was
entertained by the Commissioner by not issuing any warrant of
distraint or levy on the properties of the taxpayer or any action
prejudicial to the latter unless and until the request for reinvestigation
is finally given due course. Taking into consideration this provision
of law and the aforementioned ruling of the Supreme Court in Wyeth
Suaco which specifically and categorically states that a protest could be
In sum, the CTA decided that the statute of limitations for respondent BIR
Commissioner to collect on Assessment No. FAS-5-85-89-002054 had not yet
prescribed; nonetheless, it still ordered the cancellation of the said Assessment
because the sales of foreign currency by petitioner BPI to the Central Bank in
taxable year 1985 were tax-exempt.
Herein respondent BIR Commissioner appealed the Decision of the CTA
to the Court of Appeals. In its Decision dated 11 August 1999,[14]the Court of
Appeals sustained the finding of the CTA on the first issue, that the running of the
prescriptive period for collection on Assessment No. FAS-5-85-89-002054 was
suspended when herein petitioner BPI filed a protest on 17 November 1989 and,
therefore, the prescriptive period for collection on the Assessment had not yet
lapsed. In the same Decision, however, the Court of Appeals reversed the CTA on
the second issue and basically adopted the position of the respondent BIR
Commissioner that the sales of foreign currency by petitioner BPI to the Central
Bank in taxable year 1985 were subject to DST. The Court of Appeals, thus,
ordered the reinstatement of Assessment No. FAS-5-85-89-002054 which required
petitioner BPI to pay the amount of P28,020.00 as deficiency DST for taxable year
1985, inclusive of the compromise penalty.
Comes now petitioner BPI before this Court in this Petition for Review
on Certiorari, seeking resolution of the same two legal issues raised and discussed in
the courts below, to reiterate: (1) whether or not the right of respondent BIR
Commissioner to collect from petitioner BPI the alleged deficiency DST for taxable
year 1985 had prescribed; and (2) whether or not the sales of US$1,000,000.00 on 06
June 1985 and 14 June 1985 by petitioner BPI to the Central Bank were subject to
DST.
I
The efforts of respondent Commissioner to collect on Assessment No. FAS-5-8589-002054 were already barred by prescription.
The period for the BIR to assess and collect an internal revenue tax is
limited to three years by Section 203 of the Tax Code of 1977, as amended,[15] which
provides that
SEC. 203. Period of limitation upon assessment and collection.
Except as provided in the succeeding section, internal revenue taxes
shall be assessed within three years after the last day prescribed by
law for the filing of the return, and no proceeding in court without
assessment for the collection of such taxes shall be begun after the
expiration of such period: Provided, That in a case where a return is
filed beyond the period prescribed by law, the three-year period shall
be counted from the day the return was filed. For the purposes of
this section, a return filed before the last day prescribed by law for
the filing thereof shall be considered as filed on such last day.[16]
(c) Any internal revenue tax which has been assessed within
the period of limitation above-prescribed may be collected by
distraint or levy or by a proceeding in court within three years
following the assessment of the tax.
(d) Any internal revenue tax which has been assessed within
the period agreed upon as provided in paragraph (b) hereinabove may
be collected by distraint or levy or by a proceeding in court within the
period agreed upon in writing before the expiration of the three-year
period. The period so agreed upon may be extended by subsequent
written agreements made before the expiration of the period
previously agreed upon.
(e) Provided, however, That nothing in the immediately
preceding section and paragraph (a) hereof shall be construed to
authorize the examination and investigation or inquiry into any tax
returns filed in accordance with the provisions of any tax amnesty law
or decree.[17]
SEC. 224. Suspension of running of statute. The running of
the statute of limitation provided in Section[s] 203 and 223 on the
making of assessment and the beginning of distraint or levy or a
proceeding in court for collection, in respect of any deficiency, shall
be suspended for the period during which the Commissioner is
prohibited from making the assessment or beginning distraint or levy
or a proceeding in court and for sixty days thereafter; when the
taxpayer requests for a reinvestigation which is granted by the
Commissioner; when the taxpayer cannot be located in the address
given by him in the return filed upon which a tax is being assessed or
collected: Provided, That, if the taxpayer informs the Commissioner of
any change in address, the running of the statute of limitations will
not be suspended; when the warrant of distraint and levy is duly
served upon the taxpayer, his authorized representative, or a member
of his household with sufficient discretion, and no property could be
located; and when the taxpayer is out of the Philippines.[18]
internal revenue tax or to begin a court proceeding for the collection thereof
without an assessment. In case of a false or fraudulent return with intent to evade
tax or the failure to file any return at all, the prescriptive period for assessment of
the tax due shall be 10 years from discovery by the BIR of the falsity, fraud, or
omission. When the BIR validly issues an assessment, within either the three-year or
ten-year period, whichever is appropriate, then the BIR has another three
years[19] after the assessment within which to collect the national internal revenue tax
due thereon by distraint, levy, and/or court proceeding. The assessment of the tax
is deemed made and the three-year period for collection of the assessed tax begins to
run on the date the assessment notice had been released, mailed or sent by the BIR
to the taxpayer.[20]
tax, because it may only be upon the service of the Warrant that the taxpayer is
informed of the denial by the BIR of any pending protest of the said taxpayer, and
the resolute intention of the BIR to collect the tax assessed.
If the service of the Warrant of Distraint and/or Levy on petitioner BPI on
23 October 1992 was already beyond the prescriptive period for collection of the
deficiency DST, which had expired on 19 October 1992, then what more the letter
of respondent BIR Commissioner, dated 13 August 1997 and received by the
counsel of the petitioner BPI only on 11 September 1997, denying the protest of
petitioner BPI and requesting payment of the deficiency DST? Even later and more
unequivocally barred by prescription on collection was the demand made by
respondent BIR Commissioner for payment of the deficiency DST in her Answer to
the Petition for Review of petitioner BPI before the CTA, filed on 08 December
1997.[23]
II
There is no valid ground for the suspension of the running of the prescriptive period
for collection of the assessed DST under the Tax Code of 1977, as amended.
In their Decisions, both the CTA and the Court of Appeals found that the
filing by petitioner BPI of a protest letter suspended the running of the prescriptive
period for collecting the assessed DST. This Court, however, takes the opposing
view, and, based on the succeeding discussion, concludes that there is no valid
ground for suspending the running of the prescriptive period for collection of the
deficiency DST assessed against petitioner BPI.
A.
The statute of limitations on assessment and collection of taxes is for the protection of the
taxpayer and, thus, shall be construed liberally in his favor.
Though the statute of limitations on assessment and collection of national
internal revenue taxes benefits both the Government and the taxpayer, it principally
intends to afford protection to the taxpayer against unreasonable investigation. The
indefinite extension of the period for assessment is unreasonable because it deprives
the said taxpayer of the assurance that he will no longer be subjected to further
investigation for taxes after the expiration of a reasonable period of time. [24] As
aptly explained in Republic of the Philippines v. Ablaza[25]
The statute of limitations on assessment and collection of national internal revenue taxes may be
waived, subject to certain conditions, under paragraphs (b) and (d) of Section 223 of the Tax
Code of 1977, as amended, respectively. Petitioner BPI, however, did not execute any such
waiver in the case at bar.
According to paragraphs (b) and (d) of Section 223 of the Tax Code of
1977, as amended, the prescriptive periods for assessment and collection of national
internal revenue taxes, respectively, could be waived by agreement, to wit
SEC. 223. Exceptions as to period of limitation of assessment and
collection of taxes.
...
This Court had consistently ruled in a number of cases that a request for
reconsideration or reinvestigation by the taxpayer, without a valid waiver of the
prescriptive periods for the assessment and collection of tax, as required by the Tax
Code and implementing rules, will not suspend the running thereof.[29]
In the Petition at bar, petitioner BPI executed no such waiver of the statute
of limitations on the collection of the deficiency DST per Assessment No. FAS-585-89-002054. In fact, an internal memorandum of the Chief of the Legislative,
Ruling & Research Division of the BIR to her counterpart in the Collection
Enforcement Division, dated 15 October 1992, expressly noted that, The taxpayer
fails to execute a Waiver of the Statute of Limitations extending the period of
collection of the said tax up to December 31, 1993 pending reconsideration of its
protest. . .[30] Without a valid waiver, the statute of limitations on collection by the
BIR of the deficiency DST could not have been suspended under paragraph (d) of
Section 223 of the Tax Code of 1977, as amended.
C.
The protest filed by petitioner BPI did not constitute a request for reinvestigation, granted by the
respondent BIR Commissioner, which could have suspended the running of the statute of
limitations on collection of the assessed deficiency DST under Section 224 of the Tax Code
of 1977, as amended.
The Tax Code of 1977, as amended, also recognizes instances when the
running of the statute of limitations on the assessment and collection of national
internal revenue taxes could be suspended, even in the absence of a waiver, under
Section 224 thereof, which reads
SEC. 224. Suspension of running of statute. The running of
the statute of limitation provided in Section[s] 203 and 223 on the
making of assessment and the beginning of distraint or levy or a
proceeding in court for collection, in respect of any deficiency, shall
be suspended for the period during which the Commissioner is
prohibited from making the assessment or beginning distraint or levy
or a proceeding in court and for sixty days thereafter; when the
taxpayer requests for a reinvestigation which is granted by the
Commissioner; when the taxpayer cannot be located in the address
given by him in the return filed upon which a tax is being assessed or
collected: Provided, That, if the taxpayer informs the Commissioner of
any change in address, the running of the statute of limitations will
not be suspended; when the warrant of distraint and levy is duly
served upon the taxpayer, his authorized representative, or a member
reinvestigation, the two types of protest can no longer be used interchangeably and
their differences so lightly brushed aside. It bears to emphasize that under Section
224 of the Tax Code of 1977, as amended, the running of the prescriptive period for
collection of taxes can only be suspended by a request for reinvestigation, not a
request for reconsideration. Undoubtedly, a reinvestigation, which entails the
reception and evaluation of additional evidence, will take more time than a
reconsideration of a tax assessment, which will be limited to the evidence already at
hand; this justifies why the former can suspend the running of the statute of
limitations on collection of the assessed tax, while the latter can not.
The protest letter of petitioner BPI, dated 16 November 1989 and filed
with the BIR the next day, on 17 November 1989, did not specifically request for
either a reconsideration or reinvestigation. A close review of the contents thereof
would reveal, however, that it protested Assessment No. FAS-5-85-89-002054 based
on a question of law, in particular, whether or not petitioner BPI was liable for DST
on its sales of foreign currency to the Central Bank in taxable year 1985. The same
protest letter did not raise any question of fact; neither did it offer to present any
new evidence. In its own letter to petitioner BPI, dated 10 September 1992, the BIR
itself referred to the protest of petitioner BPI as a request for
reconsideration.[32] These considerations would lead this Court to deduce that the
protest letter of petitioner BPI was in the nature of a request for reconsideration,
rather than a request for reinvestigation and, consequently, Section 224 of the Tax
Code of 1977, as amended, on the suspension of the running of the statute of
limitations should not apply.
Even if, for the sake of argument, this Court glosses over the distinction
between a request for reconsideration and a request for reinvestigation, and
considers the protest of petitioner BPI as a request for reinvestigation, the filing
thereof could not have suspended at once the running of the statute of
limitations. Article 224 of the Tax Code of 1977, as amended, very plainly requires
that the request for reinvestigationhad been granted by the BIR
Commissioner to suspend the running of the prescriptive periods for assessment
and collection.
That the BIR Commissioner must first grant the request for reinvestigation
as a requirement for suspension of the statute of limitations is even supported by
existing jurisprudence.
In the case of Republic of the Philippines v. Gancayco,[33] taxpayer Gancayco
requested for a thorough reinvestigation of the assessment against him and placed at
the disposal of the Collector of Internal Revenue all the evidences he had for such
purpose; yet, the Collector ignored the request, and the records and documents were
not at all examined. Considering the given facts, this Court pronounced that
The burden of proof that the taxpayers request for reinvestigation had
been actually granted shall be on respondent BIR Commissioner. The grant may be
expressed in communications with the taxpayer or implied from the actions of the
respondent BIR Commissioner or his authorized BIR representatives in response to
the request for reinvestigation.
In Querol v. Collector of Internal Revenue,[36] the BIR, after receiving the protest
letters of taxpayer Querol, sent a tax examiner to San Fernando, Pampanga, to
conduct the reinvestigation; as a result of which, the original assessment against
taxpayer Querol was revised by permitting him to deduct reasonable
depreciation. In another case, Republic of the Philippines v. Lopez,[37] taxpayer Lopez
filed a total of four petitions for reconsideration and reinvestigation. The first
petition was denied by the BIR. The second and third petitions were granted by the
BIR and after each reinvestigation, the assessed amount was reduced. The fourth
petition was again denied and, thereafter, the BIR filed a collection suit against
taxpayer Lopez. When the taxpayers spouses Sison, in Commissioner of Internal Revenue
v. Sison,[38] contested the assessment against them and asked for a reinvestigation, the
BIR ordered the reinvestigation resulting in the issuance of an amended
assessment. Lastly, in Republic of the Philippines v. Oquias,[39] the BIR granted taxpayer
Oquiass request for reinvestigation and duly notified him of the date when such
reinvestigation would be held; only, neither taxpayer Oquias nor his counsel
appeared on the given date.
In all these cases, the request for reinvestigation of the assessment filed by
the taxpayer was evidently granted and actual reinvestigation was conducted by the
BIR, which eventually resulted in the issuance of an amended assessment. On the
basis of these facts, this Court ruled in the same cases that the period between the
request for reinvestigation and the revised assessment should be subtracted from the
total prescriptive period for the assessment of the tax; and, once the assessment had
been reconsidered at the taxpayers instance, the period for collection should begin
to run from the date of the reconsidered or modified assessment.[40]
The rulings of the foregoing cases do not apply to the present Petition
because: (1) the protest filed by petitioner BPI was a request for reconsideration, not
a reinvestigation, of the assessment against it; and (2) even granting that the protest
of petitioner BPI was a request for reinvestigation, there was no showing that it was
granted by respondent BIR Commissioner and that actual reinvestigation had been
conducted.
Going back to the administrative records of the present case, it would seem
that the BIR, after receiving a copy of the protest letter of petitioner BPI on 17
November 1989, did not attempt to communicate at all with the latter until 10
September 1992, less than a month before the prescriptive period for collection on
Assessment No. FAS-5-85-89-002054 was due to expire. There were internal
communications, mostly indorsements of the docket of the case from one BIR
division to another; but these hardly fall within the same sort of acts in the
previously discussed cases that satisfactorily demonstrated the grant of the taxpayers
request for reinvestigation. Petitioner BPI, in the meantime, was left in the dark as
to the status of its protest in the absence of any word from the BIR. Besides, in its
letter to petitioner BPI, dated 10 September 1992, the BIR unwittingly admitted that
it had not yet acted on the protest of the former
A.
The only exception to the statute of limitations on collection of taxes, other than those already
provided in the Tax Code, was recognized in the Suyoc case.
As had been previously discussed herein, the statute of limitations on
assessment and collection of national internal revenue taxes may be suspended if the
taxpayer executes a valid waiver thereof, as provided in paragraphs (b) and (d) of
Section 223 of the Tax Code of 1977, as amended; and in specific instances
enumerated in Section 224 of the same Code, which include a request for
reinvestigation granted by the BIR Commissioner. Outside of these statutory
provisions, however, this Court also recognized one other exception to the statute
of limitations on collection of taxes in the case of Collector of Internal Revenue v. Suyoc
Consolidated Mining Co.[43]
In the said case, the Collector of Internal Revenue issued an assessment
against taxpayer Suyoc Consolidated Mining Co. on 11 February 1947 for deficiency
income tax for the taxable year 1941. Taxpayer Suyoc requested for at least a year
within which to pay the amount assessed, but at the same time, reserving its right to
question the correctness of the assessment before actual payment. The Collector
granted taxpayer Suyoc an extension of only three months to pay the assessed
tax. When taxpayer Suyoc failed to pay the assessed tax within the extended period,
the Collector sent it a demand letter, dated 28 November 1950. Upon receipt of the
demand letter, taxpayer Suyoc asked for a reinvestigation and reconsideration of the
assessment, but the Collector denied the request. Taxpayer Suyoc reiterated its
request for reconsideration on 25 April 1952, which was denied again by the
Collector on 06 May 1953. Taxpayer Suyoc then appealed the denial to the
Conference Staff. The Conference Staff heard the appeal from 02 September 1952
to 16 July 1955, and the negotiations resulted in the reduction of the assessment on
26 July 1955. It was the collection of the reduced assessment that was questioned
before this Court for being enforced beyond the prescriptive period.[44]
In resolving the issue on prescription, this Court ratiocinated thus
It is obvious from the foregoing that petitioner refrained
from collecting the tax by distraint or levy or by proceeding in court
within the 5-year period from the filing of the second amended final
return due to the several requests of respondent for extension to
which petitioner yielded to give it every opportunity to prove its
claim regarding the correctness of the assessment. Because of such
requests, several reinvestigations were made and a hearing was even
By the principle of estoppel, taxpayer Suyoc was not allowed to raise the defense of
prescription against the efforts of the Government to collect the tax assessed against
it. This Court adopted the following principle from American jurisprudence: He who
prevents a thing from being done may not avail himself of the nonperformance which
he has himself occasioned, for the law says to him in effect this is your own act, and
therefore you are not damnified.[46]
In the Suyoc case, this Court expressly conceded that a mere request for
reconsideration or reinvestigation of an assessment may not suspend the running of the
statute of limitations. It affirmed the need for a waiver of the prescriptive period in
order to effect suspension thereof. However, even without such waiver, the taxpayer
may be estopped from raising the defense of prescription because by his repeated
requests or positive acts, he had induced Government authorities to delay collection of
the assessed tax.
Based on the foregoing, petitioner BPI contends that the declaration made in the
later case of Wyeth Suaco, that the statute of limitations on collection is suspended once
the taxpayer files a request for reconsideration or reinvestigation, runs counter to the
ruling made by this Court in theSuyoc case.
B.
Although this Court is not compelled to abandon its decision in the Wyeth Suaco case, it finds
that Wyeth Suaco is not applicable to the Petition at bar because of the distinct facts involved
herein.
In the case of Wyeth Suaco, taxpayer Wyeth Suaco was assessed for failing to remit
withholding taxes on royalties and dividend declarations, as well as, for deficiency sales
tax. The BIR issued two assessments, dated 16 December 1974 and 17 December 1974,
both received by taxpayer Wyeth Suaco on 19 December 1974. Taxpayer Wyeth Suaco,
through its tax consultant, SGV & Co., sent to the BIR two letters, dated 17 January
1975 and 08 February 1975, protesting the assessments and requesting their cancellation
or withdrawal on the ground that said assessments lacked factual or legal basis. On 12
September 1975, the BIR Commissioner advised taxpayer Wyeth Suaco to avail itself of
the compromise settlement being offered under Letter of Instruction No.
308. Taxpayer Wyeth Suaco manifested its conformity to paying a compromise amount,
but subject to certain conditions; though, apparently, the said compromise amount was
never paid. On 10 December 1979, the BIR Commissioner rendered a decision
reducing the assessment for deficiency withholding tax against taxpayer Wyeth Suaco,
but maintaining the assessment for deficiency sales tax. It was at this point when
taxpayer Wyeth Suaco brought its case before the CTA to enjoin the BIR from
enforcing the assessments by reason of prescription. Although the CTA decided in
favor of taxpayer Wyeth Suaco, it was reversed by this Court when the case was brought
before it on appeal. According to the decision of this Court
Settled is the rule that the prescriptive period provided by
law to make a collection by distraint or levy or by a proceeding in
court is interrupted once a taxpayer requests for reinvestigation or
reconsideration of the assessment. . .
...
Although the protest letters prepared by SGV & Co. in
behalf of private respondent did not categorically state or use the
words reinvestigation and reconsideration, the same are to be
treated as letters of reinvestigation and reconsideration
not be express, but may be implied from the acts of the BIR Commissioner or
authorized BIR officials in response to the request for reinvestigation.[51]
This Court found in the Wyeth Suaco case that the BIR actually conducted a
reinvestigation, in accordance with the request of the taxpayer Wyeth Suaco, which
resulted in the reduction of the assessment originally issued against it. Taxpayer
Wyeth Suaco was also aware that its request for reinvestigation was granted, as
written by its Finance Manager in a letter dated 01 July 1975, addressed to the Chief
of the Tax Accounts Division, wherein he admitted that, [a]s we understand, the
matter is now undergoing review and consideration by your Manufacturing Audit
Division The statute of limitations on collection, then, started to run only upon
the issuance and release of the reduced assessment.
The Wyeth Suaco case, therefore, is correct in declaring that the prescriptive
period for collection is interrupted or suspended when the taxpayer files a request
for reinvestigation, provided that, as clarified and qualified herein, such request is
granted by the BIR Commissioner.
Thus, this Court finds no compelling reason to abandon its decision in
the Wyeth Suaco case. It also now rules that the said case is not applicable to the Petition
at bar because of the distinct facts involved herein. As already heretofore determined
by this Court, the protest filed by petitioner BPI was a request for reconsideration,
which merely required a review of existing evidence and the legal basis for the
assessment. Respondent BIR Commissioner did not require, neither did petitioner BPI
offer, additional evidence on the matter. After petitioner BPI filed its request for
reconsideration, there was no other communication between it and respondent BIR
Commissioner or any of the authorized representatives of the latter. There was no
showing that petitioner BPI was informed or aware that its request for reconsideration
was granted or acted upon by the BIR.
IV
Conclusion
To summarize all the foregoing discussion, this Court lays down the following
rules on the exceptions to the statute of limitations on collection.
The statute of limitations on collection may only be interrupted or suspended
by a valid waiver executed in accordance with paragraph (d) of Section 223 of the Tax
Code of 1977, as amended, and the existence of the circumstances enumerated in
Section 224 of the same Code, which include a request for reinvestigation granted by
the BIR Commissioner.
SO ORDERED.
DECISION
CORONA, J.:
In this petition for review on certiorari under Rule 45, petitioner submits that the Court
of Appeals (CA) erred in annulling and setting aside the Regional Trial Court (RTC)
decision on the ground of extrinsic fraud.
The facts follow.1
Respondent allegedly took out a loan of P409,000 from petitioner. To secure the loan,
respondent issued petitioner an Asian Bank Corporation (ABC) check (Check No. AYA
020195) in the amount of P325,500 dated February 8, 1994. The date was later changed
to June 8, 1994 with the consent and concurrence of petitioner.
The check was, however, dishonored due to a material alteration when petitioner
deposited the check on due date. On August 24, 1994, respondent, through her
representative Emily P. Abojada, remitted P235,000 to petitioner as partial payment of
the loan. The balance of P174, 000 was due on or before December 8, 1994.
On August 24, 1994, however, petitioner filed an action for a sum of money and
damages (Civil Case No. Q-94-21495) against ABC for the full amount of the
dishonored check. And in a decision dated May 23, 1997, the RTC of Quezon City,
Branch 101 ruled in his favor.2 When respondent went to ABC Salcedo Village Branch
on June 30, 1997 to withdraw money from her account, she was unable to do so
because the trial court had ordered ABC to pay petitioner the value of respondents
ABC check.
On August 25, 1997, ABC remitted to the sheriff a managers check amounting
to P325,500 drawn on respondents account. The check was duly received by petitioner
on the same date.
Respondent then filed a petition in the CA seeking to annul and set aside the trial
courts decision ordering ABC to pay petitioner the value of the ABC check. 3 The CA
ruled:
WHEREFORE, premises considered, the petition is GRANTED and the
Decision dated May 23, 1997 of the public respondent is
hereby ANNULLED and SET ASIDE for extrinsic fraud.
[Petitioner] Villanueva is hereby ordered to pay [Nite]
1) the sum of [P146,500] as actual damages plus interest at 12% per annum
from August 25, 1997 until full payment;
2) the sum of [P75,000] as moral damages;
3) the sum of [P50,000] as exemplary damages; and
4) the sum of [P50,000] as attorneys fees and cost of suit.
SO ORDERED.4
Thus, this petition. We find for respondent.
Annulment of judgment is a remedy in law independent of the case where the judgment
sought to be annulled is promulgated. It can be filed by one who was not a party to the case in
which the assailed judgment was rendered. Section 1 of Rule 47 provides:
Section 1. Coverage. This Rule shall govern the annulment by the Court of
Appeals of judgments or final orders and resolutions in civil actions of
Regional Trial Courts for which the ordinary remedies of new trial, appeal,
petition for relief or other appropriate remedies are no longer available
through no fault of the petitioner.
Respondent may avail of the remedy of annulment of judgment under Rule 47. The
ordinary remedies of new trial, appeal and petition for relief were not available to her for the simple
reason that she was not made a party to the suit against ABC.Thus, she was neither able to participate
in the original proceedings nor resort to the other remedies because the case was filed when she was
abroad.
joinder of all necessary parties where possible, and the joinder of all
indispensable parties under any and all conditions, their presence being sine qua
non for the exercise of judicial power. It is precisely "when an indispensable
party is not before the court (that) the action should be dismissed." The
absence of an indispensable party renders all subsequent actions of the court
null and void for want of authority to act, not only as to the absent parties but
even as to those present.
WHEREFORE, the petition is hereby DENIED. The decision of the Court of
Appeals in CA-G.R. SP No. 44971 isAFFIRMED in toto.
Costs against petitioner.
SO ORDERED.