Rule 128

A. General Provisions
1. Scope
2. Admissibility of Evidence
3. Relevancy; collateral matter
Jurisprudence:
BSB Group, Inc. v. Go, G.R. No. 168644, February 16, 2010
Republic vs. Fe Roa Gimenez G.R. No. 174673, January 11, 2016
Heirs of Jose V. Lagon et al. vs Ultramax Healthcare et al. G.R. No. 246989, December 07,
2020

RULE 129
A. What need not be proved
1. Judicial Notice
2. Judicial admissions
B. Jurisprudence
Social Justice Society vs. Atienza Feb 13, 2008
Spouses Latip v. Chua, G.R. No. 177809, October 16, 2009.
G Holdings, Inc. v. National Mines and Allied Workers, G.R. No. 160236, October 16, 2009.
Juan v. Juan, G.R. No. 221732, August 23, 2017
Republic v. Science Park of the Philippines, Inc., G.R. No. 237714, November 12, 2018
Trinidad y Bersamin v. People, G.R. No. 239957, February 18, 2019

RULE 130
RULES OF ADMISSIBILITY
A. Object Evidence
Jurisprudence:
People vs. Jose Encarnacion Malimit Nov. 14, 1996
People v. Rullepa y Guinto, G.R. No. 131516, March 5, 2003
Agustin vs CA June 15, 2005
People vs. Kamad February 5, 2020
B. Documentary Evidence
1. Original Document Rule
Jurisprucence:
Republic vs Spouses Gimenez January 11, 2016 (citing Hernaez vs McGrath)
Spouses Tapayan, vs. Ponceda M. Martinez, G.R. No. 207786, January 30, 2017
PO2 Jessie Flores y De Leon v. People, G.R. No. 222861, April 23, 2018
Conchita M. Dela Cruz, vs. People of the Philippines, G.R. No. 236807, January 12, 2021
(consolidated)
Maximo A. Borje, Et Al., vs. People Of The Philippines, G.R. No. 23681
Herminio T. Disini, vs. Republic Of The Philippines, G.R. No. 205172, June 15, 2021
Philip Hernandez Piccio Vs. HRET and Rosanna Vergara, G.R. No. 248985. October 5, 2021

2. Secondary Evidence
When original document is unavailable
When original document is in adverse party’s custody or control
Evidence admissible when original document is a public record
Party who calls for document not bound to offer it
3. Parol Evidence rule
Application of the Parol Evidence Rule
How Parol Evidence Can Be Introduced
Interpretation of Documents
Jurisprudence:
Felix Plazo Urban Poor Settlers vs. Alfredo Lipat et al., G.R. No. 182409, March 20, 2017
Dioscoro Poliño Bacala, et al. vs. Heirs of Spouses Juan Poliño and Corazon et al, G.R.
No. 200608, February 10, 2021
Richardson Steel Corporation et al. vs. Union Bank of the Philippines, G.R. No. 224235,
June 28, 2021

C. Testimonial Evidence
1. Qualification of Witness
Witnesses; their qualifications
Testimony confined to personal knowledge
Disqualification by reason of marriage
Disqualification by reason of privileged communication
Jurisprudence:
Neri v. Senate Committee, G.R. No. 180643, March 25, 2008
Eagleridge Development v. Cameron, G.R. No. 204700, 4 November 2014

2. Testimonial Privilege.
Marital Disqualification:
Alvarez vs. Ramirez, October 14, 2005
People vs. Pasensoy September 12, 2002
People vs. Quidato Jr. October 1, 1998
Parental and filial privilege
Jurisprudence:
Emma K. Lee vs. Court of Appeals et al., G.R. No. 177861, July 13, 2010
Privilege relating to trade secrets
Jurisprudence:
Cocoland Development Corporation, vs. NLRC, G.R. No. 98458 July 17, 1996

3. Admission and confession

Admission of a party
Jurisprudence:
Tranquilino Agbayani vs. Lupa Realty Holding Corp, G.R. No. 201193, June 10, 2019
Offer of compromise not admissible
Jurisprudence:
San Miguel Corporation, vs. Helen T. Kalalo, G.R. No. 185522, June 13, 2012
Admission by third party
Jurisprudence:
People vs. Bonifacio Ciobal Y Pabrua et al., G.R. No. 86220, April 20, 1990
Admission by co-partner or agent
Admission by conspirator
Jurisprudence:
Buenaflor Car Services vs. Cezar David, JR., G.R. No. 222730, November 07, 2016
Admission by privies
Admission by silence
Jurisprudence:
Villanueva v. Balaguer, G.R. No. 180197, 23 June 2009
Sps Cipriano Pamplona vs. Spouses Lilia I. Cueto, G.R. No. 204735, February 19, 2018
Confession
4. Previous Conduct as Evidence
Similar acts as evidence
Unaccepted offer
5. Hearsay
People vs. Anecito Estibal Y Calungsag, G.R. No. 208749, November 26, 2014
6. Exceptions to the Hearsay Rule
Dying declaration
Jurisprudence:
People v. Peña, G.R. No. 133964, February 13, 2002
People v. Ramil Rarugal alias "Amay Bisaya, G.R. No. 188603, January 16, 2013
People v. Jose Belmar Crisostomo, G.R. No. 215742, March 22, 2017

Statement of decedent or person of unsound mind

Declaration against interest
Jurisprudence: Lazaro v. Agustin, G.R. No. 152364, April 15, 2010
Act or declaration about pedigree
Jurisprudence: Heirs of Fabillar v. Paller, G.R. No. 231459, January 21, 2019
Family reputation or tradition regarding pedigree
Jurisprudence: People v. Llanita y Opiana, G.R. No. 134101, September 5, 2001
Common reputation
Part of the res gestae
Jurisprudence:
People vs. Adrian Guting Y Tomas, G.R. No. 205412, September 09, 2015
People of the Philippines vs. XXX, G.R. No. 205888, August 22, 2018
People of the Philippines vs. Gilbert Floresta Y Selencio, G.R. No. 239032, June 17, 2019

Records of regularly conducted business activity

Entries in official records
Commercial lists and the like
Learned treatises
Testimony or deposition at a former proceeding
Jurisprudence:
Ambray v. Tsourous, G.R. No. 209264, July 5, 2016
Residual exception
7. Opinion Rule
General rule
Opinion of expert witness
Jurisprudence:
Marcos v. Heirs of Navarro, G.R. No. 198240, 3 July 2013
Dela Llana v. Biong, G.R. No. 182356, 4 December 2013
Heirs of Donton v. Stier, G.R. No. 216491, 23 August 2017
Opinion of ordinary witnesses
Jurisprudence:
Hernandez v. San Juan-Santos, G.R. Nos. 166470 & 169217, 7 August 2009
PEOPLE OF THE PHILIPPINES vs. EFREN CASTILLO G.R. No. 186533, August 9, 2010
8. Character Evidence
Jurisprudence:
People v. Lee, G.R. No. 139070, May 29, 2002
Character evidence not generally admissible
RULE 131
BURDEN OF PROOF, BURDEN OF EVIDENCE AND PRESUMPTIONS
A. Burden of proof and burden of evidence
Jurisprudence:
Susan A. Yap vs. Elizabeth Lagtapon, G.R. No. 196347, January 23, 2017
Philippine Trust Company vs. Redentor R. Gabinete, et al. G.R. No. 216120, March 29, 2017

B. Presumptions
Conclusive presumptions
Disputable presumptions
No presumption of legitimacy or illegitimacy
Presumptions in civil actions and proceedings
Presumption against an accused in criminal cases
Jurisprudence:
GENEROSO SEPE vs. HEIRS OF ANASTACIA KILANG et al. G.R. No. 199766, April 10,
2019
RULE 132
PRESENTATION OF EVIDENCE
A. EXAMINATION OF WITNESSES
1. Examination to be done in open court
2. Proceedings to be recorded
3. Rights and obligations of a witness
4. Order in the examination of an individual witness
5. Direct examination
6. Cross-examination; its purpose and extent
7. Re-direct examination; its purpose and extent
8. Re-cross[-]examination
9. Recalling witness
10. Leading and misleading questions
Jurisprudence
Harry L. Go et al. v. People, G.R. No. 185527, July 18, 2012
11. Impeachment
Impeachment of adverse party’s witness
Impeachment by evidence of conviction of crime
Party may not impeach his or her own witness
Impeachment by evidence of inconsistent statements
Jurisprudence:
NG MENG TAM v. CHINA BANKING CORPORATION, G.R. No. 214054, August 05, 2015
12. Exclusion and separation of witnesses
13. When witness may refer to memorandum
14. When part of transaction, writing or record given in evidence, the remainder admissible
Jurisprudence:
Chan v. Chan, G.R. No. 179786, July 24, 2013
15. Right to inspect writing shown to witness
B. AUTHENTICATION AND PROOF OF DOCUMENTS
1. Classes of document
Republic v. Galeno, G.R. No. 215009, 23 January 2017
2. Proof of private document
When evidence of authenticity of private document not necessary
How genuineness of handwriting proved
Jurisprudence:
Rogelia Gatan. et al. vs. Jesusa Vinarao et al., G.R. No. 205912, October 18, 2017
Rodriguez v. Your Own Home Development Corp., G.R. No. 199451, August 15, 2018
Strong Fort v. Remedios T. Banta, G.R. Nos. 222369 and 222502, November 16, 2020
Cristina R. Seming v. Emelita P. Alamag, et al., G.R. No. 202284, March 17, 2021

3. Public documents as evidence

Proof of official record
What attestation of copy must state
Irremovability of public record
Public record of a private document
Proof of lack of record
How judicial record be impeached
Proof of notarial documents
Alteration in document, how to explain
Seal
Documentary evidence in an unofficial language
Jurisprudence:
Republic v. Carmen Santorio Galeno, G.R. No. 215009, January 23, 2017
Delfin Domingo Dadis v. Spouses De Guzman, G.R. No. 206008, June 7, 2017
Spouses Aguinaldo v. Torres Jr., G.R. No. 225808, 11 September 2017
Genevieve Rosal Arreza v. Tetsushi Toyo, G.R. No. 213198, July 1, 2019

C. OFFER AND OBJECTION

1. Offer of evidence
Jurisprudence:
Laborte and PTA v. Pagsanjan Tourism Consumers Coop., G.R. No. 183860, 15 January 2014
Republic v. Valentina Espinosa et al. G.R. No. 186603, April 5, 2017
Magsino v. Magsino, G.R. No. 205333, February 18, 2019

2. When to make offer

3. Objection
Jurisprudence: Melissa Magsino vs. Rolando N. Magsino, February 18, 2019, G.R. No. 205333
4. When repetition of objection unnecessary
5. Ruling
6. Striking out of answer
7. Tender of excluded evidence
Jurisprudence:
Philip S. Yu vs. Hon. Ca et al. G.R. No. 154115, November 29, 2005.
Fortubne Tobacco Corp. vs. Comm. Of BIR, G.R. No. 192024, July 1, 2015.

RULE 133
WEIGHT AND SUFFICIENCY OF EVIDENCE
A. Quantum of Evidence
1. Preponderance of evidence, how determined
Jurisprudence:
Bp Oil and Chemicals Inc. v. Total Distribution Inc.,G.R. No. 214406, February 6, 2017
2. Substantial Evidence
Jurisprudence:
Primo C. Miro vs. Marilyn Mendoza Vda. De Erederos, et al. G.R. Nos. 172532 172544-45,
November 20, 2013
3. Proof beyond reasonable doubt
Jurisprudence:
People vs. Carlito Claro y Mahinay, G.R. No. 199894, April 5, 2017

B. Weight of Evidence
1. Extrajudicial confession, not sufficient ground for conviction
Jurisprudence:
People V. Aldrin Licayan Y Sucano, G.R. No. 144422, February 28, 2002
People V. Antonio Dacanay Y Tumalabcab, G.R. No. 216064, November 07, 2016

2. Circumstantial evidence, when sufficient

Jurisprudence:
People vs Jeffrey Lignes Y Papillero, G.R. No. 229087, June 17, 2020
3. Weight to be given opinion of expert witness, how determined
Jurisprudence:
Ma. Melissa Magsino vs. Rolando Magsino, G.R. No. 205333, February 18, 2019
Power of the court to stop further evidence
Evidence on motion
RULE 134
A. Perpetuation of Testimony
1. Petition
2. Contents of petition
3. Notice and service
4. Order of examination
5. Reference to court
6. Use of deposition
Jurisprudence:
People v. Hubert Jeffrey P. Webb, G.R. No. 132577, August 17, 1999
7. Deposition Pending appeal
ASSIGNED CASES
Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 168644 February 16, 2010

BSB GROUP, INC., represented by its President, Mr. RICARDO BANGAYAN, Petitioner,
vs.
SALLY GO a.k.a. SALLY GO-BANGAYAN, Respondent.

DECISION
PERALTA, J.:

This is a Petition for Review under Rule 45 of the Rules of Court assailing the Decision of the
Court of Appeals in CA-G.R. SP No. 876001 dated April 20, 2005, which reversed and set aside
the September 13, 20042 and November 5, 20043 Orders issued by the Regional Trial Court of
Manila, Branch 364 in Criminal Case No. 02-202158 for qualified theft. The said orders, in turn,
respectively denied the motion filed by herein respondent Sally Go for the suppression of the
testimonial and documentary evidence relative to a Security Bank account, and denied
reconsideration.

The basic antecedents are no longer disputed.

Petitioner, the BSB Group, Inc., is a duly organized domestic corporation presided by its herein
representative, Ricardo Bangayan (Bangayan). Respondent Sally Go, alternatively referred to as
Sally Sia Go and Sally Go-Bangayan, is Bangayan’s wife, who was employed in the company as
a cashier, and was engaged, among others, to receive and account for the payments made by the
various customers of the company.

In 2002, Bangayan filed with the Manila Prosecutor’s Office a complaint for estafa and/or
qualified theft5 against respondent, alleging that several checks6 representing the aggregate
amount of ₱1,534,135.50 issued by the company’s customers in payment of their obligation
were, instead of being turned over to the company’s coffers, indorsed by respondent who
deposited the same to her personal banking account maintained at Security Bank and Trust
Company (Security Bank) in Divisoria, Manila Branch.7 Upon a finding that the evidence
adduced was uncontroverted, the assistant city prosecutor recommended the filing of the
Information for qualified theft against respondent.8

Accordingly, respondent was charged before the Regional Trial Court of Manila, Branch 36, in
an Information, the inculpatory portion of which reads:

That in or about or sometime during the period comprised (sic) between January 1988 [and]
October 1989, inclusive, in the City of Manila, Philippines, the said accused did then and there
willfully, unlawfully and feloniously with intent [to] gain and without the knowledge and consent
of the owner thereof, take, steal and carry away cash money in the total amount of ₱1,534,135.50
belonging to BSB GROUP OF COMPANIES represented by RICARDO BANGAYAN, to the
damage and prejudice of said owner in the aforesaid amount of ₱1,534,135.50, Philippine
currency.

That in the commission of the said offense, said accused acted with grave abuse of confidence,
being then employed as cashier by said complainant at the time of the commission of the said
offense and as such she was entrusted with the said amount of money.

Contrary to law.9

Respondent entered a negative plea when arraigned.10 The trial ensued. On the premise that
respondent had allegedly encashed the subject checks and deposited the corresponding amounts
thereof to her personal banking account, the prosecution moved for the issuance of subpoena
duces tecum /ad testificandum against the respective managers or records custodians of Security
Bank’s Divisoria Branch, as well as of the Asian Savings Bank (now Metropolitan Bank & Trust
Co. [Metrobank]), in Jose Abad Santos, Tondo, Manila Branch.11 The trial court granted the
motion and issued the corresponding subpoena.12

Respondent filed a motion to quash the subpoena dated November 4, 2003, addressed to
Metrobank, noting to the court that in the complaint-affidavit filed with the prosecutor, there was
no mention made of the said bank account, to which respondent, in addition to the Security Bank
account identified as Account No. 01-14-006, allegedly deposited the proceeds of the supposed
checks. Interestingly, while respondent characterized the Metrobank account as irrelevant to the
case, she, in the same motion, nevertheless waived her objection to the irrelevancy of the
Security Bank account mentioned in the same complaint-affidavit, inasmuch as she was
admittedly willing to address the allegations with respect thereto.13

Petitioner, opposing respondent’s move, argued for the relevancy of the Metrobank account on
the ground that the complaint-affidavit showed that there were two checks which respondent
allegedly deposited in an account with the said bank.14 To this, respondent filed a supplemental
motion to quash, invoking the absolutely confidential nature of the Metrobank account under the
provisions of Republic Act (R.A.) No. 1405.15 The trial court did not sustain respondent; hence,
it denied the motion to quash for lack of merit.16
Meanwhile, the prosecution was able to present in court the testimony of Elenita Marasigan
(Marasigan), the representative of Security Bank. In a nutshell, Marasigan’s testimony sought to
prove that between 1988 and 1989, respondent, while engaged as cashier at the BSB Group, Inc.,
was able to run away with the checks issued to the company by its customers, endorse the same,
and credit the corresponding amounts to her personal deposit account with Security Bank. In the
course of the testimony, the subject checks were presented to Marasigan for identification and
marking as the same checks received by respondent, endorsed, and then deposited in her personal
account with Security Bank.17 But before the testimony could be completed, respondent filed a
Motion to Suppress,18 seeking the exclusion of Marasigan’s testimony and accompanying
documents thus far received, bearing on the subject Security Bank account. This time respondent
invokes, in addition to irrelevancy, the privilege of confidentiality under R.A. No. 1405.

The trial court, nevertheless, denied the motion in its September 13, 2004 Order.19 A motion for
reconsideration was subsequently filed, but it was also denied in the Order dated November 5,
2004.20 These two orders are the subject of the instant case.

Aggrieved, and believing that the trial court gravely abused its discretion in acting the way it did,
respondent elevated the matter to the Court of Appeals via a petition for certiorari under Rule 65.
Finding merit in the petition, the Court of Appeals reversed and set aside the assailed orders of
the trial court in its April 20, 2005 Decision.21 The decision reads:

WHEREFORE, the petition is hereby GRANTED. The assailed orders dated September 13, 2004
and November 5, 2004 are REVERSED and SET ASIDE. The testimony of the SBTC
representative is ordered stricken from the records.

SO ORDERED.22

With the denial of its motion for reconsideration,23 petitioner is now before the Court pleading
the same issues as those raised before the lower courts.

In this Petition24 under Rule 45, petitioner averred in the main that the Court of Appeals had
seriously erred in reversing the assailed orders of the trial court, and in effect striking out
Marasigan’s testimony dealing with respondent’s deposit account with Security Bank.25 It
asserted that apart from the fact that the said evidence had a direct relation to the subject matter
of the case for qualified theft and, hence, brings the case under one of the exceptions to the
coverage of confidentiality under R.A. 1405.26 Petitioner believed that what constituted the
subject matter in litigation was to be determined by the allegations in the information and, in this
respect, it alluded to the assailed November 5, 2004 Order of the trial court, which declared to be
erroneous the limitation of the present inquiry merely to what was contained in the
information.27

For her part, respondent claimed that the money represented by the Security Bank account was
neither relevant nor material to the case, because nothing in the criminal information suggested
that the money therein deposited was the subject matter of the case. She invited particular
attention to that portion of the criminal Information which averred that she has stolen and carried
away cash money in the total amount of ₱1,534,135.50. She advanced the notion that the term
"cash money" stated in the Information was not synonymous with the checks she was purported
to have stolen from petitioner and deposited in her personal banking account. Thus, the checks
which the prosecution had Marasigan identify, as well as the testimony itself of Marasigan,
should be suppressed by the trial court at least for violating respondent’s right to due process.28
More in point, respondent opined that admitting the testimony of Marasigan, as well as the
evidence pertaining to the Security Bank account, would violate the secrecy rule under R.A. No.
1405.29

In its reply, petitioner asserted the sufficiency of the allegations in the criminal Information for
qualified theft, as the same has sufficiently alleged the elements of the offense charged. It posits
that through Marasigan’s testimony, the Court would be able to establish that the checks
involved, copies of which were attached to the complaint-affidavit filed with the prosecutor, had
indeed been received by respondent as cashier, but were, thereafter, deposited by the latter to her
personal account with Security Bank. Petitioner held that the checks represented the cash money
stolen by respondent and, hence, the subject matter in this case is not only the cash amount
represented by the checks supposedly stolen by respondent, but also the checks themselves.30

We derive from the conflicting advocacies of the parties that the issue for resolution is whether
the testimony of Marasigan and the accompanying documents are irrelevant to the case, and
whether they are also violative of the absolutely confidential nature of bank deposits and, hence,
excluded by operation of R.A. No. 1405. The question of admissibility of the evidence thus
comes to the fore. And the Court, after deliberative estimation, finds the subject evidence to be
indeed inadmissible.
Prefatorily, fundamental is the precept in all criminal prosecutions, that the constitutive acts of
the offense must be established with unwavering exactitude and moral certainty because this is
the critical and only requisite to a finding of guilt. 31 Theft is present when a person, with intent
to gain but without violence against or intimidation of persons or force upon things, takes the
personal property of another without the latter’s consent. It is qualified when, among others, and
as alleged in the instant case, it is committed with abuse of confidence.32 The prosecution of this
offense necessarily focuses on the existence of the following elements: (a) there was taking of
personal property belonging to another; (b) the taking was done with intent to gain; (c) the taking
was done without the consent of the owner; (d) the taking was done without violence against or
intimidation of persons or force upon things; and (e) it was done with abuse of confidence.33 In
turn, whether these elements concur in a way that overcomes the presumption of guiltlessness, is
a question that must pass the test of relevancy and competency in accordance with Section 334
Rule 128 of the Rules of Court.

Thus, whether these pieces of evidence sought to be suppressed in this case  the testimony of
Marasigan, as well as the checks purported to have been stolen and deposited in respondent’s
Security Bank account  are relevant, is to be addressed by considering whether they have such
direct relation to the fact in issue as to induce belief in its existence or non-existence; or whether
they relate collaterally to a fact from which, by process of logic, an inference may be made as to
the existence or non-existence of the fact in issue.35

The fact in issue appears to be that respondent has taken away cash in the amount of
₱1,534,135.50 from the coffers of petitioner. In support of this allegation, petitioner seeks to
establish the existence of the elemental act of taking by adducing evidence that respondent, at
several times between 1988 and 1989, deposited some of its checks to her personal account with
Security Bank. Petitioner addresses the incongruence between the allegation of theft of cash in
the Information, on the one hand, and the evidence that respondent had first stolen the checks
and deposited the same in her banking account, on the other hand, by impressing upon the Court
that there obtains no difference between cash and check for purposes of prosecuting respondent
for theft of cash. Petitioner is mistaken.

In theft, the act of unlawful taking connotes deprivation of personal property of one by another
with intent to gain, and it is immaterial that the offender is able or unable to freely dispose of the
property stolen because the deprivation relative to the offended party has already ensued from
such act of execution.36 The allegation of theft of money, hence, necessitates that evidence
presented must have a tendency to prove that the offender has unlawfully taken money belonging
to another. Interestingly, petitioner has taken pains in attempting to draw a connection between
the evidence subject of the instant review, and the allegation of theft in the Information by
claiming that respondent had fraudulently deposited the checks in her own name. But this line of
argument works more prejudice than favor, because it in effect, seeks to establish the
commission, not of theft, but rather of some other crime  probably estafa.

Moreover, that there is no difference between cash and check is true in other instances. In estafa
by conversion, for instance, whether the thing converted is cash or check, is immaterial in
relation to the formal allegation in an information for that offense; a check, after all, while not
regarded as legal tender, is normally accepted under commercial usage as a substitute for cash,
and the credit it represents in stated monetary value is properly capable of appropriation. And it
is in this respect that what the offender does with the check subsequent to the act of unlawfully
taking it becomes material inasmuch as this offense is a continuing one.37 In other words, in
pursuing a case for this offense, the prosecution may establish its cause by the presentation of the
checks involved. These checks would then constitute the best evidence to establish their contents
and to prove the elemental act of conversion in support of the proposition that the offender has
indeed indorsed the same in his own name.38

Theft, however, is not of such character. Thus, for our purposes, as the Information in this case
accuses respondent of having stolen cash, proof tending to establish that respondent has
actualized her criminal intent by indorsing the checks and depositing the proceeds thereof in her
personal account, becomes not only irrelevant but also immaterial and, on that score,
inadmissible in evidence.

We now address the issue of whether the admission of Marasigan’s testimony on the particulars
of respondent’s account with Security Bank, as well as of the corresponding evidence of the
checks allegedly deposited in said account, constitutes an unallowable inquiry under R.A. 1405.

It is conceded that while the fundamental law has not bothered with the triviality of specifically
addressing privacy rights relative to banking accounts, there, nevertheless, exists in our
jurisdiction a legitimate expectation of privacy governing such accounts. The source of this right
of expectation is statutory, and it is found in R.A. No. 1405,39 otherwise known as the Bank
Secrecy Act of 1955. 40

R.A. No. 1405 has two allied purposes. It hopes to discourage private hoarding and at the same
time encourage the people to deposit their money in banking institutions, so that it may be
utilized by way of authorized loans and thereby assist in economic development.41 Owing to this
piece of legislation, the confidentiality of bank deposits remains to be a basic state policy in the
Philippines.42 Section 2 of the law institutionalized this policy by characterizing as absolutely
confidential in general all deposits of whatever nature with banks and other financial institutions
in the country. It declares:

Section 2. All deposits of whatever nature with banks or banking institutions in the Philippines
including investments in bonds issued by the Government of the Philippines, its political
subdivisions and its instrumentalities, are hereby considered as of an absolutely confidential
nature and may not be examined, inquired or looked into by any person, government official,
bureau or office, except upon written permission of the depositor, or in cases of impeachment, or
upon order of a competent court in cases of bribery or dereliction of duty of public officials, or in
cases where the money deposited or invested is the subject matter of the litigation.1avvphi1

Subsequent statutory enactments43 have expanded the list of exceptions to this policy yet the
secrecy of bank deposits still lies as the general rule, falling as it does within the legally
recognized zones of privacy.44 There is, in fact, much disfavor to construing these primary and
supplemental exceptions in a manner that would authorize unbridled discretion, whether
governmental or otherwise, in utilizing these exceptions as authority for unwarranted inquiry into
bank accounts. It is then perceivable that the present legal order is obliged to conserve the
absolutely confidential nature of bank deposits.45

The measure of protection afforded by the law has been explained in China Banking Corporation
v. Ortega.46 That case principally addressed the issue of whether the prohibition against an
examination of bank deposits precludes garnishment in satisfaction of a judgment. Ruling on that
issue in the negative, the Court found guidance in the relevant portions of the legislative
deliberations on Senate Bill No. 351 and House Bill No. 3977, which later became the Bank
Secrecy Act, and it held that the absolute confidentiality rule in R.A. No. 1405 actually aims at
protection from unwarranted inquiry or investigation if the purpose of such inquiry or
investigation is merely to determine the existence and nature, as well as the amount of the
deposit in any given bank account. Thus,

x x x The lower court did not order an examination of or inquiry into the deposit of B&B Forest
Development Corporation, as contemplated in the law. It merely required Tan Kim Liong to
inform the court whether or not the defendant B&B Forest Development Corporation had a
deposit in the China Banking Corporation only for purposes of the garnishment issued by it, so
that the bank would hold the same intact and not allow any withdrawal until further order. It will
be noted from the discussion of the conference committee report on Senate Bill No. 351 and
House Bill No. 3977which later became Republic Act No. 1405, that it was not the intention of
the lawmakers to place banks deposits beyond the reach of execution to satisfy a final
judgmentThus:

x x x Mr. Marcos: Now, for purposes of the record, I should like the Chairman of the Committee
on Ways and Means to clarify this further. Suppose an individual has a tax case. He is being held
liable by the Bureau of Internal Revenue [(BIR)] or, say, ₱1,000.00 worth of tax liability, and
because of this the deposit of this individual [has been] attached by the [BIR].

Mr. Ramos: The attachment will only apply after the court has pronounced sentence declaring the
liability of such person. But where the primary aim is to determine whether he has a bank deposit
in order to bring about a proper assessment by the [BIR], such inquiry is not allowed by this
proposed law.

Mr. Marcos: But under our rules of procedure and under the Civil Code, the attachment or
garnishment of money deposited is allowed. Let us assume for instance that there is a
preliminary attachment which is for garnishment or for holding liable all moneys deposited
belonging to a certain individual, but such attachment or garnishment will bring out into the open
the value of such deposit. Is that prohibited by... the law?

Mr. Ramos: It is only prohibited to the extent that the inquiry... is made only for the purpose of
satisfying a tax liability already declared for the protection of the right in favor of the
government; but when the object is merely to inquire whether he has a deposit or not for
purposes of taxation, then this is fully covered by the law. x x x

Mr. Marcos: The law prohibits a mere investigation into the existence and the amount of the
deposit.

Mr. Ramos: Into the very nature of such deposit. x x x47

In taking exclusion from the coverage of the confidentiality rule, petitioner in the instant case
posits that the account maintained by respondent with Security Bank contains the proceeds of the
checks that she has fraudulently appropriated to herself and, thus, falls under one of the
exceptions in Section 2 of R.A. No. 1405  that the money kept in said account is the subject
matter in litigation. To highlight this thesis, petitioner avers, citing Mathay v. Consolidated Bank
and Trust Co.,48 that the subject matter of the action refers to the physical facts; the things real
or personal; the money, lands, chattels and the like, in relation to which the suit is prosecuted,
which in the instant case should refer to the money deposited in the Security Bank account.49 On
the surface, however, it seems that petitioner’s theory is valid to a point, yet a deeper treatment
tends to show that it has argued quite off-tangentially. This, because, while Mathay did explain
what the subject matter of an action is, it nevertheless did so only to determine whether the class
suit in that case was properly brought to the court.

What indeed constitutes the subject matter in litigation in relation to Section 2 of R.A. No. 1405
has been pointedly and amply addressed in Union Bank of the Philippines v. Court of Appeals,50
in which the Court noted that the inquiry into bank deposits allowable under R.A. No. 1405 must
be premised on the fact that the money deposited in the account is itself the subject of the
action.51 Given this perspective, we deduce that the subject matter of the action in the case at bar
is to be determined from the indictment that charges respondent with the offense, and not from
the evidence sought by the prosecution to be admitted into the records. In the criminal
Information filed with the trial court, respondent, unqualifiedly and in plain language, is charged
with qualified theft by abusing petitioner’s trust and confidence and stealing cash in the amount
of ₱1,534,135.50. The said Information makes no factual allegation that in some material way
involves the checks subject of the testimonial and documentary evidence sought to be
suppressed. Neither do the allegations in said Information make mention of the supposed bank
account in which the funds represented by the checks have allegedly been kept.

In other words, it can hardly be inferred from the indictment itself that the Security Bank account
is the ostensible subject of the prosecution’s inquiry. Without needlessly expanding the scope of
what is plainly alleged in the Information, the subject matter of the action in this case is the
money amounting to ₱1,534,135.50 alleged to have been stolen by respondent, and not the
money equivalent of the checks which are sought to be admitted in evidence. Thus, it is that,
which the prosecution is bound to prove with its evidence, and no other.

It comes clear that the admission of testimonial and documentary evidence relative to
respondent’s Security Bank account serves no other purpose than to establish the existence of
such account, its nature and the amount kept in it. It constitutes an attempt by the prosecution at
an impermissible inquiry into a bank deposit account the privacy and confidentiality of which is
protected by law. On this score alone, the objection posed by respondent in her motion to
suppress should have indeed put an end to the controversy at the very first instance it was raised
before the trial court.

In sum, we hold that the testimony of Marasigan on the particulars of respondent’s supposed
bank account with Security Bank and the documentary evidence represented by the checks
adduced in support thereof, are not only incompetent for being excluded by operation of R.A.
No. 1405. They are likewise irrelevant to the case, inasmuch as they do not appear to have any
logical and reasonable connection to the prosecution of respondent for qualified theft. We find
full merit in and affirm respondent’s objection to the evidence of the prosecution. The Court of
Appeals was, therefore, correct in reversing the assailed orders of the trial court.

A final note. In any given jurisdiction where the right of privacy extends its scope to include an
individual’s financial privacy rights and personal financial matters, there is an intermediate or
heightened scrutiny given by courts and legislators to laws infringing such rights.52 Should there
be doubts in upholding the absolutely confidential nature of bank deposits against affirming the
authority to inquire into such accounts, then such doubts must be resolved in favor of the former.
This attitude persists unless congress lifts its finger to reverse the general state policy respecting
the absolutely confidential nature of bank deposits.53

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. SP
No. 87600 dated April 20, 2005, reversing the September 13, 2004 and November 5, 2004
Orders of the Regional Trial Court of Manila, Branch 36 in Criminal Case No. 02-202158, is
AFFIRMED.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:
RENATO C. CORONA
Associate Justice
Chairperson

PRESBITERO J. VELASCO, JR.

Associate Justice ANTONIO EDUARDO B. NACHURA
Associate Justice
JOSE CATRAL MENDOZA
Associate Justice

ATT E S TAT I O N

I attest 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
Associate Justice
Third Division, Chairperson

C E R T I F I CAT I O N

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions
in the above Decision were reached in consultation before the case was assigned to the writer of
the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice
Footnotes

1 Penned by Associate Justice Delilah Vidallon-Magtolis, with Associate Justices Perlita J. Tria
Tirona and Jose C. Reyes, Jr., concurring, CA rollo, pp. 136-145.

2 Records, Vol. 2, p. 369.

3 Id. at 379-381.

4 Presided by Judge Wilfredo D. Reyes.

5 Records, Vol. 1, p. 6.

6 Id. at 12-21.

7 Id. at 6-8.

8 Id. at 3-4.

9 Supra note 5, at 1.

10 Id. at 137-138.

11 Id. at 161-162.

12 Id. at 163-164.
13 Supra note 5 at 165-169.

14 Id. at 173-174.

15 Id. at 176-178.

16 Id. at 219-221.

17 TSN, January 8, 2004, pp. 8-50; TSN, August 20, 2004, pp. 4-65; TSN, September 22, 2004,
pp. 27-54.

18 Supra note 2, at 358-359.

19 Supra note 2, at 369.

20 Id. at 379-381.

21 CA rollo, pp. 136-145.

22 Id. at 145.

23 Id. at 173.

24 Rollo, pp. 3-30.

25 Id. at 14.
26 Id. at 17-18.

27 Rollo, p. 20.

28 Rollo, pp. 173-178.

29 Rollo, pp. 179-181.

30 Supra note 24, at 193-210.

31 Catuiran v. People, G.R. No. 175647, May 8, 2009; and People v. Obmiranis, G.R. No.
181492, December 16, 2008.

32 Reyes, Revised penal Code, Book II, 15th ed., 685, 708-709 (2001).

33 Id. at 686.

34 Section 3. Admissibility of evidence.—Evidence is admissible when it is relevant to the issue

and is not excluded by the law or these rules.

35 Sec. 4, Rule 128, Rules of Court; Fishman v. Consumer’s Brewing Co., 78 N.J.L. 300, 302,
cited in EVIDENCE RULES 128-134, R.J. Francisco, 3rd ed., 17 (1996).

36 Valenzuela v. People, G.R. No. 160188, June 21, 2007, 525 SCRA 306, 343.

37 Galvez v. Court of Appeals, G.R. No. L-22760, November 29, 1971, 42 SCRA 278.
38 Id.

39 It carries the title "An Act Prohibiting Disclosure of or Inquiry Into Deposits With Any
Banking Institution And Providing Penalty Therefor." The law was approved on September 9,
1955.

40 Republic v. Eugenio, G.R. No. 174629, February 14, 2008, 545 SCRA 384, 414.

41 Section 1, Republic Act No. 1405.

42 Id.

43 Presidential Decree No. 1972, later on modified by R.A. No. 7653; R.A. No. 3019; R.A. No.
9160.

44 Supra note 40.

45 Id.

46 G.R. No. L-34964, January 31, 1973, 49 SCRA 355.

47 Supra note 46, at 358-359. The portion of the discussion was lifted from Vol. II,
Congressional Record, House of Representatives, No. 12, pp. 3839-3840, July 27, 1955.
(Emphasis supplied.)

48 G.R. No. L-23136, August 26, 1974, 58 SCRA 559.

49 Supra note 47, at 571.

50 G.R. No. 134699, December 23, 1999, 321 SCRA 563.

51 Id. at 573. (Emphasis supplied.)

52 16B Am Jur 2d $605, pp. 73-74. See citation 83 therein.

53 Supra note 40.

DIOSCORO POLIÑO BACALA, SUBSTITUTE JUDICIAL GUARDIAN OF

INCOMPETENT AQUILINO O. POLIÑO, PETITIONER, VS. HEIRS OF SPOUSES JUAN
POLIÑO AND CORAZON ROM, NAMELY: RUBEN R. POLIÑO, BRENDO R. POLIÑO,
CARLITO R. POLIÑO, AND BANDY R. POLIÑO, REPRESENTED BY RUBEN R. POLIÑO,
RESPONDENTS.

DECISION

HERNANDO, J.:

This Petition for Review on Certiorari1 assails the March 10, 2011 Decision2 and the February 3,
2012 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 79095-MIN.

The Antecedents:

The case stemmed from a complaint for nullity and/or annulment of sale, accounting, damages,
and attorney's fees with prayer for injunctive reliefs4 (complaint) filed by original plaintiff,
Aproniana Poliño Balisalisa (Aproniana), as judicial guardian of Aquilino O. Poliño (Aquilino)
and Ducepino O. Poliño (Ducepino), against original defendants-spouses Juan Poliño (Juan) and
Corazon Rom (Corazon) docketed as Civil Case No. 1863 before the Regional Trial Court
(RTC), Branch 32 of Lupon, Davao Oriental.
Aproniana, Juan, and Anecito Poliño5 (Anecito) were siblings. Anecito, married to Clara O.
Poliño (Clara), was the father of Aquilino and Ducepino. Both sons were mentally
incapacitated.6

Anecito and Clara were the registered owners of a parcel of land planted with coconuts located at
Cocomon, Lupon, Davao Oriental (subject property).7 It spanned an area of 80,003 square
meters and covered by Transfer Certificate of Title (TCT) No. T-3353.8 Anecito and Clara died9
intestate on November 21, 1994 and November 18, 1987, respectively. They were survived by
their sons and sole heirs, Aquilino and Ducepino.

A Deed of Sale10 and an Agreement,11 executed by and between Anecito and Juan on April 13,
1992, however surfaced and spawned a legal controversy among the family members. In the
Deed of Sale, Anecito allegedly ceded unto Juan the subject property for a consideration of
P15,000.00, while the Agreement stipulated that during Anecito's lifetime, Juan shall allow
Anecito to enjoy the usufruct of the subject property, and that upon Anecito's death, Juan shall
continue to support and provide financial assistance to Aquilino and Ducepino. The Agreement
further provided that breach of its terms shall render the Deed of Sale non-effective and
nugatory.

Aproniana applied for the issuance of letters of guardianship over Aquilino and Ducepino
docketed as Special Proceedings No. 237 before the RTC, Branch 5 of Mati, Davao Oriental.
Aproniana's petition was granted on June 6, 199612 upon filing a bond of P20,000.00. She took
her oath of guardianship on August 7, 1996.13

While the guardianship proceedings were pending, Juan executed a Deed of Voluntary Transfer
on February 23, 1996 conveying the subject property to his children.14 On September 3, 1996,
Aproniana instituted the instant Complaint against the spouses Juan and Corazon and in behalf of
siblings Aquilino and Ducepino seeking the nullification of the April 13, 1992 Deed of Sale and
Agreement, among other reliefs.

Aproniana assailed the validity of both documents for being fictitious and without consideration.
She claimed that it was incongruous for Anecito to sell the subject property for P15,000.00 when
it had a market value of at least P150,000.00 at the time of sale. Moreover, Juan allegedly could
not afford to pay the real value of the subject property as he had no known means of livelihood.
She claimed that the transaction was in reality a donation mortis causa, and since it was not
executed in accordance with the formalities of the law, it was null and void.15

Aproniana also claimed that while Juan knew that Aquilino and Ducepino were mentally
incapacitated, the sale transpired without the two brothers being represented therein. Aproniana
further averred that Juan and Corazon took possession of the property and arrogated unto
themselves the full enjoyment thereof and its fruits to the detriment of Aquilino and Ducepino
who had not been properly taken care of until she took them under her custody in 1996. Despite
being the rightful heirs of the spouses Anecito and Clara, the incompetent siblings were deprived
of their rights as owners of the subject property.16

In all, Aproniana, in behalf of Aquilino and Ducepino, sought to enjoin the spouses Juan and
Corazon from further gathering the fruits of the subject property and to compel them to account
for all the past harvests made thereon. Aproniana also prayed in her representative capacity that
the spouses Juan and Corazon be ordered to pay Aquilino and Ducepino P200,000.00 for actual
damages, P100,000.00 as moral damages, P20,000.00 as exemplary damages, P30,000.00 for
litigation expenses, P100,000.00 as attorney's fees, and P1,000.00 for court appearance fees.17

The spouses Juan and Corazon denied the accusations against them. They averred that they have
other means of income. Despite Aproniana's appointment as judicial guardian, they continued to
provide for the material needs of Aquilino and Ducepino who remained under their custody since
Aproniana was neglectful of her duties as the appointed guardian. By way of counterclaims, the
spouses Juan and Corazon prayed that they be awarded the amounts of P10,000.00 as attorney's
fees and P10,000.00 for litigation expenses.18

Trial proceeded.

Aproniana alone testified for the plaintiff's side.19 Aside from her allegations in the complaint,
she stated on the witness stand that Ducepino had passed away20 and that Aquilino is residing at
her house. After Anecito's death, Aproniana learned from Juan that Anecito sold him the subject
property for P15,000.00, although no money was actually paid. Clara was already deceased at the
time of the sale. Despite the conditions imposed by Anecito in the Agreement, Juan neglected the
incapacitated siblings which caused the death of Ducepino. Juan even tied both siblings up
whenever he left them in the house.21
On cross-examination, Aproniana clarified that Aquilino and Ducepino lived with Juan after their
father Anecito died in 1994. She took Aquilino into her custody in 1996, after the demise of
Ducepino. Juan paid for Ducepino's funeral expenses. Aproniana filed the petition for letters of
guardianship when she learned of Juan's intent to subdivide the subject property for his own
children even if Juan never paid for the land. Aproniana also stated that while Anecito bought the
subject property when he was not yet married, he acquired title thereto only after his marriage to
Clara. Aproniana further disclosed that coconuts were being harvested from the subject property
every three months, with P7,000.00 as her share.22

Juan was the sole witness for the respondents.23 At the time of the taking of his testimony,
Aproniana and original co-defendant Corazon had also passed away.24 While no substitution
was made for Aproniana, Corazon was substituted by Juan and their children, namely Carlito R.
Poliño, Ruben R. Poliño, Brendo R. Poliño, and Randy R. Poliño (collectively, heirs of spouses
Poliño).25

Juan testified during his direct examination that Aquilino was living with Teodulo Balisalisa, Sr.
(Teodulo), Aproniana's husband. Juan maintained that Anecito sold the subject property to him;
and that he has in his possession the title to the subject property but it has yet to be transferred to
his name. Because Anecito was sickly, he and his sons stayed in Juan's house after the disputed
sale transaction in 1992 until Anecito's death in 1994.26

On cross-examination, Juan stated that the Deed of Sale was executed in the Office of the
Provincial Attorney. He and Anecito appeared before the notary public during its signing. The
subject property was valued at P15,000.00 at the time. Anecito surrendered to him the title of the
subject property. Juan also clarified that Anecito had bought the subject property in 1953 but the
title was issued in his name only in 1972 when he was already married to Clara. Juan knew that
Anecito had two incompetent children. He was also aware that the Agreement stated that Anecito
will enjoy the fruits of the subject property and that after his death, the subject property will be
turned over to Juan, who will provide financial assistance to Aquilino and Ducepino. Aproniana
did not help in the maintenance of the subject property.27

On re-direct examination, Juan declared that he had already started subdividing the subject
property. Aquilino and Ducepino will not share in the subdivision of the subject property but they
will be given support during their lifetime. Juan reiterated that he was in actual physical
possession of the property and that he was obligated to take care of the two incompetent children
upon the demise of Anecito.28
Teodulo, Aproniana's husband, died during the proceedings.29 While records do not show that
the RTC had expressly ordered for their substitution, the case was allowed to proceed with
Dioscoro Poliño Bacala (Dioscoro), Aproniana's nephew, as the representative for the plaintiff.30

Ruling of the Regional Trial Court:

On February 18, 2002,31 the RTC decided in favor of Aproniana. It gave credit to her testimony
that the supposed sale between Anecito and Juan involved no money and was not truly paid for.
Juan never rebutted this in his testimony or otherwise. He neither said that he had paid the
purchase price of P15,000.00, nor did he testify that he had the financial capacity to pay the said
amount. There being no cause or consideration, the RTC voided the Deed of Sale.

The RTC also found as illogical for any person to sell his property for P15,000.00 when the
market value per the 1993 tax declaration was P119,893.00. The trial court likewise considered
as beyond common sense and logic the fact that the subject property was earning P7,000.00
every 3 months but was sold for only P15,000.00. It held that the Deed of Sale was null and void
for lack of cause or consideration and for being fictitious and simulated pursuant to Articles
1409, 1352, and 1346 of the Civil Code. The Agreement was also declared to be a nullity as its
terms and conditions were derived from the Deed of Sale that was likewise null and void.32

Even if the Deed of Sale and the Agreement would be deemed as a donation, the RTC held the
same to be null and void for failure to comply with the formalities of a donation as prescribed
under Article 749 of the Civil Code.33

Moreover, the trial court found that Juan failed to prove that Anecito enjoyed the usufruct of the
subject property. It was also determined that Juan did not take care of or provide financial
support to the siblings after Anecito's death in 1994, which neglect resulted in the death of
Ducepino. Thus, the trial court concluded that Juan failed to comply with his obligations under
the Agreement, leading to the nullity of the Deed of Sale.34

The dispositive portion of the February 18, 2002 RTC Decision35 reads as follows:
1. Declaring as NULL and VOID the Deed of Sale dated April 13, 1992;

2. Ordering defendants to reconvey and/or return the possession of the parcel of land subject of
this case covered by TCT No. T-3353 to herein surviving Incompetent Aquilino Poliño through
his substituted Guardian Dioscoro Poliño Bacala;

3. Declaring as Null and Void the Agreement dated April 23, 1992;

4. Declaring as Null and Void the Deed of Voluntary Transfer;

5. Ordering Defendants to pay the amount of P28,000.00 per year as income of the land starting
September 3, 1996 the date of the filing of this case or the sum of P147,000.00 as of December
31, 2001 plus P7,000.00 every three months thereafter until this case is decided with finality and
the land shall have been reconveyed and/or returned to Plaintiff Aquilino Poliño through his
substituted legal guardian Dioscoro Poliño Bacala; and

6. Ordering Defendants to pay P20,000.00 as attorney's fees and appearance fees.

SO ORDERED.36 (Citations omitted.)

The heirs of the spouses Poliño appealed to the CA.

Ruling of the Court of Appeals:

The CA reversed the RTC. Citing Article 1354 of the Civil Code and the best evidence rule, the
appellate court presumed the existence of a cause and consideration in the Deed of Sale in
question. Aproniana had failed to prove that the amount of P15,000.00 was grossly inadequate
and her arguments were hearsay. Thus, the CA declared the Deed of Sale and Agreement
between Anecito and Juan valid. Likewise, the appellate court upheld the validity of the
Agreement and the Deed of Voluntary Land Transfer as their terms and conditions were derived
from the validity of the Deed of Sale.37
It was also held in the CA Decision that even if the Agreement was to be considered as a
donation, the same is still valid since it is an onerous donation that required Juan to take care of
Anecito's children after his death. According to the CA, onerous donations are governed by the
rules on contracts, and thus, the formalities of a donation are not necessary for the Deed of Sale
and the Agreement to be valid.38

The CA also found the RTC incautious for relying on the plain accusations of Aproniana in
attributing grave negligence against Juan. The RTC should have exerted more effort in
ascertaining the veracity of said assertions and not just accept the same at face value without
receiving further evidence just because the defendants failed to refute them.39

In its March 10, 2011 Decision, the CA disposed of the appeal in the following manner:

WHEREFORE, premises considered, the appeal is hereby GRANTED and the assailed Decision
dated February 18, 2002 of the court a quo is hereby REVERSED and SET ASIDE.

SO ORDERED.40

In its February 3, 2012 Resolution,41 the CA denied the Motion for Reconsideration42 of its
March 10, 2011 Decision.

Thus, this Petition by Dioscoro, as Aproniana's substitute and Aquilino's representative.

Issues

IN RESOLVING THE ISSUE ON NULLITY OF A DEED OF SALE THE STATED PRICE OF

WHICH IS GROSSLY INADEQUATE COMPARED TO THE MARKET VALUE OF THE
LAND INVOLVED, WHICH RULE SHALL APPLY – IS IT THE ADMISSION BY SILENCE
OF THE VENDEE THAT THE SAID DEED OF SALE WAS WITHOUT CONSIDERATION
OR IS IT THE BEST EVIDENCE RULE?

II

WILL GROSS INADEQUACY OF THE PRICE STATED IN THE DEED OF SALE VIS-À-
VIS THE MARKET VALUE OF THE LAND INVOLVED NECESSITATE INTERVENTION
OF THE HONORABLE SUPREME COURT ON GROUNDS OF EQUITY?

III

ARE THE AGREEMENT AND THE DEED OF SALE EXECUTED BY THE PARTIES ON
THE SAME DAY BE READ AND CONSTRUED TOGETHER TO DETERMINE THE REAL
INTENTION OF THE PARTIES UNDER THE COMPLEMENTARY CONTRACTS
CLOSELY CONSTRUED TOGETHER DOCTRINE?43

The Court restructures these questions:

(1) Will gross inadequacy of the price nullify the contract between Anecito and Juan?

(2) What was the contract between Anecito and Juan?

(3) Was the contract between Anecito and Juan valid?

Our Ruling

We affirm the CA's ruling validating the Deed of Sale and the Agreement. However, there being
conflicting findings of facts by the trial court and the appellate court, the Court plows through
the records and evidence to clarify these, deviating from the general rule that only errors of law
may be entertained in a Rule 45 petition.44
Gross inadequacy of the price did
not invalidate the subject contract.

Petitioner insists on the nullity of the Deed of Sale and the Agreement for lack of consideration.
He anchors this claim upon the following testimony of Aproniana that Juan allegedly did not
rebut:

Q Before the death of [Anecito] do you have the knowledge that [Anecito] sold the land to the
defendants?

A Yes.

Q When did you first know [of] the sale of the property, was it during his lifetime or after his
death?

A After his death.

Q When did you come to know [of] the said sale?

A I went to the house of my brother and he told me, my brother [Anecito] executed a deed of sale
in the amount of P15,000.00 but without any money involved as payment of the land.45

Petitioner is mistaken. Two presumptions find relevance in this case.

First, a contract enjoys the presumption that it is supported by an existing and lawful cause or
consideration.46 This presumption is disputable47 and may be overthrown by preponderance of
evidence to the contrary.48 Preponderance of evidence is the weight, credit, and value of the
aggregate evidence on either side and is usually considered to be synonymous with the term
"greater weight of evidence" or "greater weight of credible evidence."49
Second, notarized documents, being public in nature, require no further proof of their
authenticity and due execution. They are entitled to full faith and credit on its face and are prima
facie evidence of the facts stated therein.50 To overturn this presumption of regularity, clear and
convincing proof is required.51

The Deed of Sale states in plain terms that the subject property is being sold for P15,000.00.
Anecito had expressly acknowledged in the Deed of Sale his receipt of the said amount as
consideration of the contract. No further issue on the regularity of the notarization was raised on
appeal. To debunk the existence of consideration in the Deed of Sale, there must be more than
mere preponderant evidence showing that Anecito did not truly execute the disputed document or
that the parties had not truly intended a contract of sale.

However, whether preponderant, clear, or convincing, petitioner never submitted any

controverting evidence. Aproniana only stated that Anecito had told her that the sale was
simulated and that that no consideration was paid.52 Aside from what Aproniana stated, nothing
else was presented in support of the claim that the amount of P15,000.00 was fabricated or
actually unpaid. Settled is the rule that bare allegations have no probative value.

Consequently, the burden of evidence never shifted to Juan. The legal presumptions of the
existence of a valid consideration and regularity of execution of contract still stand in favor of
the Deed of Sale. Juan's supposed silence cannot be taken against him. The Court thus rejects
petitioner's theory that the disputed transaction is void for lack of consideration or for being
simulated.

The Contract between Anecito

and Juan was a sale subject to a
resolutory condition.

Petitioner advances the alternative theory that the transaction between Anecito and Juan was in
fact a donation mortis causa due to the following circumstances: (1) the gross inadequacy of the
price; (2) the stipulation that Anecito shall continue to enjoy the usufruct of the subject property
during his lifetime; (3) the condition that Juan shall provide financial support to Aquilino and
Ducepino after Anecito's death; and (4) the withholding of the delivery of the subject property to
Juan until Anecito's death and upon the suspensive condition for Juan to provide the said
financial assistance to Anecito's children. Petitioner points to the following provision of the Civil
Code:

Art. 728. Donations which are to take effect upon the death of the donor partake of the nature of
testamentary provisions, and shall be governed by the rules established in the Title of Succession.

Petitioner goes on to conclude that this transaction between Anecito and Juan that was actually a
donation mortis causa did not comply with the formalities of a will under Articles 804,53 805,54
and 806.55 Hence, even if the Deed of Sale and the Agreement would be construed as a
donation, they remain null and void.

The Court dismisses this theory.

Gross inadequacy or simulation of price neither affects nor invalidates a sale, but it can be shown
that the parties may have really intended a donation or some other act or contract.56 The burden
of proof weighs on the party making the allegation against these presumptions.

The obtaining circumstances, however, do not lead to a correct conclusion that the transaction
between Anecito and Juan was a donation.

Article 725 of the Civil Code describes donation as follows:

Article 725. Donation is an act of liberality whereby a person disposes gratuitously of a thing or
right in favor of another, who accepts it.

Donation has three indispensable elements: (1) the reduction of the patrimony of the donor; (2)
the increase in the patrimony of the donee; and (3) the intent to do an act of liberality or animus
donandi.57 Not all three are present. While Anecito's patrimony may have decreased with the
correlative increase in that of Juan by virtue of the Deed of Sale and Agreement, it does not
appear that this was impelled by liberality on the part of Anecito. Had animus donandi really
been the true motive for the transfer of the subject property, Anecito and Juan would have so
stated in the documents that they executed. However, the Deed of Sale clearly states that the
conveyance was for a consideration of the amount of P15,000.00. Again, petitioner was remiss in
her evidentiary duty to prove otherwise. There was just a dearth of evidence to show that Juan
and Anecito actually intended a donation mortis causa or some contract other than a sale.

It was further alleged by Aproniana in the original Complaint and reiterated by Dioscoro in the
Petition that "the Deed of Sale clearly appears to be null and void for being fictitious and without
consideration as it purports that Aniceto D. Poliño sold the entire property for a stated
consideration of P15,000.00[,] when the said property at the time of the sale in 1992 had a
market value of approximately P300,000.00 and per said Tax Declaration, the stated market
value of the land and improvements is P150,000.00, more or less[.]"58

However, one cannot question a contract of sale for being simulated and at the same time assail
the same for having a grossly inadequate consideration. The Court has declared in Sta. Fe Realty,
Inc. v. Sison59 that the two grounds are incompatible, since "[i]f there exists an actual
consideration for transfer evidenced by the alleged act of sale, no matter how inadequate it be,
the transaction could not be a simulated sale."60

The CA determined that Anecito and Juan entered into a valid contract of sale. The Court agrees,
but with qualifications.

The Deed of Sale stated:

WHEREAS, [Anecito] is the owner in fee simple of a parcel of land, situated at Cocornon,
Lupon, Davao Oriental, covered by Transfer Certificate of Title No. T-3353 of the Register of
Deeds of Davao Oriental xxx containing an area of EIGHTY THOUSAND AND THREE
(80,003) SQUARE METERS xxx.

That for and in consideration of the sum of FIFTEEN THOUSAND (P15,000.00) PESOS,
receipt of which is hereby confessed and acknowledged to the satisfaction of [Anecito],
[Anecito] by these presents do hereby SELL, TRANSFER and CONVEY, forever and
irrevocable unto [Juan], his heirs and assigns, the above-described property together with all the
improvements found and existing thereon, free from all liens and encumbrances and charges
whatsoever.61 (Emphasis supplied.)
Article 1458 of the Civil Code defines a contract of sale:

By the contract of sale, one of the contracting parties obligates himself to transfer the ownership
of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its
equivalent. x x x

The elements of a contract of sale are: (1) consent or meeting of the minds, that is, consent to
transfer ownership in exchange for the price; (2) determinate subject matter; and (3) price certain
in money or its equivalent.62

The Deed of Sale contains all the three basic requisites of a contract of sale. All three elements
were established, since no issue was raised as to any vice tainting Anecito's and Juan's consent to
the transaction conveying ownership over the subject property. The price therefor, the third
element, was also stated as the consideration in the Deed of Sale. As earlier discussed, the gross
inadequacy of the purchase price did not invalidate the Deed of Sale and the Agreement.

Contrary to the findings of the CA, the contract of sale between Anecito and Juan is not an
absolute sale. The Agreement that was appended to and executed simultaneously with the Deed
of Sale was worded in this manner:

That [Juan] is a VENDEE from [Anecito] of a certain parcel of land with improvements
consisting of fruit bearing coconuts situated at Cocomon, Lupon, Davao Oriental, which land is
covered by Transfer Certificate of Title No. T-3353 of the Register of Deeds of Davao Oriental,
with an area of 80,003 square meters, more or less;

That [Juan] and [Anecito] after the execution of the Deed of Sale involving the said parcel of
land agreed and stipulated among other things that during the lifetime of [Anecito] he shall still
enjoy in usufruct the fruits of the above-described property, and in case of his death [Juan]
likewise agree[d] to support and give financial assistance to the two children who are mentally
incapacitated;
That the parties to this Agreement likewise agree and stipulate that they will abide with the terms
and conditions therein set forth and that in case of breach thereof then the Deed of Sale shall be
rendered non-effective and nugatory.63 (Emphasis supplied.)

A resolutory condition extinguishes a transaction that, for a time, existed and discharges the
obligations created thereunder.64 It was stipulated in the Agreement that Anecito shall enjoy the
usufruct of the subject property, and that upon Anecito's death, Juan shall support and give
financial assistance to Aquilino and Ducepino. These stipulations in the Agreement are resolutory
as Anecito and Juan also agreed that breach of the terms and conditions of the Agreement shall
render the Deed of Sale non-effective and nugatory.

Petitioner even imposes upon this Court the evidential superiority of Juan's alleged admission by
silence over the terms of the contract as reinforced by the "best evidence rule" applied by the
CA. The said rule is embodied in Section 3, Rule 130 of the Rules of Court:

Section 3. Original document must be produced x x x — When the subject of inquiry is the
contents of a document, no evidence shall be admissible other than the original document itself x
xx

Rather than the "best evidence rule" that was apparently mis-cited by the appellate court, the
parol evidence rule appears more apt in this case. Section 10, Rule 130 of the Rules of Court
defines this rule:

Section 10. Evidence of written agreements. — When the terms of an agreement have been
reduced to writing, it is considered as containing all the terms agreed upon and there can be,
between the parties and their successors in interest, no evidence of such terms other than the
contents of the written agreement.

x x x x (Emphasis supplied.)

The parol evidence rule forbids any addition to or contradiction of the terms of a written
instrument by testimony or other evidence purporting to show that, at or before the execution of
the parties' written agreement, other or different terms were agreed upon by the parties, varying
the purport of the written contract.65 Related to this is the plain meaning rule and the four
corners rule, densely explained by the Court in Norton Resources and Development Corporation
v. All Asia Bank Corporation,66 viz.:

Our ruling in Benguet Corporation, et al. v. Cesar Cabildo is instructive:

The cardinal rule in the interpretation of contracts is embodied in the first paragraph of Article
1370 of the Civil Code: "[i]f the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations shall control." This
provision is akin to the "plain meaning rule" applied by Pennsylvania courts, which assumes that
the intent of the parties to an instrument is "embodied in the writing itself, and when the words
are clear and unambiguous the intent is to be discovered only from the express language of the
agreement." It also resembles the "four corners" rule, a principle which allows courts in some
cases to search beneath the semantic surface for clues to meaning. A court's purpose in
examining a contract is to interpret the intent of the contracting parties, as objectively manifested
by them. The process of interpreting a contract requires the court to make a preliminary inquiry
as to whether the contract before it is ambiguous.

A contract provision is ambiguous if it is susceptible of two reasonable alternative

interpretations. Where the written terms of the contract are not ambiguous and can only be read
one way, the court will interpret the contract as a matter of law. If the contract is determined to be
ambiguous, then the interpretation of the contract is left to the court, to resolve the ambiguity in
the light of the intrinsic evidence.

In our jurisdiction, the rule is thoroughly discussed in Bautista v. Court of Appeals:

The rule is that where the language of a contract is plain and unambiguous, its meaning should
be determined without reference to extrinsic facts or aids. The intention of the parties must be
gathered from that language, and from that language alone. Stated differently, where the
language of a written contract is clear and unambiguous, the contract must be taken to mean that
which, on its face, it purports to mean, unless some good reason can be assigned to show that the
words should be understood in a different sense. Courts cannot make for the parties better or
more equitable agreements than they themselves have been satisfied to make, or rewrite contracts
because they operate harshly or inequitably as to one of the parties, or alter them for the benefit
of one party and to the detriment of the other, or by construction, relieve one of the parties from
the terms which he voluntarily consented to, or impose on him those which he did not.67
(Emphasis supplied and citations omitted.)

A contract is the law between the parties68 and the best evidence of their intention. To preserve
the constitutional liberties of contract, the courts ordinarily desist from interfering with the
prerogatives of the consenting parties. This rule is not set in stone – in case of fraud, mistake, or
any other vice vitiating consent by either or both of the parties, or if any or all contractual
stipulations would be shown to be contrary to law, morals, good customs, public order, or public
policy,69 the courts may step in to consider all the prevailing circumstances and evidence to
unmask the true intent behind the written word. No such vice of consent or illegalities were
proven to taint the Deed of Sale and Agreement. Necessarily, there is no reason to look beyond
the plain import of the parties' contractual stipulations.

Petitioner continues to insist on the application of the "complementary contracts construed

together" doctrine and considerations of equity to determine the real intent of the parties behind
the Deed of Sale and the Agreement. To use this doctrine in this case, however, militates against
petitioner's position.

The "complementary contracts construed together" doctrine incarnates the spirit of Art. 1374 of
the Civil Code,70 which states that:

Art. 1374. The various stipulations of a contract shall be interpreted together, attributing to the
doubtful ones that sense which may result from all of them taken jointly. (Emphasis supplied.)

On the other hand, equity is applied as a means of resolving justiciable cases only in the absence
of statutory law or rules of procedure.71 Such class of jurisdiction is rooted in Article 9 of the
Civil Code, which expressly mandates the courts to make a ruling despite the "silence, obscurity
or insufficiency of the laws"72 to "fill the open spaces in the law."73

Doubtful stipulations must obtain for the doctrine to aid the courts in construing related
contracts. The stipulations in the Deed of Sale and Agreement at hand are too clear for the
doctrine to operate thereon. Even if the case necessitates the application of the doctrine, the
contracts already state in uncertain terms that Anecito bound himself to sell the subject property
to Juan for the price of P15,000.00, under the conditions that Anecito shall retain enjoyment of
the fruits of the subject property and that Juan shall support Aquilino and Ducepino after
Anecito's death. In the same vein, the Court desists from exercising its equity jurisdiction as a
means of determining the nature of the Deed of Sale and Agreement Suffice it to state that the
Court finds no such open space in the law within which to exercise its equity jurisdiction.

The Deed of Sale and the Agreement remain valid.

Substantial breaches of contract are fundamental violations as would defeat the very object of the
parties in making the agreement.74 The happening of a resolutory condition is a substantial
breach that may give either party thereto the option to bring an action to rescind the contract
and/or seek damages. Article 1191 of the Civil Code provides:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of
a period.

xxxx

As a general rule, the power to rescind an obligation must be invoked judicially and cannot be
exercised solely on a party's own judgment that the other has committed a breach of the
obligation.75 As an exception, an injured party need not resort to court action in order to rescind
a contract when the contract itself provides that it may be revoked or cancelled upon violation of
its terms and conditions.76 The exception appears to hold in this case, as the Agreement clearly
directed as follows:
That the parties to this Agreement likewise agree and stipulate that they will abide with the terms
and conditions therein set forth and that in case of breach thereof then the Deed of Sale shall be
rendered non-effective and nugatory.77 (Emphasis supplied.)

The Agreement already provided a self-terminating clause upon a breach of the conditions
therein. Nonetheless, the Court is still left to decide whether the said conditions have indeed been
met to warrant the dissolution of the Deed of Sale.

Since the inception of this case, Aproniana had always insisted on the ineffectivity of the Deed of
Sale and the Agreement due to Juan's failure to comply with the twin conditions therein. The
necessity of proving, however, lies with the person who sues.78 Aproniana had never adduced
any concrete evidence that Anecito, during his lifetime, had never received any income produced
by the subject property. Nothing on record also shows that Juan truly left Aquilino and Ducepino
to fend on their own after the death of Anecito, or that Juan's neglect caused Ducepino's death as
Aproniana had insinuated.

While courts are in constant pursuit of the truth, judgments are rendered only upon application of
the law on facts, and facts are ordinarily established by tangible evidence. It is not all the time
that judicial admissions, the parties' stipulations, or legal presumptions are available or potent to
dispense with the requirement of proof. Lamentably, this long-standing controversy is but a "he
said, she said" situation at best. However sympathetic the courts may be to the plight of a party,
one cannot simply claim what one fails to prove before the courts. Basic fairness impels this rule.

WHEREFORE, the Petition is DENIED. The April 13, 1992 Deed of Sale and Agreement and
the Deed of Voluntary Transfer are declared VALID. The March 10, 2011 Decision and the
February 3, 2012 Resolution of the Court of Appeals in CA-G.R. CV No. 79095-MIN are
AFFIRMED. Costs on petitioners.

SO ORDERED.

Leonen (Chairperson), Inting, Delos Santos, and J. Lopez, JJ., concur.

Footnotes

1 Rollo, pp. 5-40.

2 Id at 42-57; penned by Associate Justice Rodrigo F. Lim, Jr. and concurred in by Associate
Justices Angelita A. Gacutan and Nina G. Antonia-Valenzuela.

3 Id. at 82-83.

4 Records, pp. 1-9.

5 Also referred to in some parts of the records as Aniceto Poliño.

6 Rollo, p. 43.

7 Records, p. 309.

8 Folder of Exhibits, Exh. G.

9 Records, pp. 15-16.

10 Folder of Exhibits, Exh. I.

11 Id., Exh. J.

12 Records, pp. 12-13.

13 Id. at 11.

14 Id. at 50-54.

15 Id. at 3-4.

16 Id. at 4-5.

17 Id. at 5.

18 Id. at 31-33.

19 TSN (Civil Case No. 1863), January 14, 1997, p. 4.

20 Id. at 8.

21 Records, p. 301.

22 Id. at 301-302.

23 TSN (Civil Case No. 1863), November 5, 1997.

24 Records, pp. 83 & 91; per Aproniana and Corazon's Certificates of Death.

25 Id. at 92.

26 Id. at 302-303; TSN, November 5, 1997, pp. 5-20.

27 TSN, November 5, 1997, pp. 20-25.

28 Id. at 25-27.

29 Records, p. 144; per Teodulo's Certificate of Death.

30 It was also manifested in petitioner Dioscoro's Motion for the Issuance of a Writ of
Preliminary Mandatory Injunction (id. at 172) and Memorandum for the Plaintiff (id. at 217)
filed before the RTC that an Order had been issued in Special Proceedings No. 237 appointing
him as Aquilino's substitute guardian and that he took his oath as such upon the filing of a bond.

31 Records, pp. 286-331; penned by Judge Pelagio S. Paguican.

32 Id. at 320-324.

33 Id. at 324.

34 Id. at 325-326.

35 Id. at 286-331.

36 Id. at 330-331.

37 Rollo, pp. 51-53.

38 Id. at 54-55.
39 Id. at 55.

40 Id. at 56.

41 Id. at 82-83.

42 Id. at 58-80.

43 Id. at 10-11.

44 Gatan v. Vinarao, 820 Phil. 257, 267 (2017).

45 Rollo, p. 12. See also TSN (Civil Case NO. 1863), January 14, 1997, pp. 8-9.

46 Article 1354, Civil Code.

47 Section 3 (r), Rule 131, Rules of Court.

48 Section 1, Rule 133, Rules of Court.

49 Ogawa v. Meginishi, 690 Phil. 359, 367 (2012).

50 Id.

51 Id.

52 TSN (Civil Case No. 1863), January 14, 1997, p. 9.

53 Article 804. Every will must be in writing and executed in a language or dialect known to the
testator.

54 Article 805. Every will, other than a holographic will, must be subscribed at the end thereof
by the testator himself or by the testator's name written by some other person in his presence, and
by his express direction, and attested and subscribed by three or more credible witnesses in the
presence of the testator and of one another.

The testator or the person requested by him to write his name and the instrumental witnesses of
the will, shall also sign, as aforesaid, each and every page thereof, except the last, on the left
margin, and all the pages shall be numbered correlatively in letters placed on the upper part of
each page.

The attestation shall state the number of pages used upon which the will is written, and the fact
that the testator signed the will and every page thereof, or caused some other person to write his
name, under his express direction, in the presence of the instrumental witnesses, and that the
latter witnessed and signed the will and all the pages thereof in the presence of the testator and of
one another.

If the attestation clause is in a language not known to the witnesses, it shall be interpreted to
them.

55 Article 806. Every will must be acknowledged before a notary public by the testator and the
witnesses. The notary public shall not be required to retain a copy of the will, or file another with
the office of the Clerk of Court.

56 Articles 1470 and 1471, Civil Code.

57 Heirs of Florencio v. Heirs of De Leon, 469 Phil. 459,474 (2004).

58 Rollo, p. 21.
59 794 Phil. 180 (2016).

60 Id. at 189; citing Alina v. Heirs of Angelica A. Lorenzo, 578 Phil. 698, 711 (2008).

61 Folder of Exhibits, Exh. I.

62 Article 1318, Civil Code.

63 Folder of Exhibits, Exh. I.

64 Following Soliva v. Intestate Estate of Villalba, 462 Phil. 761 (2003).

65 Norton Resources and Development Corporation v. All Asia Bank Corporation, 620 Phil. 381,
389 (2009).

66 Id.

67 Id. at 388-389.

68 Spouses Mallari v. Prudential Bank, 710 Phil. 490, 497 (2013).

69 Id.; citing Article 1306, Civil Code.

70 Velasquez v. Court of Appeals, 368 Phil. 863, 870 (1999).

71 Reyes v. Lim, 456 Phil. 1, 9-10 (2003).

72 Article 9 of the Civil Code provides: "No judge or court shall decline to render judgment by
reason of the silence, obscurity or insufficiency of the laws."

73 Reyes v. Lim, supra 10

74 Following Golden Valley Exploration, Inc. v. Pinkian Mining Company and Copper Valley,
Inc., 736 Phil. 230, 236-237 (2014).

75 Id. at 236.

76 Id. at 237.

77 Folder of Exhibits, Exh. J.

78 MOF Company. Inc., v. Shin Yang Brokerage Corporation, 623 Phil. 424 (2009).

DELOS SANTOS, J.:

Before the Court is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court
seeking the reversal of the Decision[2] dated June 29, 2015 and the Resolution[3] dated April 20,
2016 of the Court of Appeals (CA) in CA-G.R. CV No. 100331, which reversed and set aside the
Decision[4] dated June 4, 2012 of the Regional Trial Court (RTC) of Makati City, Branch 62, in
Civil Case No. 01-575.

The Facts
The present case originated from a Complaint[5] for Specific Performance and Damages with a
Prayer for Preliminary Mandatory and Prohibitory Injunctions filed by petitioners Richardson
Steel Corporation (RSC), Ayala Integrated Steel Manufacturing, Co., Inc. (AISMC), Asian
Footwear and Rubber Corp. (AFRC), and the spouses Ricardo O. Cheng (Ricardo) and Eleanor
S. Cheng (spouses Cheng) against respondent Union Bank of the Philippines (UBP).

Petitioners' Version

Petitioner corporations are sister companies and the spouses Cheng are their principal
stockholders and officers (collectively referred to as petitioners). Petitioners alleged that in
January 1996, UBP proposed a special financing arrangement to fund petitioner RSC's business
venture, which was the construction and operation of the Continuous Galvanizing Line (CGL)
under the wholesale lending program of the Development Bank of the Philippines (DBP) of the
JEXIM 2 Program. Petitioners accepted the offer and ended their established banking
relationship with the Philippine Commercial International Bank.[6]

UBP's proposal includes the following features: (a) a credit accommodation for P240,000,000.00
to finance the construction of a new plant and the acquisition of a continuous galvanizing
machine; and (b) a working capital of P600,000,000.00 to sustain its operations.[7]

Petitioners contended that while the credit accommodation was released, the promised working
capital never came into fruition. Despite lack of funds, petitioners were able to complete the
construction of the CGL Plant. However, RSC remained incapable of commencing full operation
of the CGL due to insufficiency of funds. Thus, RSC sent a letter to UBP for the release of the
promised credit line facility for its working capital requirement. However, the anticipated credit
line was still not provided by UBP.[8]

On December 3, 1999, with mounting debts and without capacity to pay due to the failure to
fully operate its new CGL venture, petitioners negotiated for the restructuring of its loan with
UBP and applied for an additional loan or credit line of P150,000,000.00 for petitioner RSC and
P30,000,000.00 for petitioner AISMC. Thereafter, Memorandum of Agreements (MOAs) and
Credit Line Agreements (CLAs) for working capital purposes were entered into by petitioners
RSC and AISMC and UBP. Despite the restructuring agreement, petitioner AFRC was not
granted a credit line.[9]
Petitioners alleged that from December 1999 to November 2000, they had been requesting for
the availment of the agreed credit line to plump up their working capital. However, despite the
execution of the required Promissory Notes and other pertinent documents, UBP failed and
refused to release the amounts indicated in the Promissory Notes of petitioner corporations.
Instead, UBP unilaterally, without the consent of petitioners, applied the proceeds of the credit
line to the payment of the monthly interests of the restructured loans of petitioners under the
Restructuring Agreements (RAs). Thus, petitioners filed a Complaint for Specific Performance
and Damages with a Prayer for Preliminary Mandatory and Prohibitory Injunctions in April
2001.[10]

On October 20, 2003, during the pendency of the proceedings before the RTC, UBP filed its
Petition dated October 17, 2003 for the Extrajudicial Foreclosure of the Real Estate Mortgages
(REMs). On April 13, 2004, petitioners filed a Joint Motion for Leave to Admit Supplemental
Complaint with attached Supplemental Complaint asserting that UBP had no right to foreclose
the REMs considering that they were not yet in default. Petitioners likewise contended that UBP
failed to send any written communication declaring them in default and informing them of the
foreclosure of the mortgaged properties after the execution of the RAs. Thereafter, on November
24, 2003, the properties covered by the REMs were sold at a public auction with UBP as the
highest bidder.[11]

Respondent's Version

UBP, on the other hand, denied the allegations that it failed to provide partial financing or that it
failed to release the working capital required by petitioner corporations. UBP claimed that it
arranged a P180-Million loan financing with the DBP through its Special Lending Facility under
the DBP JEXIM 2 Program in order to finance the construction of the building and the
acquisition of machinery and equipment needed for the CGL Plant. UBP alleged that petitioners
have fully drawn the P180 Million loan in July 1998.[12]

When the project was presented to DBP, the working capital was estimated to be
P119,404,000.00 and such amount will be financed by equity infusions or contributions by
petitioner corporations and shareholders. However, during the negotiations, the working capital
ballooned to P600 Million and the arrangement for financing the working capital encountered
difficulties due to the following reasons: (a) Ricardo failed to provide the equity funding for the
working capital and hesitated to include the land where the project site was erected to become
part of its equity contribution; (b) the prevailing condition of the GI Sheet Industry during that
time; and (c) the lack of track record of Ricardo in the GI Sheet Industry.[13]

UBP contended that it complied with its obligation under the CLAs, MO As, and RAs and even
released funds to petitioners as credit availments under their existing credit lines. UBP argued
that it exerted all efforts to raise the financing for the working capital requirement of petitioners
and it cannot be faulted for the non-release of the funds due to petitioners' failure to comply with
the credit and collateral requirements of the various banks participating in the syndicated
financing.[14]

As regards the issue on the foreclosure of the REMs, UBP claimed that it had valid grounds to
institute the foreclosure proceedings against the properties subject of the REM since petitioners
defaulted in their payments and that it merely complied with the provisions in the RAs.[15]

The Ruling of the RTC

The RTC ruled in favor of petitioners and held that while the CLA and the MOA are interrelated
and complementary and the same holds true for the RAs and the MOAs, it is undeniable that the
CLAs and the RAs are independent from one another. The RAs pertain to the payment of the
restructured loan obligations of petitioners, while the CLAs pertain to the available funds that
petitioners may draw from UBP and utilize the proceeds thereof for working capital purposes.
[16]

While UBP argued that the CLAs executed by RSC and AISMC were for the purpose of payment
of interest on the previous restructured loans, the RTC, applying the Parol Evidence Rule under
Section 9, Rule 130 of the Rules of Court, held that when an agreement has been reduced into
writing, the parties cannot be permitted to adduce evidence to prove alleged practices which, to
all purposes, would alter the terms of the agreement. The RTC opined that the CLA clearly
indicated that the purpose of its execution is to provide working capital to petitioners and not to
service existing debts and interest. Thus, the RTC ordered UBP to comply with the CLAs by
releasing the funds needed for petitioners' working capital upon execution of the documents
needed pursuant to the CLA.[17]
The RTC likewise awarded damages in favor of petitioners. With UBP's failure to comply with
the terms of the CLA, petitioners were not able to sustain its business operations due to lack of
raw materials and their properties were foreclosed. The RTC noted that the UBP failed to
introduce evidence to refute petitioners' claim for damages and attorney's fees.[18]

The RTC also ruled that the foreclosure proceedings during the pendency of the case must be
annulled for being premature. The RTC held that at the time of the filing of the complaint and
before the foreclosure, petitioners' accounts were not yet due and demandable.[19]

The fallo of the RTC Decision reads as follows:

PREMISES CONSIDERED, judgment is hereby rendered as follows:

1. The foreclosure proceedings on and the sheriff's sale of all of [petitioners] Richardson Steel
Corporation, Ayala Integrated Steel [Manufacturing] Co.[J Inc. and Eastland Development
Corporation properties mortgaged to the [respondent] Union Bank of the Philippines are hereby
ordered and declared null and void and of no force and effect;

2. [T]he [respondent] Union Bank of the Philippines is ordered to release and deliver to the
[petitioner] Richardson Steel Corporation the amount of one hundred fifty million
(P150,000,000.00) Philippine currency for the latter's working capital requirements upon
execution of the required commercial instruments and/or documents pursuant to the Credit Line
Agreement;

3. [T]he [respondent] Union Bank of the Philippines is ordered to release and deliver to the
[petitioner] Ayala Integrated Steel [Manufacturing Co., Inc.] the amount of thirty million
(P30,000,000.00) Philippine currency for the latter's working capital requirements upon
execution of the required commercial instruments upon execution of the required commercial
instruments and/or documents pursuant to the Credit Line Agreement;

4. [A]ll interest assessed upon the [petitioners] from December 3, 1999 up to the present in
connection with or that resulted from or brought by the non-release of the credit availments
covered by the credit line agreements are declared null and void. Interests on [petitioner]
corporations' obligations shall accrue and commence only upon the release of the working
capital;

5. [T]he [respondent] Union Bank of the Philippines is ordered to pay [petitioners] Richardson
Steel Corporation and Ayala Integrated Steel [Manufacturing Co.,] Inc. the amount of five
million (P5,000,000.00) Philippine currency each as liquidated or compensatory damages;

6. [T]he [respondent] Union Bank of the Philippines is ordered to pay the [petitioner] Spouses
Ricardo O. Cheng and Eleanor S. Cheng the amount of two million (P2,000,000.00) Philippine
currency as and by way of moral damages;

7. [T]he [respondent] Union Bank of the Philippines is ordered to pay the [petitioners] the
amount of five million (P5,000,000.00) Philippine currency as exemplary damages;

8. [T]he [respondent] Union Bank of the Philippines is ordered to pay the [petitioners] the
amount of five hundred thousand (P500,000.00) Philippine currency as and by way of attorney's
fees; and

9. [T]he cost of suit and expenses of litigation.

SO ORDERED.[20]

Aggrieved, UBP appealed the case before the CA.

The Ruling of the CA

On appeal, the CA reversed and set aside the ruling of the RTC. The CA opined that even if the
RAs have a different subject than the CLAs, this does not mean that the contracts should be
interpreted separately especially since it is shown that the latter arose as a reasonable
consequence of the former or that the contracts complement each other. The CA held that since
the CLA and the RA were executed contemporaneously, they should not be treated
independently.[21] The CA further held that a reading of the terms and conditions of the CLA
and the MOA shows that the proceeds of the credit line may be applied to interest payments on
the restructured loans. This is with the conformity of the spouses Cheng who issued promissory
notes and checks to be applied to interest payments. The CLA likewise provides a Setoff Clause
where UBP is authorized to release funds from the credit line to pay any and all obligations of
petitioners, whether due or still to become due.[22]

The CA also upheld the foreclosure proceedings on the ground that petitioners were already in
default of the restructured loans for having failed to pay the interest due therein. The CA declared
that there is no factual or legal basis to award damages to petitioners.[23]

The dispositive portion of the assailed CA Decision reads as follows:

WHEREFORE, the appeal is granted. The decision of the Regional Trial Court of Makati City,
Branch 62 on November 12, 2012 is REVERSED and SET ASIDE. The complaint and
counterclaims in Civil Case No. 01-575 entitled Richardson Steel Corporation, Ayala Integrated
Steel Mfg. Co., Inc., Asian Footwear and Rubber Corp. and Spouses Ricardo O. Cheng and
Eleanor S. Cheng versus Union Bank of the Philippines are DISMISSED.

SO ORDERED.[24]
Petitioners moved for the reconsideration of the assailed CA Decision, however, such was denied
through a Resolution[25] dated April 20, 2016. Thus, petitioners elevated the case before the
Court through the present Petition for Review on Certiorari submitting the following grounds for
the Court's resolution:

The Grounds

A. WITH ALL DUE RESPECT, THE FACTUAL FINDINGS OF THE [RTC] AND THE [CA]
ARE CONTRADICTORY WHICH MERITS A REVIEW BY THE HONORABLE COURT OF
THE FACTS EXTANT IN THIS CASE, x x x

B. THE DECISION OF THE HONORABLE [CA] IS CONTRARY TO THE FACTS AND

EVIDENCE PRESENTED, AND CONTRADICTS AS WELL, THE LAW AND
JURISPRUDENCE.
C. THE HONORABLE [CA] ERRED IN RULING THAT, BECAUSE THE MOA REFERRED
TO BOTH THE RESTRUCTURING AGREEMENT AND CREDIT LINE AGREEMENT,
THEY ARE COMPLEMENTARY CONTRACTS [AND] SHOULD BE CONSTRUED
TOGETHER, AND THUS[,] THE CREDIT LINE AGREEMENT AND THE
RESTRUCTURING AGREEMENT SHOULD NOT BE TREATED INDEPENDENTLY OF
EACH OTHER.

D. THE HONORABLE [CA] ERRED IN RULING THAT, THE TERMS OF THE CREDIT
LINE AGREEMENT AND [THE] MOA SHOW THAT THE PROCEEDS OF THE CREDIT
LINE MAY BE APPLIED TO INTEREST PAYMENTS ON THE RESTRUCTURED LOAN;
AND THAT, PETITIONERS HAD AUTHORIZED UNION BANK TO SET-OFF OR APPLY
TO THE PAYMENT OF ANY AND ALL OBLIGATIONS, INCLUDING INTEREST
PAYMENTS ON THE RESTRUCTURED LOAN, OF PETITIONERS TO UNION BANK
WHETHER DUE OR TO BECOME DUE, ANY AMOUNT BELONGING TO PETITIONERS
WHICH MAY COME INTO UNION BANK'S POSSESSION BY WAY OF DEPOSIT OR TO
THE CREDIT OF OR BELONGING TO THE PETITIONERS.

E. THE HONORABLE [CA] ERRED IN RULING THAT, THE RTC ERRED: (I) IN
DECLARING AS VOID THE FORECLOSURE OF MORTGAGE AND SALE OF
PETITIONERS['] PROPERTIES, (II) IN ORDERING UNION BANK TO RELEASE THE
CREDIT AVAILMENTS IN FAVOR OF PETITIONERS, (III) IN AWARDING LIQUIDATED,
COMPENSATORY, MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES.[26]

The Court's Ruling

The parameters of Rule 45 of the

Rules of Court

Time and time again, the Court has emphasized that it is not a trier of facts. Questions of facts
and the re-assessment of the findings of the lower court, such as the interpretation and
construction of contracts, are beyond the ambit of a petition for review on certiorari under Rule
45 of the Rules of Court. However, the Court has allowed some exceptions to this rule, to wit: (1)
when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings
of facts are conflicting; (6) when in making its findings the CA went beyond the issues of the
case, or its findings are contrary to the admissions of both the appellant and the appellee; (7)
when the findings are contrary to the trial court; (8) when the findings are conclusions without
citation of specific evidence on which they are based; (9) when the facts set forth in the petition
as well as in the petitioner's main and reply briefs are not disputed by the respondent; (10) when
the findings of fact are premised on the supposed absence of evidence and contradicted by the
evidence on record; and (11) when the CA manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered, would justify a different conclusion.[27]

Herein petitioners submit that the circumstances of the case merit the review by the Court of the
findings of fact made by the CA based on the following grounds: (a) the findings of fact of the
CA and the RTC are contradictory; (b) the CA failed to consider the admission by UBP that at
the time it foreclosed petitioners' properties, the latter were not yet in default; and, (c) the CA
failed to consider that UBP acted not in accord with the law in dealing with petitioners and
thereby causing the latter irreparable damage and inquiry.

The exceptions are present in this case prompting the Court to recalibrate the assessment of the
factual issues of the case, as well as to decide upon them in the interest of justice and in the
exercise of the sound discretion of the Court.

The interpretation of the contracts.

The parties in this case diverge on their interpretation of three documents, namely: the RAs, the
MOA and the CLA.

Petitioners filed the complaint for Specific Performance on the belief that: (a) UBP is obliged to
release the loan under the agreed CLAs which were executed to finance the working capital
requirement of their business and (b) that the CLAs are separate and distinct contracts from the
RAs.

UBP, on the other hand, countered that: (a) the CLAs were executed to service the accrued
interest of the restructured loan under the RAs; (b) the RAs and the CLAs were meant to be
construed together and such fact was fully explained to the spouses Cheng; and (c) the contracts
were executed to give petitioners a new lease in life and it would defy logic for a bank to extend
another loan to a client who sought the restructuring of defaulted loan obligations.

While the RTC agreed with the position of petitioner, the CA found merit on the stance of UBP.

To elucidate, pertinent excerpts of the MOAs, the RAs, and the CLAs are hereby reproduced
verbatim:

MEMORANDUM OF AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

AYALA INTEGRATATED STEEL MANUFACTURING CO., INC., a corporation duly

organized and existing under and by virtue of Philippine laws with office address at 186 Gen.
Luis Street, Novaliches, Quezon City, hereinafter referred to as the "BORROWER[;]

- and -

UNION BANK OF THE PHILIPPINES, a universal banking institution duly organized and
existing under Philippine law with principal office at the SSS (Makati) Building, Ayala Avenue
corner Herrera Street Makati City, hereinafter referred to as the "BANK"[;]

WITNESSETH:

WHEREAS, a Restructuring Agreement was executed on December 3, 1999 between the

BORROWER and the BANK covering the indebtedness of the former to the latter in the amount
of PESOS: FOUR HUNDRED SDCTY[-]EIGHT MILLION THREE HUNDRED
SEVENTY[-]FOUR THOUSAND FIVE HUNDRED SEVENTY[-]TWO AND 16/100 (P468,3
74,572.16)[;]
WHEREAS, under the Restructuring Agreement, the BORROWER shall pay monthly interest on
its restructured loan the rate of which shall be repriced monthly;

WHEREAS, the BORROWER has applied for Credit Line available within a period of two years
which the BANK has approved subject to the conditions set forth hereunder;

NOW THEREFORE, for and in consideration of the foregoing premises and the covenants and
stipulations set forth below, the parties agree as follows:

1. GRANT OF CREDIT LINE - The BANK shall grant and extend to the BORROWER a Credit
Line available within a period of two (2) years starting from December 1999 up to December 3,
2001, subject to such conditions as may be approved by the BANK and embodied in a Credit
Line Agreement;

2. AMOUNT OF LINE - The Credit Line shall be available to the BORROWER in the maximum
amount of PESOS: ONE HUNDRED FIFTY MILLION (P150,000,000.00) through monthly
partial releases in such amounts as determined by the BANK and subject to availability of funds;

xxxx

7. EXECUTION OF CREDIT LINE AGREEMENT- the BORROWER and the BANK shall
[execute] a Credit Line Agreement containing the other terms and conditions covering the said
line in addition [to] those set forth in this agreement[.][28]

MEMORANDUM OF AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

RICHARDSON STEEL CORPORATION, a corporation duly organized and existing under and
by virtue of Philippine laws with office address at 668 Quirino Highway, Novaliches, Quezon
City, hereinafter referred to as the "BORROWER";

- and -

UNION BANK OF THE PHILIPPINES, a universal banking institution duly organized and
existing under Philippine laws with principal office at the SSS (Makati) Building, Ayala Avenue
corner Herrera Street, Makati City, hereinafter referred to as the "BANK";

WITNESSETH:

WHEREAS, a Restructuring Agreement was executed on December 3, 1999 between the

BORROWER and the BANK covering the indebtedness of the former to the latter in the amount
of:

Facility 1 (For Peso Denominated Loan) - PESOS: Fifty[-]Six Million Seven Hundred
Seventy[-]One Thousand Five Hundred Sixty[-]Six and Three Centavos (P56,771,566.03).

Facility 2 (For Japanese Yen Denominated Loan) - YEN: Twenty[-]Four Million Three Hundred
Fifty[-]One Thousand One Hundred Thirteen and Eighty[-]Seven Centavos (Y24,351,113.87).

Facility 3 (For Specialized Loans)

a. Existing Loans funded by DBP facilities - PESOS: One Hundred Eighty Million.

b. Amortizations falling due from 01-08-00 to 10-08-01 PESOS: One Hundred Seventy Million
Six Hundred Seven Thousand Fifteen (P107,607,015.00).
WHEREAS, under the Restructuring Agreement, the BORROWER shall pay monthly interest x
x x on its restructured loan the rate of which shall be [repriced] monthly and quarterly x x x;

WHEREAS, the BORROWER has applied for Credit Line available within a period of two (2)
years which BANK has approved subject to the conditions set forth hereunder;

NOW, THEREFORE, for in consideration of the foregoing premises and the covenants and
stipulations set forth below, the parties agree as follows:

1. GRANT OF CREDIT LINE - The BANK shall grant and extend and extend to the
BORROWER a Credit Line available within a period of two (2) years starting from December
1999 up to December 3, 2001, subject to such conditions as may be approved by the BANK and
embodied in a Credit Line Agreement;

2. AMOUNT OF [CREDIT] LINE - The Credit [L]ine shall be available to the BORROWER in
the maximum amount of PESOS: THIRTY MILLION (P30,000,000.00) through monthly and
quarterly partial releases x x x in such amount as determined by the BANK and subject to
availability of funds;

xxxx

7. EXECUTION OF CREDIT LINE AGREEMENT - the BORROWER and the BANK shall
execute a Credit Line Agreement containing the other terms and conditions covering the said line
in addition [to] those set forth in this agreement[.][29]

RESTRUCTURING AGREEMENT

This Restructuring Agreement executed on December 03, 1999 at Makati City, by and between:
RICHARDSON STEEL CORPORATION, a corporation duly organized and existing under and
by virtue of Philippines laws with office address at 668 Quirino Highway, Novaliches, Quezon
City, hereinafter referred to as the "BORROWER";

- and -

UNION BANK OF THE PHILIPPINES, a universal banking institution duly organized and
existing under Philippine laws with principal office at the SSS (Makati) Building, Ayala Avenue
corner Herrera Street, Makati City, hereinafter referred to as the "BANK"[;]

WITNESSETH: That:

WHEREAS, the BORROWER and the BANK executed a Credit Line Agreement dated January
03, 1997 (the "Agreement") whereby the BANK granted credit accommodations to the
BORROWER, evidenced by Promissory Notes (the "Note/s") executed by the BORROWER, the
Agreement and the Notes being made integral parts hereof by reference.

WHEREAS, the BORROWER defaulted in its above-mentioned loans as of December 03, 1999,
its outstanding obligations on the aforesaid Promissory Notes, inclusive of principal, capitalized
interest, unpaid interest for the specialized loan, penalties, and other charges, are as follows:

• Facility 1 (For Peso Denominated Promissory Notes) - PESOS: Sixty[-]Four Million Three
Hundred Twelve Thousand Hundred Forty Six and Thirteen Centavos (P64,312,846.13).

• Facility 2 (For Japanese Yen Denominated Promissory Notes) YEN: Twenty[-]Eight Million
Six Hundred Fifty[-]Three Thousand Two Hundred Eight and Thirty[-]Four Centavos
(Y28,653,208.34).

WHEREAS, the BORROWER has requested the BANK for the restructuring of its outstanding
obligations and the 100% waiver of penalty in the amount of PESOS: Seven Million Six
Hundred Twenty[-]Six Thousand Three Hundred Ten (P7,626,310.00) and JAPANESE YEN:
Four Million Three Hundred Thirty[-]Eight Thousand Five Hundred Sixty[-]Six and
Sixty[-]Seven Centavos (Y4,338,566.67); and the reduction of interest rate to 15% to be value
dated January 1999 up to closing date.

WHEREAS, the BANK has agreed to the BORROWER'S request for the restructuring of its
loans with waiver of penalty and reduction of interest rate, subject to the following terms and
conditions.[30]

xxxx

RESTRUCTURING AGREEMENT

This Restructuring Agreement executed on December 03, 1999 at Makati City, by and between:

AYALA INTEGRATED STEEL MANUFACTURING CO., INC., a corporation duly organized

and existing under and by virtue of Philippine laws with office address at 186 Gen. Luis Street,
Novaliches Quezon City, hereinafter referred to as the "BORROWER";

- and -

UNION BANK OF THE PHILIPPINES, a universal banking institution duly organized and
existing under Philippine laws with principal office at the SSS (Makati) Building, Ayala Avenue
corner Herrera Street, Makati City, hereinafter referred to as the "BANK".

WITNESSETH: That:

WHEREAS, the BORROWER and the BANK executed a Credit Line Agreement dated February
29, 1996 (the "Agreement") whereby the BANK granted credit accommodations to the
BORROWER, evidenced by Promissory Note/s (the "Notes") and Trust Receipts (the "TRs["])
executed by the BORROWER, the Agreement, Notes and TRs being made integral parts hereof
by reference.
WHEREAS, the BORROWER defaulted in its above-mentioned loans as of December 03, 1999,
its outstanding obligations on the aforesaid Promissory Notes, and Trust receipts amounts to:
PESOS Five Hundred Forty[-] Seven Million Four Hundred Fifty Thousand Eight Hundred
Sixty[-]Five and Forty[-]Four Centavos (P547,450,865.44), inclusive of principal, capitalized
interests, penalties, and other charges.

WHEREAS, the BORROWER has requested the BANK for the restructuring of its outstanding
obligations and the 100% waiver of penalty in the amount of PESOS: Seventy[-]Nine Million
Seven Hundred Seventy[-]Seven Thousand Eight Hundred Three and Eight Centavos
(P79,777,803.08) and the reduction of interest rate to 15% to be value dated January 1999 up to
closing date.

WHEREAS, the BANK has agreed to the BORROWER'S request for the restructuring of its
loans and trust receipts with waiver of penalty and reduction of interest rate, subject to the
following terms and conditions.[30]

xxxx

RESTRUCTURING AGREEMENT

This Restructuring Agreement executed on December 03, 1999 at Makati City, by and between[:]

ASIAN FOOTWEAR AND RUBBER CORPORATION, a corporation duly organized and

existing under and by virtue of Philippine laws with office address at 186 Gen. Luis Street,
Novaliches, Quezon City, hereinafter referred to as the "BORROWER";

- and -

UNION BANK OF THE PHILIPPINES, a universal banking institution duly organized and
existing under Philippine laws with principal office at the SSS (Makati) Building, Ayala Avenue
corner Hen-era Street, Makati City, hereinafter referred to as the "BANK".
WITNESSETH: That:

WHEREAS, the BORROWER and the BANK executed a Credit Line Agreement dated February
29, 1996 (the "Agreement") whereby the BANK granted credit accommodations to the
BORROWER, evidenced by Promissory Note/s (the "Notes") executed by the BORROWER, the
Agreement and the Notes being made integral parts hereof by reference.

WHEREAS, the BORROWER defaulted in its above-mentioned loans as of December 03, 1999,
its outstanding obligations on the aforesaid Promissory Notes, inclusive of principal, penalties,
and other charges, are as follows:

a. For Peso Denominated Promissory Notes - PESOS: One Hundred Ten Million Five Hundred
Sixty[-]Four Thousand Five Hundred Thirty[-]One and Twelve Centavos (P110,564,531.12).

b. For Japanese Yen Denominated Promissory Notes - YEN: One Hundred Million Eight
Hundred Seventy[-]Seven Thousand Two Hundred Thirty[-]Seven and Fifty[-]Two Centavos
(Y100,877,237.52).

WHEREAS, the BORROWER has requested the BANK for the restructuring of its outstanding
obligations and the 100% waiver of penalty in the amount of PESOS: Nineteen Million Six
Hundred Thirty[-]Two Thousand Six Hundred Eighty [-] Three and Seventy[-]Eight Centavos
(P19,632,683.78) and JAPANESE YEN: Fourteen Million Six Hundred Sixty[-]Nine Thousand
Nine Hundred Sixteen and Ninety[-] Seven Centavos (Y14,669,916.97); and the reduction of
interest rate to 15% to be value dated January 1999 up to closing date.

WHEREAS, the BANK has agreed to the BORROWER'S request for the restructuring of its
loans with waiver of penalty and reduction of interest rate, subject to the following terms and
conditions.32

xxxx

RE: CREDIT LINE AGREEMENT

Sir/Gentlemen:

This confirms the agreement and understanding between UNIONBANK OF THE PHILIPPINES
(the "Bank") and x x x (the "Client"), whereby the bank has agreed to grant the Client a credit
line (the "Line") [via] the credit facilities applied for and approved by the Bank, under the
following terms and conditions:

1.
GRANT OF CREDIT LINE - The Bank agrees to make available to the client from time to time
credit facilities in such amount/s as may be approved by the bank upon availment duly covered
by availment documents referred to in Sec. 6 of this Agreement.

xxxx

4.
PURPOSE/S - The proceeds from any availment/s of the Line shall be used exclusively for the
purpose/s applied for and granted by the Bank. For working capital purposes.

xxxx

14.
SET-OFF - In case of default of the Client, the Bank shall have the right at its option, and the
Client fully authorizes the Bank to apply at any time to the payment of any and all obligations of
the Client to the Bank, whether direct or contingent, whether now due or to become due, or
whether previously, presently, or subsequently incurred, any amount now or hereafter on deposit
with the Bank to the credit of or belonging to the Client, notwithstanding that such
deposit/placement of the Client has matured or not.[33]
The first issue to be resolved is whether the agreed credit line is primarily meant to service the
interest payables of the restructured loans of petitioners based on the assertion of UBP that the
"Working Capital" referred to in the CLAs encompass the accrued interest of the restructured
loans.

It is a fundamental rule in the interpretation of contracts that if the terms of a contract are clear
and leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulation shall control.[34] The "plain-meaning-rule" is embodied under paragraph 1, Article
1370, of the Civil Code, which states that: "If the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of its stipulations shall control.
If the words appear to be contrary to the evident intention of the parties, the latter shall prevail
over the former."

The purpose of the Court in interpreting the contract is to determine the intent of the contracting
parties. In Abad v. Goldloop Properties, Inc.,[35] it was explained that:
A court's purpose in examining a contract is to interpret the intent of the contracting parties, as
objectively manifested by them. The process of interpreting a contract requires the court to make
a preliminary inquiry as to whether the contract before it is ambiguous. A contract provision is
ambiguous if it is susceptible of two reasonable alternative interpretations. Where the written
terms of the contract are not ambiguous and can only be read one way, the court will interpret the
contract as a matter of law. If the contract is determined to be ambiguous, then the interpretation
of the contract is left to the court, to resolve the ambiguity in the light of the intrinsic evidence.
Applying the foregoing in the instant case, the terms of the subject contracts are clear, to wit: (a)
the parties executed an RA to make the petitioners' defaulted loan up-to-date and to provide a
more favorable payment terms to petitioners in a period of seven years; (b) the parties
contemporaneously executed a MOA stating the execution of the Restuctured Loan Agreements
and that the petitioners applied CLA with a term of two years and the amount of releases is
equivalent to the monthly or quarterly interest payables on the restructured loans, but not to
exceed the agreed aggregate value of the agreed Credit Line; (c) the CLAs were availed by
petitioners for the purpose of financing the working capital of its business operations; (d) the
CLA contains a Set-Off Clause that authorized the UBP to apply the proceeds of the credit line to
any and all obligations of petitioners, in case of default.

After a careful review of the three contracts or agreements, the Court finds the assessment of the
RTC more in line with the intent of the parties as objectively manifested by them in the said
contracts. Considering that the written terms of the contracts in the case at bench are clear and
devoid of ambiguity, the Court will interpret the contract as a matter of law between the parties.

Herein respondent UBP attempts to persuade the Court that the CLA is akin to an accessory or a
complement to the RA. As such, UBP asserts that the provisions in the CLAs and the RAs must
be construed together. In its assailed Decision, the CA agreed with UBP's stance and applied by
analogy the "comp lementary-contracts-construed-together'' doctrine. This application is
premised on the fact that the three contracts were executed contemporaneously and that the
spouses Cheng issued promissory notes and checks as payment for the interests accruing from
the restructured loans and those checks were drawn from the credit line. The CA concluded that
the issuance of the promissory notes and checks by the spouses Cheng shows that petitioners had
full knowledge, awareness, and conformity with the arrangement — that is the proceeds of the
credit line is used to pay the interest of the restructured loans as it comes due.[36]

The application of the "complementary-contracts-construed-together" doctrine is clearly

misplaced. The aforesaid doctrine requires that the stipulations, terms, and conditions of both the
principal and accessory contracts must be construed together in order to arrive at the true
intention of the parties.[37] Here, it is indubitable that there is no principal-accessory
relationship between the RAs and the CLAs. The RAs and the CLAs are able to stand on their
own and are not dependent on each other for their existence and validity. Likewise, the RAs and
the CLAs have distinct and separate purposes, which are apparent on the face of the documents.
The RAs show that the purpose of which is to modify the terms of an existing loan in order to
help the petitioners recuperate and make their obligation up-to-date. On the other hand, the CLAs
clearly indicate therein the purpose of its execution — to finance the working capital of the
petitioners.

Furthermore, notwithstanding the findings of the CA that the promissory notes and the checks
were issued to pay the interest payments under the restructured loan and were drawn against the
credit line, the primary purpose as indicated in the CLAs still remains and should be applied —
that is to finance the working capital of petitioners.
As properly pointed out by the RTC, "working capital" is a financial metric that represents
operating liquidity of a business. Operating liquidity means the capability of the company to
meet its near-term obligations as they come due.[38] Otherwise stated, along with the company's
fixed assets, such as property, plant and equipment, working capital forms part of the operating
capital that funds maturing short-term debt and operational expenses.

Herein respondent UBP contends that the payment of accrued interest forms part of the "working
capital" of a business. This is partly correct. An interest payable becomes part of the company's
working capital once it becomes current or once it accrues or falls due within the 12-month cycle
of the calendar or fiscal year. Hence, contrary to the opinion of the RTC that the serviced debts
are not classified as short-term considering that these pertain to interest payables on the long-
term debts, it is worthy to emphasize that, generally, accruing interests of the restructured loans
during the calendar or fiscal period are considered current debts and technically form part of the
petitioner corporations' working capital.

Nonetheless, other than the interests or principal payments on current liabilities, a business needs
to meet other current debts and expenses in order to sustain the operation of a business, such as
the normal costs of running the business, i.e., rent, utilities, materials, labor, supplies and other
overhead expenses. As such, UBP cannot insist that the credit lines were executed primarily to
extend a so-cailed "lifeline" to petitioners in order to enable them to pay only the interest due on
the long-term restructured loans (7-year term) to the exclusion of all other current liabilities of
petitioners. This postulation defies the very purpose of the execution of the CLAs: to meet the
overall working capital requirement of petitioner corporations.

From the facts of the case, UBP knew from the very beginning that the purpose of the petitioners'
availments under the CLA was to finance its working capital. To reiterate, such particular
purpose was expressly specified in the CLA. It was also duly established that the CGL Plant was
practically non-operational and/or had limited operating capacity for the years 1999 to 2001 due
to scarcity in operating funds.[39] The petitioners were, thus, in need of fresh working capital to
sustain the operations of the CGL Plant, which it then sought from UBP through the new CLA.
Resultantly, UBP cannot plausibly argue that the petitioners' primary and sole motivation in
securing a new CLA with UBP was to service its interest obligations for its restructured loans
under the RAs.

The Court concurs with the RTC that the automatic application of the proceeds of the credit line
to the payment of interest payables of the restructured loans as it comes due, without giving
petitioners the choice and the opportunity to use its discretion on how to manage the proceeds of
the credit line, is a clear circumvention of the agreement as expressly manifested in the CLA.
With the failure of petitioners to manage the proceeds of the credit line to fund its overall
operations, they were unduly deprived to realize profits which could have been used to augment
their working capital and pay the current liabilities, including the current interest payables of the
restructured loans.

Besides, conformably to the Parol Evidence Rule, when the terms of an agreement have been
reduced to writing, it is considered as containing all the terms agreed upon and there can be, as
between the parties and their successors-ill-interest, no evidence of such terms other than the
contents of the written agreement.[40] As a general rule, the parties to a written agreement are
forbidden to add or contradict the terms thereof by testimony or other evidence purporting to
show that different terms were agreed upon by the parties, varying the purport of the written
contract.[41] As an exception, a party may put in issue any of the exceptions provided under
Section 9,[42] Rule 130 of the Rules of Court and may, therefore, present evidence to modify,
explain, or add to the terms of the agreement. UBP had the burden of putting in issue in the
pleadings and proving that the subject contracts had intrinsic ambiguity or failed to express the
true intent of the parties. To the Court's assessment, UBP failed in this respect.

As regards the application of the Set-Off Clause, UBP cannot invoke Section 14 of the CLA as
basis to apply the proceeds of the CLA as payment for petitioners' restructured loans under the
RA since, as discussed earlier, these two contracts are independent of each other. Granting that
the Set-Off Clause applies to other obligations outside of the CLA, it is crystal clear from the
contract that such may be done only in case of default of petitioners. Here, UBP did not wait for
petitioners to default on the payment of the restructured loans, but automatically charged the
proceeds of the credit line to the interest payables. Thus, UBP cannot insist in prematurely
applying the Set-Off Clause of the CLA.

Having entered into a well-defined contractual relationship, petitioners and respondent should
honor the respective rights and obligations thereunder. It is well-entrenched, both in law and in
jurisprudence, that obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.[43]

Prescinding from the foregoing disquisitions, the RTC properly ruled that petitioners can legally
demand from UBP the release of loan availments pursuant to the CLAs, subject to the
compliance of the required promissory notes and other supporting documents, instead of
automatically applying the proceeds thereof to the accruing interest payments of the restructured
loans.

The foreclosure proceedings is

premature.

The next issue is the validity of the foreclosure proceedings on the properties covered by the
REMs. As the factual milieu of this case shows, properties of the petitioners served as collateral
for the restructured loans.

At the commencement of the complaint for Specific Performance before the RTC, UBP admitted
that petitioners' obligations are not yet due and demandable. On October 20, 2003, during the
pendency of the proceedings, UBP filed a petition for extrajudicial foreclosure of the subject
properties. The RTC opined that the foreclosure was premature and that petitioners cannot be
considered in default in view of IJBP's unwillingness to fulfill its prestation under the MOA and
the CLA. The CA, on the other hand, held that the records clearly show that petitioners are in
default as can be found in UBP's Manifestation, Supplemental Answer, Pre-Trial Brief, Motion
for Reconsideration, Demurrer to Evidence, and Memorandum, all of which were filed before the
RTC.

The law is very specific when an obligor or a debtor is considered in default. Article 1169 of the
Civil Code provides that:
Article 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it appears that the designation
of the time when the thing is to be delivered or the service is to be rendered was a controlling
motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to
perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready
to comply in a proper manner with what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins. (Emphasis supplied)
Here, it is extant in the records and duly established that petitioners availed of the CLA in order
to finance its ailing operations. By automatically applying the proceeds of the CLA to the
accruing interest on the restructured loans under the RA, the accounts were made up-to-date or in
good standing. It was only during the pendency of the case that petitioners were declared in
default due to failure of payments on the loan. With the refusal of UBP to release the loan
proceeds under the CLA to the petitioners, it can be deemed that UBP reneged on its obligation
under the CLA and failed to comply in the proper manner with what is incumbent upon it under
contemplation of Article 1169 of the Civil Code.

The ruling of the Court in Spouses Ong v. BPI Family Savings Bank, Inc.[44] is instructive on
this particular issue. The spouses Ong executed REMs in favor of Bank of Southeast Asia (BSA)
as security for a term loan and credit line. When BSA refused to release the full amount of the
credit line, the spouses Ong refused to pay the amortization of the term loans. When the Bank of
the Philippine Islands (BPI) merged with BSA, BPI filed an extrajudicial foreclosure of the
REMs for the spouses Ong's default on the term loan. The Court nullified the foreclosure
proceedings on the ground of prematurity since the spouses Ong cannot be considered in default.
The acquisition of the loan was based on BSA's promise to provide the spouses Ong with
working capital for the expansion of their business. As a consequence of BSA's refusal to release
the credit line, the spouses Ong were not able to purchase machineries and equipment that were
essential to their business resulting to the cancellation of purchase orders of clients. Hence, no
default can be attributed to the spouses Ong due to the failure of BSA/BPI to release the whole
amount of the loans under the credit line.

Under the circumstances, the foreclosure of the REMs is deemed premature, and therefore, void
and ineffectual.

The award of damages and

attorney's fees.
As regards the propriety in the award of damages, there is no legal and sufficient basis to award
actual or compensatory and moral damages. Actual or compensatory damages must be with a
reasonable degree of certainty, premised upon competent proof and on the best evidence
obtainable.[45] The grant of actual damages in the amount of P5,000,000.00 by the RTC on
account of the stoppage of operations is purely based on estimate of unrealized profits or
opportunity loss, thus, is deleted for lack of legal and evidentiary basis. Anent the award of moral
damages, notably, the RTC failed to discuss the basis of awarding the same to the spouses
Cheng. After a perusal of the records, there is lack of sufficient basis to grant the award of moral
damages.

With respect to the award of exemplary damages, such has been granted to set an example for the
public good. Considering that a banking institution is expected to uphold a higher standard of
integrity and that its transactions are imbued with public interest, it is imperative upon UBP to
stand guard against injury attributable to its negligence or bad faith.[46] Thus, the Court finds it
proper to award exemplary damages in the amount of P5,000,000.00. This serves as an example
and warning to banks to observe the requisite care and diligence in all of their affairs.[47]

The award of attorney's fees in the amount of P500,000.00 is found to be excessive, and thus,
reduced to P300,000.00.

WHEREFORE, the present Petition for Review on Certiorari is PARTLY GRANTED.

Accordingly, the Decision dated June 29, 2015 and the Resolution dated April 20, 2016 of the
Court of Appeals in CA-G.R. CV No. 100331 are REVERSED and SET ASIDE and the
Decision dated June 4, 2012 of the Regional Trial Court of Makati City, Branch 62, in Civil Case
No. 01-575 is REINSTATED with MODIFICATIONS in that:
1. The foreclosure proceedings on and the sheriffs sale of all of petitioners Richardson Steel
Corporation, Ayala Integrated Steel Manufacturing Co., Inc. and Eastland Development
Corporation properties mortgaged to respondent Union Bank of the Philippines are hereby
ordered and declared null and void and of no force and effect;

2. Respondent Union Bank of the Philippines is ordered to release and deliver to petitioner
Richardson Steel Corporation the amount of P150,000,000.00 for petitioners' working capital
requirements subject to the conditions set forth in the Credit Line Agreement;
3. Respondent Union Bank of the Philippines is ordered to release and deliver to petitioner Ayala
Integrated Steel Manufacturing Co., Inc. the amount of P30,000,000.00 for the latter's working
capital requirements subject to the conditions set forth in the Credit Line Agreement;

4. All interests assessed upon the petitioners from December 3, 1999 up to the present in
connection with or that resulted from or brought by the non-release of the credit availments
covered by the Credit Line Agreements are declared null and void. Interests on petitioner
corporations' obligations shall accrue and commence only upon the release of the working
capital;

5. Respondent Union Bank of the Philippines is ordered to pay petitioners the amount of
P5,000,000.00 as exemplary damages;

6. Respondent Union Bank of the Philippines is ordered to pay petitioners the amount of P3
00,000.00 as and by way of attorney's fees; and

7. Respondent Union Bank of the Philippines is ordered to pay petitioners the cost of suit and
expenses of litigation.
Likewise, a legal interest of 6% per annum shall be imposed on the amounts of all damages
reckoned from the finality of this Decision.

SO ORDERED.

Leonen, (Chairperson), Hernando, Inting, and Lopez, J., JJ., concur.

[1] Rollo, pp. 12-59.

[2] Id. at 60-79; penned by Associate Justice Myra V. Garcia-Fernandez, with Associate Justices
Noel G. Tijam (now a retired Member of the Court) and Mario V. Lopez (now a Member of the
Court), concurring.
[3] Id. at 80-81.

[4] Id. at 143-160; rendered by Presiding Judge Selma Palacio Alaras.

[5] Id. at 635-644.

[6] Id. at 143-144.

[7] Id.

[8] Id.

[9] Id.

[10] Id. at 18-19 and 1182.

[11] Id. at 1188.

[12] Id. at 1563-1564.

[13] Id. at 64-65

[14] Id. at 65.

[15] Id. at 1569.

[16] Id. at 154.

[17] Id. at 155 and 159.

[18] Id. at 158.

[19] Id. at 159.

[20] Id. at 159-160.

[21] Id. at 69-70.

[22] Id. at 75.

[23] Id. at 77.

[24] Id. at 78.

[25] Supra note 3.

[26] Rollo, pp. 22-23.

[27] Prudential Bank (now Bank of the Philippine Islands) v. Rapanot, 803 Phil. 294, 306 (2017).

[28] Rollo, pp. 113-114.

[29] Id. at 116-117.

[30] Id. at 100.

[31] Id. at 94.

[32] Id. at 107.

[33] Id. at 119.

[34] Palmares v. Court of Appeals, 351 Phil. 664, 679 (1998).

[35] 549 Phil. 641, 654 (2007).

[36] Rollo, p. 75.

[37] See Prudential Guarantee and Assurance, Inc. v. Anscor Land, Inc., 644 Phil. 634, 644
(2010).

[38] Business and Liquidity and the Operating Cycle. Principles of Accounting.com <
https://wwvv.principlesofaccounting.comychapter-4/business-liquidity/ > (visited May 3, 2021).

[39] Rollo, p. 158.

[40] Duvaz Corp. v. Export and Industry Bank, 551 Phil. 382, 390 (2007).

[41] Mancol, Jr. v. Development Bank of the Philippines, 821 Phil. 323, 333 (2017).
[42] However, a party may present evidence to modify, explain or add to the terms of written
agreement if he puts in issue in his pleading:

(a)
An intrinsic ambiguity, mistake or imperfection in the written agreement;
(b)
The failure of the written agreement to express the true intent and agreement of the parties
thereto;
(c)
The validity of the written agreement; or
(d)
The existence of other terms agreed to by the parties or their successors in interest after the
execution of the written agreement.

[43] Premiere Development Bank v. Court of Appeals, 471 Phil. 704, 716 (2004).

[44] 824 Phil. 439 (2018).

[45] Id. at 452.

[46] Solidbank Corporation v. Spouses Arrieta, 492 Phil. 95, 105 (2005).

[47] Poole-Blunden v. Union Bank of the Philippines, 821 Phil. 915, 938 (2017).