11th Wave ObliCon Cases

96
SUPREME COURT REPORTS ANNOTATED
Barons Marketing Corp. vs. Court of Appeals
G.R. No. 126486. February 9, 1998.*
BARONS MARKETING CORP., petitioner, vs. COURT OF APPEALS and PHELPS DODGE PHILS., INC.,
respondents.
Actions; Damages; It is an elementary rule that good faith is presumed and that the burden of proving
bad faith rests upon the party alleging the same.—The question, therefore, is whether private
respondent intended to prejudice or injure petitioner when it rejected petitioner’s offer and filed the
action for collection. We hold in the negative. It is an elementary rule in this jurisdiction that good faith
is presumed and that the burden of proving bad faith rests upon the party alleging the same. In the case
at bar, petitioner has failed to prove bad faith on the part of private respondent. Petitioner’s allegation
that private respondent was motivated by a desire to terminate its agency relationship with petitioner
so that private respondent itself may deal directly with Meralco is simply not supported by the evidence.
At most, such supposition is merely speculative.
Same; Same; A person who, in exercising his rights, does not act in an abusive manner is not deemed to
have acted in a manner contrary to morals, good customs or public policy as to violate the provisions of
Article 21 of the Civil Code.—Moreover, we find that private respondent was driven by very legitimate
reasons for rejecting petitioner’s offer and instituting the action for collection before the trial court. As
pointed out by private respondent, the corporation had its own “cash position to protect in order for it
to pay its own obligations.” This is not such “a lame and poor rationalization” as petitioner purports it to
be. For if private respondent were to be required to accept petitioner’s offer, there would be no reason
for the
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* THIRD DIVISION.
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VOL. 286, FEBRUARY 9, 1998
97

latter to reject similar offers from its other debtors. Clearly, this would be inimical to the interests of any
enterprise, especially a profit-oriented one like private respondent. It is plain to see that what we have
here is a mere exercise of rights, not an abuse thereof. Under these circumstances, we do not deem
private respondent to have acted in a manner contrary to morals, good customs or public policy as to
violate the provisions of Article 21 of the Civil Code.
Contracts; Principle of Autonomy of Contracts; Since a contract has the force of law between the parties,
each is bound to fulfill what has been expressly stipulated therein.—It may not be amiss to state that
petitioner’s contract with private respondent has the force of law between them. Petitioner is thus
bound to fulfill what has been expressly stipulated therein. In the absence of any abuse of right, private
respondent cannot be allowed to perform its obligation under such contract in parts. Otherwise, private
respondent’s right under Article 1248 will be negated, the sanctity of its contract with petitioner defiled.
The principle of autonomy of contracts must be respected.
Same; Penalty Clauses; Attorney’s Fees; The attorneys’ fees so provided in penal clauses are awarded in
favor of the litigant, not his counsel, and it is the litigant, not counsel, who is the judgment creditor
entitled to enforce the judgment by execution.—Petitioner nevertheless urges this Sourt to reduce the
attorney’s fees for being “grossly excessive,” “considering the nature of the case which is a mere action
for collection of a sum of money.” It may be pointed out however that the above penalty is supposed to
answer not only for attorney’s fees but for collection fees as well. Moreover: x x x the attorneys’ fees
here provided is not, strictly speaking, the attorneys’ fees recoverable as between attorney and client
spoken of and regulated by the Rules of Court. Rather, the attorneys’ fees here are in the nature of
liquidated damages and the stipulation therefor is aptly called a penal clause. It has been said that so
long as such stipulation does not contravene law, morals, or public order, it is strictly binding upon
defendant. The attorneys’ fees so provided are awarded in favor of the litigant, not his counsel. It is the
litigant, not counsel, who is the judgment creditor entitled to enforce the judgment by execution.
Same; Same; Same; Courts are empowered to reduce the penalty if the same is “iniquitous or
unconscionable.”—Nonetheless,
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courts are empowered to reduce such penalty if the same is “iniqui-tous or unconscionable.” Article
1229 of the Civil Code states thus: ART. 1229. The judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. (Italics
supplied.)
Same; Same; Same; Attorney’s fees and collection fees equivalent to twenty-five percent (25%) of the
principal and interest—with the interest running to some P4.5 Million, which interest even exceeds the
principal debt—are manifestly exorbitant.—It is true that we have upheld the reasonableness of
penalties in the form of attorney’s fees consisting of twenty-five percent (25%) of the principal debt plus
interest. In the case at bar, however, the interest alone runs to some four and a half million pesos
(P4.5M), even exceeding the principal debt amounting to almost four million pesos (P4.0M). Twenty five
percent (25%) of the principal and interest amounts to roughly two million pesos (P2M). In real terms,
therefore, the attorney’s fees and collection fees are manifestly exorbitant. Accordingly, we reduce the
same to ten percent (10%) of the principal.
Same; Same; Same; Appeals; Supreme Court; Equity Jurisdiction; The Supreme Court is clothed with
ample authority to review matters, even if they are not assigned as errors in the appeal, if it finds that
their consideration is necessary in arriving at a just decision of the case.—Private respondent, however,
argues that petitioner failed to question the award of attorney’s fees on appeal before respondent court
and raised the issue only in its motion for reconsideration. Consequently, petitioner should be deemed
to have waived its right to question such award. Private respondent’s attempts to dissuade us from
reducing the penalty are futile. The Court is clothed with ample authority to review matters, even if they
are not assigned as errors in their appeal, if it finds that their consideration is necessary in arriving at a
just decision of the case.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Vero B. Librojo for petitioner.
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Ponce Enrile, Reyes & Manalastas for private respondent.
KAPUNAN, J.:
The instant petition raises two issues: (1) whether or not private respondent is guilty of abuse of right;
and (2) whether or not private respondent is entitled to interest and attorney’s fees.
The facts are undisputed:

On August 31, 1973, plaintiff [Phelps Dodge, Philippines, Inc. private respondent herein] appointed
defendant [petitioner Barons Marketing, Corporation] as one of its dealers of electrical wires and cables
effective September 1, 1973 (Exh. A). As such dealer, defendant was given by plaintiff 60 days credit for
its purchases of plaintiff’s electrical products. This credit term was to be reckoned from the date of
delivery by plaintiff of its products to defendant (Exh. 1).
During the period covering December 1986 to August 17, 1987, defendant purchased, on credit, from
plaintiff various electrical wires and cables in the total amount of P4,102,438.30 (Exh. B to K). These
wires and cables were in turn sold, pursuant to previous arrangements, by defendant to MERALCO, the
former being the accredited supplier of the electrical requirements of the latter. Under the sales
invoices issued by plaintiff to defendant for the subject purchases, it is stipulated that interest at 12% on
the amount due for attorney’s fees and collection (Exh. BB).1 On September 7, 1987, defendant paid
plaintiff the amount of P300,000.00 out of its total purchases as above-stated (Exh. S), thereby leaving
an unpaid account on the aforesaid deliveries of P3,802,478.20. On several occasions, plaintiff wrote
defendant demanding payment of its outstanding obligations due plaintiff (Exhs. L, M, N, and P). In
response, defendant wrote plaintiff on October 5, 1987 requesting the latter if it could pay its
outstanding account in monthly installments of P500,000.00 plus 1% interest per month commencing on
October
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1 More accurately, the invoices state: x x x Interest at 12% per annum will be charged on all overdue
account plus 25% on said amount for attorney’s fees and collection. x x x.
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100
15, 1987 until full payment (Exh. O and O-4). Plaintiff, however, rejected defendant’s offer and
accordingly reiterated its demand for the full payment of defendant’s account (Exh. P).2
On 29 October 1987, private respondent Phelps Dodge Phils., Inc. filed a complaint before the Pasig
Regional Trial Court against petitioner Barons Marketing Corporation for the recovery of P3,802,478.20
representing the value of the wires and cables the former had delivered to the latter, including interest.
Phelps Dodge likewise prayed that it be awarded attorney’s fees at the rate of 25% of the amount
demanded, exemplary damages amounting to at least P100,000.00, the expenses of litigation and the
costs of suit.
Petitioner, in its answer, admitted purchasing the wires and cables from private respondent but
disputed the amount claimed by the latter. Petitioner likewise interposed a counterclaim against private
respondent, alleging that it suffered injury to its reputation due to Phelps Dodge’s acts. Such acts were
purportedly calculated to humiliate petitioner and constituted an abuse of rights.
After hearing, the trial court on 17 June 1991 rendered its decision, the dispositive portion of which
reads:
WHEREFORE, from all the foregoing considerations, the Court finds Phelps Dodge Phils., Inc. to have
preponderantly proven its case and hereby orders Barons Marketing, Inc. to pay Phelps Dodge the
following:
1.P3,108,000.00 constituting the unpaid balance of defendant’s purchases from plaintiff and interest
thereon at 12% per annum computed from the respective expiration of the 60 day credit term, vis-à-vis
the various sales invoices and/or delivery receipts;
2.25% of the preceding obligation for and as attorney’s fees;
3.P10,000.00 as exemplary damages;
4.Costs of suit.3
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2 Rollo, p. 51.
3 Id., at 54.
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Both parties appealed to respondent court. Private respondent claimed that the trial court should have
awarded it the sum of P3,802,478.20, the amount which appeared in the body of the complaint and
proven during the trial rather than P3,108,000.00. The latter amount appears in petitioner’s prayer
supposedly as a result of a typographical error.
On the other hand, petitioner reiterated its claims for damages as a result of “creditor’s abuse.” It also
alleged that private respondent failed to prove its cause of action against it.
On 25 June 1996, the Court of Appeals rendered a decision modifying the decision of the trial court,
thus:
WHEREFORE, from all the foregoing considerations, the Court finds Phelps Dodge Phils., Inc. to have
preponderantly proven its case and hereby orders Barons Marketing, Inc. to pay Phelps Dodge the
following:
1.P3,802,478.20 constituting the unpaid balance of defendant’s purchases from plaintiff and interest
thereon at 12% per annum computed from the respective expiration of the 60 day credit term, vis-à-vis
the various sales invoices and/or delivery receipts; and
2.5% of the preceding obligation for and as attorney’s fees. No costs.4
Petitioner Barons Marketing is now before this Court alleging that respondent court erred when it held
(1) private respondent Phelps Dodge not guilty of “creditor’s abuse,” and (2) petitioner liable to private
respondent for interest and attorney’s fees.
I
Petitioner does not deny private respondent’s rights to institute an action for collection and to claim full
payment. Indeed, petitioner’s right to file an action for collection is
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4 Id., at 43; italics in the original.
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beyond cavil.5 Likewise, private respondent’s right to reject petitioner’s offer to pay in installments is
guaranteed by Article 1248 of the Civil Code which states:
ART. 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled
partially to receive the prestations in which the obligation consists. Neither may the debtor be required
to make partial payments.
However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the
debtor may effect the payment of the former without waiting for the liquidation of the latter.
Under this provision, the prestation, i.e., the object of the obligation, must be performed in one act, not
in parts.
Tolentino concedes that the right has its limitations:
Partial Prestations.—Since the creditor cannot be compelled to accept partial performance, unless
otherwise stipulated, the creditor who refuses to accept partial prestations does not incur in delay or
mora accipiendi, except when there is abuse of right or if good faith requires acceptance.6
Indeed, the law, as set forth in Article 19 of the Civil Code, prescribes a “primordial limitation on all
rights” by setting certain standards that must be observed in the exercise thereof.7 Thus:
ART. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith.
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5 See Melendez v. Lavarias, 9 SCRA 548 (1963).
6 IV Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, 1990 ed., p. 298;
italics supplied.
7 Globe Mackay Cable and Radio Corp. v. Court of Appeals, 176 SCRA 778 (1989).
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Petitioner now invokes Article 19 and Article 218 of the Civil Code, claiming that private respondent
abused its rights when it rejected petitioner’s offer of settlement and subsequently filed the action for
collection considering:
x x x that the relationship between the parties started in 1973 spanning more than 13 years before the
complaint was filed, that the petitioner had been a good and reliable dealer enjoying a good credit
standing during the period before it became delinquent in 1987, that the relationship between the
parties had been a fruitful one especially for the private respondent, that the petitioner exerted its
utmost efforts to settle its obligations and avoid a suit, that the petitioner did not evade in the payment
of its obligation to the private respondent, and that the petitioner was just asking a small concession
that it be allowed to liquidate its obligation to eight (8) monthly installments of P500,000.00 plus 1%
interest per month on the balance which proposal was supported by post-dated checks.9
Expounding on its theory, petitioner states:
In the ordinary course of events, a suit for collection of a sum of money filed in court is done for the
primary purpose of collecting a debt or obligation. If there is an offer by the debtor to pay its debt or
obligation supported by post-dated checks and with provision for interests, the normal response of a
creditor would be to accept the offer of compromise and not file the suit for collection. It is of common
knowledge that proceedings in our courts would normally take years before an action is finally settled. It
is always wiser and more prudent to accept an offer of payment in installment rather than file an action
in court to compel the debtor to settle his obligation in full in a single payment.
x x x.
x x x. Why then did private respondent elect to file a suit for collection rather than accept petitioner’s
offer of settlement, supported by post-dated checks, by paying monthly installments of
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8 ART. 21. Any person who willfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage.
9 Rollo, p. 137.
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P500,000.00 plus 1% per month commencing on October 15, 1987 until full payment? The answer is
obvious. The action of private respondent in filing a suit for collection was an abuse of right and
exercised for the sole purpose of prejudicing and injuring the petitioner.10
Petitioner prays that the Court order private respondent to pay petitioner moral and exemplary
damages, attorney’s fees, as well as the costs of suit. It likewise asks that it be allowed to liquidate its
obligation to private respondent, without interests, in eight equal monthly installments.
Petitioner’s theory is untenable.
Both parties agree that to constitute an abuse of rights under Article 19 the defendant must act with
bad faith or intent to prejudice the plaintiff. They cite the following comments of Tolentino as their
authority:
Test of Abuse of Right.—Modern jurisprudence does not permit acts which, although not unlawful, are
anti-social. There is undoubtedly an abuse of right when it is exercised for the only purpose of
prejudicing or injuring another. When the objective of the actor is illegitimate, the illicit act cannot be
concealed under the guise of exercising a right. The principle does not permit acts which, without utility
or legitimate purpose cause damage to another, because they violate the concept of social solidarity
which considers law as rational and just. Hence, every abnormal exercise of a right, contrary to its socio-
economic purpose, is an abuse that will give rise to liability. The exercise of a right must be in
accordance with the purpose for which it was established, and must not be excessive or unduly harsh;
there must be no intention to injure another. Ultimately, however, and in practice, courts, in the sound
exercise of their discretion, will have to determine all the facts and circumstances when the exercise of a
right is unjust, or when there has been an abuse of right.11
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10 Id., at 18-20.
11 I Tolentino, pp. 61-62; italics supplied.
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The question, therefore, is whether private respondent intended to prejudice or injure petitioner when
it rejected petitioner’s offer and filed the action for collection.
We hold in the negative. It is an elementary rule in this jurisdiction that good faith is presumed and that
the burden of proving bad faith rests upon the party alleging the same.12 In the case at bar, petitioner
has failed to prove bad faith on the part of private respondent. Petitioner’s allegation that private
respondent was motivated by a desire to terminate its agency relationship with petitioner so that
private respondent itself may deal directly with Meralco is simply not supported by the evidence. At
most, such supposition is merely speculative.
Moreover, we find that private respondent was driven by very legitimate reasons for rejecting
petitioner’s offer and instituting the action for collection before the trial court. As pointed out by private
respondent, the corporation had its own “cash position to protect in order for it to pay its own
obligations.” This is not such “a lame and poor rationalization” as petitioner purports it to be. For if
private respondent were to be required to accept petitioner’s offer, there would be no reason for the
latter to reject similar offers from its other debtors. Clearly, this would be inimical to the interests of any
enterprise, especially a profit-oriented one like private respondent. It is plain to see that what we have
here is a mere exercise of rights, not an abuse thereof. Under these circumstances, we do not deem
private respondent to have acted in a manner contrary to morals, good customs or public policy as to
violate the provisions of Article 21 of the Civil Code.
Consequently, petitioner’s prayer for moral and exemplary damages must thus be rejected. Petitioner’s
claim for moral damages is anchored on Article 2219(10) of the Civil Code which states:
ART. 2219. Moral damages may be recovered in the following and analogous cases:
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12 Ford Philippines v. Court of Appeals, G.R. No. 99039, February 3, 1997.
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x x x.
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
x x x.
Having ruled that private respondent’s acts did not transgress the provisions of Article 21, petitioner
cannot be entitled to moral damages or, for that matter, exemplary damages. While the amount of
exemplary damages need not be proved, petitioner must show that he is entitled to moral, temperate or
compensatory damages before the court may consider the question of whether or not exemplary
damages should be awarded.13 As we have observed above, petitioner has failed to discharge this
burden.
It may not be amiss to state that petitioner’s contract with private respondent has the force of law
between them.14 Petitioner is thus bound to fulfill what has been expressly stipulated therein.15 In the
absence of any abuse of right, private respondent cannot be allowed to perform its obligation under
such contract in parts. Otherwise, private respondent’s right under Article 1248 will be negated, the
sanctity of its contract with petitioner defiled. The principle of autonomy of contracts16 must be
respected.
II
Under said contract, petitioner is liable to private respondent for the unpaid balance of its purchases
from private respondent plus 12% interest. Private respondent’s sales invoices expressly provide that:
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13 ART. 2234, Civil Code.

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x x x. Interest at 12% per annum will be charged on all overdue account plus 25% on said amount for
attorney’s fees and collection. x x x.17
It may also be noted that the above stipulation, insofar as it provides for the payment of “25% on said
amount for attorney’s fees and collection (sic),” constitutes what is known as a penal clause.18
Petitioner is thus obliged to pay such penalty in addition to the 12% annual interest, there being an
express stipulation to that effect.
Petitioner nevertheless urges this Court to reduce the attorney’s fees for being “grossly excessive,”
“considering the nature of the case which is a mere action for collection of a sum of money.” It may be
pointed out however that the above penalty is supposed to answer not only for attorney’s fees but for
collection fees as well. Moreover:
x x x the attorneys’ fees here provided is not, strictly speaking, the attorneys’ fees recoverable as
between attorney and client spoken of and regulated by the Rules of Court. Rather, the attorneys’ fees
here are in the nature of liquidated damages and the stipulation therefor is aptly called a penal clause. It
has been said that so long as such stipulation does not contravene law, morals, or public order, it is
strictly binding upon defendant. The attorneys’ fees so provided are awarded in favor of the litigant, not
his counsel. It is the litigant, not counsel, who is the judgment creditor entitled to enforce the judgment
by execution.19
Nonetheless, courts are empowered to reduce such penalty if the same is “iniquitous or
unconscionable.” Article 1229 of the Civil Code states thus:
ART. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there has been no performance, the
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17 Exhibit “BB”; italics supplied.
18 See Luneta Motor Co. v. Mora, 73 Phil. 80 (1941).

19 Polytrade Corporation v. Blanco, 30 SCRA 187 (1969).
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penalty may also be reduced by the courts if it is iniquitous or unconscionable. (Italics supplied.)
The sentiments of the law are echoed in Article 2227 of the same Code:
ART. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable.
It is true that we have upheld the reasonableness of penalties in the form of attorney’s fees consisting of
twenty-five percent (25%) of the principal debt plus interest.20 In the case at bar, however, the interest
alone runs to some four and a half million pesos (P4.5M), even exceeding the principal debt amounting
to almost four million pesos (P4.0M). Twenty five percent (25%) of the principal and interest amounts to
roughly two million pesos (P2M). In real terms, therefore, the attorney’s fees and collection fees are
manifestly exorbitant. Accordingly, we reduce the same to ten percent (10%) of the principal.
Private respondent, however, argues that petitioner failed to question the award of attorney’s fees on
appeal before respondent court and raised the issue only in its motion for reconsideration.
Consequently, petitioner should be deemed to have waived its right to question such award.
Private respondent’s attempts to dissuade us from reducing the penalty are futile. The Court is clothed
with ample authority to review matters, even if they are not assigned as errors in their appeal, if it finds
that their consideration is necessary in arriving at a just decision of the case.21
WHEREFORE, the decision of the Court of Appeals is hereby MODIFIED in that the attorney’s and
collection fees
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20 See Polytrade v. Blanco, supra, note 1.
21 Korean Airlines Co., Ltd. v. Court of Appeals, 234 SCRA 717 (1994); see also: Asset Privatization Trust
v. CA, 214 SCRA 400 (1994).
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Association of Philippine Coconut Desiccators vs. Philippine Coconut Authority
are reduced to ten percent (10%) of the principal but is AFFIRMED in all other respects.
SO ORDERED.
Narvasa (C.J., Chairman), Romero, Francisco and Purisima, JJ., concur.
Decision modified.
Notes.—When non-compliance with the Rules was not intended for delay or did not result in prejudice
to the adverse party, dismissal of appeal on mere technicalities—in cases where appeal is a matter of
right—may be stayed, in the exercise of the court’s equity jurisdiction. (Parañaque Kings Enterprises, Inc.
vs. Court of Appeals, 268 SCRA 727 [1997]) Where the findings of the NLRC contradict those of the labor
arbiter, the Supreme Court, in the exercise of its equity jurisdiction, may look into the records of the
case and reexamine the questioned findings. (Industrial Timber Corporation vs. National Labor Relations
Commission, 273 SCRA 200 [1997])
——o0o—— Barons Marketing Corp. vs. Court of Appeals, 286 SCRA 96, G.R. No. 126486 February 9,
1998
202
Pagsibigan vs. Court of Appeals
G.R. No. 90169. April 7, 1993.*
PILAR PAGSIBIGAN, petitioner, vs. COURT OF APPEALS and PLANTERS DEVELOPMENT BANK,
respondents.
Contracts; Loan agreement with real estate mortgage; Acceleration clause; Effect of acceptance of
delayed payments.—There is no question that the respondent bank has the right to foreclose the
mortgage upon the first default of petitioner on May 3, 1977, but the records show that it did not. When
it received payment of petitioner on July 6, 1977, which had been 2 months and 3 days delayed, it
applied P154.80 to the principal, P210.00 to interest, and only P25.20 to penalty. From this act of
receiving delayed payment, it is clear that the respondent bank had waived its right under the
acceleration clause so that instead of claiming penalty charges on the entire amount of P4,500.00, it
only computed the penalty based on the defaulted amortization payment which is P1,018.14. If it
computed the penalty charge at 19% of the entire amount of P4,500.00 which would have been due and
demandable by virtue of the acceleration clause, the penalty charges would be much more than P25.20.
Same; Same; Application of payments; Waiver.—We also noticed that in Exhibit “D-3”, the receipt which
the respondent bank issued to petitioner for the August 26, 1978 partial payment, it waived its right
under Article 1253 of the Civil Code on Application of Payments when it applied the payment to the
principal instead of the interest. Thus, on that date the outstanding obligation of petitioner was already
reduced to P3,558.21 after she had paid a total of P2,200.00 over a period of nine months from the time
the loan was obtained.
Same; Same; Substantial performance under Art. 1234 of the New Civil Code.—We hold that the
payment amounting to P8,650.00 for the
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* SECOND DIVISION.
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VOL. 221, APRIL 7, 1993
203
balance of P3,558.20 as of August 26, 1978 plus the P1,000.00 it was asked to pay on April 24, 1984
would at the very least constitute substantial performance. Article 1234 of the Civil Code, provides:
“Article 1234. If the obligation has been substantially performed in good faith, the obligor may recover
as though there had been a strict and complete fulfillment, less damages suffered by the obligee.”
Petitioner in this case has the right to move for the cancellation of the mortgage and the release of the
mortgaged property, upon payment of the balance of the loan. Definitely, it would not be in the amount
demanded by the respondent bank, which the trial court held to be P29,554.81.
Same; Liability for damages on the ground of bad faith; Moral damages; Exemplary damages.—This
Court cannot ignore the fact that the respondent bank succeeded in taking advantage of the ignorance
of petitioner in transactions such as the one involved in the case at bar by lodging the bulk of
petitioner’s payment to account payable based on the flimsy reason that she had been in default, and
then considering the entire debt pursuant to an acceleration clause as earning interest and penalty
charges at an exorbitant rate of 19% each from the date of first default up to the date of foreclosure,
thus bringing the obligation to an astronomical amount of P29,554.81. This indicates bad faith on the
part of the respondent bank. For the mental anguish, sleepless nights and serious anxiety this has
caused petitioner, the respondent bank is liable for moral damages which this Court fixes at P50,000.00.
PETITION for review on certiorari of the decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Juanito Cruz for petitioner.
Raymundo S. Senga for private respondent.
CAMPOS, JR., J.:
This is a petition for review on certiorari of the decision** of the Court of Appeals in CA-G.R. CV No.
18385 entitled “Pilar Pagsibigan, Plaintiff-appellee vs. Planters Development Bank, Defendant-
appellant,” the decretal portion of which reads:
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**Penned by Associate Justice Jose A.R. Melo; concurred in by Associate Justices Ricardo L. Pronove, Jr.
and Alfredo L. Benipayo.
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“WHEREFORE, the decision appealed from is hereby reversed and another one entered ordering
plaintiff-appellee Norma Manalili, to pay the deficiency of P21,391.81. No pronouncement is made as to
costs.
“SO ORDERED.”1
The undisputed facts are summarized by the respondent court as follows:
“Stripped of non-essentials, it appears that on August 4, 1974, plaintiff-appellee, [petitioner, herein]

through her daughter as attorney-in-fact, obtained an agricultural loan from the Planters Development
Bank (formerly Bulacan Development Bank), in the sum of P4,500.00 secured by a mortgage over a
parcel of land covered by Transfer Certificate of Title No. T-129603 (Exhibit “A”; “A-1”), which loan was
later fully paid (Exhibits “B”; “B-1” to “B-3”. Another loan for the same amount was obtained from the
bank on November 3, 1977 [year 1977 should read 1976 instead] secured by the same parcel of land.
The Promissory Note for the second loan (Exhibit “1”) stipulated that for a first payment to be made on
May 3, 1977 and payments every six months thereafter at P1,018.14 with 19% interest for unpaid
amortizations. The said Promissory Note, containing an acceleration clause (Exhibit “1-A”), was not
denied by plaintiff-appellee [petitioner] (TSN, December 10, 1986, pp. 9-10).
Initial payment was made on July 6, 1978 [year 1978 should read 1977 instead] followed by several
payments in the total amount of P11,900.00 (Exhibits “D”; “D-1” to “D-7”). However, only four of these
payments were applied to the loan (TSN, March 16, 1987, pp. 14-16), while the rest were “temporarily
lodged to accounts payable since the account was already past due” (TSN, June 1, 1987, pp. 15-16). On
the basis of a Petition for Extrajudicial Foreclosure of Mortgage (Exhibit “6”) and the statement of
Account (Exhibit “12”), the property was foreclosed extrajudicially on May 7, 1984 for failure to pay an
outstanding balance of P29,554.81 (Exhibit “13”). This resulted in the property being sold to the bank for
P8,163.00, and the bank thereafter claimed a deficiency of P21,391.81.
In the action for annulment of sale with damages and writ of preliminary injunction instituted by
plaintiff-appellee, the lower court sustained appellee’s [petitioner] theory of overpayment (Decision, p.
3), as against the propriety of the foreclosure.”2 [Bracketed words Ours].
________________
1 Decision, p. 5, Rollo, p. 33.
2 Ibid., pp. 29-30.
205
VOL. 221, APRIL 7, 1993
205
Petitioner submits the following issues for resolution:
“1.Whether or not the foreclosure and auction sale of the property is valid and justified under the
circumstances; and
2.Whether or not petitioner is entitled to recover damages as well as attorney’s fees as a result of the
foreclosure and auction sale.”3
It is petitioner’s contention that the bank has no right to foreclose the mortgage, there having been full
payment of the principal obligation. As per their computation4 the payment which they have made
totaling P11,900.00 more than sufficiently covered their total obligation with respect to their loan, there
having been, in fact, an overpayment of either P4,642.38 or P6,106.75 based on the interest rate used in
the computation. Thus, the principal obligation having been extinguished by payment, the accessory
obligation of mortgage is necessarily extinguished, and the foreclosure thereof is improper and not
valid.
The respondent bank on the other hand countered that the computation relied upon by petitioner is not
in consonance with the Promissory Note5 which she signed because the Promissory Note contains an
acceleration clause. Respondent bank also averred that upon petitioner’s failure to pay her first
installment, the entire obligation became due and demandable and its right to foreclose the mortgage
has accrued. Thus, when it foreclosed the mortgage in 1984, with the outstanding obligation at
P29,554.81, it was acting well within its rights.
We note at this point that the respondent bank does not dispute the fact that petitioner had made
several payments in an amount totaling to P11,900.00. It likewise admits that only part of the amount
tendered was applied to the loan and the bulk of such payment was “temporarily lodged to accounts
payable since the account was already past due”6 [Italics Ours]. Petitioner assails the respondent bank
for not applying her payment to the loan. Because of said act, the loan remained outstanding when it
should have been extinguished and should have also extin-
________________
3 Rollo, p. 15.
4 Exhibits “H-2” and “H-3”.
5 Exhibit “1”.
6 TSN, June 1, 1987, pp. 15-16.
206
206
guished the accessory contract of real estate mortgage.
Petitioner wants Us to rule not only on the regularity or legality of the foreclosure but also on its
propriety in the light of the attending circumstances.
There is no question that the respondent bank has the right to foreclose the mortgage upon the first
default of petitioner on May 3, 1977, but the records show that it did not. When it received payment of
petitioner on July 6, 1977, which had been 2 months and 3 days delayed, it applied P154.80 to the
principal, P210.00 to interest, and only P25.20 to penalty. From this act of receiving delayed payment, it
is clear that the respondent bank had waived its right under the acceleration clause so that instead of
claiming penalty charges on the entire amount of P4,500.00, it only computed the penalty based on the
defaulted amortization payment which is P1,018.14. If it computed the penalty charge at 19% of the
entire amount of P4,500.00 which would have been due and demandable by virtue of the acceleration
clause, the penalty charges would be much more than P25.20.
This is similarly observed in payments which the respondent bank received on June 6, 1978 and August
26, 1978. We also noticed that in Exhibit “D-3”, the receipt which the respondent bank issued to
petitioner for the August 26, 1978 partial payment, it waived its right under Article 12537 of the Civil
Code on Application of Payments when it applied the payment to the principal instead of the interest.
Thus, on that date the outstanding obligation of petitioner was already reduced to P3,558.21 after she
had paid a total of P2,200.00 over a period of nine months from the time the loan was obtained.
From this conduct of the respondent bank it is clear that it neither enforced its right under the
acceleration clause nor its right to foreclose under the mortgage contract. For more than four years, the
respondent bank made petitioner believe that it was applying her payment on the loan and interest just
like before when the respondent bank accepted such payment and issued a receipt therefore. It is
bound by estoppel to apply the
_______________
7 CIVIL CODE, Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to
have been made until the interests have been covered.
207
VOL. 221, APRIL 7, 1993
207
same as payment for petitioner’s obligation as it did when it received previous payments on three
occasions. Its act of applying said payments to accounts payable is clearly prejudicial to petitioner. We
cannot countenance this act of the bank.
We hold that the payment amounting to P8,650.00 for the balance of P3,558.20 as of August 26, 19788
plus the P1,000.00 it was asked to pay on April 24, 1984 would at the very least constitute substantial
performance.
Article 1234 of the Civil Code, provides:
“Artie 1234. If the obligation has been substantially performed in good faith, the obligor may recover as
though there had been a strict and complete fulfillment, less damages suffered by the obligee.”
Petitioner in this case has the right to move for the cancellation of the mortgage and the release of the
mortgaged property, upon payment of the balance of the loan. Definitely, it would not be in the amount
demanded by the respondent bank, which the trial court held to be P29,554.81.
This Court, in Angeles vs. Calasanz9 held that:
“The breach of the contract adverted to by the defendants-appellants is so slight and casual when we
consider that apart from the initial downpayment of P392.00 the plaintiffs-appellees had already paid
the monthly installments for a period of almost nine (9) years. In other words, in only a short time, the
entire obligation would have been paid. Furthermore, although the principal obligation was only
P3,920.00 excluding the 7 percent interests, the plaintiffs-appellees had already paid an aggregate
amount of P4,533.38. To sanction the rescission made by the defendants-appellants will work injustice
to the plaintiffs-appellees. It would unjustly enrich the defendants-appellants. Article 1234 of the Civil
Code which provides that:
xxx xxx
also militates against the unilateral act of the defendants-appellants in canceling the contract.”
Thus, aside from the fact that the respondent bank was
_______________
8 Exhibit “D-3”.
9 135 SCRA 323 (1985), citing J.M. Tuazon and Co., Inc. vs. Javier, 31 SCRA 829 (1970).
208
208
estopped from enforcing its right to foreclose by virtue of its acceptance of the delayed payments for a
period of more than six years, the application of such payment to the interest and the principal during
the first three payments constitutes a virtual waiver of the acceleration clause provided in the contract.
We cannot sustain the legality of the foreclosure under the peculiar facts of this case, because there is
substantial performance of the obligation on the part of petitioner. Under Article 1235 of the Civil Code,
when the creditor accepts performance, knowing its incompleteness and irregularity without protest or
objection, the obligation is deemed complied with.
This Court cannot ignore the fact that the respondent bank succeeded in taking advantage of the
ignorance of petitioner in transactions such as the one involved in the case at bar by lodging the bulk of
petitioner’s payment to account payable based on the flimsy reason that she had been in default, and
then considering the entire debt pursuant to an acceleration clause as earning interest and penalty
charges at an exorbitant rate of 19% each from the date of first default up to the date of foreclosure,
thus bringing the obligation to an astronomical amount of P29,554.81. This indicates bad faith on the
part of the respondent bank. For the mental anguish, sleepless nights and serious anxiety this has
caused petitioner, the respondent bank is liable for moral damages which this Court fixes at P50,000.00.
To serve as a deterrent for the respondent bank from repeating similar acts and to set an example and
correction for the public good, this Court likewise awards exemplary damages. In view of its nature, it
should be imposed in such amount as to sufficiently and effectively deter similar acts in the future10 by
the respondent bank and other banks, which amount this court fixes at P20,000.00 on top of the
forfeiture of whatever balance on the loan which the respondent may actually have in its favor.
This Court likewise orders the annulment of the foreclosure sale and reconveyance of the property
subject of the real estate mortgage pursuant to the annotation of lis pendens in the certificate of title of
the subject property.
Attorney’s fees by way of damages is likewise awarded for the
_______________
10 Lopez vs. Pan American World Airways, 16 SCRA 431 (1966).
209
VOL. 221, APRIL 7, 1993
209
People vs. Divina
same reason that exemplary damages is awarded and this is fixed at P10,000.00.
WHEREFORE, the appealed decision is hereby SET ASIDE and a new one entered ordering the
reconveyance of the foreclosed property and the payment of moral damages, exemplary damages and
attorney’s fees as above specified, with costs against private respondent Planters Development Bank.
SO ORDERED.
Narvasa (C.J., Chairman), Padilla, Regalado and Nocon, JJ., concur.
Decision set aside.

Note.—Rescission will be ordered only where the breach complained of is substantial as to defeat the
object of the parties and not where the breach is merely slight or casual (Delta Motors Corp. vs.
Genuino, 170 SCRA 29).
——o0o—— Pagsibigan vs. Court of Appeals, 221 SCRA 202, G.R. No. 90169 April 7, 1993
THIRD DIVISION
[G.R. No. 115838. July 18, 2002
CONSTANTE AMOR DE CASTRO and CORAZON AMOR DE CASTRO, Petitioners, vs. COURT OF APPEALS
and FRANCISCO ARTIGO, Respondents.
DECISION
CARPIO, J.:
The Case
Before us is a Petition for Review on Certiorari[1 seeking to annul the Decision of the Court of Appeals[2
dated May 4, 1994 in CA-G.R. CV No. 37996, which affirmed in toto the decision[3 of the Regional Trial
Court of Quezon City, Branch 80, in Civil Case No. Q-89-2631. The trial court disposed as follows:
WHEREFORE, the Court finds defendants Constante and Corazon Amor de Castro jointly and solidarily
liable to plaintiff the sum of:
a) P303,606.24 representing unpaid commission;
b) P25,000.00 for and by way of moral damages;
c) P45,000.00 for and by way of attorneys fees;
d) To pay the cost of this suit.
Quezon City, Metro Manila, December 20, 1991.
The Antecedent Facts
On May 29, 1989, private respondent Francisco Artigo (Artigo for brevity) sued petitioners Constante A.
De Castro (Constante for brevity) and Corazon A. De Castro (Corazon for brevity) to collect the unpaid
balance of his brokers commission from the De Castros.[4 The Court of Appeals summarized the facts in
this wise:
x x x. Appellants[5 were co-owners of four (4) lots located at EDSA corner New York and Denver Streets
in Cubao, Quezon City. In a letter dated January 24, 1984 (Exhibit A-1, p. 144, Records), appellee[6 was
authorized by appellants to act as real estate broker in the sale of these properties for the amount of
P23,000,000.00, five percent (5%) of which will be given to the agent as commission. It was appellee
who first found Times Transit Corporation, represented by its president Mr. Rondaris, as prospective
buyer which desired to buy two (2) lots only, specifically lots 14 and 15. Eventually, sometime in May of
1985, the sale of lots 14 and 15 was consummated. Appellee received from appellants P48,893.76 as
commission.
It was then that the rift between the contending parties soon emerged. Appellee apparently felt short
changed because according to him, his total commission should be P352,500.00 which is five percent
(5%) of the agreed price of P7,050,000.00 paid by Times Transit Corporation to appellants for the two (2)
lots, and that it was he who introduced the buyer to appellants and unceasingly facilitated the
negotiation which ultimately led to the consummation of the sale. Hence, he sued below to collect the
balance of P303,606.24 after having received P48,893.76 in advance.
On the other hand, appellants completely traverse appellees claims and essentially argue that appellee
is selfishly asking for more than what he truly deserved as commission to the prejudice of other agents
who were more instrumental in the consummation of the sale. Although appellants readily concede that
it was appellee who first introduced Times Transit Corp. to them, appellee was not designated by them
as their exclusive real estate agent but that in fact there were more or less eighteen (18) others whose
collective efforts in the long run dwarfed those of appellees, considering that the first negotiation for
the sale where appellee took active participation failed and it was these other agents who successfully
brokered in the second negotiation. But despite this and out of appellants pure liberality, beneficence
and magnanimity, appellee nevertheless was given the largest cut in the commission (P48,893.76),
although on the principle of quantum meruit he would have certainly been entitled to less. So appellee
should not have been heard to complain of getting only a pittance when he actually got the lions share
of the commission and worse, he should not have been allowed to get the entire commission.
Furthermore, the purchase price for the two lots was only P3.6 million as appearing in the deed of sale
and not P7.05 million as alleged by appellee. Thus, even assuming that appellee is entitled to the entire
commission, he would only be getting 5% of the P3.6 million, or P180,000.00.
Ruling of the Court of Appeals
The Court of Appeals affirmed in toto the decision of the trial court.
First. The Court of Appeals found that Constante authorized Artigo to act as agent in the sale of two lots
in Cubao, Quezon City. The handwritten authorization letter signed by Constante clearly established a
contract of agency between Constante and Artigo. Thus, Artigo sought prospective buyers and found
Times Transit Corporation (Times Transit for brevity). Artigo facilitated the negotiations which eventually
led to the sale of the two lots. Therefore, the Court of Appeals decided that Artigo is entitled to the 5%
commission on the purchase price as provided in the contract of agency.
Second. The Court of Appeals ruled that Artigos complaint is not dismissible for failure to implead as
indispensable parties the other co-owners of the two lots. The Court of Appeals explained that it is not
necessary to implead the other co-owners since the action is exclusively based on a contract of agency
between Artigo and Constante.
Third. The Court of Appeals likewise declared that the trial court did not err in admitting parol evidence
to prove the true amount paid by Times Transit to the De Castros for the two lots. The Court of Appeals
ruled that evidence aliunde could be presented to prove that the actual purchase price was P7.05
million and not P3.6 million as appearing in the deed of sale. Evidence aliunde is admissible considering
that Artigo is not a party, but a mere witness in the deed of sale between the De Castros and Times
Transit. The Court of Appeals explained that, the rule that oral evidence is inadmissible to vary the terms
of written instruments is generally applied only in suits between parties to the instrument and strangers
to the contract are not bound by it. Besides, Artigo was not suing under the deed of sale, but solely
under the contract of agency. Thus, the Court of Appeals upheld the trial courts finding that the
purchase price was P7.05 million and not P3.6 million.
Hence, the instant petition.
The Issues
According to petitioners, the Court of Appeals erred in -
I. NOT ORDERING THE DISMISSAL OF THE COMPLAINT FOR FAILURE TO IMPLEAD INDISPENSABLE
PARTIES-IN-INTEREST;
II. NOT ORDERING THE DISMISSAL OF THE COMPLAINT ON THE GROUND THAT ARTIGOS CLAIM HAS
BEEN EXTINGUISHED BY FULL PAYMENT, WAIVER, OR ABANDONMENT;
III. CONSIDERING INCOMPETENT EVIDENCE;
IV. GIVING CREDENCE TO PATENTLY PERJURED TESTIMONY;
V. SANCTIONING AN AWARD OF MORAL DAMAGES AND ATTORNEYS FEES;
VI. NOT AWARDING THE DE CASTROS MORAL AND EXEMPLARY DAMAGES, AND ATTORNEYS FEES.
The Courts Ruling
The petition is bereft of merit.
First Issue: whether the complaint merits dismissal for failure to implead other co-owners as
indispensable parties
The De Castros argue that Artigos complaint should have been dismissed for failure to implead all the
co-owners of the two lots. The De Castros claim that Artigo always knew that the two lots were co-
owned by Constante and Corazon with their other siblings Jose and Carmela whom Constante merely
represented. The De Castros contend that failure to implead such indispensable parties is fatal to the
complaint since Artigo, as agent of all the four co-owners, would be paid with funds co-owned by the
four co-owners.
The De Castros contentions are devoid of legal basis.
An indispensable party is one whose interest will be affected by the courts action in the litigation, and
without whom no final determination of the case can be had.[7 The joinder of indispensable parties is
mandatory and courts cannot proceed without their presence.[8 Whenever it appears to the court in the
course of a proceeding that an indispensable party has not been joined, it is the duty of the court to stop
the trial and order the inclusion of such party.[9
However, the rule on mandatory joinder of indispensable parties is not applicable to the instant case.
There is no dispute that Constante appointed Artigo in a handwritten note dated January 24, 1984 to sell
the properties of the De Castros for P23 million at a 5 percent commission. The authority was on a first
come, first serve basis. The authority reads in full:
24 Jan. 84
To Whom It May Concern:
This is to state that Mr. Francisco Artigo is authorized as our real estate broker in connection with the
sale of our property located at Edsa Corner New York & Denver, Cubao, Quezon City.
Asking price P23,000,000.00 with
5% commission as agents fee.
C.C. de Castro
owner & representing
co-owners
This authority is on a first-come
First serve basis CAC
Constante signed the note as owner and as representative of the other co-owners. Under this note, a
contract of agency was clearly constituted between Constante and Artigo. Whether Constante
appointed Artigo as agent, in Constantes individual or representative capacity, or both, the De Castros
cannot seek the dismissal of the case for failure to implead the other co-owners as indispensable
parties. The De Castros admit that the other co-owners are solidarily liable under the contract of
agency,[10 citing Article 1915 of the Civil Code, which reads:
Art. 1915. If two or more persons have appointed an agent for a common transaction or undertaking,
they shall be solidarily liable to the agent for all the consequences of the agency.
The solidary liability of the four co-owners, however, militates against the De Castros theory that the
other co-owners should be impleaded as indispensable parties. A noted commentator explained Article
1915 thus
The rule in this article applies even when the appointments were made by the principals in separate
acts, provided that they are for the same transaction. The solidarity arises from the common interest of
the principals, and not from the act of constituting the agency. By virtue of this solidarity, the agent can
recover from any principal the whole compensation and indemnity owing to him by the others. The
parties, however, may, by express agreement, negate this solidary responsibility. The solidarity does not
disappear by the mere partition effected by the principals after the accomplishment of the agency.
If the undertaking is one in which several are interested, but only some create the agency, only the
latter are solidarily liable, without prejudice to the effects of negotiorum gestio with respect to the
others. And if the power granted includes various transactions some of which are common and others
are not, only those interested in each transaction shall be liable for it.[11
When the law expressly provides for solidarity of the obligation, as in the liability of co-principals in a
contract of agency, each obligor may be compelled to pay the entire obligation.[12 The agent may
recover the whole compensation from any one of the co-principals, as in this case.
Indeed, Article 1216 of the Civil Code provides that a creditor may sue any of the solidary debtors. This
article reads:
Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them
simultaneously. The demand made against one of them shall not be an obstacle to those which may
subsequently be directed against the others, so long as the debt has not been fully collected.
Thus, the Court has ruled in Operators Incorporated vs. American Biscuit Co., Inc.[13 that
x x x solidarity does not make a solidary obligor an indispensable party in a suit filed by the creditor.
Article 1216 of the Civil Code says that the creditor `may proceed against anyone of the solidary debtors
or some or all of them simultaneously. (Emphasis supplied)
Second Issue: whether Artigos claim has been extinguished by full payment, waiver or abandonment
The De Castros claim that Artigo was fully paid on June 14, 1985, that is, Artigo was given his
proportionate share and no longer entitled to any balance. According to them, Artigo was just one of the
agents involved in the sale and entitled to a proportionate share in the commission. They assert that
Artigo did absolutely nothing during the second negotiation but to sign as a witness in the deed of sale.
He did not even prepare the documents for the transaction as an active real estate broker usually does.
The De Castros arguments are flimsy.
A contract of agency which is not contrary to law, public order, public policy, morals or good custom is a
valid contract, and constitutes the law between the parties.[14 The contract of agency entered into by
Constante with Artigo is the law between them and both are bound to comply with its terms and
conditions in good faith.
The mere fact that other agents intervened in the consummation of the sale and were paid their
respective commissions cannot vary the terms of the contract of agency granting Artigo a 5 percent
commission based on the selling price. These other agents turned out to be employees of Times Transit,
the buyer Artigo introduced to the De Castros. This prompted the trial court to observe:
The alleged `second group of agents came into the picture only during the so-called `second negotiation
and it is amusing to note that these (sic) second group, prominent among whom are Atty. Del Castillo
and Ms. Prudencio, happened to be employees of Times Transit, the buyer of the properties. And their
efforts were limited to convincing Constante to part away with the properties because the redemption
period of the foreclosed properties is around the corner, so to speak. (tsn. June 6, 1991).
xxx
To accept Constantes version of the story is to open the floodgates of fraud and deceit. A seller could
always pretend rejection of the offer and wait for sometime for others to renew it who are much willing
to accept a commission far less than the original broker. The immorality in the instant case easily
presents itself if one has to consider that the alleged `second group are the employees of the buyer,
Times Transit and they have not bettered the offer secured by Mr. Artigo for P7 million.
It is to be noted also that while Constante was too particular about the unrenewed real estate brokers
license of Mr. Artigo, he did not bother at all to inquire as to the licenses of Prudencio and Castillo. (tsn,
April 11, 1991, pp. 39-40).[15 (Emphasis supplied)
In any event, we find that the 5 percent real estate brokers commission is reasonable and within the
standard practice in the real estate industry for transactions of this nature.
The De Castros also contend that Artigos inaction as well as failure to protest estops him from
recovering more than what was actually paid him. The De Castros cite Article 1235 of the Civil Code
which reads:
Art. 1235. When the obligee accepts the performance, knowing its incompleteness and irregularity, and
without expressing any protest or objection, the obligation is deemed fully complied with.
The De Castros reliance on Article 1235 of the Civil Code is misplaced. Artigos acceptance of partial
payment of his commission neither amounts to a waiver of the balance nor puts him in estoppel. This is
the import of Article 1235 which was explained in this wise:
The word accept, as used in Article 1235 of the Civil Code, means to take as satisfactory or sufficient, or
agree to an incomplete or irregular performance. Hence, the mere receipt of a partial payment is not
equivalent to the required acceptance of performance as would extinguish the whole obligation.[16
(Emphasis supplied)
There is thus a clear distinction between acceptance and mere receipt. In this case, it is evident that
Artigo merely received the partial payment without waiving the balance. Thus, there is no estoppel to
speak of.
The De Castros further argue that laches should apply because Artigo did not file his complaint in court
until May 29, 1989, or almost four years later. Hence, Artigos claim for the balance of his commission is
barred by laches.
Laches means the failure or neglect, for an unreasonable and unexplained length of time, to do that
which by exercising due diligence could or should have been done earlier. It is negligence or omission to
assert a right within a reasonable time, warranting a presumption that the party entitled to assert it
either has abandoned it or declined to assert it.[17
Artigo disputes the claim that he neglected to assert his rights. He was appointed as agent on January
24, 1984. The two lots were finally sold in June 1985. As found by the trial court, Artigo demanded in
April and July of 1985 the payment of his commission by Constante on the basis of the selling price of
P7.05 million but there was no response from Constante.[18 After it became clear that his demands for
payment have fallen on deaf ears, Artigo decided to sue on May 29, 1989.
Actions upon a written contract, such as a contract of agency, must be brought within ten years from
the time the right of action accrues.[19 The right of action accrues from the moment the breach of right
or duty occurs. From this moment, the creditor can institute the action even as the ten-year prescriptive
period begins to run.[20
The De Castros admit that Artigos claim was filed within the ten-year prescriptive period. The De
Castros, however, still maintain that Artigos cause of action is barred by laches. Laches does not apply
because only four years had lapsed from the time of the sale in June 1985. Artigo made a demand in July
1985 and filed the action in court on May 29, 1989, well within the ten-year prescriptive period. This
does not constitute an unreasonable delay in asserting ones right. The Court has ruled, a delay within
the prescriptive period is sanctioned by law and is not considered to be a delay that would bar relief.[21
In explaining that laches applies only in the absence of a statutory prescriptive period, the Court has
stated -
Laches is recourse in equity. Equity, however, is applied only in the absence, never in contravention, of
statutory law. Thus, laches, cannot, as a rule, be used to abate a collection suit filed within the
prescriptive period mandated by the Civil Code.[22
Clearly, the De Castros defense of laches finds no support in law, equity or jurisprudence.
Third issue: whether the determination of the purchase price was made in violation of the Rules on
Evidence
The De Castros want the Court to re-examine the probative value of the evidence adduced in the trial
court to determine whether the actual selling price of the two lots was P7.05 million and not P3.6
million. The De Castros contend that it is erroneous to base the 5 percent commission on a purchase
price of P7.05 million as ordered by the trial court and the appellate court. The De Castros insist that the
purchase price is P3.6 million as expressly stated in the deed of sale, the due execution and authenticity
of which was admitted during the trial.
The De Castros believe that the trial and appellate courts committed a mistake in considering
incompetent evidence and disregarding the best evidence and parole evidence rules. They claim that the
Court of Appeals erroneously affirmed sub silentio the trial courts reliance on the various
correspondences between Constante and Times Transit which were mere photocopies that do not
satisfy the best evidence rule. Further, these letters covered only the first negotiations between
Constante and Times Transit which failed; hence, these are immaterial in determining the final purchase
price.
The De Castros further argue that if there was an undervaluation, Artigo who signed as witness
benefited therefrom, and being equally guilty, should be left where he presently stands. They likewise
claim that the Court of Appeals erred in relying on evidence which were not offered for the purpose
considered by the trial court. Specifically, Exhibits B, C, D and E were not offered to prove that the
purchase price was P7.05 Million. Finally, they argue that the courts a quo erred in giving credence to
the perjured testimony of Artigo. They want the entire testimony of Artigo rejected as a falsehood
because he was lying when he claimed at the outset that he was a licensed real estate broker when he
was not.
Whether the actual purchase price was P7.05 Million as found by the trial court and affirmed by the
Court of Appeals, or P3.6 Million as claimed by the De Castros, is a question of fact and not of law.
Inevitably, this calls for an inquiry into the facts and evidence on record. This we can not do.
It is not the function of this Court to re-examine the evidence submitted by the parties, or analyze or
weigh the evidence again.[23 This Court is not the proper venue to consider a factual issue as it is not a
trier of facts. In petitions for review on certiorari as a mode of appeal under Rule 45, a petitioner can
only raise questions of law. Our pronouncement in the case of Cormero vs. Court of Appeals[24 bears
reiteration:
At the outset, it is evident from the errors assigned that the petition is anchored on a plea to review the
factual conclusion reached by the respondent court. Such task however is foreclosed by the rule that in
petitions for certiorari as a mode of appeal, like this one, only questions of law distinctly set forth may
be raised. These questions have been defined as those that do not call for any examination of the
probative value of the evidence presented by the parties. (Uniland Resources vs. Development Bank of
the Philippines, 200 SCRA 751 [1991] citing Goduco vs. Court of appeals, et al., 119 Phil. 531; Hernandez
vs. Court of Appeals, 149 SCRA 67). And when this court is asked to go over the proof presented by the
parties, and analyze, assess and weigh them to ascertain if the trial court and the appellate court were
correct in according superior credit to this or that piece of evidence and eventually, to the totality of the
evidence of one party or the other, the court cannot and will not do the same. (Elayda vs. Court of
Appeals, 199 SCRA 349 [1991]). Thus, in the absence of any showing that the findings complained of are
totally devoid of support in the record, or that they are so glaringly erroneous as to constitute serious
abuse of discretion, such findings must stand, for this court is not expected or required to examine or
contrast the oral and documentary evidence submitted by the parties. (Morales vs. Court of Appeals,
197 SCRA 391 [1991] citing Santa Ana vs. Hernandez, 18 SCRA 973 [1966]).
We find no reason to depart from this principle. The trial and appellate courts are in a much better
position to evaluate properly the evidence. Hence, we find no other recourse but to affirm their finding
on the actual purchase price.
Fourth Issue: whether award of moral damages and attorneys fees is proper
The De Castros claim that Artigo failed to prove that he is entitled to moral damages and attorneys fees.
The De Castros, however, cite no concrete reason except to say that they are the ones entitled to
damages since the case was filed to harass and extort money from them.
Law and jurisprudence support the award of moral damages and attorneys fees in favor of Artigo. The
award of damages and attorneys fees is left to the sound discretion of the court, and if such discretion is
well exercised, as in this case, it will not be disturbed on appeal.[25 Moral damages may be awarded
when in a breach of contract the defendant acted in bad faith, or in wanton disregard of his contractual
obligation.[26 On the other hand, attorneys fees are awarded in instances where the defendant acted in
gross and evident bad faith in refusing to satisfy the plaintiffs plainly valid, just and demandable
claim.[27 There is no reason to disturb the trial courts finding that the defendants lack of good faith and
unkind treatment of the plaintiff in refusing to give his due commission deserve censure. This warrants
the award of P25,000.00 in moral damages and P45,000.00 in attorneys fees. The amounts are, in our
view, fair and reasonable. Having found a buyer for the two lots, Artigo had already performed his part
of the bargain under the contract of agency. The De Castros should have exercised fairness and good
judgment in dealing with Artigo by fulfilling their own part of the bargain - paying Artigo his 5 percent
brokers commission based on the actual purchase price of the two lots.
WHEREFORE, the petition is denied for lack of merit. The Decision of the Court of Appeals dated May 4,
1994 in CA-G.R. CV No. 37996 is AFFIRMED in toto.
SO ORDERED.
Puno, (Chairman), and Panganiban, JJ., concur.
Sandoval-Gutierrez, J., no part due to close family relation with a party.
Endnotes:
[1 Under Rule 45 of the Rules of Court.
[2 Seventh Division composed of Justices Ricardo J. Francisco (Chairman and Ponente); Salome A.
Montoya and Ramon A. Barcelona (Members).
[3 Penned by Judge Benigno T. Dayaw.
[4 When referred to collectively.
[5 Referring to the De Castros.
[6 Referring to Artigo.
[7 Rule 3, Section 7 of the Rules of Court; Seno v. Mangubat, 156 SCRA 113 (1987); Quisumbing vs. Court
of Appeals, 189 SCRA 325 (1990); Lozano vs. Ballesteros, 195 SCRA 681 (1991).
[8 Ibid .
[9] Vicente J. Francisco, The Revised Rules of Court, Vol. 1, p. 271, 1973 ed.
[10 Memorandum of Petitioner dated April 23, 1997, p.8; Rollo, p. 175.
[11 Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. 5,
pp.. 428-429, 1992 ed.
[12 Art. 1207 of the Civil Code provides as follows: Art. 1207. The concurrence of two or more creditors
or of two or more debtors in one and the same obligation does not imply that each one of the former
has a right to demand, or that each one of the latter is bound to render, entire compliance with the
prestation. There is solidary liability only when the obligation expressly so states, or when the law or the
nature of the obligation requires solidarity.
[13 154 SCRA 738 (1987), reiterated in Republic vs. Sandiganbayan, 173 SCRA 72 (1989).
[14 San Andres vs. Rodriguez, 332 SCRA 769 (2000).
[15 Decision dated December 20, 1991 of RTC Judge Benigno T. Dayan, Rollo, pp. 33-34.
[16 Tolentino, supra, see note 11, Vol. 4, p. 279.

[17 Republic vs. Court of Appeals, 301 SCRA 366 (1999); Ochagabia vs. Court of Appeals, 304 SCRA 587
(1999).
[18 RTC Decision, p. 7; Rollo, pp. 20-36, see p. 35.
[19 Article 1144 of the Civil Code provides as follows: Art. 1144. The following actions must be brought
within ten years from the time the right of action accrues: (1) Upon a written contract; (2) Upon an
obligation created by law; (3) Upon a judgment.
[20 Tolention, supra, see note 16, p. 44.
[21 Agra vs. Philippine National Bank, 309 SCRA 509 (1999).
[22 Ibid.
[23 Moomba Mining Exploration Company vs. Court of Appeals, , 317 SCRA 388 (1999).
[24 247 SCRA 291 (1995).
[25 Barzaga vs. Court of Appeals, 268 SCRA 105 (1997).
[26 Jose C. Vitug, Compendium of Civil Law and Jurisprudence, p. 841, 1993 Ed.
[27 Art. 2208, Civil Code of the Philippines.

G.R. No. L-49188 January 30, 1990
PHILIPPINE AIRLINES, INC., petitioner,

vs.
HON. COURT OF APPEALS, HON. JUDGE RICARDO D. GALANO, Court of First Instance of Manila, Branch
XIII, JAIME K. DEL ROSARIO, Deputy Sheriff, Court of First Instance, Manila, and AMELIA TAN,
respondents.
GUTIERREZ, JR., J.:
Behind the simple issue of validity of an alias writ of execution in this case is a more fundamental
question. Should the Court allow a too literal interpretation of the Rules with an open invitation to
knavery to prevail over a more discerning and just approach? Should we not apply the ancient rule of
statutory construction that laws are to be interpreted by the spirit which vivifies and not by the letter
which killeth?
This is a petition to review on certiorari the decision of the Court of Appeals in CA-G.R. No. 07695
entitled "Philippine Airlines, Inc. v. Hon. Judge Ricardo D. Galano, et al.", dismissing the petition for
certiorari against the order of the Court of First Instance of Manila which issued an alias writ of
execution against the petitioner.
The petition involving the alias writ of execution had its beginnings on November 8, 1967, when
respondent Amelia Tan, under the name and style of Able Printing Press commenced a complaint for
damages before the Court of First Instance of Manila. The case was docketed as Civil Case No. 71307,
entitled Amelia Tan, et al. v. Philippine Airlines, Inc.
After trial, the Court of First Instance of Manila, Branch 13, then presided over by the late Judge Jesus P.
Morfe rendered judgment on June 29, 1972, in favor of private respondent Amelia Tan and against
petitioner Philippine Airlines, Inc. (PAL) as follows:
WHEREFORE, judgment is hereby rendered, ordering the defendant Philippine Air Lines:
1. On the first cause of action, to pay to the plaintiff the amount of P75,000.00 as actual damages, with
legal interest thereon from plaintiffs extra-judicial demand made by the letter of July 20, 1967;
2. On the third cause of action, to pay to the plaintiff the amount of P18,200.00, representing the
unrealized profit of 10% included in the contract price of P200,000.00 plus legal interest thereon from
July 20,1967;
3. On the fourth cause of action, to pay to the plaintiff the amount of P20,000.00 as and for moral
damages, with legal interest thereon from July 20, 1 967;
4. On the sixth cause of action, to pay to the plaintiff the amount of P5,000.00 damages as and for
attorney's fee.
Plaintiffs second and fifth causes of action, and defendant's counterclaim, are dismissed.
With costs against the defendant. (CA Rollo, p. 18)
On July 28, 1972, the petitioner filed its appeal with the Court of Appeals. The case was docketed as CA-
G.R. No. 51079-R.
On February 3, 1977, the appellate court rendered its decision, the dispositive portion of which reads:
IN VIEW WHEREOF, with the modification that PAL is condemned to pay plaintiff the sum of P25,000.00
as damages and P5,000.00 as attorney's fee, judgment is affirmed, with costs. (CA Rollo, p. 29)
Notice of judgment was sent by the Court of Appeals to the trial court and on dates subsequent thereto,
a motion for reconsideration was filed by respondent Amelia Tan, duly opposed by petitioner PAL.
On May 23,1977, the Court of Appeals rendered its resolution denying the respondent's motion for
reconsideration for lack of merit.
No further appeal having been taken by the parties, the judgment became final and executory and on
May 31, 1977, judgment was correspondingly entered in the case.
The case was remanded to the trial court for execution and on September 2,1977, respondent Amelia
Tan filed a motion praying for the issuance of a writ of execution of the judgment rendered by the Court
of Appeals. On October 11, 1977, the trial court, presided over by Judge Galano, issued its order of
execution with the corresponding writ in favor of the respondent. The writ was duly referred to Deputy
Sheriff Emilio Z. Reyes of Branch 13 of the Court of First Instance of Manila for enforcement.
Four months later, on February 11, 1978, respondent Amelia Tan moved for the issuance of an alias writ
of execution stating that the judgment rendered by the lower court, and affirmed with modification by
the Court of Appeals, remained unsatisfied.
On March 1, 1978, the petitioner filed an opposition to the motion for the issuance of an alias writ of
execution stating that it had already fully paid its obligation to plaintiff through the deputy sheriff of the
respondent court, Emilio Z. Reyes, as evidenced by cash vouchers properly signed and receipted by said
Emilio Z. Reyes.
On March 3,1978, the Court of Appeals denied the issuance of the alias writ for being premature,
ordering the executing sheriff Emilio Z. Reyes to appear with his return and explain the reason for his
failure to surrender the amounts paid to him by petitioner PAL. However, the order could not be served
upon Deputy Sheriff Reyes who had absconded or disappeared.
On March 28, 1978, motion for the issuance of a partial alias writ of execution was filed by respondent
Amelia Tan.
On April 19, 1978, respondent Amelia Tan filed a motion to withdraw "Motion for Partial Alias Writ of
Execution" with Substitute Motion for Alias Writ of Execution. On May 1, 1978, the respondent Judge
issued an order which reads:
As prayed for by counsel for the plaintiff, the Motion to Withdraw 'Motion for Partial Alias Writ of
Execution with Substitute Motion for Alias Writ of Execution is hereby granted, and the motion for
partial alias writ of execution is considered withdrawn.
Let an Alias Writ of Execution issue against the defendant for the fall satisfaction of the judgment
rendered. Deputy Sheriff Jaime K. del Rosario is hereby appointed Special Sheriff for the enforcement
thereof. (CA Rollo, p. 34)
On May 18, 1978, the petitioner received a copy of the first alias writ of execution issued on the same
day directing Special Sheriff Jaime K. del Rosario to levy on execution in the sum of P25,000.00 with legal
interest thereon from July 20,1967 when respondent Amelia Tan made an extra-judicial demand
through a letter. Levy was also ordered for the further sum of P5,000.00 awarded as attorney's fees.
On May 23, 1978, the petitioner filed an urgent motion to quash the alias writ of execution stating that
no return of the writ had as yet been made by Deputy Sheriff Emilio Z. Reyes and that the judgment
debt had already been fully satisfied by the petitioner as evidenced by the cash vouchers signed and
receipted by the server of the writ of execution, Deputy Sheriff Emilio Z. Reyes.
On May 26,1978, the respondent Jaime K. del Rosario served a notice of garnishment on the depository
bank of petitioner, Far East Bank and Trust Company, Rosario Branch, Binondo, Manila, through its
manager and garnished the petitioner's deposit in the said bank in the total amount of P64,408.00 as of
May 16, 1978. Hence, this petition for certiorari filed by the Philippine Airlines, Inc., on the grounds that:
AN ALIAS WRIT OF EXECUTION CANNOT BE ISSUED WITHOUT PRIOR RETURN OF THE ORIGINAL WRIT BY
THE IMPLEMENTING OFFICER.
II
PAYMENT OF JUDGMENT TO THE IMPLEMENTING OFFICER AS DIRECTED IN THE WRIT OF EXECUTION

CONSTITUTES SATISFACTION OF JUDGMENT.
III
INTEREST IS NOT PAYABLE WHEN THE DECISION IS SILENT AS TO THE PAYMENT THEREOF.
IV
SECTION 5, RULE 39, PARTICULARLY REFERS TO LEVY OF PROPERTY OF JUDGMENT DEBTOR AND
DISPOSAL OR SALE THEREOF TO SATISFY JUDGMENT.
Can an alias writ of execution be issued without a prior return of the original writ by the implementing
officer?
We rule in the affirmative and we quote the respondent court's decision with approval:
The issuance of the questioned alias writ of execution under the circumstances here obtaining is
justified because even with the absence of a Sheriffs return on the original writ, the unalterable fact
remains that such a return is incapable of being obtained (sic) because the officer who is to make the
said return has absconded and cannot be brought to the Court despite the earlier order of the court for
him to appear for this purpose. (Order of Feb. 21, 1978, Annex C, Petition). Obviously, taking cognizance
of this circumstance, the order of May 11, 1978 directing the issuance of an alias writ was therefore
issued. (Annex D. Petition). The need for such a return as a condition precedent for the issuance of an
alias writ was justifiably dispensed with by the court below and its action in this regard meets with our
concurrence. A contrary view will produce an abhorent situation whereby the mischief of an erring
officer of the court could be utilized to impede indefinitely the undisputed and awarded rights which a
prevailing party rightfully deserves to obtain and with dispatch. The final judgment in this case should
not indeed be permitted to become illusory or incapable of execution for an indefinite and over
extended period, as had already transpired. (Rollo, pp. 35-36)
Judicium non debet esse illusorium; suum effectum habere debet (A judgment ought not to be illusory it
ought to have its proper effect).
Indeed, technicality cannot be countenanced to defeat the execution of a judgment for execution is the
fruit and end of the suit and is very aptly called the life of the law (Ipekdjian Merchandising Co. v. Court
of Tax Appeals, 8 SCRA 59 [1963]; Commissioner of Internal Revenue v. Visayan Electric Co., 19 SCRA
697, 698 [1967]). A judgment cannot be rendered nugatory by the unreasonable application of a strict
rule of procedure. Vested rights were never intended to rest on the requirement of a return, the office
of which is merely to inform the court and the parties, of any and all actions taken under the writ of
execution. Where such information can be established in some other manner, the absence of an
executing officer's return will not preclude a judgment from being treated as discharged or being
executed through an alias writ of execution as the case may be. More so, as in the case at bar. Where
the return cannot be expected to be forthcoming, to require the same would be to compel the
enforcement of rights under a judgment to rest on an impossibility, thereby allowing the total avoidance
of judgment debts. So long as a judgment is not satisfied, a plaintiff is entitled to other writs of
execution (Government of the Philippines v. Echaus and Gonzales, 71 Phil. 318). It is a well known legal
maxim that he who cannot prosecute his judgment with effect, sues his case vainly.
More important in the determination of the propriety of the trial court's issuance of an alias writ of
execution is the issue of satisfaction of judgment.
Under the peculiar circumstances surrounding this case, did the payment made to the absconding
sheriff by check in his name operate to satisfy the judgment debt? The Court rules that the plaintiff who
has won her case should not be adjudged as having sued in vain. To decide otherwise would not only
give her an empty but a pyrrhic victory.
It should be emphasized that under the initial judgment, Amelia Tan was found to have been wronged
by PAL.
She filed her complaint in 1967.
After ten (10) years of protracted litigation in the Court of First Instance and the Court of Appeals, Ms.
Tan won her case.
It is now 1990.
Almost twenty-two (22) years later, Ms. Tan has not seen a centavo of what the courts have solemnly
declared as rightfully hers. Through absolutely no fault of her own, Ms. Tan has been deprived of what,
technically, she should have been paid from the start, before 1967, without need of her going to court
to enforce her rights. And all because PAL did not issue the checks intended for her, in her name.
Under the peculiar circumstances of this case, the payment to the absconding sheriff by check in his
name did not operate as a satisfaction of the judgment debt.
In general, a payment, in order to be effective to discharge an obligation, must be made to the proper
person. Article 1240 of the Civil Code provides:
Payment shall be made to the person in whose favor the obligation has been constituted, or his
successor in interest, or any person authorized to receive it. (Emphasis supplied)
Thus, payment must be made to the obligee himself or to an agent having authority, express or implied,
to receive the particular payment (Ulen v. Knecttle 50 Wyo 94, 58 [2d] 446, 111 ALR 65). Payment made
to one having apparent authority to receive the money will, as a rule, be treated as though actual
authority had been given for its receipt. Likewise, if payment is made to one who by law is authorized to
act for the creditor, it will work a discharge (Hendry v. Benlisa 37 Fla. 609, 20 SO 800,34 LRA 283). The
receipt of money due on ajudgment by an officer authorized by law to accept it will, therefore, satisfy
the debt (See 40 Am Jm 729, 25; Hendry v. Benlisa supra; Seattle v. Stirrat 55 Wash. 104 p. 834,24 LRA
[NS] 1275).
The theory is where payment is made to a person authorized and recognized by the creditor, the
payment to such a person so authorized is deemed payment to the creditor. Under ordinary
circumstances, payment by the judgment debtor in the case at bar, to the sheriff should be valid
payment to extinguish the judgment debt.
There are circumstances in this case, however, which compel a different conclusion.
The payment made by the petitioner to the absconding sheriff was not in cash or legal tender but in
checks. The checks were not payable to Amelia Tan or Able Printing Press but to the absconding sheriff.
Did such payments extinguish the judgment debt?
Article 1249 of the Civil Code provides:
The payment of debts in money shall be made in the currency stipulated, and if it is not possible to
deliver such currency, then in the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents
shall produce the effect of payment only when they have been cashed, or when through the fault of the
creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in abeyance.
In the absence of an agreement, either express or implied, payment means the discharge of a debt or
obligation in money (US v. Robertson, 5 Pet. [US] 641, 8 L. ed. 257) and unless the parties so agree, a
debtor has no rights, except at his own peril, to substitute something in lieu of cash as medium of
payment of his debt (Anderson v. Gill, 79 Md.. 312, 29 A 527, 25 LRA 200,47 Am. St. Rep. 402).
Consequently, unless authorized to do so by law or by consent of the obligee a public officer has no
authority to accept anything other than money in payment of an obligation under a judgment being
executed. Strictly speaking, the acceptance by the sheriff of the petitioner's checks, in the case at bar,
does not, per se, operate as a discharge of the judgment debt.
Since a negotiable instrument is only a substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment (See. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil
Code; Bryan Landon Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A
check, whether a manager's check or ordinary cheek, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or
creditor. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is
not extinguished and remains suspended until the payment by commercial document is actually realized
(Art. 1249, Civil Code, par. 3).
If bouncing checks had been issued in the name of Amelia Tan and not the Sheriff's, there would have
been no payment. After dishonor of the checks, Ms. Tan could have run after other properties of PAL.
The theory is that she has received no value for what had been awarded her. Because the checks were
drawn in the name of Emilio Z. Reyes, neither has she received anything. The same rule should apply.
It is argued that if PAL had paid in cash to Sheriff Reyes, there would have been payment in full legal
contemplation. The reasoning is logical but is it valid and proper? Logic has its limits in decision making.
We should not follow rulings to their logical extremes if in doing so we arrive at unjust or absurd results.
In the first place, PAL did not pay in cash. It paid in cheeks.
And second, payment in cash always carries with it certain cautions. Nobody hands over big amounts of
cash in a careless and inane manner. Mature thought is given to the possibility of the cash being lost, of
the bearer being waylaid or running off with what he is carrying for another. Payment in checks is
precisely intended to avoid the possibility of the money going to the wrong party. The situation is
entirely different where a Sheriff seizes a car, a tractor, or a piece of land. Logic often has to give way to
experience and to reality. Having paid with checks, PAL should have done so properly.
Payment in money or cash to the implementing officer may be deemed absolute payment of the
judgment debt but the Court has never, in the least bit, suggested that judgment debtors should settle
their obligations by turning over huge amounts of cash or legal tender to sheriffs and other executing
officers. Payment in cash would result in damage or interminable litigations each time a sheriff with
huge amounts of cash in his hands decides to abscond.
As a protective measure, therefore, the courts encourage the practice of payments by cheek provided
adequate controls are instituted to prevent wrongful payment and illegal withdrawal or disbursement of
funds. If particularly big amounts are involved, escrow arrangements with a bank and carefully
supervised by the court would be the safer procedure. Actual transfer of funds takes place within the
safety of bank premises. These practices are perfectly legal. The object is always the safe and incorrupt
execution of the judgment.
It is, indeed, out of the ordinary that checks intended for a particular payee are made out in the name of
another. Making the checks payable to the judgment creditor would have prevented the encashment or
the taking of undue advantage by the sheriff, or any person into whose hands the checks may have
fallen, whether wrongfully or in behalf of the creditor. The issuance of the checks in the name of the
sheriff clearly made possible the misappropriation of the funds that were withdrawn.
As explained and held by the respondent court:
... [K]nowing as it does that the intended payment was for the private party respondent Amelia Tan, the
petitioner corporation, utilizing the services of its personnel who are or should be knowledgeable about
the accepted procedures and resulting consequences of the checks drawn, nevertheless, in this instance,
without prudence, departed from what is generally observed and done, and placed as payee in the
checks the name of the errant Sheriff and not the name of the rightful payee. Petitioner thereby created
a situation which permitted the said Sheriff to personally encash said checks and misappropriate the
proceeds thereof to his exclusive personal benefit. For the prejudice that resulted, the petitioner himself
must bear the fault. The judicial guideline which we take note of states as follows:
As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the
one who made it possible by his act of confidence must bear the loss. (Blondeau, et al. v. Nano, et al., L-
41377, July 26, 1935, 61 Phil. 625)
Having failed to employ the proper safeguards to protect itself, the judgment debtor whose act made
possible the loss had but itself to blame.
The attention of this Court has been called to the bad practice of a number of executing officers, of
requiring checks in satisfaction of judgment debts to be made out in their own names. If a sheriff directs
a judgment debtor to issue the checks in the sheriff's name, claiming he must get his commission or
fees, the debtor must report the sheriff immediately to the court which ordered the execution or to the
Supreme Court for appropriate disciplinary action. Fees, commissions, and salaries are paid through
regular channels. This improper procedure also allows such officers, who have sixty (60) days within
which to make a return, to treat the moneys as their personal finds and to deposit the same in their
private accounts to earn sixty (60) days interest, before said finds are turned over to the court or
judgment creditor (See Balgos v. Velasco, 108 SCRA 525 [1981]). Quite as easily, such officers could put
up the defense that said checks had been issued to them in their private or personal capacity. Without a
receipt evidencing payment of the judgment debt, the misappropriation of finds by such officers
becomes clean and complete. The practice is ingenious but evil as it unjustly enriches court personnel at
the expense of litigants and the proper administration of justice. The temptation could be far greater, as
proved to be in this case of the absconding sheriff. The correct and prudent thing for the petitioner was
to have issued the checks in the intended payee's name.
The pernicious effects of issuing checks in the name of a person other than the intended payee, without
the latter's agreement or consent, are as many as the ways that an artful mind could concoct to get
around the safeguards provided by the law on negotiable instruments. An angry litigant who loses a
case, as a rule, would not want the winning party to get what he won in the judgment. He would think of
ways to delay the winning party's getting what has been adjudged in his favor. We cannot condone that
practice especially in cases where the courts and their officers are involved.1âwphi1 We rule against the
petitioner.
Anent the applicability of Section 15, Rule 39, as follows:
Section 15. Execution of money judgments. — The officer must enforce an execution of a money
judgment by levying on all the property, real and personal of every name and nature whatsoever, and
which may be disposed of for value, of the judgment debtor not exempt from execution, or on a
sufficient amount of such property, if they be sufficient, and selling the same, and paying to the
judgment creditor, or his attorney, so much of the proceeds as will satisfy the judgment. ...
the respondent court held:
We are obliged to rule that the judgment debt cannot be considered satisfied and therefore the orders
of the respondent judge granting the alias writ of execution may not be pronounced as a nullity.
xxx xxx xxx
It is clear and manifest that after levy or garnishment, for a judgment to be executed there is the
requisite of payment by the officer to the judgment creditor, or his attorney, so much of the proceeds as
will satisfy the judgment and none such payment had been concededly made yet by the absconding
Sheriff to the private respondent Amelia Tan. The ultimate and essential step to complete the execution
of the judgment not having been performed by the City Sheriff, the judgment debt legally and factually
remains unsatisfied.
Strictly speaking execution cannot be equated with satisfaction of a judgment. Under unusual
circumstances as those obtaining in this petition, the distinction comes out clearly.
Execution is the process which carries into effect a decree or judgment (Painter v. Berglund, 31 Cal. App.
2d. 63, 87 P 2d 360, 363; Miller v. London, 294 Mass 300, 1 NE 2d 198, 200; Black's Law Dictionary),
whereas the satisfaction of a judgment is the payment of the amount of the writ, or a lawful tender
thereof, or the conversion by sale of the debtor's property into an amount equal to that due, and, it may
be done otherwise than upon an execution (Section 47, Rule 39). Levy and delivery by an execution
officer are not prerequisites to the satisfaction of a judgment when the same has already been realized
in fact (Section 47, Rule 39). Execution is for the sheriff to accomplish while satisfaction of the judgment
is for the creditor to achieve. Section 15, Rule 39 merely provides the sheriff with his duties as executing
officer including delivery of the proceeds of his levy on the debtor's property to satisfy the judgment
debt. It is but to stress that the implementing officer's duty should not stop at his receipt of payments
but must continue until payment is delivered to the obligor or creditor.
Finally, we find no error in the respondent court's pronouncement on the inclusion of interests to be
recovered under the alias writ of execution. This logically follows from our ruling that PAL is liable for
both the lost checks and interest. The respondent court's decision in CA-G.R. No. 51079-R does not
totally supersede the trial court's judgment in Civil Case No. 71307. It merely modified the same as to
the principal amount awarded as actual damages.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DISMISSED. The judgment of the
respondent Court of Appeals is AFFIRMED and the trial court's issuance of the alias writ of execution
against the petitioner is upheld without prejudice to any action it should take against the errant sheriff
Emilio Z. Reyes. The Court Administrator is ordered to follow up the actions taken against Emilio Z.
Reyes.
SO ORDERED.
Fernan, C.J., Cruz, Paras, Bidin, Griño-Aquino, Medialdea and Regalado, JJ., concur.
Separate Opinions
NARVASA, J., dissenting:
The execution of final judgments and orders is a function of the sheriff, an officer of the court whose
authority is by and large statutorily determined to meet the particular exigencies arising from or
connected with the performance of the multifarious duties of the office. It is the acknowledgment of the
many dimensions of this authority, defined by statute and chiselled by practice, which compels me to
disagree with the decision reached by the majority.
A consideration of the wide latitude of discretion allowed the sheriff as the officer of the court most
directly involved with the implementation and execution of final judgments and orders persuades me
that PAL's payment to the sheriff of its judgment debt to Amelia Tan, though made by check issued in
said officer's name, lawfully satisfied said obligation and foreclosed further recourse therefor against
PAL, notwithstanding the sheriffs failure to deliver to Tan the proceeds of the check.
It is a matter of history that the judiciary .. is an inherit or of the Anglo-American tradition. While the
common law as such .. "is not in force" in this jurisdiction, "to breathe the breath of life into many of the
institutions, introduced [here] under American sovereignty, recourse must be had to the rules, principles
and doctrines of the common law under whose protecting aegis the prototypes of these institutions had
their birth" A sheriff is "an officer of great antiquity," and was also called the shire reeve. A shire in
English law is a Saxon word signifying a division later called a county. A reeve is an ancient English officer
of justice inferior in rank to an alderman .. appointed to process, keep the King's peace, and put the laws
in execution. From a very remote period in English constitutional history .. the shire had another officer,
namely the shire reeve or as we say, the sheriff. .. The Sheriff was the special representative of the legal
or central authority, and as such usually nominated by the King. .. Since the earliest times, both in
England and the United States, a sheriff has continued his status as an adjunct of the court .. . As it was
there, so it has been in the Philippines from the time of the organization of the judiciary .. . (J.
Fernando's concurring opinion in Bagatsing v. Herrera, 65 SCRA 434)
One of a sheriff s principal functions is to execute final judgments and orders. The Rules of Court require
the writs of execution to issue to him, directing him to enforce such judgments and orders in the
manner therein provided (Rule 39). The mode of enforcement varies according to the nature of the
judgment to be carried out: whether it be against property of the judgment debtor in his hands or in the
hands of a third person i e. money judgment), or for the sale of property, real or personal (i.e.
foreclosure of mortgage) or the delivery thereof, etc. (sec. 8, Rule 39).
Under sec. 15 of the same Rule, the sheriff is empowered to levy on so much of the judgment debtor's
property as may be sufficient to enforce the money judgment and sell these properties at public auction
after due notice to satisfy the adjudged amount. It is the sheriff who, after the auction sale, conveys to
the purchaser the property thus sold (secs. 25, 26, 27, Rule 39), and pays the judgment creditor so much
of the proceeds as will satisfy the judgment. When the property sold by him on execution is an
immovable which consequently gives rise to a light of redemption on the part of the judgment debtor
and others (secs. 29, 30, Rule 39), it is to him (or to the purchaser or redemptioner that the payments
may be made by those declared by law as entitled to redeem (sec. 31, Rule 39); and in this situation, it
becomes his duty to accept payment and execute the certificate of redemption (Enage v. Vda. y Hijos de
Escano, 38 Phil. 657, cited in Moran, Comments on the Rules of Court, 1979 ed., vol. 2, pp. 326-327). It is
also to the sheriff that "written notice of any redemption must be given and a duplicate filed with the
registrar of deeds of the province, and if any assessments or taxes are paid by the redemptioner or if he
has or acquires any lien other than that upon which the redemption was made, notice thereof must in
like manner be given to the officer and filed with the registrar of deeds," the effect of failure to file such
notice being that redemption may be made without paying such assessments, taxes, or liens (sec. 30,
Rule 39).
The sheriff may likewise be appointed a receiver of the property of the judgment debtor where the
appointment of the receiver is deemed necessary for the execution of the judgment (sec. 32, Rule 39).
At any time before the sale of property on execution, the judgment debtor may prevent the sale by
paying the sheriff the amount required by the execution and the costs that have been incurred therein
(sec. 20, Rule 39).
The sheriff is also authorized to receive payments on account of the judgment debt tendered by "a
person indebted to the judgment debtor," and his "receipt shall be a sufficient discharge for the amount
so paid or directed to be credited by the judgment creditor on the execution" (sec. 41, Rule 39).
Now, obviously, the sheriff s sale extinguishes the liability of the judgment debtor either in fun, if the
price paid by the highest bidder is equal to, or more than the amount of the judgment or pro tanto if the
price fetched at the sale be less. Such extinction is not in any way dependent upon the judgment
creditor's receiving the amount realized, so that the conversion or embezzlement of the proceeds of the
sale by the sheriff does not revive the judgment debt or render the judgment creditor liable anew
therefor.
So, also, the taking by the sheriff of, say, personal property from the judgment debtor for delivery to the
judgment creditor, in fulfillment of the verdict against him, extinguishes the debtor's liability; and the
conversion of said property by the sheriff, does not make said debtor responsible for replacing the
property or paying the value thereof.
In the instances where the Rules allow or direct payments to be made to the sheriff, the payments may
be made by check, but it goes without saying that if the sheriff so desires, he may require payment to be
made in lawful money. If he accepts the check, he places himself in a position where he would be liable
to the judgment creditor if any damages are suffered by the latter as a result of the medium in which
payment was made (Javellana v. Mirasol, et al., 40 Phil. 761). The validity of the payment made by the
judgment debtor, however, is in no wise affected and the latter is discharged from his obligation to the
judgment creditor as of the moment the check issued to the sheriff is encashed and the proceeds are
received by Id. office. The issuance of the check to a person authorized to receive it (Art. 1240, Civil
Code; See. 46 of the Code of Civil Procedure; Enage v. Vda y Hijos de Escano, 38 Phil. 657, cited in
Javellana v. Mirasol, 40 Phil. 761) operates to release the judgment debtor from any further obligations
on the judgment.
The sheriff is an adjunct of the court; a court functionary whose competence involves both discretion
and personal liability (concurring opinion of J. Fernando, citing Uy Piaoco v. Osmena, 9 Phil. 299, in
Bagatsing v. Herrera, 65 SCRA 434). Being an officer of the court and acting within the scope of his
authorized functions, the sheriff s receipt of the checks in payment of the judgment execution, may be
deemed, in legal contemplation, as received by the court itself (Lara v. Bayona, 10 May 1955, No. L-
10919).
That the sheriff functions as a conduit of the court is further underscored by the fact that one of the
requisites for appointment to the office is the execution of a bond, "conditioned (upon) the faithful
performance of his (the appointee's) duties .. for the delivery or payment to Government, or the person
entitled thereto, of all properties or sums of money that shall officially come into his hands" (sec. 330,
Revised Administrative Code).
There is no question that the checks came into the sheriffs possession in his official capacity. The court
may require of the judgment debtor, in complying with the judgment, no further burden than his
vigilance in ensuring that the person he is paying money or delivering property to is a person authorized
by the court to receive it. Beyond this, further expectations become unreasonable. To my mind, a
proposal that would make the judgment debtor unqualifiedly the insurer of the judgment creditor's
entitlement to the judgment amount which is really what this case is all about begs the question.
That the checks were made out in the sheriffs name (a practice, by the way, of long and common
acceptance) is of little consequence if juxtaposed with the extent of the authority explicitly granted him
by law as the officer entrusted with the power to execute and implement court judgments. The sheriffs
requirement that the checks in payment of the judgment debt be issued in his name was simply an
assertion of that authority; and PAL's compliance cannot in the premises be faulted merely because of
the sheriffs subsequent malfeasance in absconding with the payment instead of turning it over to the
judgment creditor.
If payment had been in cash, no question about its validity or of the authority and duty of the sheriff to
accept it in settlement of PAL's judgment obligation would even have arisen. Simply because it was
made by checks issued in the sheriff s name does not warrant reaching any different conclusion.
As payment to the court discharges the judgment debtor from his responsibility on the judgment, so too
must payment to the person designated by such court and authorized to act in its behalf, operate to
produce the same effect.
It is unfortunate and deserving of commiseration that Amelia Tan was deprived of what was adjudged to
her when the sheriff misappropriated the payment made to him by PAL in dereliction of his sworn
duties. But I submit that her remedy lies, not here and in reviving liability under a judgment already
lawfully satisfied, but elsewhere.
ACCORDINGLY, I vote to grant the petition.
Melencio-Herrera, Gancayco, J., concurs.
FELICIANO, J., dissenting:
I concur in the able dissenting opinions of Narvasa and Padilla, JJ. and would merely wish to add a few
footnotes to their lucid opinions.
1. Narvasa, J. has demonstrated in detail that a sheriff is authorized by the Rules of Court and our case
law to receive either legal tender or checks from the judgment debtor in satisfaction of the judgment
debt. In addition, Padilla, J. has underscored the obligation of the sheriff, imposed upon him by the
nature of his office and the law, to turn over such legal tender, checks and proceeds of execution sales
to the judgment creditor. The failure of a sheriff to effect such turnover and his conversion of the funds
(or goods) held by him to his own uses, do not have the effect of frustrating payment by and consequent
discharge of the judgment debtor.
To hold otherwise would be to throw the risk of the sheriff faithfully performing his duty as a public
officer upon those members of the general public who are compelled to deal with him. It seems to me
that a judgment debtor who turns over funds or property to the sheriff can not reasonably be made an
insurer of the honesty and integrity of the sheriff and that the risk of the sheriff carrying out his duties
honestly and faithfully is properly lodged in the State itself The sheriff, like all other officers of the court,
is appointed and paid and controlled and disciplined by the Government, more specifically by this Court.
The public surely has a duty to report possible wrongdoing by a sheriff or similar officer to the proper
authorities and, if necessary, to testify in the appropriate judicial and administrative disciplinary
proceedings. But to make the individual members of the general community insurers of the honest
performance of duty of a sheriff, or other officer of the court, over whom they have no control, is not
only deeply unfair to the former. It is also a confession of comprehensive failure and comes too close to
an abdication of duty on the part of the Court itself. This Court should have no part in that.
2. I also feel compelled to comment on the majority opinion written by Gutierrez, J. with all his
customary and special way with words. My learned and eloquent brother in the Court apparently
accepts the proposition that payment by a judgment debtor of cash to a sheriff produces the legal
effects of payment, the sheriff being authorized to accept such payment. Thus, in page 10 of his
ponencia, Gutierrez, J. writes:
The receipt of money due on a judgment by an officer authorized by law to accept it will satisfy the debt.
(Citations omitted)
The theory is where payment is made to a person authorized and recognized by the creditor, the
payment to such a person so authorized is deemed payment to the creditor. Under ordinary
circumstances, payment by the judgment debtor in the case at bar, to the sheriff would be valid
payment to extinguish the judgment debt.
Shortly thereafter, however, Gutierrez, J. backs off from the above position and strongly implies that
payment in cash to the sheriff is sheer imprudence on the part of the judgment debtor and that
therefore, should the sheriff abscond with the cash, the judgment debtor has not validly discharged the
judgment debt:
It is argued that if PAL had paid in cash to Sheriff Reyes, there would have been payment in full legal
contemplation. The reasoning is logical but is it valid and proper?
In the first place, PAL did not pay in cash. It paid in checks.
And second, payment in cash always carries with it certain cautions. Nobody hands over big amounts of
cash in a careless and inane manner. Mature thought is given to the possibility of the cash being lost, of
the bearer being waylaid or running off with what he is carrying for another. Payment in checks is
precisely intended to avoid the possibility of the money going to the wrong party....
Payment in money or cash to the implementing officer may be deemed absolute payment of the
judgment debt but the court has never, in the least bit, suggested that judgment debtors should settle
their obligations by turning over huge amounts of cash or legal tender to sheriffs and other executing
officers. ... (Emphasis in the original) (Majority opinion, pp. 12-13)
There is no dispute with the suggestion apparently made that maximum safety is secured where the
judgment debtor delivers to the sheriff not cash but a check made out, not in the name of the sheriff,
but in the judgment creditor's name. The fundamental point that must be made, however, is that under
our law only cash is legal tender and that the sheriff can be compelled to accept only cash and not
checks, even if made out to the name of the judgment creditor. 1 The sheriff could have quite lawfully
required PAL to deliver to him only cash, i.e., Philippine currency. If the sheriff had done so, and if PAL
had complied with such a requirement, as it would have had to, one would have to agree that legal
payment must be deemed to have been effected. It requires no particularly acute mind to note that a
dishonest sheriff could easily convert the money and abscond. The fact that the sheriff in the instant
case required, not cash to be delivered to him, but rather a check made out in his name, does not
change the legal situation. PAL did not thereby become negligent; it did not make the loss anymore
possible or probable than if it had instead delivered plain cash to the sheriffs.
It seems to me that the majority opinion's real premise is the unspoken one that the judgment debtor
should bear the risk of the fragility of the sheriff s virtue until the money or property parted with by the
judgment debtor actually reaches the hands of the judgment creditor. This brings me back to my earlier
point that risk is most appropriately borne not by the judgment debtor, nor indeed by the judgment
creditor, but by the State itself. The Court requires all sheriffs to post good and adequate fidelity bonds
before entering upon the performance of their duties and, presumably, to maintain such bonds in force
and effect throughout their stay in office.2 The judgment creditor, in circumstances like those of the
instant case, could be allowed to execute upon the absconding sheriff s bond.3
I believe the Petition should be granted and I vote accordingly.
PADILLA, J., Dissenting Opinion
From the facts that appear to be undisputed, I reach a conclusion different from that of the majority.
Sheriff Emilio Z. Reyes, the trial court's authorized sheriff, armed with a writ of execution to enforce a
final money judgment against the petitioner Philippine Airlines (PAL) in favor of private respondent
Amelia Tan, proceeded to petitioner PAL's office to implement the writ.
There is no question that Sheriff Reyes, in enforcing the writ of execution, was acting with full authority
as an officer of the law and not in his personal capacity. Stated differently, PAL had every right to
assume that, as an officer of the law, Sheriff Reyes would perform his duties as enjoined by law. It would
be grossly unfair to now charge PAL with advanced or constructive notice that Mr. Reyes would abscond
and not deliver to the judgment creditor the proceeds of the writ of execution. If a judgment debtor
cannot rely on and trust an officer of the law, as the Sheriff, whom else can he trust?
Pursued to its logical extreme, if PAL had delivered to Sheriff Reyes the amount of the judgment in
CASH, i.e. Philippine currency, with the corresponding receipt signed by Sheriff Reyes, this would have
been payment by PAL in full legal contemplation, because under Article 1240 of the Civil Code,
"payment shall be made to the person in whose favor the obligation has been constituted or his
successor in interest or any person authorized to receive it." And said payment if made by PAL in cash,
i.e., Philippine currency, to Sheriff Reyes would have satisfied PAL's judgment obligation, as payment is a
legally recognized mode for extinguishing one's obligation. (Article 1231, Civil Code).
Under Sec. 15, Rule 39, Rules of Court which provides that-
Sec. 15. Execution of money judgments. — The officer must enforce an execution of a money judgment
by levying on all the property, real and personal of every name and nature whatsoever, and which may
be disposed of for value, of the judgment debtor not exempt from execution, or on a sufficient amount
of such property, if there be sufficient, and selling the same, and paying to the judgment creditor, or his
attorney, so much of the proceeds as will satisfy the judgment. ... .(emphasis supplied)
it would be the duty of Sheriff Reyes to pay to the judgment creditor the proceeds of the execution i.e.,
the cash received from PAL (under the above assumption). But, the duty of the sheriff to pay the cash to
the judgment creditor would be a matter separate the distinct from the fact that PAL would have
satisfied its judgment obligation to Amelia Tan, the judgment creditor, by delivering the cash amount
due under the judgment to Sheriff Reyes.
Did the situation change by PAL's delivery of its two (2) checks totalling P30,000.00 drawn against its
bank account, payable to Sheriff Reyes, for account of the judgment rendered against PAL? I do not
think so, because when Sheriff Reyes encashed the checks, the encashment was in fact a payment by
PAL to Amelia Tan through Sheriff Reyes, an officer of the law authorized to receive payment, and such
payment discharged PAL'S obligation under the executed judgment.
If the PAL cheeks in question had not been encashed by Sheriff Reyes, there would be no payment by
PAL and, consequently no discharge or satisfaction of its judgment obligation. But the checks had been
encashed by Sheriff Reyes giving rise to a situation as if PAL had paid Sheriff Reyes in cash, i.e.,
Philippine currency. This, we repeat, is payment, in legal contemplation, on the part of PAL and this
payment legally discharged PAL from its judgment obligation to the judgment creditor. To be sure, the
same encashment by Sheriff Reyes of PAL's checks delivered to him in his official capacity as Sheriff,
imposed an obligation on Sheriff Reyes to pay and deliver the proceeds of the encashment to Amelia
Tan who is deemed to have acquired a cause of action against Sheriff Reyes for his failure to deliver to
her the proceeds of the encashment. As held:
Payment of a judgment, to operate as a release or satisfaction, even pro tanto must be made to the
plaintiff or to some person authorized by him, or by law, to receive it. The payment of money to the
sheriff having an execution satisfies it, and, if the plaintiff fails to receive it, his only remedy is against
the officer (Henderson v. Planters' and Merchants Bank, 59 SO 493, 178 Ala. 420).
Payment of an execution satisfies it without regard to whether the officer pays it over to the creditor or
misapplies it (340, 33 C.J.S. 644, citing Elliot v. Higgins, 83 N.C. 459). If defendant consents to the Sheriff
s misapplication of the money, however, defendant is estopped to claim that the debt is satisfied (340,
33 C.J.S. 644, citing Heptinstall v. Medlin 83 N.C. 16).
The above rulings find even more cogent application in the case at bar because, as contended by
petitioner PAL (not denied by private respondent), when Sheriff Reyes served the writ of execution on
PAL, he (Reyes) was accompanied by private respondent's counsel. Prudence dictated that when PAL
delivered to Sheriff Reyes the two (2) questioned checks (payable to Sheriff Reyes), private respondent's
counsel should have insisted on their immediate encashment by the Sheriff with the drawee bank in
order to promptly get hold of the amount belonging to his client, the judgment creditor.
ACCORDINGLY, I vote to grant the petition and to quash the court a quo's alias writ of execution.
Melencio-Herrera, Gancayco, Sarmiento, Cortes, JJ., concurs.
Melencio-Herrera, Gancayco, Sarmiento, Cortes, JJ., concurs.
Footnotes
1 Art. 1249, Civil Code; e.g., Belisario v. Natividad, 60 Phil. 156 (1934); Villanueva v. Santos, 67 Phil 648
(1938).
2 See e.g., Sec. 46, Republic Act No. 296, as amended by Republic Act No. 4814.
3 See e.g., Sec. 9, Act No. 3598.

FIRST DIVISION
[G.R. No. 78556. April 25, 1991.]
ALFARO FORTUNADO, EDITH FORTUNADO, NESTOR FORTUNADO and RAMON A. GONZALES,

Petitioners, v. COURT OF APPEALS, BASILISA CAMPANO, as City Sheriff of Iligan City, REGISTER OF
DEEDS, Iligan City, ANGEL L. BAUTISTA and NATIONAL STEEL CORPORATION, Respondents.
Ramon A. Gonzales and Manuel B. Imbong, for Petitioners.
Emilio G. Abrogena and R.C. Domingo Jr. & Associates for Angel L. Bautista.
Sycip, Salazar, Hernandez & Gatmaitan for National Steel Corp.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; EXECUTION OF JUDGMENTS; VALIDITY OF TENDER OF PAYMENT

THROUGH CROSSED CHECK FOR EXERCISE OF RIGHT OF REDEMPTION. — The central issue in this case is
whether or not redemption has been validly effected by the private respondents. Petitioners contended
that the check issued by NSC, not being legal tender, could not be considered payment of the
redemption price. Private respondents however contended that Article 1249 of the New Civil code is
inapplicable as it "deals with a mode of extinction of debts" while the "right to redeem is not an
obligation, nor is it intended to discharge a pre-existing debt." Tolentino v. Court of Appeals, besides
citing Javellana, stresses the liberality of the courts in redemption cases. On the issue of the applicability
of Article 1249 of the Civil Code and the validity of the tender of payment through check, this Court
held: Redemption is not rendered invalid by the fact that the said officer accepted a check for the
amount necessary to make the redemption instead of requiring payment in money. It goes without
saying that if he had seen fit to do so, the officer could have required payment to be made in lawful
money, and he undoubtedly, in accepting a check, placed himself in a position where he could be liable
to the purchaser at the public auction if any damage had been suffered by the latter as a result of the
medium in which payment was made. But this cannot affect the validity of the payment.
2. ID.; ID.; ID.; REDEMPTION WITH RESERVATION OF RIGHT AND REMEDIES, NOT WRONG. — We find
nothing wrong with Bautista’s letter of March 21, 1985, where he made his redemption of the lot
covered by TCT No. T-7625 subject to the reservation that "the same shall not be taken to mean my
acknowledgment of the validity of the aforesaid writ of execution and sale . . . nor . . . as waiver on my
part of any of the legal rights and remedies available to me under the circumstances." Had he not done
so, estoppel might have operated against him. As we held in Cometa v. IAC, "redemption is an implied
admission of the regularity of the sale and would estop the petitioner from later impugning its validity
on that ground" In questioning the writ of execution and sale and at the same time redeeming his
property, Bautista was exercising alternative reliefs.
3. ID.; ID.; ID.; TENDER OF CHECK SUFFICIENT TO COMPEL REDEMPTION BUT IS NOT IN ITSELF A
PAYMENT. — We are not, by this decision, sanctioning the use of a check for the payment of obligations
over the objection of the creditor. What we are saying is that a check may be used for the exercise of
the right of redemption, the same being a right and not an obligation. The tender of a check is sufficient
to compel redemption but is not in itself a payment that relieves the redemptioner from his liability to
pay the redemption price. In other words, while we hold that the private respondents properly
exercised their right of redemption, they remain liable, of course, for the payment of the redemption
price.
DECISION
CRUZ, J.:
The petitioners assail the decision of the Court of Appeals 1 denying mandamus to compel the sheriff to
execute a final deed of sale in their favor.
On April 21, 1981, the Regional Trial Court of Quezon City 2 rendered judgment in Civil Case No. Q-
22367, entitled "Alfaro Fortunado v. Angel Bautista," ordering the defendant to pay damages to the
plaintiff. Pursuant to the said judgment, respondent Basilisa Campano, City Sheriff of Iligan City, levied
upon two parcels of land registered in the name of Bautista located at Iligan City and covered by TCT
Nos. T-7625 and T-14133. The latter lot had already been purchased by respondent National Steel
Corporation as of August 17, 1983, but had not yet been registered in its name.
After due notice, these lots were sold at public auction to the petitioners as the only bidder on April 23,
1984. They were issued a certificate of sale which was registered on April 25, 1984.
On January 10, 1985, NSC gave notice to the sheriff of its intention to redeem the lot covered by TCT No.
T-14133. The sheriff suggested that as the two lots had been sold together for the lump sum of
P267,013.00, both of them should be redeemed by NSC.
On February 11, 1985, NSC filed with the trial court an urgent motion to redeem both lots. This was
opposed by the petitioners on the ground that the movant did not have the personality to intervene.
As the motion remained unresolved and the period of redemption would expire on April 18, 1985, NSC
issued to the sheriff on March 20, 1985, PNB Check No. 313551 in the amount of P296,384.43 as the
redemption price for the lot covered by TCT No. T-14133. The sheriff acknowledged receipt of the check
on the same date.
On March 21, 1985, Bautista sent the sheriff a letter bearing NSC’s conformity in which he availed
himself of NSC’s check, which was sufficient to cover the full redemption price for both lots, to redeem
the other lot covered by TCT No. T-7625. His letter contained the following reservation:chanrob1es
virtual 1aw library
This redemption is made solely for the purpose of effecting the execution and delivery to me of the
necessary certificate of redemption and the same shall not be taken to mean my acknowledgment of
the validity of the aforesaid writ of execution and sale, both of which I shall continue to contest, nor
shall this be taken to mean as a waiver on my part of any of the legal rights and remedies available to
me under the circumstances.chanrobles lawlibrary : rednad
The sheriff acknowledged receipt of the check as redemption money for the two parcels of land on
March 21, 1985, and on March 22, 1985, issued a certificate of redemption in favor of NSC and Bautista.
On March 25, 1985, Bautista wrote the sheriff that he would no longer effect the redemption because
there was nothing to redeem, the auction sale being null and void.
In an Urgent Motion dated March 27, 1985, Bautista prayed that the sum of P296,384.43 covered by the
PNB check be delivered to and kept by the Clerk of Court of the Regional Trial Court of Quezon City until
such time as all incidents relative to the validity of the auction sale conducted by the sheriff were finally
resolved.
On March 29, 1985, the sheriff wired the petitioners’ counsel, notifying him of the deposit of the PNB
check. The said counsel told the sheriff that he was rejecting the check because it was not legal tender
and was not intended for payment but merely for deposit, as evidenced by Bautista’s Urgent Motion of
March 27, 1985.
On April 25, 1985, the petitioner requested the sheriff to issue a final deed of sale over the two lots and
deliver the same to them on the ground that no valid redemption had been effected within the 12-
month period from the registration of the sale. When the request was not granted, the petitioners filed
with the respondent court a petition for mandamus.
According to the petitioners, NSC and Bautista failed to comply with the provisions of the Rules of Court
in exercising their right of redemption. They invoked Article 1249 of the Civil Code, which provides that
"the payment of debts in money shall be made in the currency stipulated, and if it is not possible to
deliver such currency, then in the currency which is legal tender in the Philippines." They argued that
this provision was applicable to redemption under Rule 39, Section 30, of the Rules of Court.
They also contended that the check issued by NSC, not being legal tender, could not be considered
payment of the redemption price. Moreover, the tender of the redemption price was not valid as the
same was conditional under Bautista’s letter to the sheriff dated March 21, 1985. And even granting the
validity of the said tender, it was nevertheless withdrawn when on March 27, 1985, Bautista filed his
Urgent Motion to deposit the redemption money with the clerk of court.chanrobles virtual lawlibrary
The petitioners added that since there was no delivery to the creditor of the redemption price, there
was no payment within the meaning of Article 1233 of the Civil Code. This provides that "a debt shall not
be understood to have been paid, unless the thing or service in which the obligation consists has been
completely delivered or rendered, as the case may be."cralaw virtua1aw library
On November 10, 1986, the respondent court denied mandamus but granted injunction to restrain the
registration of the certificate of redemption in favor of NSC and Bautista.
The respondent court rejected the petitioner’s contention that Article 1249 was applicable in cases of
redemption and reiterated the settled jurisprudence that "the right of redemption is not an obligation
nor is it intended to discharge a pre-existing debt, 3 the right of redemption being in fact a
privilege."cralaw virtua1aw library
Citing Javellana v. Mirasol, 4 the respondent court said that "the redemption was not rendered invalid
by the fact that the officer accepted a check for the amount necessary to make the redemption instead
of requiring payment in money." On the failure to deliver the redemption price to the petitioners
directly, it said that the payment of the redemption money to the sheriff was legally sanctioned under
Rule 39, Section 31, of the Rules of Court which provides that such payment "may be made to the
purchaser . . . or . . . to the officer who made the sale."cralaw virtua1aw library
The respondent court considered NSC "s redemption as absolute and unconditional in view of its refusal
to join Bautista in contesting the validity of the sale and in withdrawing the redemption. But Bautista’s
reservation in his letter of March 21, 1980, and his repudiation of the redemption made by NSC, made
his own redemption in officious.
The respondent court observed, however, that the validity of redemption was dependent on the validity
of the certificate of sale, which had to be resolved by the trial court.
On November 22, 1986, the petitioners moved for partial reconsideration. While their motion was
pending, NSC filed a Manifestation dated March 18, 1987, informing the respondent court that the
certificate of redemption had already been registered and TCT No. T-27154 had been issued in its favor
on September 12, 1985.
On May 8, 1987, the respondent court denied the petitioners’ motion for reconsideration. Hence, this
appeal by certiorari on the grounds that the Court of Appeals erred in holding inter alia that Article 1249
of the New Civil Code does not apply to the payment of the redemption price of property sold at public
auction and that the redemption of NSC is unconditional and without reservation.
The central issue in this case is whether or not redemption had been validly effected by the private
respondents.chanrobles law library : red
It is contended by the private respondents that Article 1249 of the New Civil Code is inapplicable as it
"deals with a mode of extinction of debts" 5 while the "right to redeem is not an obligation, nor is it
intended to discharge a pre-existing debt." 6
They rely on Javellana, where we held that "a redemption of property sold under execution is not
rendered invalid by reason of the fact that the payment to the sheriff for the purpose of redemption is
effected by means of a check for the amount due."cralaw virtua1aw library
The petitioners, on the other hand, invoke Belisario v. Natividad, 7 where it was held that "even if the
check had been good, the defendant was not legally bound to accept it because such a check does not
satisfy the requirements of a legal tender." They also cite Villanueva v. Santos, 8 Legarda v. Miailhe, 9
New Pacific Timber and Supply Co., Inc. v. Seneris, 10 and Philippine Air Lines v. Court of Appeals, 11 all
of which, they claim, have overruled Javellana.
The Court does not agree with these conclusions. It would appear from a study of the jurisprudence
invoked by the parties that the case applicable to the present controversy is Javellana v. Mirasol.
The cases cited by the petitioners do not involve redemption by check. The check tendered in Belisario,
was in the exercise of an option to repurchase; in Villanueva in connection with a pacto de retire; in
Legarda and New Pacific as payment of a mortgage indebtedness; and in the PAL case in satisfaction of a
judgment.
Toleration v. Court of Appeals, 12 besides citing Javellana, stresses the liberality of the courts in
redemption cases. On the issue of the applicability of Article 1249 of the Civil Code and the validity of
the tender of payment through a crossed check, this Court held:chanrob1es virtual 1aw library
. . . the aforequoted Article should not be applied in the instant case . . .
To start with, the Tolentinos are not indebted to BPI their mortgage indebtedness having been
extinguished with the foreclosure and sale of the mortgaged properties. After said foreclosure and sale,
what remains is the right vested by law in favor of the Tolentinos to redeem the properties within the
prescribed period. This right of redemption is an absolute privilege, the exercise of which is entirely
dependent upon the will and discretion of the redemptioners. There is, thus, no legal obligation to
exercise the right of redemption. Said right, can in no sense, be considered an obligation, for the
Tolentinos are under no compulsion to exercise the same. Should they choose not to exercise it, nobody
can compel them to do so nor will such choice give rise to a cause of action in favor of the purchaser at
the auction sale. In fact, the relationship between said purchaser and the redemptioners is not even that
of creditor and debtor.chanrobles.com : virtual law library
On the other hand, if the redemptioners choose to exercise their right of redemption, it is the policy of
the law to aid rather than to defeat the right of redemption. It stands to reason therefore, that
redemptions should be looked upon with favor and where no injury is to follow, a liberal construction
will be given to our redemption laws as well as to the exercise of the right of redemption. In the instant
case, the ends of justice would be better served by affording the Tolentinos the opportunity to redeem
the properties in question other than the homestead land, in line with the policy aforesaid. . . .
x x x
. . . And the redemption is not rendered invalid by the fact that the said officer accepted a check for the
amount necessary to make the redemption instead of requiring payment in money. It goes without
medium in which payment was made. But this cannot affect the validity of the payment. The check as a
medium of payment in commercial transactions is too firmly established by usage to permit of any
doubt upon this point at the present day. No importance may thus be attached to the circumstance that
a stop-payment order was issued against check the day following the deposit, for the same will not
militate against the right of the Tolentinos to redeem, in the same manner that a withdrawal of the
redemption money being, deposited cannot be deemed to have forfeited the right to redeem, such
redemption being optional and not compulsory. Withal, it is not clearly shown that said stop-payment
order was made in bad faith. . . .
Although the private respondents in the case at bar did not file a redemption case against petitioners, it
should not be noted that private respondents NSC filed an Urgent Motion for Redemption dated
February 11, 1985, and Bautista filed an Urgent Motion (To Deposit Redemption Money with Quezon
City Clerk of Court) dated March 27, 1985. The motions were well within the redemption period.
In the United States, it has also been held and recognized that a payment by check or draft or bank bills
or currency which is not legal tender is effective if the officer accepts such payment. 13 If in good faith
the redemptioner pays, and the officer receives before the expiration of the time of redemption, an
ordinary banker’s check, the payment is regarded as sufficient. 14
We find nothing wrong with Bautista’s letter of March 21, 1985, where he made his redemption of the
lot covered by TCT No. T-7625 subject to the reservation that "the same shall not be taken to mean my
acknowledgment of the validity of the aforesaid writ of execution and sale . . . nor . . . as waiver on my
part of any of the legal rights and remedies available to me under the circumstances." Had he not done
so, estoppel might have operated against him. As we held in Cometa v. IAC, 15 "redemption is an
implied admission of the regularity of the sale and would stop the petitioner from later impugning its
validity on that ground." In questioning the writ of execution and sale and at the same time redeeming
his property, Bautista was exercising alternative reliefs.
In Javellana, it was contended that the position of Luis Mirasol as a litigant in the prior appeal was
inconsistent with his position as litigant in the redemption case and that he was estopped from now
claiming as redemptioner the property which he had earlier claimed as owner. The Court
held:chanrob1es virtual 1aw library
We are unable to see any force in the suggestions; as the positions occupied by this litigant are based
upon alternative rather than upon opposed pretension. No one can question the right of a litigant to
claim property as owner and to seek in the same proceeding alternative relief founded upon some
secondary right. The right of redemption, for instance, is always considered compatible with ownership,
and one who fails to obtain relief in the sense of absolute owner may successfully assert the other right.
That which a litigant may do in any one case can of course be done in two different proceedings.
We reiterated that same view in Ybañez v. CA, 16 thus:chanrob1es virtual 1aw library
Nor are the causes of action in the two (2) cases inconsistent with one another. As aptly pointed out by
the respondent Appellate Court, there are issues in the Reconveyance Case that are set apart from the
question of the validity of the auction sale, which is the subject of inquiry in the Annulment Suit. The
latter case alleged irregularities in the conduct of the public auction sale. . . .
On the other hand, the issues raised in the Reconveyance Case call for a separate determination of such
questions as whether respondent Go had, in fact delivered the redemption money to one of the
petitioners; whether or not such delivery, if there had been one, had been made on time, and whether
or not another money judgment against respondent Go had already been satisfied. In effect, the
Reconveyance Case presented an alternative cause of action.chanrobles.com.ph : virtual law library
Although Bautista repudiated his redemption in his letter of March 25, 1985, to the sheriff on the
ground that the auction sale was illegal, he backtracked in his Urgent Motion dated March 27, 1985,
wherein he prayed that —
". . . Sheriff Basilisa Campano of Iligan City be directed and ordered to immediately transfer and deliver,
upon his encashment of PNB Check No. A-313551, the aforesaid sum of P296,384.43 deposited to her by
the National Steel Corporation, through the authority of defendant, to the Clerk of Court, Regional Trial
Court of Quezon City, to remain thereat until the validity of the questioned orders and or decision in the
above entitled case are resolved with finality or until further orders from the Honorable Court.
It is further prayed that the aforesaid amount be considered as sufficient redemption price if it shall
finally be adjudged that plaintiffs are entitled thereto; otherwise, the said amount shall be returned and
delivered back to herein defendant.
x x x
Finally, the petitioners pray that we rule on the validity of the certificate of sale assailed by Bautista on
the ground that it covers more than one lot and does not indicate the price paid for each parcel. They
contend that Bautista has not shown that the parcel of land would have been sold for a better price had
they been offered separately and that he had not asked that they be sold by parcels. They also maintain
that since we have the main jurisdiction to determine the validity of the redemption, we likewise have
ancillary jurisdiction to rule on the validity of the sale.
The facts surrounding the sale are not before us. In response to a query from this Court regarding the
status of CC No. Q22367, the clerk of the trial court replied that the records of that court were totally
burned during the fire which razed the Quezon City Hall on June 11, 1988. Apart from the circumstance
that we are not a trier of facts, the facts we are asked to try are not at hand.
We are not, by this decision, sanctioning the use of a check for the payment of obligations over the
objection of the creditor. What we are saying is that a check may be used for the exercise of the right of
redemption, the same being a right and not an obligation. The tender of a check is sufficient to compel
redemption but is not in itself a payment that relieves the redemptioner from his liability to pay the
redemption price. In other words, while we hold that the private respondents properly exercised their
right or redemption, they remain liable of course, for the payment of the redemption price.
WHEREFORE, the appealed decision is AFFIRMED, with the modification that the redemption made by
Angel L. Bautista was also unconditional like that of the National Steel Corporation. Accordingly, the
petition is DENIED, with costs against the petitioners.
SO ORDERED
Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.
Endnotes:
1. Penned by Tensuan, J., with Chua and Kapunan, JJ., concurring.
2. Presided by Judge Rodolfo A. Ortiz.
3. Rollo, p. 40 citing Paez v. Magno, 83 Phil. 403; Golez v. Camara, 101 Phil. 363.
4. 40 Phil. 761.
5. Golez v. Camara, supra.

6. Rollo, p. 67 citing Paez v. Magno, supra; Golez v. Camara, supra; Aricayos v. Arenas, CA-G.R. No.
35865-R, June 3, 1971.
7. 60 Phil. 156.
8. 67 Phil. 648.
9. 88 Phil. 637.
10. 101 SCRA 686.
11. 181 SCRA 557.
12. 106 SCRA 513.
13. C.J.S. Executions 258.
14. Ibid.
15. 151 SCRA 563.
16. 180 SCRA 464.
G.R. Nos. L-50405-06 August 5, 1981
VICENTA P. TOLENTINO and JOSE TOLENTINO, petitioners,

vs.
COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS, CONSUELO B. DE LA CRUZ, et al., respondents.
DE CASTRO, J.:
A petition for review by certiorari of the consolidated decision 1 of the respondent Court of Appeals in
CA-G.R. Nos. 53907-R 2 and 54004-R 3 promulgated on February 22, 1978, as well as the Resolution 4 of
said Court of Appeals, promulgated on March 30, 1979, denying the Motion for Reconsideration of the
aforesaid consolidated decision.
Ceferino de la Cruz died in Davao City on April 19, 1960 leaving as his only heirs his widow, Consuelo de
la Cruz, and their children Hilario, Tarcelo, and Godofredo, all surnamed de la Cruz (hereinafter referred
to as the De la Cruzes). At the time of his demise, Ceferino left a parcel of land (homestead land)
containing 131,705 square meters covered by Original Certificate of Title No. P-16 in his name, issued by
virtue of Homestead Patent No. V-1728.
In a deed of sale executed by the De la Cruzes on April 30, 1962, the homestead land was sold to the
spouses Jose Tolentino and Vicenta Tolentino (hereinafter referred to as the Tolentinos). The Tolentinos
took immediate possession of the homestead land and caused the cancellation of O.C.T. No. P-16 and
the issuance of T.C.T. No. T-11135 in their names.
In 1963, the Tolentinos constituted a first mortgage over the homestead land, together with two other
parcels of land covered by T.C.T. Nos. 11085 and 11626 in their names, in favor of the Bank of the
Philippine Islands, (BPI) Davao Branch, for a loan of P40,000. Another mortgage was constituted over the
said properties in 1964 in favor of Philippine Banking Corporation. The Tolentinos failed to pay their
mortgage indebtedness to the BPI upon maturity in the judicial foreclosure sale that followed,
conducted by the City Sheriff of Davao on July 15, 1967, BPI was the sole and highest bidder. The
Sheriff's Certificate of Sale in favor of BPI was registered only on April 2, 1969 in the Registry of Deeds of
Davao.
Meanwhile, on February 4, 1967, the De la Cruzes filed an action 5 with the Court of First Instance of
Davao against the Tolentinos for the repurchase of the homestead land under Section 119 of the Public
Land Act (CA 141), with a prayer for damages and accounting of fruits on the ground that they had tried
to repurchase said land extrajudicially for several tunes already but that the Tolentinos would not heed
their request, thus constraining the De la Cruzes to file a court action for the repurchase thereof. BPI and
Philippine Banking Corporation were included in the action as formal party defendants, being the first
and second mortgagees, respectively, of the homestead land. On June 1, 1967, the Tolentinos filed a
motion for extension of ten (10) days "from and after June lst" to file their answer. This motion was
granted by the lower court.
On June 14, 1967, the De la Cruzes filed a petition to declare the Tolentinos in default for failure to file
an answer. On that same day, the Tolentinos filed a Motion to Dismiss the repurchase case on the
ground that the complaint states no cause of action, but said motion was denied by the lower court on
the ground that the same was filed out of time. Subsequently, the Tolentinos were declared in default
and the De la Cruzes were allowed to present their evidence ex parte.
On November 24, 1967, the Tolentinos filed their answer interposing the defense that the complaint
states no cause of action because from the face of T.C.T. No. T-11135 alone, only the original patentee,
Ceferino, is given the right to repurchase the homestead land and not the De la Cruzes and because the
complaint does not allege that there was a bona fide offer to repurchase or a valid tender of payment,
as well as an allegation that the De la Cruzes intended to pay not only the purchase price but all the
other expenses of the sale which includes the necessary and useful expenses made on the thing sold, as
required under Article 1616 of the new Civil Code.
Upon a manifestation filed by the De la Cruzes, the lower court issued an Order dated December 8, 1967
declaring the Tolentinos as "having no standing" in the proceedings therein, to which the latter filed a
motion for its reconsideration. This motion, as well as their second Motion for Reconsideration, was
denied by the lower court.
On March 27, 1969, the lower court rendered a decision allowing the De la Cruzes to repurchase the
homestead land. Upon payment by the De la Cruzes of the amount of P16,000 representing the
repurchase price to the BPI, the latter executed a deed of conveyance over the homestead land on
August 25, 1969. On motion, the lower court issued a writ of possession in favor of the De la Cruzes on
September 4, 1969, which was served by the City Sheriff upon the Tolentinos on September 8, 1969.
Accordingly, the possession of the homestead land was delivered to the De la Cruzes on September
13,1969.
On September 19, 1969, the Tolentinos filed a petition for relief from the Decision dated March 27, 1969
on the ground of excusable mistake in the counting of the reglementary period for the filing of an
answer, with a prayer that the Order declaring them in default be lifted and that they be allowed to
present their defense.
On October 1, 1969, the Tolentinos filed a Motion to Quash the writ of possession alleging as principal
grounds therefor the absence of service on their counsel of a copy of the writ of possession, as well as
the decision of the lower court declaring the De la Cruzes entitled to repurchase the homestead land.
The De la Cruzes filed an opposition to this Motion and prayed for the investigation of an alleged
tampering of records of the case particularly the page containing the proofs of the service of a copy of
the writ of possession as well as of the decision of the lower court to the Tolentinos. On October 4,
1969, the lower court denied the Motion to Quash. A motion for reconsideration was likewise denied by
the lower court on December 6,1969.
On October 6, 1970, the Tolentinos filed before the respondent Court of Appeals a petition for certiorari
(CA-G.R. No. SP-46321) against the De la Cruzes, wherein the Tolentinos raise the propriety of the
issuance of the Writ of Possession alleging that it was issued improvidently because the decision of the
lower court declaring them in default was not served upon them and, therefore, the judgment has not
become final and executory. This petition was denied by the respondent court in a decision rendered on
November 15, 1971 on the ground that the Tolentino were actually and duly served with a copy of the
questioned decision.
On March 5, 1973, the trial court issued an Order denying for lack of merit the petition for relief from
judgment filed therein by the Tolentinos. It likewise denied a motion for reconsideration filed
subsequently by the Tolentinos in its Order of July 5, 1973. Consequently, the Tolentinos appealed to
the respondent Court of Appeals the above 2 Orders of the lower court, docketed therein as CA G.R. No.
54004-R, claiming that the lower court erred and abused its discretion in not lifting its Order of default
and in not ordering resumption of trial for the reception of their evidence; and, in finally ordering
execution of the default judgment.
In the meantime, on March 2, 1970, petitioner Vicente Tolentino went to see Mr. Ramon Lopez, Branch
Manager of BPI Davao Branch, carrying a letter of even date, offering to redeem the homestead
property for P16,000 covered by a check. Upon being informed that she can no longer redeem the same
for the reason that it was already conveyed to the De la Cruzes pursuant to the decision dated March
27, 1969, Vicenta left the office of the manager, bringing with her the letter which she later on sent to
Mr. Lopez by registered mail, inclosed In another letter dated March 3, 1970, reteirating her desire to
redeem the homestead land. Mr. Lopez sent said letters to the BPI's legal counsel with specific request
to inform the Tolentinos that they can still redeem the two other properties covered by T.C.T. Nos.
11085 and 11626 before the expiration of the redemption period upon payment of the amount of
P75,995.07 — the balance remaining after deducting the amount of P16,000 paid by the De la Cruzes for
the homestead property. However, instead of complying with BPI's advice, Vicente consigned with the
Office of the City Sheriff of Davao a crossed PNB check for P91,995.07 drawn against the PNB Kidapawan
Branch, Cotabato, on March 31, 1970, allegedly for the redemption of the 3 lots, including the
homestead land. The following day, however, upon advice of their counsel, Vicente issued a stop-
payment order against the said crossed check purportedly to protect her rights and to prevent BPI
cashing said check without returning all the properties which BPI had foreclosed and purchased.
Simultaneously with the consignation of the crossed check with the City Sheriff of Davao on March 31,
1970, the Tolentinos filed a complaint (redemption case) 6 against BPI, amended on April 15, 1970, with
the Davao Court of First Instance for the redemption of their properties covered by T.C.T. Nos. 11135,
11085 and 11626, which were foreclosed by and sold to BPI, with a prayer for damages, imputing bad
faith on BPI in allegedly refusing to allow them to redeem all three lots and praying that BPI be ordered
to allow the Tolentinos to redeem their properties, to accept the payment consigned by them with the
City Sheriff's Office of Davao, and to pay moral and exemplary damages in the sum of P95,000 plus
attorney's fees and costs of suit. BPI seasonably filed an answer with counterclaim, denying the material
averments of the complaint, the truth being that the Tolentinos did not have an intention to redeem
their said properties but only the homestead land. BPI counterclaimed for exemplary damages in the
sum of P5,000 and attorney's fees in the sum of P4,000 plus costs.
On April 10, 1973, the trial court rendered its decision dismissing the complaint of the Tolentinos, with
no particular pronouncement as to attorney's fees but with costs against the Tolentinos. From that
decision, both the Tolentinos and BPI appealed to the respondent Court of Appeals, docketed under CA-
G.R. No. 53907- R, the Tolentinos claiming that -
l. The lower court erred in finding that the title to the land covered by T.C.T. No. 11135 legally passed to
the heirs of Ceferino de la Cruz;
2. The lower court erred in holding that defendant-appellant (herein respondent BPI) was legally
justified, in refusing plaintiffs-appellants' (Tolentinos) demand to be allowed to redeem the lands in
question; and
3. The lower court erred in not granting plaintiffs-appellants' (Tolentinos) claim for damages.
while BPI claims that the trial court erred in not holding the Tolentinos liable for damages and attorney's
fees despite its findings that they acted in evident bad faith in —
a. filing the complaint in the redemption case; and

b. issuing a crossed check drawn against the PNB, Kidapawan Branch, and likewise, in depositing said
check with the Sheriff's Office allegedly to redeem the foreclosed properties and, thereafter, the day
following the deposit in issuing a stop-payment order on said check.
Acting upon a written request dated March 26, 1976 filed by the Tolentinos for the consolidation of the
two appealed cases, CA-G.R. Nos. 53907-R (Civil Case No. 6830) and 54004-R (Civil Case No. 5432), the
respondent Court of Appeals resolved, after considering the comment of the BPI and the opposition of
the De la Cruzes, to grant the motion for consolidation by the Tolentinos.
In a consolidated decision 7 promulgated on February 22, 1978, the respondent Court of Appeals held:
In the Repurchase Case —
(1) that "despite the order of the trial court as prayed for by appellants granting them a ten-day period
of extension to file their answer which was to expire on June 12, 1967, extended by operation of law to
June 13, 1967, because June 12 was a holiday, the Tolentinos failed to file their answer. Instead, on June
14, 1967, which was already late, the Tolentinos filed a motion to dismiss, which is not even a
responsive pleading, followed by their answer filed more than five months after, on November 24, 1967.
The Tolentinos having failed to observe the requirements of the Rules of Court, no abuse of discretion
could be imputed to the court a quo in ordering them in default." 8 While "default orders are judicially
frowned upon, Quirante vs. Verano (L-30207, February 27, 1971, 37 SCRA 801) explicitly admonishes
that such 'is true only in meritorious cases, that is, where the failure to file answer on time was due to
fraud, accident, mistake, or excusable negligence and when the existence of a good and substantial
defense has been shown.' No showing was made in the case at bar, that the Tolentinos' failure to file
their answer on time was due to any of these grounds. The contention and insistence of counsel for the
Tolentinos that he filed through his clerk the motion to dismiss on June 13 but only stamped June 14,
1967, attributing negligence instead to the docket clerk of the lower court was not believed by the lower
court, and we (Court of Appeals) find no cogent reason for believing otherwise. " 9 The Court of Appeals
ruled further that "compounding the errors, is the failure of the Tolentinos and/or their counsel to
appear on January 12, 1968, the date set for hearing of their petition for relief, the reason given by
counsel that he was out-of-town when his clerk received the notice, and that his said clerk did not notify
him nor did he note said date on their trial calendar, being clearly a case of inexcusable negligence. "
(2) that the supposed existence of a good and meritorious defense relied by the Tolentinos consisting of
the alleged expiration of the five-year period for the repurchase of the homestead lot under
Commonwealth Act No. 141 is clearly belied by the records of the case which show that the offer to
repurchase the homestead land made by the De la Cruzes was well within the 5-year period required by
law; and
(3) that the Tolentinos' claim that the lower court ordered the execution of the default judgment before
its finality due to the absence of service of the default judgment on them is not well- taken because this
issue has already been settled in CA G.R. No. SP-46321 rendered on November 15, 1971, where it was
found, after an investigation was conducted on the alleged disappearance of that page of the record
where the receipts by the respective parties were indicated, that the Tolentinos through their counsel
were duly served with a copy of the default judgment.
In the Redemption Case
(1) in dismissing the Tolentinos' appeal, the respondent court reasoned that although there is no quarrel
that the Tolentinos had 12 months within which to redeem the properties sold at the Sheriff's sale
counted from the time it was registered on April 2, 1969, the problem, however, lies in the manner of
the tender of payment made by them, granting they made one, "since consignation by crossed check
does not satisfy the requirements set forth in Article 1249 of the New Civil Code governing the payment
of debts in money, which 'shall be made in the Currency stipulate and if it is not possible to deliver such
currency, then in the currency which is legal tender in the Philippines.' Admittedly, a check, even if good
when offered, does not satisfy the requirements of a legal tender, and for that very reason, BPI was not
legally bound to accept such tender of payment." Hence, no error was committed by the court a quo in
dismissing the Tolentinos' complaint for redemption with damages.
(2) in dismissing BPI's appeal, the respondent Court stated that "no bad faith should be attributed to the
Tolentinos for filing the instant case for redemption, in the absence of a proven motive to harass the BPI
considering that in so filing these cases, the Tolentinos acted in the belief that they are exercising certain
rights under the law, and considering further that they, too, had to spend in prosecuting their claims, no
matter how unfounded they may have proven to be."
On April 24, 1978, the Tolentinos filed a Motion for Reconsideration 10 in the Court of Appeals of the
decision rendered in CA-G.R. No. 53907-R on the ground that "the right to redeem is not an obligation or
debt but rather a privilege, hence, the provisions of Article 1249 N.C.C. governing payment of debts in
money" do not apply in this case; and, of the decision rendered in CA-G.R. No. 54004-R on the ground
that the respondent court erred in not considering that the trial court abused its discretion in declaring
the Tolentinos in default, and that the period within which the De la Cruzes can repurchase the
homestead land had already expired, This Motion for Reconsideration was denied by the respondent
court for lack of merit in a Resolution dated March 30, 1979.
Hence, the instant petition for review from the foregoing consolidated Decision and Resolution raising
the following issues:
WHETHER OR NOT ARTICLE 1249 OF THE NEW CIVIL CODE APPLIES IN THE CASE AT BAR;
II
WHETHER OR NOT THE TENDER OF PAYMENT AND CONSIGNATION MADE BY THE TOLENTINOS BEFORE
THE CITY SHERIFF OF DAVAO WERE VALID; and
III
WHETHER THE DEFAULT JUDGMENT AGAINST THE TOLENTINOS IN CIVIL CASE NO. 5432 (CA-G.R. No.
54004-R) HAS BECOME FINAL AND EXECUTORY.
It is worthwhile to remember that Article 1249 of the new Civil Code deals with a mode of extinction of
an obligation and expressly provides for the medium in the "payment of debts." Thus, it provides that:
The payment of debts in money shall be made in the currency stipulated, and if it is not possible to
deliver such currency, then in the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents
We are of the considered view that the aforequoted Article should not be applied in the instant case,
hereinafter explained, together with the exposition on the resolution of the second issue raised in this
petition, the first two issues raised hinging ultimately on whether the Tolentinos may redeem the
properties in suit.
To start with, the Tolentinos are not indebted to BPI their mortgage indebtedness having been
extinguished with the foreclosure and sale of the mortgaged properties. After said foreclosure and sale,
what remains is the right vested by law in favor of the Tolentinos to redeem the properties within the
prescribed period. This right of redemption is an absolute privilege, the exercise of which is entirely
dependent upon the will and discretion of the redemptioners. There is, thus, no legal obligation to
exercise the right of redemption. 11 Said right, can in no sense, be considered an obligation, for the
Tolentinos are under no compulsion to exercise the same. Should they choose not to exercise it, nobody
can compel them to do so nor win such choice give rise to a cause of action in favor of the purchaser at
the auction sale. In fact, the relationship between said purchaser and the redemptioners is not even that
of creditor and debtor. 12
On the other hand, if the redemptioners choose to exercise their right of redemption, it is the policy of
the law to aid rather than to defeat the right of redemption. 13 It stands to reason therefore, that
redemptions should be looked upon with favor and where no injury is to follow, a liberal construction
will be given to our redemption laws as well as to the exercise of the right of redemption. In the instant
case, the ends of justice would be better served by affording the Tolentinos the opportunity to redeem
the properties in question other than the homestead land, in line with the policy aforesaid, to which We
adhere fully notwithstanding the reason advanced by the Court of Appeals in its Resolution, denying a
reconsideration of its decision, which reads:
We agree that the act of redeeming of a property mortgaged is not an obligation but a privilege, in the
sense that the mortgagor may or may not redeem his property. That of course is a privilege. He may
choose to give up the property and have the mortgage foreclosed, or redeem the property with the
obligation of course to pay the loan or indebtedness. But where he elects to redeem the property and
he has to pay the loan for which the mortgage was constituted, then Art. 1249 of the Civil Code applies
because it involves now the 'payment of debts.' It is only the act of redeeming or not that is considered
a privilege, but not the act of paying the obligation once the mortgagor has elected to redeem the
property, in which case the check issued or drawn shall produce the effect of payment only when it has
been cashed. 14
Under existing jurisprudence, what the redemptioner should pay, is not the amount of the "loan for
which the mortgage was constituted" as stated by the Court of Appeals, but the auction purchase price
plus 1 % interest per month on the said amount up to the time of redemption, together with the taxes
or assessment paid by the purchaser after the purchase, if any. 15 And in this connection, a formal offer
to redeem, accompanied by a bona fide tender of the redemption price, although proper, is not
essential where, as in the instant case, the right to redeem is exercised thru the filing of judicial action,
which as noted earlier was made simultaneously with the deposit of the redemption price with the
Sheriff, within the period of redemption. The formal offer to redeem, accompanied by a bona fide
tender of the redemption price within the period of redemption prescribed by law, is only essential to
preserve the right of redemption for future enforcement even beyond such period of redemption. The
filing of the action itself, within the period of redemption, is equivalent to a formal offer to redeem. 16
Should the court allow redemption, the redemptioners should then pay the amount already adverted to.
Moreover, when the action to redeem was filed, a simultaneous deposit of the redemption money was
tendered to the Sheriff and under the last sentence of Section 31, Rule 39 of the Rules of Court, it is
expressly provided that the tender of the redemption money may be made to the Sheriff who made the
sale. 17 And the redemption is not rendered in valid by the fact that the said officer accepted a check for
the amount necessary to make the redemption instead of requiring payment in money. It goes without
medium in which payment was made. But this cannot affect the validity of the payment. The check as a
medium of payment in commercial transactions is too firmly established by usage to permit of any
doubt upon this point at the present day. 18 No importance may thus be attached to the circumstance
that a stop-payment order was issued against said check the day following the deposit, for the same will
not militate against the right of the Tolentinos to redeem, in the same manner that a withdrawal of the
redemption money being deposited cannot be deemed to have forfeited the right to redeem, such
redemption being optional and not compulsory. 19 Withal, it is not clearly shown that said stop payment
order was made in bad faith. But while we uphold the right of redemption of the Tolentinos, the same
does not apply to the homestead land, for the reason that shall be indicated in the discussion of the
third issue.
It is a matter beyond dispute that We can review decisions of the Court of Appeals only on errors of law,
its findings 6f fact being generally conclusive. BPI argued that the default judgment in Civil Case No.
5432 (CA-G.R. No. 54004-R) had already become final and executory; that the lower court found, after
an investigation was conducted on the matter, that petitioners were duly served with the default
judgment; that this finding was affirmed by the Court of Appeals in CA G.R. No. SP-46321 rendered on
November 15, 1971, which decision G.R. No. SP-46321 rendered on November 15, 1971, which decision
had already been final and, therefore, the question of whether or not petitioners were duly served with
a copy of said judgment should now be considered closed, said question being factual.20
As may be expected, the Tolentinos maintain that said question is one of law; that they did not in fact
receive a copy of the default judgment; and that the only reason for the finding of the lower court that
there was a valid service of default judgment was the sole testimony of BPI's counsel, who cannot even
recall the date when the alleged service was made, and there is no evidence as to the mode of such
service. 21
In resolving their diametrically opposed propositions, it should be remembered that for a question to be
one of law, it must involve no examination of the probative value of the evidence presented by the
litigants or any of them. 22 The query here presented, necessarily invites calibration of the evidence to
determine whether or not there was really such service. As such, the question must be deemed to be
factual in character and content, and as correctly pointed out by BPI, the jurisprudence on the matter is
that findings of facts of the lower court are accorded the highest degree of respect. 23 It is not the
function of this Court to analyze or weight the evidence all over again, its jurisdiction being limited to
reviewing errors of law that might have been committed by the lower court. 24
And as already intimated earlier, appreciation of evidence is within the domain of the respondent Court
of Appeals because its findings of facts, as a general rule, are not reviewable by the Supreme Court. 25
This has been the oft-repeated and well-established rule which has been reiterated in a long line of
cases enumerated in Chan v. Court of Appeals 26 and Tapas v. Court of Appeals, 27 and in the more
recent cases of Baptista v. Carillo 28 and Vda. de Catindig v. Heirs of Catalino Roque, 29 and We find no
circumstance existing in this case, to justify a departure from the said rule, More importantly, the
petitioners not having appealed therefrom, the decision had already attained the character of finality.
The question of service cannot now be reopened or raised again in this proceedings for otherwise, there
will be no end to a litigation. Public policy and sound practice demand that judgment of courts should
become final at some definite date fixed by law. 30
Finally, We find no abuse of discretion, much less a grave abuse thereof, committed by the lower court
in issuing an order, which was affirmed by respondent Court of Appeals, denying the Tolentinos' petition
for relief from judgment for lack of merit, the same being supported by substantial evidence.
IN VIEW OF THE FOREGOING CONSIDERATIONS, the appealed consolidated decision and resolution of
the Court of Appeals are hereby MODIFIED and judgment is hereby rendered authorizing the petitioners
to redeem the properties subject matter hereof, other than the homestead land, within thirty (30) days
from entry of judgment, and ordering private respondent BPI to execute a deed of absolute conveyance
thereof in favor of the petitioners upon payment by the latter of the purchase price thereof, with 1% per
month interest thereon in addition, up to the time of redemption, together with the amount of any
taxes or assessments which BPI may have paid thereon after purchase, if any. In all other respects, the
aforesaid consolidated decision and resolution of the Court of Appeals are hereby AFFIRMED. No
pronouncement as to costs at this instance.
SO ORDERED.
Barredo, (Chairman), Aquino, Concepcion, Jr. and Abad Santos, JJ., concur.
Footnotes
1 pp. 1-12, CA decision, Annex "A" to Petition, pp. 24-35, rollo.
2 Entitled "Vicenta P. Tolentino and Jose Tolentino, Plaintiffs- Appellants and Appellees. versus, Bank of
the Philippine Islands, Defendant-Appellant and Appellee."
3 Entitled "Consuelo B. de la Cruz, et all Plaintiffs-Appellees, versus, Vicente Tolentino, et al.,

Defendants-Appellants.
4 Annex "D" to Petition, pp. 61-63, rollo.
5 Civil Case No. 5432 entitled "Consuelo B. de la Cruz, et all v. Vicente Tolentino, et al.," Record of
Appeal, Annex "H" to Petition; p. 67, rollo.
6 Civil Case No. 6830 entitled "Vicenta P. Tolentino, et all v. Bank of the Philippine Islands," Joint Record
on Appeal, Annex "F" to Petition, p. 65, rollo.
7 CA decision, supra.
8 pp. 12-13, Ibid.
9 pp. 13-14, Ibid.
10 Annex "B" to Petition, p. 44, rollo.
11 cf. Golez v. Camara, 101 Phil. 363.
12 Reyes v. Tolentino, 42 SCRA 365.
13 Javellana v. Mirasol and Nuñez, 40 Phil. 761.
14 p. 2, Resolution of the Court of Appeals, Annex "D" to Petition, supra.
15 Rosario v.Tayug Rural Bank, 22 SCRA1220, citing Castillo v. Nagtalon, L-17079, 29 January 1962.
16 see Reoveros v. Abel and Sandoval, 48 O.G. 5318.

17 Reyes v. Tolentino, supra; Reyes-Gregorio v. Reyes, 27 SCRA 427; Reyes v. Chavoso, 27 SCRA 1253.
18 Javellana v. Mirasol and Nuñez, supra.
19 De Jesus v. Court of Appeals, 46 SCRA 76.
20 Memorandum for respondent BPI, p. 118, rollo.
21 Memorandum for petitioners, p. 102, rollo.
22 Vda. de Arroyo v. El Beaterio del Santissimo Rosario de Molo, 23 SCRA 525.
23 People v. Padiernos, 69 SCRA 484.
24 Evangelista & Co. v. Abad Santos, 51 SCRA 416.
25 Gonzalez v. Court of Appeals, 90 SCRA 183 (1979).
26 33 SCRA 737 (1970).
27 69 SCRA 393 (1976).
28 72 SCRA 214 (1976).
29 74 SCRA 83 (1976).
30 King v. Joe, 20 SCRA 1117.

FIRST DIVISION
[G.R. No. 105188. January 23, 1998.]
MYRON C. PAPA, Administrator of the Testate Estate of Angela M. Butte, Petitioner, v. A.U. VALENCIA
and CO. INC., FELIX PEÑARROYO, SPS. ARSENIO B. REYES & AMANDA SANTOS, and DELFIN JAO,
Respondents.
Quijano and Padilla, for Petitioners.
Padilla Jimenez Kintanar and Asuncion Law Offices, for Private Respondent.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; PAYMENT BY CHECK WHEN CONDITIONED ON ITS BEING
CASHED EXCEPT THROUGH THE FAULT OF THE CREDITOR THE INSTRUMENT IS IMPAIRED; WHERE NON-
PAYMENT IS CAUSED BY HIS NEGLIGENCE, PAYMENT IS DEEMED EFFECTED. — While it is true that the
delivery of a cheek produces the effect of payment only when it is cashed, pursuant to Art. 1249 of the
Civil Code, the rule is otherwise if the debtor is prejudiced by the creditor’s unreasonable delay in
presentment. The acceptance of a check implies an undertaking of due diligence in presenting it for
payment, and if he from whom it is received sustains loss by want of such diligence, it will be held to
operate as actual payment of the debt or obligation for which it was given. It has, likewise, been held
that if no presentment is made at all, the drawer cannot be held liable irrespective of loss or injury
unless presentment is otherwise excused. This is in harmony with Article 1249 of the Civil Code under
which payment by way of check or other negotiable instrument is conditioned on its being cashed,
except when through the fault of the creditor, the instrument is impaired. The payee of a check would
be a creditor under this provision and if its non-payment is caused by his negligence, payment will be
deemed effected and the obligation for which the check was given as conditional payment will be
discharged.
2. REMEDIAL LAW; ACTIONS; APPROPRIATE ACTION MAY BE FILLED TO ENFORCE A LIEN ON AN

ASSIGNMENT OF MORTGAGE RIGHTS; ACTION DIFFERENT FROM SPECIFIC PERFORMANCE; CASE AT BAR.
— We regard to the alleged assignment of mortgage rights, respondent Court of Appeals has found that
the conditions under which said mortgage rights of the bank were assigned are not clear. Indeed, a
perusal of the original records of the case would show that there is nothing there that could shed light
on the transactions leading to the said assignment of rights; nor is there any evidence on record of the
conditions under which said mortgage rights were assigned. What is certain is that despite the said
assignment of mortgage rights, the title to the subject property has remained in the name of the late
Angela M. Butte. This much is admitted by petitioner himself in his answer to respondents’ complaint as
well as in the third party complaint that petitioner filed against respondent-spouses Arsenio B. Reyes
and Amanda Santos. Assuming arguendo that the mortgage rights of the Associated Citizens Bank had
been assigned to the estate of Ramon Papa, Jr., and granting that the assigned Mortgage rights validly
exist and constitute a lien on the property, the estate may file the appropriate action to enforce such
lien. The cause of action for specific performance which respondents Valencia and Peñarroyo have
against petitioner is different from the cause of action which estate of Ramon Papa, Jr. may have to
enforce whatever rights or liens it has on the property by reason of its being an alleged assignee of the
bank’s rights of mortgage.
3. ID.; ID.; REPRESENTATIVE PARTIES; AN EXECUTOR OR ADMINISTRATOR MAY BE SUED WITHOUT

GOING THE STATE OF THE DECEASED. — Finally, the estate of Angela M. Butte is not an indispensable
party. Under Section 3 of Rule 3 of the Rules of Court, an executor or administrator may sue or be sued
without joining the party for whose benefit the action is presented or defended.
4. ID.; ID.; SUBSISTING AND PRIOR MORTGAGE RIGHTS MAY BE ENFORCED REGARDLESS OF CHANGE OF
OWNERSHIP. — Neither is the estate of Ramon Papa, Jr. an indispensable party without whom, no final
determination of the action can be had. Whatever prior and subsisting mortgage rights the estate of
Ramon Papa, Jr. has over the property may still be enforced regardless of the change in ownership
thereof.
DECISION
KAPUNAN, J.:
In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Myron C. Papa
seeks to reverse and set aside 1) the Decision dated 27 January 1992 of the Court of Appeals which
affirmed with modification the decision of the trial court; and 2) the Resolution dated 22 April 1992 of
the same court, which denied petitioner’s motion for reconsideration of the above
decision.chanrobles.com:cralaw:red
The antecedent facts of this case are as follows:chanrob1es virtual 1aw library
Sometime in June 1982, herein private respondents A.U. Valencia and Co., Inc. (hereinafter referred to
as respondent Valencia, for brevity) and Felix Peñarroyo (hereinafter called respondent Peñarroyo), filed
with the Regional Trial Court of Pasig, Branch 151, a complaint for specific performance against herein
petitioner Myron C. Papa, in his capacity as administrator of the Testate Estate of one Angela M. Butte.
The complaint alleged that on 15 June 1973, petitioner Myron C. Papa, acting as attorney-in-fact of
Angela M. Butte, sold to respondent Peñarroyo, through respondent Valencia, a parcel of land,
consisting of 286.60 square meters, located at corner Retiro and Cadiz Streets, La Loma, Quezon City,
and covered by Transfer Certificate of Title No. 28993 of the Register of Deeds of Quezon City; that prior
to the alleged sale, the said property, together with several other parcels of land likewise owned by
Angela M. Butte, had been mortgaged by her to the Associated Banking Corporation (now Associated
Citizens Bank); that after the alleged sale, but before the title to the subject property had been released,
Angela M. Butte passed away; that despite representations made by herein respondents to the bank to
release the title to the property sold to respondent Peñarroyo, the bank refused to release it unless and
until all the mortgaged properties of the late Angela M. Butte were also redeemed; that in order to
protect his rights and interests over the property, respondent Peñarroyo caused the annotation on the
title of an adverse claim as evidenced by Entry No. PE. — 6118/T-28993, inscribed on 18 January 1977.
The complaint further alleged that it was only upon the release of the title to the property, sometime in
April 1977, that respondents Valencia and Peñarroyo discovered that the mortgage rights of the bank
had been assigned to one Tomas L. Parpana (now deceased), as special administrator of the Estate of
Ramon Papa. Jr., on 12 April 1977; that since then, herein petitioner had been collecting monthly rentals
in the amount of P800.00 from the tenants of the property, knowing that said property had already
been sold to private respondents on 15 June 1973; that despite repeated demands from said
respondents, petitioner refused and failed to deliver the title to the property. Thereupon, respondents
Valencia and Peñarroyo filed a complaint for specific performance, praying that petitioner be ordered to
deliver to respondent Peñarroyo the title to the subject property (TCT 28993); to turn over to the latter
the sum of P72,000.00 as accrued rentals as of April 1982, and the monthly rental of P800.00 until the
property is delivered to respondent Peñarroyo; to pay respondents the sum of P20,000.00 as attorney’s
fees; and to pay the costs of the suit.
In his Answer, petitioner admitted that the lot had been mortgaged to the Associated Banking
Corporation (now Associated Citizens Bank). He contended, however, that the complaint did not state a
cause of action; that the real property in interest was the Testate Estate of Angela M. Butte, which
should have been joined as a party defendant; that the case amounted to a claim against the Estate of
Angela M. Butte and should have been filed in Special Proceedings No. A-17910 before the Probate
Court in Quezon City; and that, if as alleged in the complaint, the property had been assigned to Tomas
L. Parpana, as special administrator of the Estate of Ramon Papa, Jr., said estate should be impleaded.
Petitioner, likewise, claimed that he could not recall in detail the transaction which allegedly occurred in
1973; that he did not have TCT No. 28993 in his possession; that he could not be held personally liable
as he signed the deed merely as attorney-in-fact of said Angela M. Butte. Finally, petitioner asseverated
that as a result of the filing of the case, he was compelled to hire the services of counsel for a fee of
P20,000.00, for which respondents should be held liable.
Upon his motion, herein private respondent Delfin Jao was allowed to intervene in the case. Making
common cause with respondents Valencia and Peñarroyo, respondent Jao alleged that the subject lot
which had been sold to respondent Peñarroyo through respondent Valencia was in turn sold to him on
20 August 1973 for the sum of P71,500.00, upon his paying earnest money in the amount of P5,000.00.
He, therefore, prayed that judgment be rendered in favor of respondents Valencia and Peñarroyo; and,
that after the delivery of the title to said respondents, the latter in turn be ordered to execute in his
favor the appropriate deed of conveyance covering the property in question and to turn over to him the
rentals which aforesaid respondents sought to collect from petitioner Myron C. Papa.
Respondent Jao, likewise, averred that as a result of petitioner’s refusal to deliver the title to the
property to respondents Valencia and Peñarroyo, who in turn failed to deliver the said title to him, he
suffered mental anguish and serious anxiety for which he sought payment of moral damages; and,
additionally, the payment of attorney’s fees and costs.
For his part, Petitioner, as administrator of the Testate Estate of Angela M. Butte, filed a third-party
complaint against herein private respondents, spouses Arsenio B. Reyes and Amanda Santos
(respondent Reyes spouses, for short). He averred, among others, that the late Angela M. Butte was the
owner of the subject property; that due to non-payment of real estate tax said property was sold at
public auction by the City Treasurer of Quezon City to the respondent Reyes spouses on 21 January 1980
for the sum of P14,000.00; that the one-year period of redemption had expired; that respondents
Valencia and Peñarroyo had sued petitioner Papa as administrator of the estate of Angela M. Butte, for
the delivery of the title to the property; that the same aforenamed respondents had acknowledged that
the price paid by them was insufficient, and that they were willing to add a reasonable amount or a
minimum of P55,000.00 to the price upon delivery of the property, considering that the same was
estimated to be worth P143,000.00; that petitioner was willing to reimburse respondent Reyes spouses
whatever amount they might have paid for taxes and other charges, since the subject property was still
registered in the name of the late Angela M. Butte; that it was inequitable to allow respondent Reyes
spouses to acquire property estimated to be worth P143,000.00, for a measly sum of P14,000.00.
Petitioner prayed that judgment be rendered cancelling the tax sale to respondent Reyes spouses;
restoring the subject property to him upon payment by him to said respondent Reyes spouses of the
amount of P14,000.00, plus legal interest; and, ordering respondents Valencia and Peñarroyo to pay him
at least P55,000.00 plus everything they might have to pay the Reyes spouses in recovering the
property.
Respondent Reyes spouses in their Answer raised the defense of prescription of petitioner’s right to
redeem the property.
At the trial, only respondent Peñarroyo testified. All the other parties only submitted documentary
proof.
On 29 June 1987, the trial court rendered a decision, the dispositive portion of which reads.
WHEREUPON, judgment is hereby rendered as follows:chanrob1es virtual 1aw library
1) Allowing defendant to redeem from third-party defendants and ordering the latter to allow the
former to redeem the property in question, by paying the sum of P14,000.00 plus legal interest of 12%
thereon from January 2, 1980;
2) Ordering defendant to execute a Deed of Absolute Sale in favor of plaintiff Felix Peñarroyo covering
the property in question and to deliver peaceful possession and enjoyment of the said property to the
said plaintiff, free from any liens and encumbrances;
Should this not be possible, for any reason not attributable to defendant, said defendant is ordered to
pay to plaintiff Felix Peñarroyo the sum of P45,000.00 plus legal interest of 12% from June 15, 1973;
3) Ordering plaintiff Felix Peñarroyo to execute and deliver to intervenor a deed of absolute sale over
the same property, upon the latter’s payment to the former of the balance of the purchase price of
P71,500.00;
Should this not be possible, plaintiff Felix Peñarroyo is ordered to pay intervenor the sum of P5,000.00
plus legal interest of 12% from August 23, 1973; and
4) Ordering defendant to pay plaintiffs the amount of P5,000.00 for and as attorney’s fees and litigation
expenses.
SO ORDERED. 1
Petitioner appealed the aforesaid decision of the trial court to the Court of Appeals, alleging among
others that the sale was never "consummated" as he did not encash the check (in the amount of
P40,000.00) given by respondents Valencia and Peñarroyo in payment of the full purchase price of the
subject lot. He maintained that what said respondents had actually paid was only the amount of
P5,000.00 (in cash) as earnest money.
Respondent Reyes spouses, likewise, appealed the above decision. However, their appeal was dismissed
because of failure to file their appellants’ brief.
On 27 January 1992, the Court of Appeals rendered a decision, affirming with modification the trial
court’s decision, thus:chanrob1es virtual 1aw library
WHEREFORE, the second paragraph of the dispositive portion of the appealed decision is MODIFIED, by
ordering the defendant-appellant to deliver to plaintiff-appellees the owner’s duplicate of TCT No.
28993 of Angela M. Butte and the peaceful possession and enjoyment of the lot in question or, if the
owner’s duplicate certificate cannot be produced, to authorize the Register of Deeds to cancel it and
issue a certificate of title in the name of Felix Peñarroyo. In all other respects, the decision appealed
from is AFFIRMED. Costs against defendant-appellant Myron C. Papa.
SO ORDERED. 2
In affirming the trial court’s decision, respondent court held that contrary to petitioner’s claim that he
did not encash the aforesaid check, and therefore, the sale was not consummated, there was no
evidence at all that petitioner did not, in fact, encash said check. On the other hand, respondent
Peñarroyo testified in court that petitioner Papa had received the amount of P45,000.00 and issued
receipts therefor. According to respondent court, the presumption is that the check was encashed,
especially since the payment by check was not denied by defendant-appellant (herein petitioner) who,
in his Answer, merely alleged that he "can no longer recall the transaction which is supposed to have
happened 10 years ago." 3
On petitioner’s claim that he cannot be held personally liable as he had acted merely as attorney-in-fact
of the owner, Angela M. Butte, respondent court held that such contention is without merit. This action
was not brought against him in his personal capacity, but in his capacity as the administrator of the
Testate Estate of Angela M. Butte. 4
On petitioner’s contention that the estate of Angela M. Butte should have been joined in the action as
the real party in interest, respondent court held that pursuant to Rule 3, Section 3 of the Rules of Court,
the estate of Angela M. Butte does not have to be joined in the action. Likewise, the estate of Ramon
Papa, Jr., is not an indispensable party under Rule 3, Section 7 of the same Rules. For the fact is that
Ramon Papa, Jr., or his estate, was not a party to the Deed of Absolute Sale, and it is basic law that
contracts bind only those who are parties thereto. 5
Respondent court observed that the conditions under which the mortgage rights of the bank were
assigned are not clear. In any case, any obligation which the estate of Angela M. Butte might have to the
estate of Ramon Papa, Jr. is strictly between them. Respondents Valencia and Peñarroyo are not bound
by any such obligation.chanrobles virtual lawlibrary
Petitioner filed a motion for reconsideration of the above decision, which motion was denied by
respondent Court of Appeals.
Hence, this petition wherein petitioner raises the following issues:chanrob1es virtual 1aw library
I. THE CONCLUSION OR FINDING OF THE COURT OF APPEALS THAT THE SALE IN QUESTION WAS
CONSUMMATED IS GROUNDED ON SPECULATION OR CONJECTURE, AND IS CONTRARY TO THE
APPLICABLE LEGAL PRINCIPLE.
II. THE COURT OF APPEALS, IN MODIFYING THE DECISION OF THE TRIAL COURT, ERRED BECAUSE IT, IN
EFFECT, CANCELLED OR NULLIFIED AN ASSIGNMENT OF THE SUBJECT PROPERTY IN FAVOR OF THE
ESTATE OF RAMON PAPA, JR. WHICH IS NOT A PARTY IN THIS CASE.chanroblesvirtualawlibrary
III. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ESTATE OF ANGELA M. BUTTE AND THE
ESTATE OF RAMON PAPA, JR. ARE INDISPENSABLE PARTIES IN THIS CASE. 6
Petitioner argues that respondent Court of Appeals erred in concluding that the alleged sale of the
subject property had been consummated. He contends that such a conclusion is based on the erroneous
presumption that the check (in the amount of P40,000.00) had been cashed, citing Art. 1249 of the Civil
Code, which provides, in part, that payment by checks shall produce the effect of payment only when
they have been cashed or when through the fault of the creditor they have been impaired. 7 Petitioner
insists that he never cashed said check; and, such being the case, its delivery never produced the effect
of payment. Petitioner, while admitting that he had issued receipts for the payments, asserts that said
receipts, particularly the receipt of PCIB Check No. 761025 in the amount of P40,000.00, do not prove
payment. He avers that there must be a showing that said check had been encashed. If, according to
petitioner, the check had been encashed, respondent Peñarroyo should have presented PCIB Check No.
761025 duly stamped received by the payee, or at least its microfilm copy.
Petitioner finally avers that, in fact, the consideration for the sale was still in the hands of respondents
Valencia and Peñarroyo, as evidenced by a letter addressed to him in which said respondents wrote, in
part:chanrob1es virtual 1aw library
. . . Please be informed that I had been authorized by Dr. Ramon Papa Jr., heir of Mrs. Angela M. Butte to
pay you the aforementioned amount of P75,000.00 for the release and cancellation of subject
property’s mortgage. The money is with me and if it is alright with you, I would like to tender the
payment as soon as possible. . . 8
We find no merit in petitioner’s arguments.
It is an undisputed fact that respondents Valencia and Peñarroyo had given petitioner Myron C. Papa the
amounts of Five Thousand Pesos (P5,000.00) in cash on 24 May 1973, and Forty Thousand Pesos
(P40,000.00) in check on 15 June 1973, in payment of the purchase price of the subject lot. Petitioner
himself admits having received said amounts, 9 and having issued receipts therefor. 10 Petitioner’s
assertion that he never encashed the aforesaid check is not substantiated and is at odds with his
statement in his answer that "he can no longer recall the transaction which is supposed to have
happened 10 years ago." After more than ten (10) years from the payment in part by cash and in part by
check, the presumption is that the check had been encashed. As already stated, he even waived the
presentation of oral evidence.
Granting that petitioner had never encashed the check, his failure to do so for more than ten (10) years
undoubtedly resulted in the impairment of the check through his unreasonable and unexplained delay.
While it is true that the delivery of a check produces the effect of payment only when it is cashed,
pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditor’s
unreasonable delay in presentment. The acceptance of a cheek implies an undertaking of due diligence
in presenting it for payment, and if he from whom it is received sustains loss by want of such diligence, it
will be held to operate as actual payment of the debt or obligation for which it was given. 11 It has,
likewise, been held that if no presentment is made at all, the drawer cannot be held liable irrespective of
loss or injury 12 unless presentment is otherwise excused. This is in harmony with Article 1249 of the
Civil Code under which payment by way of check or other negotiable instrument is conditioned on its
being cashed, except when through the fault of the creditor, the instrument is impaired. The payee of a
check would be a creditor under this provision and if its non-payment is caused by his negligence,
payment will be deemed effected and the obligation for which the check was given as conditional
payment will be discharged. 13
Considering that respondents Valencia and Peñarroyo had fulfilled their part of the contract of sale by
delivering the payment of the purchase price, said respondents, therefore, had the right to compel
petitioner to deliver to them the owner’s duplicate of TCT No. 28993 of Angela M. Butte and the
peaceful possession and enjoyment of the lot in question.
With regard to the alleged assignment of mortgage rights, respondent Court of Appeals has found that
the conditions under which said mortgage rights of the bank were assigned are not clear. Indeed, a
perusal of the original records of the case would show that there is nothing there that could shed light
on the transactions leading to the said assignment of rights; nor is there any evidence on record of the
conditions under which said mortgage rights were assigned. What is certain is that despite the said
assignment of mortgage rights, the title to the subject property has remained in the name of the late
Angela M. Butte. 14 This much is admitted by petitioner himself in his answer to respondents’ complaint
as well as in the third-party complaint that petitioner filed against respondent-spouses Arsenio B. Reyes
and Amanda Santos. 15 Assuming arguendo that the mortgage rights of the Associated Citizens Bank
had been assigned to the estate of Ramon Papa, Jr., and granting that the assigned mortgage rights
validly exist and constitute a lien on the property, the estate may file the appropriate action to enforce
such lien. The cause of action for specific performance which respondents Valencia and Peñarroyo have
against petitioner is different from the cause of action which the estate of Ramon Papa, Jr. may have to
enforce whatever rights or liens it has on the property by reason of its being an alleged assignee of the
bank’s rights of mortgage.
Finally, the estate of Angela M. Butte is not an indispensable party. Under Section 3 of Rule 3 of the
Rules of Court, an executor or administrator may sue or be sued without joining the party for whose
benefit the action is presented or defended, thus:chanrob1es virtual 1aw library
Sec. 3. Representative parties. — A trustee of an express trust, a guardian, executor or administrator, or

a party authorized by statute, may sue or be sued without joining the party for whose benefit the action
is presented or defended; but the court may, at any stage of the proceedings, order such beneficiary to
be made a party. An agent acting in his own name and for the benefit of an undisclosed principal may
sue or be sued without joining the principal except when the contract involves things belonging to the
principal. 16
Neither is the estate of Ramon Papa, Jr. an indispensable party without whom, no final determination of
the action can be had. Whatever prior and subsisting mortgage rights the estate of Ramon Papa, Jr. has
over the property may still be enforced regardless of the change in ownership thereof.
WHEREFORE, the petition for review is hereby DENIED and the Decision of the Court of Appeals, dated
27 January 1992 is AFFIRMED.
SO ORDERED.
Davide, Jr., Bellosillo and Vitug, JJ., concur.
Endnotes:
1. Rollo, pp. 70-71.
2. Rollo, pp. 41-42.
3. Id., at 40.
4. Id., at 41.
5. Id., at 40-41.
6. Id., at 23-24.
7. Art 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the currency which is legal tender in the Philippines.
The delivery or promissory notes payable to order, or bills of exchange or other mercantile documents
8. Rollo., p. 26.
9. Id., at 132.
10. Id., at 25.

11. 60 AM. JUR. 2d, Sec. 59.
12. Campos and Lopez-Campos, Negotiable Instruments Law, 4th Edition (1990), p. 561 citing Rodriguez
v. Hardouin, 15 La. App. 112, 131 So. 593.
13. Id., at 560 citing Gabon v. Balagot, 53 O.G. No. 11, 3504.
14. Rollo, p. 41.
15. Original Records. p. 162.
16. This section has been amended by the 1997 Rules of Civil procedure to read as follows:chanrob1es
virtual 1aw library
Sec. 3. Representatives as parties. — Where the action is allowed to be prosecuted or defended by a

representative or someone acting in a fiduciary capacity, the beneficiary shall be included in the title of
the case and shall be deemed to be the real party in interest. A representative may be a trustee of an
express trust, a guardian, an executor or administrator, or a party authorized by law or these Rules. An
agent acting in his own name and for the benefit of an undisclosed principal may sue or be sued without
joining the principal except when the contract involves things belonging to the principal.
G.R. Nos. 173090-91 September 7, 2011
UNION BANK OF THE PHILIPPINES, Petitioner,

vs.
SPOUSES RODOLFO T. TIU AND VICTORIA N. TIU, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
This is a Petition for Review on Certiorari seeking to reverse the Joint Decision1 of the Court of Appeals
dated February 21, 2006 in CA-G.R. CV No. 00190 and CA-G.R. SP No. 00253, as well as the Resolution2
dated June 1, 2006 denying the Motion for Reconsideration.
The factual and procedural antecedents of this case are as follows:
On November 21, 1995, petitioner Union Bank of the Philippines (Union Bank) and respondent spouses
Rodolfo T. Tiu and Victoria N. Tiu (the spouses Tiu) entered into a Credit Line Agreement (CLA) whereby
Union Bank agreed to make available to the spouses Tiu credit facilities in such amounts as may be
approved.3 From September 22, 1997 to March 26, 1998, the spouses Tiu took out various loans
pursuant to this CLA in the total amount of three million six hundred thirty-two thousand dollars
(US$3,632,000.00), as evidenced by promissory notes:
PN No. Amount in US$ Date Granted
87/98/111 72,000.00 02/16/98
87/98/108 84,000.00 02/13/98
87/98/152 320,000.00 03/02/98
87/98/075 150,000.00 01/30/98
87/98/211 32,000.00 03/26/98
87/98/071 110,000.00 01/29/98
87/98/107 135,000.00 02/13//98
87/98/100 75,000.00 02/12/98
87/98/197 195,000.00 03/19/98
87/97/761 60,000.00 09/26/97
87/97/768 30,000.00 09/29/97
87/97/767 180,000.00 09/29/97
87/97/970 110,000.00 12/29/97
87/97/747 50,000.00 09/22/97
87/96/944 605,000.00 12/19/97
87/98/191 470,000.00 03/16/98
87/98/198 505,000.00 03/19/98
87/98/090 449,000.00 02/09/98
US$3,632,000.004
On June 23, 1998, Union Bank advised the spouses Tiu through a letter5 that, in view of the existing
currency risks, the loans shall be redenominated to their equivalent Philippine peso amount on July 15,
1998. On July 3, 1998, the spouses Tiu wrote to Union Bank authorizing the latter to redenominate the
loans at the rate of US$1=₱41.406 with interest of 19% for one year.7
On December 21, 1999, Union Bank and the spouses Tiu entered into a Restructuring Agreement.8 The
Restructuring Agreement contains a clause wherein the spouses Tiu confirmed their debt and waived
any action on account thereof. To quote said clause:
1. Confirmation of Debt – The BORROWER hereby confirms and accepts that as of December 8, 1999, its
outstanding principal indebtedness to the BANK under the Agreement and the Notes amount to ONE
HUNDRED FIFTY[-]FIVE MILLION THREE HUNDRED SIXTY[-]FOUR THOUSAND EIGHT HUNDRED PESOS
(PHP 155,364,800.00) exclusive of interests, service and penalty charges (the "Indebtedness") and
further confirms the correctness, legality, collectability and enforceability of the Indebtedness. The
BORROWER unconditionally waives any action, demand or claim that they may otherwise have to
dispute the amount of the Indebtedness as of the date specified in this Section, or the collectability and
enforceability thereof. It is the understanding of the parties that the BORROWER’s acknowledgment,
affirmation, and waiver herein are material considerations for the BANK’s agreeing to restructure the
Indebtedness which would have already become due and payable as of the above date under the terms
of the Agreement and the Notes.9
The restructured amount (₱155,364,800.00) is the sum of the following figures: (1) ₱150,364,800.00,
which is the value of the US$3,632,000.00 loan as redenominated under the above-mentioned exchange
rate of US$1=₱41.40; and (2) ₱5,000,000.00, an additional loan given to the spouses Tiu to update their
interest payments.10
Under the same Restructuring Agreement, the parties declared that the loan obligation to be
restructured (after deducting the dacion price of properties ceded by the Tiu spouses and adding: [1] the
taxes, registration fees and other expenses advanced by Union Bank in registering the Deeds of Dation
in Payment; and [2] other fees and charges incurred by the Indebtedness) is one hundred four million six
hundred sixty-eight thousand seven hundred forty-one pesos (₱104,668,741.00) (total restructured
amount).11 The Deeds of Dation in Payment referred to are the following:
1. Dation of the Labangon properties – Deed executed by Juanita Tiu, the mother of respondent Rodolfo
Tiu, involving ten parcels of land with improvements located in Labangon, Cebu City and with a total
land area of 3,344 square meters, for the amount of ₱25,130,000.00. The Deed states that these
properties shall be leased to the Tiu spouses at a monthly rate of ₱98,000.00 for a period of two
years.12
2. Dation of the Mandaue property – Deed executed by the spouses Tiu involving one parcel of land with
improvements located in A.S. Fortuna St., Mandaue City, covered by TCT No. T-31604 and with a land
area of 2,960 square meters, for the amount of ₱36,080,000.00. The Deed states that said property shall
be leased to the Tiu spouses at a monthly rate of ₱150,000.00 for a period of two years.13
As likewise provided in the Restructuring Agreement, the spouses Tiu executed a Real Estate Mortgage
in favor of Union Bank over their "residential property inclusive of lot and improvements" located at P.
Burgos St., Mandaue City, covered by TCT No. T-11951 with an area of 3,096 square meters.14
The spouses Tiu undertook to pay the total restructured amount (₱104,668,741.00) via three loan
facilities (payment schemes).
The spouses Tiu claim to have made the following payments: (1) ₱15,000,000.00 on August 3, 1999; and
(2) another ₱13,197,546.79 as of May 8, 2001. Adding the amounts paid under the Deeds of Dation in
Payment, the spouses Tiu postulate that their payments added up to ₱89,407,546.79.15
Asserting that the spouses Tiu failed to comply with the payment schemes set up in the Restructuring
Agreement, Union Bank initiated extrajudicial foreclosure proceedings on the residential property of the
spouses Tiu, covered by TCT No. T-11951. The property was to be sold at public auction on July 18, 2002.
The spouses Tiu, together with Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young and
Rosenda T. Tiu, filed with the Regional Trial Court (RTC) of Mandaue City a Complaint seeking to have
the Extrajudicial Foreclosure declared null and void. The case was docketed as Civil Case No. MAN-
4363.16 Named as defendants were Union Bank and Sheriff IV Veronico C. Ouano (Sheriff Oano) of
Branch 55, RTC, Mandaue City. Complainants therein prayed for the following: (1) that the spouses Tiu
be declared to have fully paid their obligation to Union Bank; (2) that defendants be permanently
enjoined from proceeding with the auction sale; (3) that Union Bank be ordered to return to the spouses
Tiu their properties as listed in the Complaint; (4) that Union Bank be ordered to pay the plaintiffs the
sum of ₱10,000,000.00 as moral damages, ₱2,000,000.00 as exemplary damages, ₱3,000,000.00 as
attorney’s fees and ₱500,000.00 as expenses of litigation; and (5) a writ of preliminary injunction or
temporary restraining order be issued enjoining the public auction sale to be held on July 18, 2002.17
The spouses Tiu claim that from the beginning the loans were in pesos, not in dollars. Their office clerk,
Lilia Gutierrez, testified that the spouses Tiu merely received the peso equivalent of their
US$3,632,000.00 loan at the rate of US$1=₱26.00. The spouses Tiu further claim that they were merely
forced to sign the Restructuring Agreement and take up an additional loan of ₱5,000,000.00, the
proceeds of which they never saw because this amount was immediately applied by Union Bank to
interest payments.18
The spouses Tiu allege that the foreclosure sale of the mortgaged properties was invalid, as the loans
have already been fully paid. They also allege that they are not the owners of the improvements
constructed on the lot because the real owners thereof are their co-petitioners, Juanita T. Tiu, Rosalinda
T. King, Rufino T. Tiu, Rosalie T. Young and Rosenda T. Tiu.19
The spouses Tiu further claim that prior to the signing of the Restructuring Agreement, they entered into
a Memorandum of Agreement with Union Bank whereby the former deposited with the latter several
certificates of shares of stock of various companies and four certificates of title of various parcels of land
located in Cebu. The spouses Tiu claim that these properties have not been subjected to any lien in favor
of Union Bank, yet the latter continues to hold on to these properties and has not returned the same to
the former.20
On the other hand, Union Bank claims that the Restructuring Agreement was voluntarily and validly
entered into by both parties. Presenting as evidence the Warranties embodied in the Real Estate
Mortgage, Union Bank contends that the foreclosure of the mortgage on the residential property of the
spouses Tiu was valid and that the improvements thereon were absolutely owned by them. Union Bank
denies receiving certificates of shares of stock of various companies or the four certificates of title of
various parcels of land from the spouses Tiu. However, Union Bank also alleges that even if said
certificates were in its possession it is authorized under the Restructuring Agreement to retain any and
all properties of the debtor as security for the loan.21
The RTC issued a Temporary Restraining Order22 and, eventually, a Writ of Preliminary Injunction23
preventing the sale of the residential property of the spouses Tiu. 24
On December 16, 2004, the RTC rendered its Decision25 in Civil Case No. MAN-4363 in favor of Union
Bank. The dispositive portion of the Decision read:
WHEREFORE, premises considered, judgment is hereby rendered dismissing the Complaint and lifting
and setting aside the Writ of Preliminary Injunction. No pronouncement as to damages, attorney’s fees
and costs of suit.26
In upholding the validity of the Restructuring Agreement, the RTC held that the spouses Tiu failed to
present any evidence to prove either fraud or intimidation or any other act vitiating their consent to the
same. The exact obligation of the spouses Tiu to Union Bank is therefore ₱104,668,741.00, as agreed
upon by the parties in the Restructuring Agreement. As regards the contention of the spouses Tiu that
they have fully paid their indebtedness, the RTC noted that they could not present any detailed
accounting as to the total amount they have paid after the execution of the Restructuring Agreement.27
On January 4, 2005, Union Bank filed a Motion for Partial Reconsideration,28 protesting the finding in
the body of the December 16, 2004 Decision that the residential house on Lot No. 639 is not owned by
the spouses Tiu and therefore should be excluded from the real properties covered by the real estate
mortgage. On January 6, 2005, the spouses Tiu filed their own Motion for Partial Reconsideration and/or
New Trial.29 They alleged that the trial court failed to rule on their fourth cause of action wherein they
mentioned that they turned over the following titles to Union Bank: TCT Nos. 30271, 116287 and
116288 and OCT No. 0-3538. They also prayed for a partial new trial and for a declaration that they have
fully paid their obligation to Union Bank.30
On January 11, 2005, the spouses Tiu received from Sheriff Oano a Second Notice of Extra-judicial
Foreclosure Sale of Lot No. 639 to be held on February 3, 2005. To prevent the same, the Tiu spouses
filed with the Court of Appeals a Petition for Prohibition and Injunction with Application for TRO/Writ of
Preliminary Injunction.31 The petition was docketed as CA-G.R. SP No. 00253. The Court of Appeals
issued a Temporary Restraining Order on January 27, 2005.32
On January 19, 2005, the RTC issued an Order denying Union Bank’s Motion for Partial Reconsideration
and the Tiu spouses’ Motion for Partial Reconsideration and/or New Trial.33
Both the spouses Tiu and Union Bank appealed the case to the Court of Appeals.34 The two appeals
were given a single docket number, CA-G.R. CEB-CV No. 00190. Acting on a motion filed by the spouses
Tiu, the Court of Appeals consolidated CA-G.R. SP No. 00253 with CA-G.R. CEB-CV No. 00190.35
On April 19, 2005, the Court of Appeals issued a Resolution finding that there was no need for the
issuance of a Writ of Preliminary Injunction as the judgment of the lower court has been stayed by the
perfection of the appeal therefrom.36
On May 9, 2005, Sheriff Oano proceeded to conduct the extrajudicial sale. Union Bank submitted the
lone bid of ₱18,576,000.00.37 On June 14, 2005, Union Bank filed a motion with the Court of Appeals
praying that Sheriff Oano be ordered to issue a definite and regular Certificate of Sale.38 On July 21,
2005, the Court of Appeals issued a Resolution denying the Motion and suspending the auction sale at
whatever stage, pending resolution of the appeal and conditioned upon the filing of a bond in the
amount of ₱18,000,000.00 by the Tiu spouses.39 The Tiu spouses failed to file said bond.40
On February 21, 2006, the Court of Appeals rendered the assailed Joint Decision in CA-G.R. CV No. 00190
and CA-G.R. SP No. 00253. The Court of Appeals dismissed the Petition for Prohibition, CA-G.R. SP No.
00253, on the ground that the proper venue for the same is with the RTC.41
On the other hand, the Court of Appeals ruled in favor of the spouses Tiu in CA-G.R. CV No. 00190. The
Court of Appeals held that the loan transactions were in pesos, since there was supposedly no
stipulation the loans will be paid in dollars and since no dollars ever exchanged hands. Considering that
the loans were in pesos from the beginning, the Court of Appeals reasoned that there is no need to
convert the same. By making it appear that the loans were originally in dollars, Union Bank overstepped
its rights as creditor, and made unwarranted interpretations of the original loan agreement. According
to the Court of Appeals, the Restructuring Agreement, which purportedly attempts to create a novation
of the original loan, was not clearly authorized by the debtors and was not supported by any cause or
consideration. Since the Restructuring Agreement is void, the original loan of ₱94,432,000.00
(representing the amount received by the spouses Tiu of US$3,632,000.00 using the US$1=₱26.00
exchange rate) should subsist. The Court of Appeals likewise invalidated (1) the ₱5,000,000.00 charge
for interest in the Restructuring Agreement, for having been unilaterally imposed by Union Bank; and (2)
the lease of the properties conveyed in dacion en pago, for being against public policy. 42
In sum, the Court of Appeals found Union Bank liable to the spouses Tiu in the amount of ₱927,546.79.
For convenient reference, we quote relevant portion of the Court of Appeal’s Decision here:
To summarize the obligation of the Tiu spouses, they owe Union Bank ₱94,432,000.00. The Tiu spouses
had already paid Union Bank the amount of ₱89,407,546.79. On the other hand, Union Bank must
return to the Tiu spouses the illegally collected rentals in the amount of ₱5,952,000.00. Given these
findings, the obligation of the Tiu spouses has already been fully paid. In fact, it is the Union Bank that
must return to the Tiu spouses the amount of NINE HUNDRED TWENTY[-]SEVEN THOUSAND FIVE
HUNDRED FORTY[-]SIX PESOS AND SEVENTY[-]NINE CENTAVOS (₱927,546.79).43
With regard to the ownership of the improvements on the subject mortgaged property, the Court of
Appeals ruled that it belonged to respondent Rodolfo Tiu’s father, Jose Tiu, since 1981. According to the
Court of Appeals, Union Bank should not have relied on warranties made by debtors that they are the
owners of the property. The appellate court went on to permanently enjoin Union Bank from foreclosing
the mortgage not only of the property covered by TCT No. T-11951, but also any other mortgage over
any other property of the spouses Tiu.44
The Court of Appeals likewise found Union Bank liable to return the certificates of stocks and titles to
real properties of the spouses Tiu in its possession. The appellate court held that Union Bank made
judicial admissions of such possession in its Reply to Plaintiff’s Request for Admission.45 In the event
that Union Bank can no longer return these certificates and titles, it was mandated to shoulder the cost
for their replacement.46
Finally, the Court of Appeals took judicial notice that before or during the financial crisis, banks actively
convinced debtors to make dollar loans in the guise of benevolence, saddling borrowers with loans that
ballooned twice or thrice their original loans. The Court of Appeals, noting "the cavalier way with which
banks exploited and manipulated the situation,"47 held Union Bank liable to the spouses Tiu for
₱100,000.00 in moral damages, ₱100,000.00 in exemplary damages, and ₱50,000.00 in attorney’s
fees.48
The Court of Appeals disposed of the case as follows:

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us permanently
enjoining Union Bank from foreclosing the mortgage of the residential property of the Tiu spouses which
is covered by Transfer Certificate of Title No. 11951 and from pursuing other foreclosure of mortgages
over any other properties of the Tiu spouses for the above-litigated debt that has already been fully
paid. If a foreclosure sale has already been made over such properties, this Court orders the cancellation
of such foreclosure sale and the Certificate of Sale thereof if any has been issued. This Court orders
Union Bank to return to the Tiu spouses the amount of NINE HUNDRED TWENTY[-]SEVEN THOUSAND
FIVE HUNDRED FORTY[-]SIX PESOS AND SEVENTY[-]NINE CENTAVOS (₱927,546.79) representing illegally
collected rentals. This Court also orders Union Bank to return to the Tiu spouses all the certificates of
shares of stocks and titles to real properties of the Tiu spouses that were deposited to it or, in lieu
thereof, to pay the cost for the replacement and issuance of new certificates and new titles over the
said properties. This Court finally orders Union Bank to pay the Tiu spouses ONE HUNDRED THOUSAND
PESOS (₱100,000.00) in moral damages, ONE HUNDRED THOUSAND PESOS (₱100,000.00) in exemplary
damages, FIFTY THOUSAND PESOS (₱50,000.00) in attorney’s fees and cost, both in the lower court and
in this Court.49
On June 1, 2006, the Court of Appeals rendered the assailed Resolution denying Union Bank’s Motion
for Reconsideration.
Hence, this Petition for Review on Certiorari, wherein Union Bank submits the following issues for the
consideration of this Court:
1. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT
CONCLUDED THAT THERE WERE NO DOLLAR LOANS OBTAINED BY [THE] TIU SPOUSES FROM UNION
BANK DESPITE [THE] CLEAR ADMISSION OF INDEBTEDNESS BY THE BORROWER-MORTGAGOR TIU
SPOUSES.
NULLIFIED THE RESTRUCTURING AGREEMENT BETWEEN TIU SPOUSES AND UNION BANK FOR LACK OF
CAUSE OR CONSIDERATION DESPITE THE ADMISSION OF THE BORROWER-MORTGAGOR TIU SPOUSES
OF THE DUE AND VOLUNTARY EXECUTION OF SAID RESTRUCTURING AGREEMENT.
PERMANENTLY ENJOINED UNION BANK FROM FORECLOSING THE MORTGAGE ON THE RESIDENTIAL
PROPERTY OF THE TIU SPOUSES DESPITE THE ADMISSION OF NON-PAYMENT OF THEIR OUTSTANDING
LOAN TO THE BANK BY THE BORROWER-MORTGAGOR TIU SPOUSES;
FIXED THE AMOUNT OF THE OBLIGATION OF RESPONDENT SPOUSES CONTRARY TO THE PROVISIONS OF
THE PROMISSORY NOTES, RESTRUCTURING AGREEMENT AND [THE] VOLUNTARY ADMISSIONS BY
BORROWER-MORTGAGOR TIU SPOUSES;
RULED ON THE ALLEGED RENTALS PAID BY RESPONDENT SPOUSES WITHOUT ANY FACTUAL BASIS;
HELD WITHOUT ANY FACTUAL BASIS THAT THE LOAN OBLIGATION OF TIU SPOUSES HAS BEEN FULLY
PAID;
HELD WITHOUT ANY FACTUAL BASIS THAT THE HOUSE INCLUDED IN THE REAL ESTATE MORTGAGE DID
NOT BELONG TO THE TIU SPOUSES.
8. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR IN
ORDERING UNION BANK TO RETURN THE CERTIFICATES OF SHARES OF STOCK AND TITLES TO REAL
PROPERTIES OF TIU SPOUSES ALLEGEDLY IN THE POSSESSION OF UNION BANK.
9. WHETHER OR NOT THE COURT OF APPEALS VIOLATED THE DOCTRINES AND PRINCIPLES ON
APPELLATE JURISDICTION.
10. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR IN
AWARDING DAMAGES AGAINST UNION BANK.50
Validity of the Restructuring Agreement
As previously discussed, the Court of Appeals declared that the Restructuring Agreement is void on
account of its being a failed novation of the original loan agreements. The Court of Appeals explained
that since there was no stipulation that the loans will be paid in dollars, and since no dollars ever
exchanged hands, the original loan transactions were in pesos.51 Proceeding from this premise, the
Court of Appeals held that the Restructuring Agreement, which was meant to convert the loans into
pesos, was unwarranted. Thus, the Court of Appeals reasoned that:
Be that as it may, however, since the loans of the Tiu spouses from Union Bank were peso loans from
the very beginning, there is no need for conversion thereof. A Restructuring Agreement should merely
confirm the loans, not add thereto. By making it appear in the Restructuring Agreement that the loans
were originally dollar loans, Union Bank overstepped its rights as a creditor and made unwarranted
interpretations of the original loan agreement. This Court is not bound by such interpretations made by
Union Bank. When one party makes an interpretation of a contract, he makes it at his own risk, subject
to a subsequent challenge by the other party and a modification by the courts. In this case, that party
making the interpretation is not just any party, but a well entrenched and highly respected bank. The
matter that was being interpreted was also a financial matter that is within the profound expertise of
the bank. A normal person who does not possess the same financial proficiency or acumen as that of a
bank will most likely defer to the latter’s esteemed opinion, representations and interpretations. It has
been often stated in our jurisprudence that banks have a fiduciary duty to their depositors. According to
the case of Bank of the Philippine Islands vs. IAC (G.R. No. 69162, February 21, 1992), "as a business
affected with public interest and because of the nature of its functions, the bank is under obligation to
treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of
their relationship." Such fiduciary relationship should also extend to the bank’s borrowers who, more
often than not, are also depositors of the bank. Banks are in the business of lending while most
borrowers hardly know the basics of such business. When transacting with a bank, most borrowers
concede to the expertise of the bank and consider their procedures, pronouncements and
representations as unassailable, whether such be true or not. Therefore, when there is a doubtful
banking transaction, this Court will tip the scales in favor of the borrower.
Given the above ruling, the Restructuring Agreement, therefore, between the Tiu spouses and Union
Bank does not operate to supersede all previous loan documents, as claimed by Union Bank. But the
said Restructuring Agreement, as it was crafted by Union Bank, does not merely confirm the original
loan of the Tiu spouses but attempts to create a novation of the said original loan that is not clearly
authorized by the debtors and that is not supported by any cause or consideration. According to Article
1292 of the New Civil Code, in order that an obligation may by extinguished by another which
substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the
new obligations be on every point incompatible with each other. Such is not the case in this instance. No
valid novation of the original obligation took place. Even granting arguendo that there was a novation,
the sudden change in the original amount of the loan to the new amount declared in the Restructuring
Agreement is not supported by any cause or consideration. Under Article 1352 of the Civil Code,
contracts without cause, or with unlawful cause, produce no effect whatever. A contract whose cause
did not exist at the time of the transaction is void. Accordingly, Article 1297 of the New Civil Code
mandates that, if the new obligation is void, the original one shall subsist, unless the parties intended
that the former relation should be extinguished at any event. Since the Restructuring Agreement is void
and since there was no intention to extinguish the original loan, the original loan shall subsist.52
Union Bank does not dispute that the spouses Tiu received the loaned amount of US$3,632,000.00 in
Philippine pesos, not dollars, at the prevailing exchange rate of US$1=₱26.53 However, Union Bank
claims that this does not change the true nature of the loan as a foreign currency loan,54 and proceeded
to illustrate in its Memorandum that the spouses Tiu obtained favorable interest rates by opting to
borrow in dollars (but receiving the equivalent peso amount) as opposed to borrowing in pesos.55
We agree with Union Bank on this point. Although indeed, the spouses Tiu received peso equivalents of
the borrowed amounts, the loan documents presented as evidence, i.e., the promissory notes,56
expressed the amount of the loans in US dollars and not in any other currency. This clearly indicates that
the spouses Tiu were bound to pay Union Bank in dollars, the amount stipulated in said loan documents.
Thus, before the Restructuring Agreement, the spouses Tiu were bound to pay Union Bank the amount
of US$3,632,000.00 plus the interest stipulated in the promissory notes, without converting the same to
pesos. The spouses Tiu, who are in the construction business and appear to be dealing primarily in
Philippine currency, should therefore purchase the necessary amount of dollars to pay Union Bank, who
could have justly refused payment in any currency other than that which was stipulated in the
promissory notes.
We disagree with the finding of the Court of Appeals that the testimony of Lila Gutierrez, which merely
attests to the fact that the spouses Tiu received the peso equivalent of their dollar loan, proves the
intention of the parties that such loans should be paid in pesos. If such had been the intention of the
parties, the promissory notes could have easily indicated the same.
Such stipulation of payment in dollars is not prohibited by any prevailing law or jurisprudence at the
time the loans were taken. In this regard, Article 1249 of the Civil Code provides:
Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the currency which is legal tender in the Philippines.
Although the Civil Code took effect on August 30, 1950, jurisprudence had upheld57 the continued
effectivity of Republic Act No. 529, which took effect earlier on June 16, 1950. Pursuant to Section 158
of Republic Act No. 529, any agreement to pay an obligation in a currency other than the Philippine
currency is void; the most that could be demanded is to pay said obligation in Philippine currency to be
measured in the prevailing rate of exchange at the time the obligation was incurred.59 On June 19,
1964, Republic Act No. 4100 took effect, modifying Republic Act No. 529 by providing for several
exceptions to the nullity of agreements to pay in foreign currency.60
On April 13, 1993, Central Bank Circular No. 138961 was issued, lifting foreign exchange restrictions and
liberalizing trade in foreign currency. In cases of foreign borrowings and foreign currency loans,
however, prior Bangko Sentral approval was required. On July 5, 1996, Republic Act No. 8183 took
effect,62 expressly repealing Republic Act No. 529 in Section 263 thereof. The same statute also
explicitly provided that parties may agree that the obligation or transaction shall be settled in a currency
other than Philippine currency at the time of payment.64
Although the Credit Line Agreement between the spouses Tiu and Union Bank was entered into on
November 21, 1995,65 when the agreement to pay in foreign currency was still considered void under
Republic Act No. 529, the actual loans,66 as shown in the promissory notes, were taken out from
September 22, 1997 to March 26, 1998, during which time Republic Act No. 8183 was already in effect.
In United Coconut Planters Bank v. Beluso,67 we held that:
[O]pening a credit line does not create a credit transaction of loan or mutuum, since the former is
merely a preparatory contract to the contract of loan or mutuum. Under such credit line, the bank is
merely obliged, for the considerations specified therefor, to lend to the other party amounts not
exceeding the limit provided. The credit transaction thus occurred not when the credit line was opened,
but rather when the credit line was availed of. x x x.68
Having established that Union Bank and the spouses Tiu validly entered into dollar loans, the conclusion
of the Court of Appeals that there were no dollar loans to novate into peso loans must necessarily fail.
Similarly, the Court of Appeals’ pronouncement that the novation was not supported by any cause or
consideration is likewise incorrect. This conclusion suggests that when the parties signed the
Restructuring Agreement, Union Bank got something out of nothing or that the spouses Tiu received no
benefit from the restructuring of their existing loan and was merely taken advantage of by the bank. It is
important to note at this point that in the determination of the nullity of a contract based on the lack of
consideration, the debtor has the burden to prove the same. Article 1354 of the Civil Code provides that
"[a]though the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the
debtor proves the contrary."
In the case at bar, the Restructuring Agreement was signed at the height of the financial crisis when the
Philippine peso was rapidly depreciating. Since the spouses Tiu were bound to pay their debt in dollars,
the cost of purchasing the required currency was likewise swiftly increasing. If the parties did not enter
into the Restructuring Agreement in December 1999 and the peso continued to deteriorate, the ability
of the spouses Tiu to pay and the ability of Union Bank to collect would both have immensely suffered.
As shown by the evidence presented by Union Bank, the peso indeed continued to deteriorate, climbing
to US$1=₱50.01 on December 2000.69 Hence, in order to ensure the stability of the loan agreement,
Union Bank and the spouses Tiu agreed in the Restructuring Agreement to peg the principal loan at
₱150,364,800.00 and the unpaid interest at ₱5,000,000.00.
Before this Court, the spouses Tiu belatedly argue that their consent to the Restructuring Agreement
was vitiated by fraud and mistake, alleging that (1) the Restructuring Agreement did not take into
consideration their substantial payment in the amount of ₱40,447,185.60 before its execution; and (2)
the dollar loans had already been redenominated in 1997 at the rate of US$1=₱26.34.70
We have painstakingly perused over the records of this case, but failed to find any documentary
evidence of the alleged payment of ₱40,447,185.60 before the execution of the Restructuring
Agreement. In paragraph 16 of their Amended Complaint, the spouses Tiu alleged payment of
₱40,447,185.60 for interests before the conversion of the dollar loan.71 This was specifically denied by
Union Bank in paragraph 5 of its Answer with Counterclaim.72 Respondent Rodolfo Tiu testified that
they made "50 million plus" in cash payment plus "other monthly interest payments,"73 and identified a
computation of payments dated July 17, 2002 signed by himself.74 Such computation, however, was
never formally offered in evidence and was in any event, wholly self-serving.
As regards the alleged redenomination of the same dollar loans in 1997 at the rate of US$1=₱26.34, the
spouses Tiu merely relied on the following direct testimony of Herbert Hojas, one of the witnesses of
Union Bank:
Q: Could you please describe what kind of loan was the loan of the spouses Rodolfo Tiu, the plaintiffs in
this case?
A: It was originally an FCDU, meaning a dollar loan.
Q: What happened to this FCDU loan or dollar loan?
A: The dollar loan was re-denominated in view of the very unstable exchange of the dollar and the peso
at that time,
Q: Could you still remember what year this account was re-denominated from dollar to peso?
A: I think it was on the year 1997.

Q: Could [you] still remember what was then the prevailing exchange rate between the dollar and the
peso at that year 1997?
A: Yes. I have here the list of the dollar exchange rate from January 1987 (sic). It was ₱26.34 per
dollar.75
Neither party presented any documentary evidence of the alleged redenomination in 1997. Respondent
Rodolfo Tiu did not even mention it in his testimony. Furthermore, Hojas was obviously uncertain in his
statement that said redenomination was made in 1997.
As pointed out by the trial court, the Restructuring Agreement, being notarized, is a public document
enjoying a prima facie presumption of authenticity and due execution. Clear and convincing evidence
must be presented to overcome such legal presumption.76 The spouses Tiu, who attested before the
notary public that the Restructuring Agreement "is their own free and voluntary act and deed,"77 failed
to present sufficient evidence to prove otherwise. It is difficult to believe that the spouses Tiu, veteran
businessmen who operate a multi-million peso company, would sign a very important document
without fully understanding its contents and consequences.
This Court therefore rules that the Restructuring Agreement is valid and, as such, a valid and binding
novation of loans of the spouses Tiu entered into from September 22, 1997 to March 26, 1998 which
had a total amount of US$3,632,000.00.
Validity of the Foreclosure of Mortgage
The spouses Tiu challenge the validity of the foreclosure of the mortgage on two grounds, claiming that:
(1) the debt had already been fully paid; and (2) they are not the owners of the improvements on the
mortgaged property.
(1) Allegation of full payment of the mortgage debt
In the preceding discussion, we have ruled that the Restructuring Agreement is a valid and binding
novation of loans of the spouses Tiu entered into from September 22, 1997 to March 26, 1998 in the
total amount of US$3,632,000.00. Thus, in order that the spouses Tiu can be held to have fully paid their
loan obligation, they should present evidence showing their payment of the total restructured amount
under the Restructuring Agreement which was ₱104,668,741.00. As we have discussed above, however,
while respondent Rodolfo Tiu appeared to have identified during his testimony a computation dated July
17, 2002 of the alleged payments made to Union Bank,78 the same was not formally offered in
evidence. Applying Section 34, Rule 13279 of the Rules of Court, such computation cannot be
considered by this Court. We have held that a formal offer is necessary because judges are mandated to
rest their findings of facts and their judgment only and strictly upon the evidence offered by the parties
at the trial. It has several functions: (1) to enable the trial judge to know the purpose or purposes for
which the proponent is presenting the evidence; (2) to allow opposing parties to examine the evidence
and object to its admissibility; and (3) to facilitate review by the appellate court, which will not be
required to review documents not previously scrutinized by the trial court.80 Moreover, even if such
computation were admitted in evidence, the same is self-serving and cannot be given probative weight.
In the case at bar, the records do not contain even a single receipt evidencing payment to Union Bank.
The Court of Appeals, however, held that several payments made by the spouses Tiu had been admitted
by Union Bank. Indeed, Section 11, Rule 8 of the Rules of Court provides that an allegation not
specifically denied is deemed admitted. In such a case, no further evidence would be required to prove
the antecedent facts. We should therefore examine which of the payments specified by the spouses Tiu
in their Amended Complaint81 were not specifically denied by Union Bank.
The allegations of payment are made in paragraphs 16 to 21 of the Amended Complaint:
16. Before conversion of the dollar loan into a peso loan[,] the spouses Tiu had already paid the
defendant bank the amount of P40,447,185.60 for interests;
17. On August 3, 1999 and August 12, 1999, plaintiffs made payments in the amount of ₱15,000,000.00;
18. In order to lessen the obligation of plaintiffs, the mother of plaintiff Rodolfo T. Tiu, plaintiff Juanita T.
Tiu, executed a deed of dacion in payment in favor of defendant involving her 10 parcels of land located
in Labangon, Cebu City for the amount of ₱25,130,000.00. Copy of the deed was attached to the original
complaint as Annex "C";
19. For the same purpose, plaintiffs spouses Tiu also executed a deed of dacion in payment of their
property located at A.S. Fortuna St., Mandaue City for the amount of ₱36,080,000.00. Copy of the deed
was attached to the original complaint as Annex "D";
20. The total amount of the two dacions in payment made by the plaintiffs was ₱61,210,000.00;
21. Plaintiffs spouses Tiu also made other payment of the amount of ₱13,197,546.79 as of May 8,
2001;82
In paragraphs 4 and 5 of their Answer with Counterclaim,83 Union Bank specifically denied the
allegation in paragraph 9 of the Complaint, but admitted the allegations in paragraphs 17, 18, 19, 20 and
21 thereof. Paragraphs 18, 19 and 20 allege the two deeds of dacion. However, these instruments were
already incorporated in the computation of the outstanding debt (i.e., subtracted from the confirmed
debt of ₱155,364,800.00), as can be gleaned from the following provisions in the Restructuring
Agreement:
a.) The loan obligation to the BANK to be restructured herein after deducting from the Indebtedness of
the BORROWER the dacion price of the properties subject of the Deeds of Dacion and adding to the
Indebtedness all the taxes, registration fees and other expenses advanced by the bank in registering the
Deeds of Dacion, and also adding to the Indebtedness the interest, and other fees and charges incurred
by the Indebtedness, amounts to ONE HUNDRED FOUR MILLION SIX HUNDRED SIXTY-EIGHT THOUSAND
SEVEN HUNDRED FORTY-ONE PESOS (PHP104,668,741.00) (the "TOTAL RESTRUCTURED AMOUNT").84
As regards the allegations of cash payments in paragraphs 17 and 21 of the Amended Complaint, the
date of the alleged payment is critical as to whether they were included in the Restructuring Agreement.
The payment of ₱15,000,000.00 alleged in paragraph 17 of the Amended Complaint was supposedly
made on August 3 and 12, 1999. This payment was before the date of execution of the Restructuring
Agreement on December 21, 1999, and is therefore already factored into the restructured obligation of
the spouses.85 On the other hand, the payment of ₱13,197,546.79 alleged in paragraph 21 of the
Amended Complaint was dated May, 8, 2001. Said payment cannot be deemed included in the
computation of the spouses Tiu’s debt in the Restructuring Agreement, which was assented to more
than a year earlier. This amount (₱13,197,546.79) is even absent86 in the computation of Union Bank of
the outstanding debt, in contrast with the ₱15,000,000.00 payment which is included87 therein. Union
Bank did not explain this discrepancy and merely relied on the spouses Tiu’s failure to formally offer
supporting evidence. Since this payment of ₱13,197,546.79 on May 8, 2001 was admitted by Union Bank
in their Answer with Counterclaim, there was no need on the part of the spouses Tiu to present
evidence on the same. Nonetheless, if we subtract this figure from the total restructured amount
(₱104,668,741.00) in the Restructuring Agreement, the result is that the spouses Tiu still owe Union
Bank ₱91,471,194.21.
(2) Allegation of third party ownership of the improvements on the mortgaged lot
The Court of Appeals, taking into consideration its earlier ruling that the loan was already fully paid,
permanently enjoined Union Bank from foreclosing the mortgage on the property covered by Transfer
Certificate of Title No. 11951 (Lot No. 639) and from pursuing other foreclosure of mortgages over any
other properties of the spouses Tiu. The Court of Appeals ruled:
The prayer, therefore, of the Tiu spouses to enjoin the foreclosure of the real estate mortgage over their
residential property has merit. The loan has already been fully paid. It should also be noted that the
house constructed on the residential property of the Tiu spouses is not registered in the name of the Tiu
spouses, but in the name of Jose Tiu (Records, pp. 127-132), the father of appellant and petitioner
Rodolfo Tiu, since 1981. It had been alleged by the Tiu spouses that Jose Tiu died on December 18, 1983,
and, that consequently upon his death, Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young
and Rosenda T. Tiu became owners of the house (Records, p. 116). This allegation has not been
substantially denied by Union Bank. All that the Union Bank presented to refute this allegation are a
Transfer Certificate of Title and a couple of Tax Declarations which do not indicate that a residential
house is titled in the name of the Tiu spouses. In fact, in one of the Tax Declarations, the market value of
the improvements is worth only P3,630.00. Certainly, Union Bank should have been aware that this Tax
Declaration did not cover the residential house. Union Bank should also not rely on warranties made by
debtors that they are the owners of the property. They should investigate such representations. The
courts have made consistent rulings that a bank, being in the business of lending, is obligated to verify
the true ownership of the properties mortgaged to them. Consequently, this Court permanently enjoins
Union Bank from foreclosing the mortgage of the residential property of the Tiu spouses which is
covered by Transfer Certificate of Title No. 11951 and from pursuing other foreclosure of mortgages
over any other properties of the Tiu spouses. If a foreclosure sale has already been made over such
properties, this Court orders the cancellation of such foreclosure sale and the Certificate of Sale thereof
if any has been issued, and the return of the title to the Tiu spouses.88
We disagree. Contrary to the ruling of the Court of Appeals, the burden to prove the spouses Tiu’s
allegation – that they do not own the improvements on Lot No. 639, despite having such improvements
included in the mortgage – is on the spouses Tiu themselves. The fundamental rule is that he who
alleges must prove.89 The allegations of the spouses Tiu on this matter, which are found in paragraphs
35 to 3990 of their Amended Complaint, were specifically denied in paragraph 9 of Union Bank’s Answer
with Counterclaim.91
Upon careful examination of the evidence, we find that the spouses Tiu failed to prove that the
improvements on Lot No. 639 were owned by third persons. In fact, the evidence presented by the
spouses Tiu merely attempt to prove that the improvements on Lot No. 639 were declared for taxes in
the name of respondent Rodolfo Tiu’s father, Jose Tiu, who allegedly died on December 18, 1983. There
was no effort to show how their co-plaintiffs in the original complaint, namely Juanita T. Tiu, Rosalinda
T. King, Rufino T. Tiu, Rosalie T. Young and Rosenda T. Tiu, became co-owners of the house. The spouses
Tiu did not present evidence as to (1) who the heirs of Jose Tiu are; (2) if Juanita T. Tiu, Rosalinda T. King,
Rufino T. Tiu, Rosalie T. Young and Rosenda T. Tiu are indeed included as heirs; and (3) why petitioner
Rodolfo Tiu is not included as an heir despite being the son of Jose Tiu. No birth certificate of the alleged
heirs, will of the deceased, or any other piece of evidence showing judicial or extrajudicial settlement of
the estate of Jose Tiu was presented.
In light of the foregoing, this Court therefore sets aside the ruling of the Court of Appeals permanently
enjoining Union Bank from foreclosing the mortgage on Lot No. 639, including the improvements
thereon.
Validity of Alleged Rental Payments on the Properties Conveyed to the Bank via Dacion en Pago
The Court of Appeals found the lease contracts over the properties conveyed to Union Bank via dacion
en pago to be void for being against public policy. The appellate court held that since the General
Banking Law of 200092 mandates banks to immediately dispose of real estate properties that are not
necessary for its own use in the conduct of its business, banks should not enter into two-year contracts
of lease over properties paid to them through dacion.93 The Court of Appeals thus ordered Union Bank
to return the rentals it collected. To determine the amount of rentals paid by the spouses Tiu to Union
Bank, the Court of Appeals simply multiplied the monthly rental stipulated in the Restructuring
Agreement by the stipulated period of the lease agreement:
For the Labangon property, the Tiu spouses paid rentals in the amount of ₱98,000.00 per month for two
years, or a total amount of ₱2,352,000.00. For the A.S. Fortuna property, the Tiu spouses paid rentals in
the amount of ₱150,000.00 per month for two years, or a total amount of ₱3,600,000.00. The total
amount in rentals paid by the Tiu spouses to Union Bank is FIVE MILLION NINE HUNDRED FIFTY- TWO
THOUSAND PESOS (₱5,952,000.00). This Court finds that the return of this amount to the Tiu spouses is
called for since it will better serve public policy. These properties that were given by the Tiu spouses to
Union Bank as payment should not be used by the latter to extract more money from the former. This
situation is analogous to having a debtor pay interest for a debt already paid. Instead of leasing the
properties, Union Bank should have instructed the Tiu spouses to vacate the said properties so that it
could dispose of them.94
The Court of Appeals committed a serious error in this regard. As pointed out by petitioner Union Bank,
the spouses Tiu did not present any proof of the alleged rental payments. Not a single receipt was
formally offered in evidence. The mere stipulation in a contract of the monthly rent to be paid by the
lessee is certainly not evidence that the same has been paid. Since the spouses Tiu failed to prove their
payment to Union Bank of the amount of ₱5,952,000.00, we are constrained to reverse the ruling of the
Court of Appeals ordering its return.
Even assuming arguendo that the spouses Tiu had duly proven that it had paid rent to Union Bank, we
nevertheless disagree with the finding of the Court of Appeals that it is against public policy for banks to
enter into two-year contracts of lease of properties ceded to them through dacion en pago. The
provisions of law cited by the Court of Appeals, namely Sections 51 and 52 of the General Banking Law
of 2000, merely provide:
SECTION 51. Ceiling on Investments in Certain Assets. — Any bank may acquire real estate as shall be
necessary for its own use in the conduct of its business: Provided, however, That the total investment in
such real estate and improvements thereof, including bank equipment, shall not exceed fifty percent
(50%) of combined capital accounts: Provided, further, That the equity investment of a bank in another
corporation engaged primarily in real estate shall be considered as part of the bank's total investment in
real estate, unless otherwise provided by the Monetary Board.
SECTION 52. Acquisition of Real Estate by Way of Satisfaction of Claims. — Notwithstanding the
limitations of the preceding Section, a bank may acquire, hold or convey real property under the
following circumstances:
52.1. Such as shall be mortgaged to it in good faith by way of security for debts;
52.2. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its
dealings; or
52.3. Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds held by it
and such as it shall purchase to secure debts due it.
Any real property acquired or held under the circumstances enumerated in the above paragraph shall be
disposed of by the bank within a period of five (5) years or as may be prescribed by the Monetary Board:
Provided, however, That the bank may, after said period, continue to hold the property for its own use,
subject to the limitations of the preceding Section.
Section 52.2 contemplates a dacion en pago. Thus, Section 52 undeniably gives banks five years to
dispose of properties conveyed to them in satisfaction of debts previously contracted in the course of its
dealings, unless another period is prescribed by the Monetary Board. Furthermore, there appears to be
no legal impediment for a bank to lease the real properties it has received in satisfaction of debts, within
the five-year period that such bank is allowed to hold the acquired realty.
We do not dispute the interpretation of the Court of Appeals that the purpose of the law is to prevent
the concentration of land holdings in a few hands, and that banks should not be allowed to hold on to
the properties contemplated in Section 52 beyond the five-year period unless such bank has exerted its
best efforts to dispose of the property in good faith but failed. However, inquiries as to whether the
banks exerted best efforts to dispose of the property can only be done if said banks fail to dispose of the
same within the period provided. Such inquiry is furthermore irrelevant to the issues in the case at bar.
Order to Return Certificates Allegedly in Union Bank’s Possession
In the Amended Complaint, the spouses Tiu alleged95 that they delivered several certificates and titles
to Union Bank pursuant to a Memorandum of Agreement. These certificates and titles were not
subjected to any lien in favor of Union Bank, but the latter allegedly continued to hold on to said
properties.
The RTC failed to rule on this issue. The Court of Appeals, tackling this issue for the first time, ruled in
favor of the Tiu spouses and ordered the return of these certificates and titles. The appellate court
added that if Union Bank can no longer return these certificates or titles, it should shoulder the cost for
their replacement.96
Union Bank, asserting that the Memorandum of Agreement did not, in fact, push through, denies having
received the subject certificates and titles. Union Bank added that even assuming arguendo that it is in
possession of said documents, the Restructuring Agreement itself allows such possession.97
The evidence on hand lends credibility to the allegation of Union Bank that the Memorandum of
Agreement did not push through. The copy of the Memorandum of Agreement attached by the spouses
Tiu themselves to their original complaint did not bear the signature of any representative from Union
Bank and was not notarized.98
We, however, agree with the finding of the Court of Appeals that despite the failure of the
Memorandum of Agreement to push through, the certificates and titles mentioned therein do appear to
be in the possession of Union Bank. As held by the Court of Appeals:
Lastly, this Court will order, as it hereby orders, Union Bank to return to the Tiu spouses all the
certificates of shares of stocks and titles to real properties of the Tiu spouses in its possession. Union
Bank cannot deny possession of these items since it had made judicial admissions of such possession in
their document entitled "Reply to Plaintiffs’ request for Admission" (records, pp. 216-217). While in that
document, Union Bank only admitted to the possession of four real estate titles, this Court is convinced
that all the certificates and titles mentioned in the unconsummated Memorandum of Agreement
(Records, pp. 211-213) were given by the Tiu spouses to Union Bank for appraisal. This finding is further
bolstered by the admission of the Union Bank that it kept the titles for safekeeping after it rejected the
Memorandum of Agreement. Since Union Bank rejected these certificates and titles of property, it
should return the said items to the Tiu spouses. If Union Bank can no longer return these certificates and
titles or if it has misplaced them, it shall shoulder the cost for the replacement and issuance of new
certificates and new titles over the said properties.99
As regards Union Bank’s argument that it has the right to retain said documents pursuant to the
Restructuring Agreement, it is referring to paragraph 11(b), which provides that:
11. Effects of Default – When the BORROWER is in default, such default shall have the following effects,
alternative, concurrent and cumulative with each other:
xxxx
(b) The BANK shall be entitled to all the remedies provided for and further shall have the right to effect
or apply against the partial or full payment of any and all obligations of the BORROWER under this
Restructuring Agreement any and all moneys or other properties of the BORROWER which, for any
reason, are or may hereafter come into the possession of the Bank or the Bank’s agent. All such moneys
or properties shall be deemed in the BANK’s possession as soon as put in transit to the BANK by mail or
carrier.100
In the first place, notwithstanding the foregoing provision, there is no clear intention on the part of the
spouses Tiu to deliver the certificates over certain shares of stock and real properties as security for
their debt. From the terms of the Memorandum of Agreement, these certificates were surrendered to
Union Bank in order that the said properties described therein be given their corresponding loan values
required for the restructuring of the spouses Tiu’s outstanding obligations. However, in the event the
parties fail to agree on the valuation of the subject properties, Union Bank agrees to release the
same.101 As Union Bank itself vehemently alleges, the Memorandum of Agreement was not
consummated. Moreover, despite the fact that the Bank was aware, or in possession, of these
certificates,102 at the time of execution of the Restructuring Agreement, only the mortgage over the
real property covered by TCT No. T-11951 was expressly mentioned as a security in the Restructuring
Agreement. In fact, in its Reply to Request for Admission,103 Union Bank admitted that (1) the titles to
the real properties were submitted to it for appraisal but were subsequently rejected, and (2) no real
estate mortgages were executed over the said properties. There being no agreement that these
properties shall secure respondents’ obligation, Union Bank has no right to retain said
certificates.1avvphi1
Assuming arguendo that paragraph 11(b) of the Restructuring Agreement indeed allows the retention of
the certificates (submitted to the Bank ostensibly for safekeeping and appraisal) as security for spouses
Tiu’s debt, Union Bank’s position still cannot be upheld. Insofar as said provision permits Union Bank to
apply properties of the spouses Tiu in its possession to the full or partial payment of the latter’s
obligations, the same appears to impliedly allow Union Bank to appropriate these properties for such
purpose. However, said provision cannot be validly applied to the subject certificates and titles without
violating the prohibition against pactum commissorium contained in Article 2088 of the Civil Code, to
the effect that "[t]he creditor cannot appropriate the things given by way of pledge or mortgage, or
dispose of them[;] [a]ny stipulation to the contrary is null and void." Applicable by analogy to the
present case is our ruling in Nakpil v. Intermediate Appellate Court,104 wherein property held in trust
was ceded to the trustee upon failure of the beneficiary to answer for the amounts owed to the former,
to wit:
For, there was to be automatic appropriation of the property by Valdes in the event of failure of
petitioner to pay the value of the advances. Thus, contrary to respondent's manifestations, all the
elements of a pactum commissorium were present: there was a creditor-debtor relationship between
the parties; the property was used as security for the loan; and, there was automatic appropriation by
respondent of Pulong Maulap in case of default of petitioner.105 (Emphases supplied.)
This Court therefore affirms the order of the Court of Appeals for Union Bank to return to the spouses
Tiu all the certificates of shares of stock and titles to real properties that were submitted to it or, in lieu
thereof, to pay the cost for the replacement and issuance of new certificates and new titles over the
said properties.
Validity of the Award of Damages
The Court of Appeals awarded damages in favor of the spouses Tiu based on its taking judicial notice of
the alleged exploitation by many banks of the Asian financial crisis, as well as the foreclosure of the
mortgage of the home of the spouses Tiu despite the alleged full payment by the latter. As regards the
alleged manipulation of the financial crisis, the Court of Appeals held:
As a final note, this Court observes the irregularity in the circumstances [surrounding] dollar loans
granted by banks right before or during the Asian financial crisis. It is of common knowledge that many
banks, around that time, actively pursued and convinced debtors to make dollar loans or to convert
their peso loans to dollar loans allegedly because of the lower interest rate of dollar loans. This is a
highly suspect behavior on the part of the banks because it is irrational for the banks to voluntarily and
actively proffer a conversion that would give them substantially less income. In the guise of
benevolence, many banks were able to convince borrowers to make dollar loans or to convert their peso
loans to dollar loans. Soon thereafter, the Asian financial crisis hit, and many borrowers were saddled
with loans that ballooned to twice or thrice the amount of their original loans. This court takes judicial
notice of these events or matters which are of public knowledge. It is inconceivable that the banks were
unaware of the looming Asian financial crisis. Being in the forefront of the financial world and having
access to financial data that were not available to the average borrower, the banks were in such a
position that they had a higher vantage point with respect to the financial landscape over their average
clients. The cavalier way with which banks exploited and manipulated the situation is almost too
palpable that they openly and unabashedly struck heavy blows on the Philippine economy, industries
and businesses. The banks have a fiduciary duty to their clients and to the Filipino people to be
transparent in their dealings and to make sure that the latter’s interest are not prejudiced by the
former’s interest. Article 1339 of the New Civil Code provides that the failure to disclose facts, when
there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes
fraud. Undoubtedly, the banks and their clients are bound by confidential relations. The almost perfect
timing of the banks in convincing their clients to shift to dollar loans just when the Asian financial crisis
struck indicates that the banks not only failed to disclose facts to their clients of the looming crisis, but
also suggests of the insidious design to take advantage of these undisclosed facts.106
We have already held that the foreclosure of the mortgage was warranted under the circumstances. As
regards the alleged exploitation by many banks of the Asian financial crisis, this Court rules that the
generalization made by the appellate court is unfounded and cannot be the subject of judicial notice. "It
is axiomatic that good faith is always presumed unless convincing evidence to the contrary is adduced. It
is incumbent upon the party alleging bad faith to sufficiently prove such allegation. Absent enough proof
thereof, the presumption of good faith prevails."107 The alleged insidious design of many banks to
betray their clients during the Asian financial crisis is certainly not of public knowledge. The deletion of
the award of moral and exemplary damages in favor of the spouses Tiu is therefore in order.
WHEREFORE, the Petition is PARTIALLY GRANTED. The Joint Decision of the Court of Appeals in CA-G.R.
CV No. 00190 and CA-G.R. SP No. 00253 dated February 21, 2006 is hereby AFFIRMED insofar as it
ordered petitioner Union Bank of the Philippines to return to the respondent spouses Rodolfo T. Tiu and
Victoria N. Tiu all the certificates of shares of stock and titles to real properties that were submitted to it
or, in lieu thereof, to pay the cost for the replacement and issuance of new certificates and new titles
over the said properties. The foregoing Joint Decision is hereby SET ASIDE: (1) insofar as it permanently
enjoined Union Bank of the Philippines from foreclosing the mortgage of the residential property of
respondent spouses Rodolfo T. Tiu and Victoria N. Tiu which is covered by Transfer Certificate of Title
No. 11951; (2) insofar as it ordered Union Bank of the Philippines to return to the respondent spouses
Rodolfo T. Tiu and Victoria N. Tiu the amount of ₱927,546.79 representing illegally collected rentals; and
(3) insofar as it ordered Union Bank of the Philippines to pay the respondent spouses Rodolfo T. Tiu and
Victoria N. Tiu ₱100,000.00 in moral damages, ₱100,000.00 in exemplary damages, ₱50,000.00 in
attorney’s fees and cost, both in the lower court and in this Court.
No further pronouncement as to costs.
SO ORDERED.
TERESITA J. LEONARDO-DE CASTRO

Associate Justice
WE CONCUR:
RENATO C. CORONA
Chief Justice
Chairperson
LUCAS P. BERSAMIN
Associate Justice MARIANO C. DEL CASTILLO
Associate Justice
MARTIN S. VILLARAMA, JR.
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the opinion of
the Court’s Division.
RENATO C. CORONA
Chief Justice
Footnotes
1 Rollo, pp. 74-96; penned by Associate Justice Isaias P. Dicdican with Associate Justices Ramon M. Bato,
Jr. and Apolinario D. Bruselas, Jr., concurring.
2 Id. at 97-100.
3 Records, pp. 12-13.
4 Id. at 14.
5 Id.
6 Written in the document as "@ 41.40%".
7 Records, p. 333.
8 Id. at 334-344.
9 Id. at 335.
10 Id. at 115.
11 Id. at 335.
12 Id. at 354-357.
13 Id. at 350-353.
14 Id. at 339.
15 Id. at 114.
16 Id. at 2-11.
17 Id. at 10.
18 Rollo, pp. 163-164.
19 Id. at 169.
20 Id. at 168.
21 Id. at 42-61.
23 Id. at 420-423.
24 Rollo, pp. 75-78.
25 Id. at 101-120.
26 Id. at 120.
27 Id. at 117-118.
28 Records, pp. 787-794.
29 Id. at 799-815.
30 Id. at 814-815.
31 CA rollo (CA-G.R. SP No. 00253), pp. 2-8.
32 Id. at 90-91.
33 Records, p. 828.
34 Id. at 830-831, 836-837.
37 Id. at 253.
38 Id. at 250-256.
39 Id. at 305-307.
40 Rollo, p. 78.
41 Id. at 79.
42 Id. at 83-91.
43 Id. at 92.
44 Id. at 92-93.
45 Id. at 91.
46 Id. at 91-92.
47 Id. at 93.
48 Id. at 93-95.
49 Id. at 95-96.
50 Id. at 282-283.
51 Id. at 83.
52 Id. at 85-87.
53 Id. at 292.
54 Id. at 293.
55 Id. at 293-295.
56 Records, pp. 252-278.
57 Eastboard Navigation, Ltd. v. Juan Ysmael and Co., Inc., 102 Phil. 1, 9 (1957); Arrieta v. National Rice
and Corn Corporation, 119 Phil. 339, 349-350 (1964).
58 SECTION 1. Every provision contained in, or made with respect to, any obligation which provision
purports to give the obligee the right to require payment in gold or in a particular kind of coin or
currency other than Philippine currency or in an amount of money of the Philippines measured thereby,
be as it is hereby declared against public policy, and null, void and of no effect, and no such provision
shall be contained in, or made with respect to, any obligation hereafter incurred. Every obligation
heretofore or hereafter incurred, whether or not any such provision as to payment is contained therein
or made with respect thereto, shall be discharged upon payment in any coin or currency which at the
time of payment is legal tender for public and private debts: Provided, That, if the obligation was
incurred prior to the enactment of this Act and required payment in a particular kind of coin or currency
other than Philippine currency, it shall be discharged in Philippine currency measured at the prevailing
rates of exchange at the time the obligation was incurred, except in case of a loan made in a foreign
currency stipulated to be payable in the same currency in which case the rate of exchange prevailing at
the time of the stipulated date of payment shall prevail. All coin and currency, including Central Bank
notes, heretofore or hereafter issued and declared by the Government of the Philippines shall be legal
tender for all debts, public and private.
59 Eastboard Navigation, Ltd. v. Juan Ysmael and Co., Inc., supra note 57.
60 SEC. 1. Every provision contained in, or made with respect to, any domestic obligation to wit, any
obligation contracted in the Philippines which provisions purports to give the obligee the right to require
payment in gold or in a particular kind of coin or currency other than Philippine currency or in an
amount of money of the Philippines measured thereby, be as it is hereby declared against public policy,
and null, void, and of no effect, and no such provision shall be contained in, or made with respect to, any
obligation hereafter incurred. The above prohibition shall not apply to (a) transactions where the funds
involved are the proceeds of loans or investments made directly or indirectly, through bona fide
intermediaries or agents, by foreign governments, their agencies and instrumentalities, and
international financial and banking institutions so long as the funds are identifiable, as having emanated
from the sources enumerated above; (b) transactions affecting high-priority economic projects for
agricultural, industrial and power development as may be determined by the National Economic Council
which are financed by or through foreign funds; (c) forward exchange transactions entered into between
banks or between banks and individuals or juridical persons; (d) import-export and other international
banking, financial investment and industrial transactions. With the exception of the cases enumerated in
items (a), (b), (c) and (d) in the foregoing provision, in which bases the terms of the parties' agreement
shall apply, every other domestic obligation heretofore or hereafter incurred, whether or not any such
provision as to payment is contained therein or made with respect thereto, shall be discharged upon
payment in any coin or currency which at the time of payment is legal tender for public and private
debts: Provided, That if the obligation was incurred prior to the enactment of this Act and required
payment in a particular kind of coin or currency other than Philippine currency, it shall be discharged in
Philippine currency measured at the prevailing rates of exchange at the time the obligation was
incurred, except in case of a loan made in a foreign currency stipulated to be payable in the same
currency in which case the rate of exchange prevailing at the time of the stipulated date of payment
shall prevail. All coin and currency, including Central Bank notes, heretofore and hereafter issued and
declared by the Government of the Philippines shall be legal tender for all debts, public and private.
61 Otherwise known as the Consolidated Foreign Exchange Rules and Regulations.

62 Republic Act No. 8183 provides that it shall take effect fifteen (15) days after its publication in the
Official Gazette or in two (2) national newspapers of general circulation. It was published in Malaya and
the Manila Times on June 20, 1996.
63 SECTION 2. Republic Act Numbered Five Hundred Twenty-Nine (R.A. No. 529), as amended entitled
"An Act to Assure Uniform Value of Philippine Coin and Currency," is hereby repealed.
64 SECTION 1. All monetary obligations shall be settled in the Philippine currency which is legal tender in
the Philippines. However, the parties may agree that the obligation or transaction shall be settled in any
other currency at the time of payment.
66 Id. at 252-278.
67 G.R. No. 159912, August 17, 2007, 530 SCRA 567.
68 Id. at 599.
69 TSN, October 8, 2004, pp. 8-9.
70 Rollo, pp. 247-248.
71 Records, p. 114.
72 Id. at 232.
73 TSN, October 1, 2002, pp. 38-39.
74 Id. at 18-19.
75 TSN, October 8, 2004, pp. 4-5.
76 Domingo v. Robles, 493 Phil. 916, 921 (2005).
77 Records, p. 344; Restructuring Agreement, p. 11.
78 TSN, October 1, 2002, pp. 18-19.
79 SEC. 34. Offer of Evidence. — The court shall consider no evidence which has not been formally
offered. The purpose for which the evidence is offered must be specified.
80 Heirs of Pedro Pasag v. Parocha, G.R. No. 155483, April 27, 2007, 522 SCRA 410, 416.
81 Records, pp. 110-119.
82 Id. at 114.
83 Id. at 232.
84 Id. at 335.
85 See records, pp. 134-135.
86 Id.
87 Id. at 134.
88 Rollo, pp. 92-93.
89 Spouses Bejoc v. Cabreros, 502 Phil. 336, 343 (2005).
90 35. That in 1983, the Spouses Jose Tiu and Juanita Tiu, and during the existence of their marriage,
constructed their house on Lot No. 639 and declared the same for taxation purposes in the name of Jose
Tiu;
36. That Jose Tiu died on December 18, 1983;
37. That consequently upon his death, the plaintiffs Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu,
Rosalie T. Young and Rosenda T. Tiu became owners of the aforesaid house;
38. That the herein plaintiffs have not executed any real estate mortgage on their house constructed on
plaintiffs spouses Tiu’s lot in favor of defendant bank;
39. Consequently, the extra-judicial foreclosure sale of said house is null and void as the real owners of
the same have not mortgaged the said house to defendant bank; (Records, p. 116.)
91 Records, pp. 232-233.
92 Republic Act No. 8791.
93 Rollo, pp. 90-91.
94 Id. at 91.
95 40. Before the execution of the restructuring agreement, the plaintiffs and the defendant bank
entered into a memorandum of agreement, whereby the plaintiffs turned over to defendant bank in the
meanwhile the following real and personal properties:
a) Shares of stock of the Borrower/Mortgagor in Grand Convention Center, Cebu Country Club, Subic
Bay Yacht Club, Alta Vista Golf and Country Club and Cebu Grand Salinas Development Corporation,
b) Real Estate properties:
TCT number Registry of Deeds Location

116288 Cebu City Panganiban St., Cebu City
116287 Cebu City Panganiban St., Cebu City
OCT No. 0-3538 Cebu City Panganiban St., Cebu City
30271 Cebu City Minglanilla, Cebu Province

Copy of the memorandum of agreement was attached to the original complaint as Annex "I";
41. As can be seen from the Restructuring Agreement, only the lot subject of the sheriff’s notice of
extrajudicial foreclosure sale was mortgaged to guarantee plaintiff’s obligation;
42. None of the properties mentioned in paragraph 40 hereof have been subjected to any lien in favor of
defendant bank but the defendant bank continues to hold on to said properties and has not returned
the same to the plaintiffs spouses Tiu (Records, p. 117).
96 Rollo, pp. 91-92.
97 Id. at 317.
99 Rollo, pp. 91-92.
100 Records, p. 341.
101 Id. at 41.
102 Id. at 209; see Acknowledgement Receipt dated November 24, 1999.
103 Id. at 216-217.
104 G.R. No. 74449, August 20, 1993, 225 SCRA 456.
105 Id. at 467-468.
106 Rollo, pp. 93-94.

107 Pacific Basin Securities Co., Inc. v. Oriental Petroleum And Minerals Corp., G.R. Nos. 143972, 144056
and 144056, August 31, 2007, 531 SCRA 667, 689.

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96

SUPREME COURT REPORTS ANNOTATED

Barons Marketing Corp. vs. Court of Appeals

G.R. No. 126486. February 9, 1998.*

VOL. 286, FEBRUARY 9, 1998

Barons Marketing Corp. vs. Court of Appeals

SUPREME COURT REPORTS ANNOTATED

Barons Marketing Corp. vs. Court of Appeals

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Vero B. Librojo for petitioner.

VOL. 286, FEBRUARY 9, 1998

Barons Marketing Corp. vs. Court of Appeals

Ponce Enrile, Reyes & Manalastas for private respondent.

The facts are undisputed:

SUPREME COURT REPORTS ANNOTATED

Barons Marketing Corp. vs. Court of Appeals

VOL. 286, FEBRUARY 9, 1998

Barons Marketing Corp. vs. Court of Appeals

4 Id., at 43; italics in the original.

SUPREME COURT REPORTS ANNOTATED

Barons Marketing Corp. vs. Court of Appeals

Tolentino concedes that the right has its limitations:

5 See Melendez v. Lavarias, 9 SCRA 548 (1963).

VOL. 286, FEBRUARY 9, 1998

Barons Marketing Corp. vs. Court of Appeals

Expounding on its theory, petitioner states:

SUPREME COURT REPORTS ANNOTATED

Barons Marketing Corp. vs. Court of Appeals

Petitioner’s theory is untenable.

11 I Tolentino, pp. 61-62; italics supplied.

VOL. 286, FEBRUARY 9, 1998

Barons Marketing Corp. vs. Court of Appeals

12 Ford Philippines v. Court of Appeals, G.R. No. 99039, February 3, 1997.

SUPREME COURT REPORTS ANNOTATED

Barons Marketing Corp. vs. Court of Appeals

13 ART. 2234, Civil Code.

14 ART. 1158, Civil Code.

15 ART. 1315, Civil Code.

VOL. 286, FEBRUARY 9, 1998

Barons Marketing Corp. vs. Court of Appeals

17 Exhibit “BB”; italics supplied.

18 See Luneta Motor Co. v. Mora, 73 Phil. 80 (1941).

SUPREME COURT REPORTS ANNOTATED

Barons Marketing Corp. vs. Court of Appeals

20 See Polytrade v. Blanco, supra, note 1.

Association of Philippine Coconut Desiccators vs. Philippine Coconut Authority

Narvasa (C.J., Chairman), Romero, Francisco and Purisima, JJ., concur.

SUPREME COURT REPORTS ANNOTATED

Pagsibigan vs. Court of Appeals

G.R. No. 90169. April 7, 1993.*

VOL. 221, APRIL 7, 1993

Pagsibigan vs. Court of Appeals

PETITION for review on certiorari of the decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Juanito Cruz for petitioner.

Raymundo S. Senga for private respondent.

CAMPOS, JR., J.:

SUPREME COURT REPORTS ANNOTATED

Pagsibigan vs. Court of Appeals

The undisputed facts are summarized by the respondent court as follows:

“Stripped of non-essentials, it appears that on August 4, 1974, plaintiff-appellee, [petitioner, herein]

1 Decision, p. 5, Rollo, p. 33.

2 Ibid., pp. 29-30.