SECOND DIVISION

[ G.R. No. 179395, December 15, 2010 ]

MAXWELL HEAVY EQUIPMENT CORPORATION,
PETITIONER, VS. ERIC UYCHIAOCO YU, RESPONDENT.
DECISION
CARPIO, J.:
The Case
This petition for review[1] assails the 21 June 2007 Decision[2] of the Court of
Appeals in CA-G.R. CV No. 84522. The Court of Appeals affirmed with
modification the 11 January 2005 Decision[3] of the Regional Trial Court,
National Capital Judicial Region, Branch 167, Pasig City. The trial court
ordered, among others, the reimbursement by petitioner Maxwell Heavy
Equipment Corporation (Maxwell) of the amount of P8,888,932.33 to
respondent Eric Uychiaoco Yu (Yu) for the latter's payment of Maxwell's loan
obligation with the Bank of Philippine Islands (BPI).
The Facts

On 3 April 2001 and 2 May 2001, Maxwell obtained loans from BPI, G.
Araneta Avenue Branch, in the total sum of P8,800,000.00 covered by two
Promissory Notes and secured by a real estate mortgage over two lots
registered in Yu's name. Promissory Note No. 1-6743742-001 for
P800,000.00 was due on 26 March 2002 [4] while Promissory Note No. 16743742-002 for P8,000,000.00 was due on 24 April 2002. [5] Yu signed as
Maxwell's co-maker in the Promissory Note covering the P8,000,000 loan. It
appears that Yu did not sign as co-maker in the Promissory Note for
P800,000.
Maxwell defaulted in the payment of the loans, forcing Yu to pay BPI
P8,888,932.33 representing the principal loan amounts with interest, through
funds borrowed from his mother, Mina Yu, to prevent the foreclosure of his
real properties.
Thereafter, Yu demanded reimbursement from Maxwell of the entire amount
paid to BPI. However, Maxwell failed to reimburse Yu. Consequently, Yu filed
with the trial court a complaint for sum of money and damages.
Maxwell denied liability for Yu's claimed amount. Maxwell countered that the
transactions with BPI were merely accommodation loans purely for Yu's
benefit. Maxwell likewise pointed out that Yu, having signed as co-maker, is
solidarily liable for the loans. Maxwell also insisted that Yu's mother is the
real payor of the loans and thus, is the real party-in-interest to institute the
complaint.

The trial court ruled in favor of Yu, disposing of the case as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendant Maxwell Heavy Equipment Corporation ordering the
latter to pay the former the following sums of money:
a) The sum of Php 8,888,932.33/00, representing the principal obligation,
with legal interest thereon computed at the legal rate from the time of
default on 2 April 2002 until full payment thereof;
b) The sum of Php 200,000.00, for and as reasonable attorney's fees and;
c. Costs of suit.
Bereft of evidence, the claim for moral as well as exemplary damages is
hereby DENIED.
Also, for lack of sufficient factual and legal basis, the counterclaim is similarly
DISMISSED.
SO ORDERED.[6]
On appeal, the Court of Appeals affirmed with modification the ruling of the
trial court, by deleting the award of attorney's fees and specifying the rate of
interest on the allegedly reimbursable amount from Maxwell.
Hence, this petition.
The Ruling of the Court of Appeals

In affirming the trial court's ruling, the Court of Appeals rejected Maxwell's
contention that the transactions with BPI were accommodation loans solely
for Yu's benefit since (1) Maxwell was paying for the loans' interest and (2)
various demand letters from BPI were addressed to Maxwell as the borrower.
The Court of Appeals gave credence to the testimonies of Yu and his mother
on the liability of Maxwell for the claimed amount. On the other hand, it
disbelieved the testimony of Caroline Yu, then president of Maxwell, denying
Yu's entitlement to reimbursement for the payment he made to BPI since it
was uncorroborated by any documentary evidence.
The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, the appealed Decision dated January 11, 2005 is affirmed,
subject to the modification that:
1. the award of attorney's fees is deleted; and
2. the legal rate of interest on the principal amount of P8,800,000.00
is twelve per cent (12%) per annum from the filing of the
complaint on August 19, 2003 until the finality of this Decision.

After this Decision becomes final and executory, the applicable rate
shall also be twelve per cent (12%) per annum until its full
satisfaction.

SO ORDERED.[7]
The Issue
The main issue in this case is whether Yu is entitled to reimbursement from
Maxwell for the loan payment made to BPI. This issue in turn depends on
whether the transactions with BPI were accommodation loans solely for Yu's
benefit.
The Ruling of the Court
The petition lacks merit.
This Court is not a trier of facts.[8] It is not the Court's function to analyze or
weigh the evidence all over again, its jurisdiction being limited to reviewing
errors of law that might have been committed by the lower court. [9]
In this case, the question of whether Maxwell's transactions with BPI were
accommodation loans for Yu's benefit is clearly factual, and thus, beyond the
Court's review.
Moreover, factual findings of the trial court, when affirmed by the Court of
Appeals, will not be disturbed by this Court.[10] As a rule, such findings by the
lower courts are entitled to great weight and respect, and are deemed final
and conclusive on this Court when supported by the evidence on record. [11]
The foregoing principle applies to the present controversy.
In this case, the Court of Appeals affirmed the trial court's finding that "it
was Yu who accommodated Maxwell by allowing the use of his real properties
as collateral [for Maxwell's loans]." The appellate court concurred with the
trial court that Maxwell is the principal borrower since it was Maxwell which
paid interest on the loans. Additionally, various documents designated
Maxwell as borrower and communications demanding payment of the loans
sent by BPI were addressed to Maxwell as the borrower, with Yu indicated
only as the owner of the real properties as loan collateral.
Furthermore, we affirm the finding that Maxwell gravely failed to substantiate
its claim that the loans were purely for Yu's benefit. Maxwell's evidence
consisting of the testimony of Caroline Yu, Yu's spouse and then president of
Maxwell, was uncorroborated.
On the other hand, Yu's and his mother's testimonies were supported by
various documents establishing the real nature of the loan, and belying
Maxwell's allegations. Yu presented the following: (1) Corporate Resolution to
Borrow, dated 21 August 2000, where Maxwell authorized Caroline Yu to loan
from BPI on its behalf; (2) the two Promissory Notes, dated 3 April 2001 and
2 May 2001, signed by Caroline Yu as Maxwell's representative; and (3) two
disclosure statements, dated 3 April 2001 and 2 May 2001, on "loan/credit

transaction" signed by Caroline Yu, designating Maxwell as the borrower.

Based on the foregoing, it is clear that Maxwell is the principal borrower
solely liable for the payment of the loans.
While Maxwell is the real debtor, it was Yu who paid BPI the entire amount of
Maxwell's loans. Hence, contrary to Maxwell's view, Article 1236 of the Civil
Code applies. This provision reads:
The creditor is not bound to accept payment or performance by a third
person who has no interest in the fulfillment of the obligation, unless there is
a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the debtor,
he can recover only insofar as the payment has been beneficial to the debtor.
The above provision grants the plaintiff (Yu) the right to recovery and creates
an obligation on the part of the defendant (Maxwell) to reimburse the
plaintiff. In this case, Yu paid BPI P8,888,932.33, representing the amount of
the principal loans with interest, thereby extinguishing Maxwell's loan
obligation with BPI. Pursuant to Article 1236 of the Civil Code, Maxwell,
which was indisputably benefited by Yu's payment, must reimburse Yu the
same amount of P8,888,932.33.[12]
WHEREFORE, the Court DENIES the petition and AFFIRMS the 21 June
2007 Decision of the Court of Appeals in CA-G.R. CV No. 84522.
SO ORDERED.
Velasco, Jr.,* Nachura, Abad, and Mendoza, JJ., concur.

Designated additional member per Raffle dated 2 June 2010.

[1]

Under Rule 45 of the Rules of Court.

Rollo, pp. 156-167. Penned by Associate Justice Fernanda Lampas Peralta,

with Associate Justices Edgardo P. Cruz and Normandie B. Pizarro,
concurring.
[2]

[3]

Id. at 104-110. Penned by Judge Alfredo C. Flores.

[4]

Id. at 74.

[5]

Id. at 76.

[6]

Id. at 110. Penned by Judge Alfredo C. Flores

[7]

Id. at 166.

De Guia v. Presiding Judge, RTC Br. 12, Malolos, Bulacan, G.R. No.
161074, 22 March 2010, 616 SCRA 284, 292; Madrigal v. Court of Appeals,
[8]

496 Phil. 149, 156 (2005), citing Bernardo v. CA, G.R. No. 101680, 7
December 1992, 216 SCRA 224 and Remalante v. Tibe, No. L-59514, 25
February 1988, 158 SCRA 138.
[9]

Madrigal v. Court of Appeals, supra.

Pacific Airways Corporation v. Tonda, 441 Phil. 156, 162 (2002); Austria
v. Court of Appeals, 384 Phil. 408, 415 (2000).
[10]

Dimaranan v. Heirs of Spouses Hermogenes Arayata and Flaviana

Arayata, G.R. No. 184193, 29 March 2010, 617 SCRA 101, 112-113;
Espinosa v. People, G.R. No. 181071, 15 March 2010, 615 SCRA 446, 454,
citing Republic v. Casimiro, G.R. No. 166139, 20 June 2006, 491 SCRA 499,
523.
[11]

See R.F.C. v. Court of Appeals, 94 Phil. 984 (1954), cited in Aquino, The
Civil Code of the Philippines, Vol. 2, p. 301. See also Philippine Commercial
International Bank v. Court of Appeals, G.R. No. 121989, 31 January 2006,
481 SCRA 127, 138.
[12]

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THIRD DIVISION
[ G.R. No. 159097, July 05, 2010 ]
METROPOLITAN BANK AND TRUST COMPANY,
PETITIONER, VS. RURAL BANK OF GERONA, INC.,
RESPONDENT.
DECISION
BRION, J.:
Petitioner Metropolitan Bank and Trust Company (Metrobank) filed this
Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court to
challenge the Court of Appeals (CA) decision dated December 17, 2002[2] and
the resolution dated July 14, 2003[3] in CA-G.R. CV No. 46777. The CA
decision set aside the July 7, 1994 decision [4] of the Regional Trial Court
(RTC) of Tarlac, Branch 65, in Civil Case No. 6028 (a collection case filed by
Metrobank against respondent Rural Bank of Gerona, Inc. [RBG]), and

ordered the remand of the case to include the Central Bank of the
Philippines[5] (Central Bank) as a necessary party.
THE FACTUAL ANTECEDENTS
RBG is a rural banking corporation organized under Philippine laws and
located in Gerona, Tarlac. In the 1970s, the Central Bank and the RBG
entered into an agreement providing that RBG shall facilitate the loan
applications of farmers-borrowers under the Central Bank-International Bank
for Reconstruction and Development's (IBRD's) 4th Rural Credit Project. The
agreement required RBG to open a separate bank account where the IBRD
loan proceeds shall be deposited. The RBG accordingly opened a special
savings account with Metrobank's Tarlac Branch. As the depository bank of
RBG, Metrobank was designated to receive the credit advice released by the
Central Bank representing the proceeds of the IBRD loan of the farmersborrowers; Metrobank, in turn, credited the proceeds to RBG's special
savings account for the latter's release to the farmers-borrowers.
On September 27, 1978, the Central Bank released a credit advice in
Metrobank's favor and accordingly credited Metrobank's demand deposit
account in the amount of P178,652.00, for the account of RBG. The
amount, which was credited to RBG's special savings account represented the
approved loan application of farmer-borrower Dominador de Jesus. RBG
withdrew the P178,652.00 from its account.
On the same date, the Central Bank approved the loan application of another
farmer-borrower, Basilio Panopio, for P189,052.00, and credited the
amount to Metrobank's demand deposit account. Metrobank, in turn, credited
RBG's special savings account. Metrobank claims that the RBG also withdrew
the entire credited amount from its account.
On October 3, 1978, the Central Bank approved Ponciano Lagman's loan
application for P220,000.00. As with the two other IBRD loans, the amount
was credited to Metrobank's demand deposit account, which amount
Metrobank later credited in favor of RBG's special savings account. Of the
P220,000.00, RBG only withdrew P75,375.00.
On November 3, 1978, more than a month after RBG had made the above
withdrawals from its account with Metrobank, the Central Bank issued
debit advices, reversing all the approved IBRD loans.[6] The Central
Bank implemented the reversal by debiting from Metrobank's demand deposit
account the amount corresponding to all three IBRD loans.
Upon receipt of the November 3, 1978 debit advices, Metrobank, in turn,
debited the following amounts from RBG's special savings account:
P189,052.00, P115,000.00, and P8,000.41. Metrobank, however, claimed
that these amounts were insufficient to cover all the credit advices that were
reversed by the Central Bank. It demanded payment from RBG which could
make partial payments. As of October 17, 1979, Metrobank claimed that RBG
had an outstanding balance of P334,220.00. To collect this amount, it filed a
complaint for collection of sum of money against RBG before the RTC,
docketed as Civil Case No. 6028.[7]

In its July 7, 1994 decision,[8] the RTC ruled for Metrobank, finding that
legal subrogation had ensued:
[Metrobank] had allowed releases of the amounts in the credit advices it
credited in favor of [RBG's special savings account] which credit advices and
deposits were under its supervision. Being faulted in these acts or omissions,
the Central Bank [sic] debited these amounts against [Metrobank's] demand
[deposit] reserve; thus[, Metrobank's] demand deposit reserves diminished
correspondingly, [Metrobank as of this time,] suffers prejudice in which case
legal subrogation has ensued.[9]
It thus ordered RBG to pay Metrobank the sum of P334,200.00, plus interest
at 14% per annum until the amount is fully paid.
On appeal, the CA noted that this was not a case of legal subrogation under
Article 1302 of the Civil Code. Nevertheless, the CA recognized that
Metrobank had a right to be reimbursed of the amount it had paid and failed
to recover, as it suffered loss in an agreement that involved only the Central
Bank and the RBG. It clarified, however, that a determination still had to be
made on who should reimburse Metrobank. Noting that no evidence exists
why the Central Bank reversed the credit advices it had previously confirmed,
the CA declared that the Central Bank should be impleaded as a
necessary party so it could shed light on the IBRD loan reversals. Thus, the
CA set aside the RTC decision, and remanded the case to the trial court for
further proceedings after the Central Bank is impleaded as a necessary party.
[10]
After the CA denied its motion for reconsideration, Metrobank filed the
present petition for review on certiorari.
THE PETITION FOR REVIEW ON CERTIORARI
Metrobank disagrees with the CA's ruling to implead the Central Bank as a
necessary party and to remand the case to the RTC for further proceedings.
It argues that the inclusion of the Central Bank as party to the case is
unnecessary since RBG has already admitted its liability for the amount
Metrobank failed to recover. In two letters,[11] RBG's President/Manager made
proposals to Metrobank for the repayment of the amounts involved. Even
assuming that no legal subrogation took place, Metrobank claims that RBG's
letters more than sufficiently proved its liability.
Metrobank additionally contends that a remand of the case would unduly
delay the proceedings. The transactions involved in this case took place in
1978, and the case was commenced before the RTC more than 20 years ago.
The RTC resolved the complaint for collection in 1994, while the CA decided
the appeal in 2002. To implead Central Bank, as a necessary party in the
case, means a return to square one and the restart of the entire proceedings.
THE COURT'S RULING
The petition is impressed with merit.
A basic first step in resolving this case is to determine who the liable parties
are on the IBRD loans that the Central Bank extended. The Terms and
Conditions of the IBRD 4th Rural Credit Project[12] (Project Terms and

Conditions) executed by the Central Bank and the RBG shows that the
farmers-borrowers to whom credits have been extended, are primarily liable
for the payment of the borrowed amounts. The loans were extended through
the RBG which also took care of the collection and of the remittance of the
collection to the Central Bank. RBG, however, was not a mere conduit and
collector. While the farmers-borrowers were the principal debtors, RBG
assumed liability under the Project Terms and Conditions by solidarily binding
itself with the principal debtors to fulfill the obligation.
How RBG profited from the transaction is not clear from the records and is
not part of the issues before us, but if it delays in remitting the amounts due,
the Central Bank imposed a 14% per annum penalty rate on RBG until the
amount is actually remitted. The Central Bank was further authorized to
deduct the amount due from RBG's demand deposit reserve should the latter
become delinquent in payment. On these points, paragraphs 5 and 6 of the
Project Terms and Conditions read:
5. Collection received representing repayments of borrowers shall be
immediately remitted to the Central Bank, otherwise[,] the Rural Bank/SLA
shall be charged a penalty of fourteen [percent] (14%) p.a. until date of
remittance.
6. In case the rural bank becomes delinquent in the payment of
amortizations due[,] the Central Bank is authorized to deduct the
corresponding amount from the rural bank's demand deposit
reserve[13] at any time to cover any delinquency. [Emphasis supplied.]
Based on these arrangements, the Central Bank's immediate recourse,
therefore should have been against the farmers-borrowers and the RBG;
thus, it erred when it deducted the amounts covered by the debit advices
from Metrobank's demand deposit account. Under the Project Terms and
Conditions, Metrobank had no responsibility over the proceeds of the IBRD
loans other than serving as a conduit for their transfer from the Central Bank
to the RBG once credit advice has been issued. Thus, we agree with the CA's
conclusion that the agreement governed only the parties involved - the
Central Bank and the RBG. Metrobank was simply an outsider to the
agreement. Our disagreement with the appellate court is in its conclusion
that no legal subrogation took place; the present case, in fact, exemplifies
the circumstance contemplated under paragraph 2, of Article 1302 of the
Civil Code which provides:
Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without the
debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with
the express or tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a person interested in
the fulfillment of the obligation pays, without prejudice to the effects of
confusion as to the latter's share. [Emphasis supplied.]
As discussed, Metrobank was a third party to the Central Bank-RBG
agreement, had no interest except as a conduit, and was not legally

answerable for the IBRD loans. Despite this, it was Metrobank's demand
deposit account, instead of RBG's, which the Central Bank proceeded against,
on the assumption perhaps that this was the most convenient means of
recovering the cancelled loans. That Metrobank's payment was involuntarily
made does not change the reality that it was Metrobank which effectively
answered for RBG's obligations.
Was there express or tacit approval by RBG of the payment enforced against
Metrobank? After Metrobank received the Central Bank's debit advices in
November 1978, it (Metrobank) accordingly debited the amounts it could
from RBG's special savings account without any objection from RBG. [14] RBG's
President and Manager, Dr. Aquiles Abellar, even wrote Metrobank, on August
14, 1979, with proposals regarding possible means of settling the amounts
debited by Central Bank from Metrobank's demand deposit account.[15] These
instances are all indicative of RBG's approval of Metrobank's payment of the
IBRD loans. That RBG's tacit approval came after payment had been made
does not completely negate the legal subrogation that had taken place.
Article 1303 of the Civil Code states that subrogation transfers to the person
subrogated the credit with all the rights thereto appertaining, either against
the debtor or against third persons. As the entity against which the collection
was enforced, Metrobank was subrogated to the rights of Central Bank and
has a cause of action to recover from RBG the amounts it paid to the Central
Bank, plus 14% per annum interest.
Under this situation, impleading the Central Bank as a party is completely
unnecessary. We note that the CA erroneously believed that the Central
Bank's presence is necessary "in order x x x to shed light on the matter of
reversals made by it concerning the loan applications of the end users and to
have a complete determination or settlement of the claim." [16] In so far as
Metrobank is concerned, however, the Central Bank's presence and the
reasons for its reversals of the IBRD loans are immaterial after subrogation
has taken place; Metrobank's interest is simply to collect the amounts it paid
the Central Bank. Whatever cause of action RBG may have against the
Central Bank for the unexplained reversals and any undue deductions is for
RBG to ventilate as a third-party claim; if it has not done so at this point,
then the matter should be dealt with in a separate case that should not in
any way further delay the disposition of the present case that had been
pending before the courts since 1980.
While we would like to fully and finally resolve this case, certain factual
matters prevent us from doing so. Metrobank contends in its petition that it
credited RBG's special savings account with three amounts corresponding to
the three credit advices issued by the Central Bank: the P178,652.00 for
Dominador de Jesus; the P189,052.00 for Basilio Panopio; and the
P220,000.00 for Ponciano Lagman. Metrobank claims that all of the three
credit advices were subsequently reversed by the Central Bank, evidenced by
three debit advices. The records, however, contained only the credit and
debit advices for the amounts set aside for de Jesus and Lagman; [17] nothing
in the findings of fact by the RTC and the CA referred to the amount set aside
for Panopio.

Thus, what were sufficiently proven as credited and later on debited from
Metrobank's demand deposit account were only the amounts of P178,652.00
and P189,052.00. With these amounts combined, RBG's liability would
amount to P398,652.00 - the same amount RBG acknowledged as due to
Metrobank in its August 14, 1979 letter.[18] Significantly, Metrobank likewise
quoted this amount in its July 11, 1979[19] and July 26, 1979[20] demand
letters to RBG and its Statement of Account dated December 23, 1982. [21]
RBG asserts that it made partial payments amounting to P145,197.40, [22] but
neither the RTC nor the CA made a conclusive finding as to the accuracy of
this claim. Although Metrobank admitted that RBG indeed made partial
payments, it never mentioned the actual amount paid; neither did it state
that the P145,197.40 was part of the P312,052.41 that, it admitted, it
debited from RBG's special savings account.
Deducting P312,052.41 (representing the amounts debited from RBG's
special savings account, as admitted by Metrobank) from P398,652.00
amount due to Metrobank from RBG, the difference would only be
P86,599.59. We are, therefore, at a loss on how Metrobank computed the
amount of P334,220.00 it claims as the balance of RBG's loan. As this Court
is not a trier of facts, we deem it proper to remand this factual issue to the
RTC for determination and computation of the actual amount RBG owes to
Metrobank, plus the corresponding interest and penalties.
WHEREFORE, we GRANT the petition for review on certiorari, and
REVERSE the decision and the resolution of the Court of Appeals, in CA-G.R.
CV No. 46777, promulgated on December 17, 2002 and July 14, 2003,
respectively. We AFFIRM the decision of the Regional Trial Court, Branch 65,
Tarlac, promulgated on July 7, 1994, insofar as it found respondent liable to
the petitioner Metropolitan Bank and Trust Company, but order the REMAND
of the case to the trial court to determine the actual amounts due to the
petitioner. Costs against respondent Rural Bank of Gerona, Inc.
SO ORDERED.
Carpio Morales, (Chairperson), Bersamin, *Abad, and Villarama, Jr., JJ.
concur.

Designated additional Member of the Third Division, in view of the

retirement of former Chief Justice Reynato S. Puno, per Special Order No.
843 dated May 17, 2010.
*

[1]

Rollo, pp. 3-32.

Id. at 37-45; penned by Associate Justice Eugenio S. Labitoria, with

Associate Justice Renato C. Dacudao and Associate Justice Danilo B. Pine
concurring.
[2]

[3]

Id. at 35-36.

[4]

Id. at 81-96; penned by Judge Miguel G. Sta. Romana.

[5]

Now the Bangko Sentral ng Pilipinas.

[6]

Rollo, pp. 61.

[7]

Id. at 59-62.

[8]

Supra note 4.

[9]

Id. at 95.

[10]

Id. at 44-45.

[11]

Id. at 97-98. The August 14, 1979 letter read:

This is in connection with the P398,652.00 which was debited by the Central
Bank of the Philippines from your bank.
We would like to make the following proposals as agreed upon during our
conference with Central Bank and [Metrobank] Officials:
1. Pending the re-consideration of the Central bank regarding the loan of
Dominador de Jesus in the amount of P178,652.00, we would like to ask for
a Plan of Payment for a period of six (6) months starting August, 1979;
2. With [regard to] the P220,000.00 balance plus interest, we would like to
reiterate our request for a personal loan from your bank, the proceeds of
which will be used to pay our capital build-up, to enable the bank to settle
the said amount.
Considering that you have been our depository bank for a long time, we hope
you will not fail us on our proposals especially now that we are badly in need
of your help.
Thanking you in advance.
The August 27, 1979 letter read:
This will acknowledge receipt of your letter on August 26, 1979, informing
me about the decision of Metrobank's management rejecting my proposals
on August 14, 1979.
Please be informed that I am going to Manila today to confer with Director
Consolacion Odra regarding the matter.
I will also try to get an appointment with your Executive Vice-President and if
necessary, I will refer the matter to our legal counsel, the [Siguion]-Reyna
Law Office, Soriano Building, Ayala Avenue, Makati, Metro Manila for
[advice].
I have great hopes that this problem will be settled within five (5) days.

[12]

Id. at 74.

[13]

Section 94 of the New Central Bank Act (Republic Act No. 7653) states:

In order to control the volume of money created by the credit operations of

the banking system, all banks operating in the Philippines shall be required to
maintain reserves against their deposit liabilities: Provided, That the
Monetary Board may, at its discretion, also require all banks and/or quasibanks to maintain reserves against funds held in trust and liabilities for
deposit substitutes as defined in this Act. The required reserves of each bank
shall be proportional to the volume of its deposit liabilities and shall ordinarily
take the form of a deposit in the Bangko Sentral. Reserve requirements shall
be applied to all banks of the same category uniformly and without
discrimination.
[14]

Rollo, p. 15.

[15]

Id. at 97.

[16]

Id. at 44.

[17]

Id. at 63-64.

[18]

Supra note 15.

[19]

Exhibits for the Plaintiff, p. 8.

[20]

Id. at 10.

[21]

Id. at 23.

[22]

Rollo, pp. 67-68.

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PENTACAPITAL INVESTMENT CORPORATION,

PETITIONER, VS. MAKILITO B. MAHINAY, RESPONDENT.
[G.R. NO. 181482]
PENTACAPITAL INVESTMENT CORPORATION,
PETITIONER, VS. MAKILITO B. MAHINAY, RESPONDENT.

DECISION
NACHURA, J.:
Before us are two consolidated petitions for review on certiorari under Rule
45 of the Rules of Court filed by petitioner Pentacapital Investment
Corporation. In G.R. No. 171736, petitioner assails the Court of Appeals (CA)
Decision[1] dated December 20, 2005 and Resolution [2] dated March 1, 2006
in CA-G.R. SP No. 74851; while in G.R. No. 181482, it assails the CA
Decision[3] dated October 4, 2007 and Resolution [4] dated January 21, 2008 in
CA-G.R. CV No. 86939.
The Facts
Petitioner filed a complaint for a sum of money against respondent Makilito
Mahinay based on two separate loans obtained by the latter, amounting to
P1,520,000.00 and P416,800.00, or a total amount of P1,936,800.00. These
loans were evidenced by two promissory notes[5] dated February 23, 1996.
Despite repeated demands, respondent failed to pay the loans, hence, the
complaint.[6]
In his Answer with Compulsory Counterclaim, [7] respondent claimed that
petitioner had no cause of action because the promissory notes on which its
complaint was based were subject to a condition that did not occur.[8] While
admitting that he indeed signed the promissory notes, he insisted that he
never took out a loan and that the notes were not intended to be evidences
of indebtedness.[9] By way of counterclaim, respondent prayed for the
payment of moral and exemplary damages plus attorney's fees. [10]
Respondent explained that he was the counsel of Ciudad Real Development
Inc. (CRDI). In 1994, Pentacapital Realty Corporation (Pentacapital Realty)
offered to buy parcels of land known as the Molino Properties, owned by
CRDI, located in Molino, Bacoor, Cavite. The Molino Properties, with a total
area of 127,708 square meters, were sold at P400.00 per sq m. As the
Molino Properties were the subject of a pending case, Pentacapital Realty
paid only the down payment amounting to P12,000,000.00. CRDI allegedly
instructed Pentacapital Realty to pay the former's creditors, including
respondent who thus received a check worth P1,715,156.90. [11] It was
further agreed that the balance would be payable upon the submission of an
Entry of Judgment showing that the case involving the Molino Properties had
been decided in favor of CRDI.[12]
Respondent, Pentacapital Realty and CRDI allegedly agreed that respondent
had a charging lien equivalent to 20% of the total consideration of the sale in
the amount of P10,277,040.00. Pending the submission of the Entry of
Judgment and as a sign of good faith, respondent purportedly returned the
P1,715,156.90 check to Pentacapital Realty. However, the Molino Properties
continued to be haunted by the seemingly interminable court actions initiated
by different parties which thus prevented respondent from collecting his
commission.

On motion[13] of respondent, the Regional Trial Court (RTC) allowed him to file
a Third Party Complaint[14] against CRDI, subject to the payment of docket
fees.[15]
Admittedly, respondent earlier instituted an action for Specific Performance
against Pentacapital Realty before the RTC of Cebu City, Branch 57, praying
for the payment of his commission on the sale of the Molino Properties. [16] In
an Amended Complaint,[17] respondent referred to the action he instituted as
one of Preliminary Mandatory Injunction instead of Specific Performance.
Acting on Pentacapital Realty's Motion to Dismiss, the RTC dismissed the case
for lack of cause of action.[18] The dismissal became final and executory.
With the dismissal of the aforesaid case, respondent filed a Motion to Permit
Supplemental Compulsory Counterclaim.[19] In addition to the damages that
respondent prayed for in his compulsory counterclaim, he sought the
payment of his commission amounting to P10,316,640.00, plus interest at
the rate of 16% per annum, as well as attorney's fees equivalent to 12% of
his principal claim.[20] Respondent claimed that Pentacapital Realty is a 100%
subsidiary of petitioner. Thus, although petitioner did not directly participate
in the transaction between Pentacapital Realty, CRDI and respondent, the
latter's claim against petitioner was based on the doctrine of piercing the veil
of corporate fiction. Simply stated, respondent alleged that petitioner and
Pentacapital Realty are one and the same entity belonging to the Pentacapital
Group of Companies.[21]
Over the opposition of petitioner, the RTC, in an Order[22] dated August 22,
2002, allowed the filing of the supplemental counterclaim. Aggrieved,
petitioner sought recourse in the CA through a special
civil action for certiorari, seeking to reverse and set aside the RTC Order. The
case was docketed as CA-G.R. SP No. 74851. On December 20, 2005, the CA
rendered the assailed Decision dismissing the petition.[23] The appellate court
sustained the allowance of the supplemental compulsory counterclaim based
on the allegations in respondent's pleading. The CA further concluded that
there was a logical relationship between the claims of petitioner in its
complaint and those of respondent in his supplemental compulsory
counterclaim. The CA declared that it was inconsequential that respondent
did not clearly allege the facts required to pierce the corporate separateness
of petitioner and its subsidiary, the Pentacapital Realty.[24]
Petitioner now comes before us in G.R. No. 171736, raising the following
issues:
A.
WHETHER RESPONDENT MAHINAY IS BARRED FROM ASSERTING THE CLAIM
CONTAINED IN HIS "SUPPLEMENTAL COMPULSORY COUNTERCLAIM" ON THE
GROUNDS OF (1) RES JUDICATA, (2) WILLFUL AND DELIBERATE FORUM
SHOPPING, AND (3) FAILURE TO INTERPOSE SUCH CLAIM ON TIME
PURSUANT TO SECTION 2 OF RULE 9 OF THE RULES OF COURT;
B.
WHETHER RESPONDENT MAHINAY'S SUPPLEMENTAL COMPULSORY

COUNTERCLAIM IS ACTUALLY A THIRD-PARTY COMPLAINT AGAINST

PENTACAPITAL REALTY, THE INTRODUCTION OF WHICH REQUIRES THE
PAYMENT OF THE NECESSARY DOCKET FEES;
C.
ASSUMING FOR THE SAKE OF PURE ARGUMENT THAT IT IS PROPER TO
PIERCE THE CORPORATE VEIL AND TO ALLOW RESPONDENT MAHINAY TO
LODGE A "SUPPLEMENTAL COMPULSORY COUNTERCLAIM" AGAINST HEREIN
PETITIONER PENTACAPITAL INVESTMENT FOR AN ALLEGED OBLIGATION OF
ITS SUBSIDIARY, PENTACAPITAL REALTY, ON THE THEORY THAT THEY ARE
"ONE AND THE SAME COMPANY," WHETHER PENTACAPITAL REALTY SHOULD
HAVE AT LEAST BEEN MADE A PARTY TO THE CASE AS RULED BY THIS
HONORABLE COURT IN FILMERCO COMMERCIAL CO., INC. VS.
INTERMEDIATE APPELLATE COURT;
D.
WHETHER RESPONDENT MAHINAY SHOULD BE ALLOWED TO PRESENT
EVIDENCE ON HIS SO-CALLED "SUPPLEMENTAL COMPULSORY
COUNTERCLAIM" INASMUCH AS (1) RESPONDENT MAHINAY'S PLEADINGS
ARE BEREFT OF ANY ALLEGATIONS TO BUTTRESS THE MERGING OF
PENTACAPITAL REALTY AND PENTACAPITAL INVESTMENT INTO ONE ENTITY
AND THE CONSEQUENT IMPUTATION ON THE LATTER OF THE FORMER'S
SUPPOSED LIABILITY ON RESPONDENT MAHINAY'S SUPPLEMENTAL
COMPULSORY COUNTERCLAIM, AND (2) THE INCIDENTS ALLEGEDLY
PERTAINING TO, AND WHICH WOULD THEREBY SUPPORT, THE PIERCING OF
CORPORATE VEIL ARE NOT EVIDENTIARY MATTERS MATERIAL TO THE
PROCEEDINGS BEFORE THE COURT A QUO CONSIDERING THAT THE SAME
ARE BEYOND THE SCOPE OF THE PLEADINGS;
E.
WHETHER THE DOCTRINE OF PIERCING THE CORPORATE VEIL MAY BE
INVOKED AND APPLIED IN ORDER TO EVADE AN OBLIGATION AND
FACILITATE PROCEDURAL WRONGDOING; AND
F.

WHETHER PETITIONER PENTACAPITAL INVESTMENT COMMITTED FORUM

SHOPPING WHEN IT FILED THE PRESENT PETITION DURING THE PENDENCY
OF THE MOTION FOR RECONSIDERATION IT FILED BEFORE THE COURT A
QUO AND, SUBSEQUENTLY, OF THE APPEAL BEFORE THE COURT OF APPEALS
TO QUESTION THE JUDGMENT OF THE COURT A QUO.[25]
There being no writ of injunction or Temporary Restraining Order (TRO), the
proceedings before the RTC continued and respondent was allowed to present
his evidence on his supplemental compulsory counterclaim. After trial on the
merits, the RTC rendered a decision[26] dated March 20, 2006, the dispositive
portion of which reads:

WHEREFORE, PREMISES CONSIDERED, plaintiff's complaint is hereby ordered

dismissed for lack of merit. This court, instead, finds that defendant was able
to prove by a clear preponderance of evidence his cause of action against
plaintiff as to defendant's compulsory and supplemental counterclaims. That,
therefore, this court hereby orders the plaintiff to pay unto defendant the
following sums, to wit:
1. P1,715,156.90 representing the amount plaintiff is obligated to
pay defendant as provided for in the deed of sale and the
supplemental agreement, plus interest at the rate of 16% per
annum, to be computed from September 23, 1998 until the said
amount shall have been fully paid;
2. Php 10,316,640.00 representing defendant's share of the
proceeds of the sale of the Molino property (defendant's charging
lien) plus interest at the rate of 16% per annum, to be computed
from September 23, 1998 until the said amount shall have been
fully paid;
3. Php 50,000.00 as attorney's fees based on quantum meruit;
4. Php 50,000.00 litigation expenses, plus costs of suit.

This court finds it unnecessary to rule on the third party complaint, the relief
prayed for therein being dependent on the possible award by this court of the
relief of plaintiff's complaint.[27]
On appeal, the CA, in CA-G.R. CV No. 86939, affirmed in toto the above
decision. The CA found no basis for petitioner to collect the amount
demanded, there being no perfected contract of loan for lack of
consideration.[28] As to respondent's supplemental compulsory counterclaim,
quoting the findings of the RTC, the appellate court held that respondent was
able to prove by preponderance of evidence that it was the intent of
Pentacapital Group of Companies and CRDI to give him P10,316,640.00 and
P1,715,156.90.[29] The CA likewise affirmed the award of interest at the rate
of 16% per annum, plus damages.[30]
Unsatisfied, petitioner moved for reconsideration of the aforesaid Decision,
but it was denied in a Resolution[31] dated January 21, 2008. Hence, the
present petition in G.R. No. 181482, anchored on the following arguments:
A.
Considering that the inferences made in the present case are manifestly
absurd, mistaken or impossible, and are even contrary to the admissions of
respondent Mahinay, and inasmuch as the judgment is premised on a
misapprehension of facts, this Honorable Court may validly take cognizance
of the errors relative to the findings of fact of both the Honorable Court of
Appeals and the court a quo.
B.
Respondent Mahinay is liable to petitioner PentaCapital Investment for the
PhP1,936,800.00 loaned to him as well as for damages and attorney's fees.

1.
The Honorable Court of Appeals erred in concluding that respondent Mahinay
failed to receive the money he borrowed when there is not even any dispute
as to the fact that respondent Mahinay did indeed receive the
PhP1,936,800.00 from petitioner PentaCapital Investment.
2.
The Promissory Notes executed by respondent Mahinay are valid instruments
and are binding upon him.
C.
Petitioner PentaCapital Investment cannot be held liable on the supposed
"supplemental compulsory counterclaim" of respondent Mahinay.
1.
The findings of fact as well as the conclusions arrived at by the Court of
Appeals in its decision were based on mistaken assumptions and on
erroneous appreciation of the evidence on record.
2.
There is no evidence on record to support the merging of PentaCapital Realty
and petitioner PentaCapital Investment into one entity and the consequent
imputation on the latter of the former's supposed liability on respondent
Mahinay's supplemental compulsory counterclaim.
3.
Inasmuch as the claim of respondent Mahinay is supposedly against
PentaCapital Realty, and considering that petitioner PentaCapital Investment
is a separate, distinct entity from PentaCapital Realty, the latter should have
been impleaded as it is an indispensable party.
D.
Assuming for the sake of pure argument that it is proper to disregard the
corporate fiction and to consider herein petitioner PentaCapital Investment
and its subsidiary, PentaCapital Realty, as one and the same entity,
respondent Mahinay's "supplemental compulsory counterclaim" must still
necessarily fail.
1.
The cause of action of respondent Mahinay, as contained in his "supplemental
compulsory counterclaim," is already barred by a prior judgment (res
judicata).
2.
Considering that the dismissal on the merits by the RTC Cebu of respondent

Mahinay's complaint against PentaCapital Realty for attorney's fees has

attained finality, respondent Mahinay committed a willful act of forum
shopping when he interposed the exact same claim in the proceedings a quo
as a supposed supplemental compulsory counterclaim against what he claims
to be "one and the same" company.
3.
Respondent Mahinay's supplemental compulsory counterclaim is actually a
third party complaint against PentaCapital Realty; the filing thereof therefore
requires the payment of the necessary docket fees.
E.
The doctrine of piercing the corporate veil is an equitable remedy which
cannot and should not be invoked, much less applied, in order to evade an
obligation and facilitate procedural wrongdoing.[32]
Simply put, the issues for resolution are: 1) whether the admission of
respondent's supplemental compulsory counterclaim is proper; 2) whether
respondent's counterclaim is barred by res judicata; and (3) whether
petitioner is guilty of forum-shopping.
The Court's Ruling
Admission of Respondent's
Supplemental Compulsory Counterclaim
The pertinent provision of the Rules of Court is Section 6 of Rule 10, which
reads:
Sec. 6. Supplemental pleadings. - Upon motion of a party, the court may,
upon reasonable notice and upon such terms as are just, permit him to serve
a supplemental pleading setting forth transactions, occurrences or events
which have happened since the date of the pleading sought to be
supplemented. The adverse party may plead thereto within ten (10) days
from notice of the order admitting the supplemental pleading.
As a general rule, leave will be granted to a party who desires to file a
supplemental pleading that alleges any material fact which happened or
came within the party's knowledge after the original pleading was filed, such
being the office of a supplemental pleading. The application of the rule would
ensure that the entire controversy might be settled in one action, avoid
unnecessary repetition of effort and unwarranted expense of litigants,
broaden the scope of the issues in an action owing to the light thrown on it
by facts, events and occurrences which have accrued after the filing of the
original pleading, and bring into record the facts enlarging or charging the
kind of relief to which plaintiff is entitled. It is the policy of the law to grant
relief as far as possible for wrongs complained of, growing out of the same
transaction and thus put an end to litigation. [33]
In his Motion to Permit Supplemental Compulsory Counterclaim, respondent
admitted that, in his Answer with Compulsory Counterclaim, he claimed that,

as one of the corporations composing the Pentacapital Group of Companies,

petitioner is liable to him for P10,316,640.00, representing 20% attorney's
fees and share in the proceeds of the sale transaction between Pentacapital
Realty and CRDI. In the same pleading, he further admitted that he did not
include this amount in his compulsory counterclaim because he had earlier
commenced another action for the collection of the same amount against
Pentacapital Realty before the RTC of Cebu. With the dismissal of the RTCCebu case, there was no more legal impediment for respondent to file the
supplemental counterclaim.
Moreover, in his Answer with Compulsory Counterclaim, respondent already
alleged that he demanded from Pentacapital Group of Companies to which
petitioner supposedly belongs, the payment of his 20% commission. This, in
fact, was what prompted respondent to file a complaint before the RTC-Cebu
for preliminary mandatory injunction for the release of the said amount.
Given these premises, it is obvious that the alleged obligation of petitioner
already existed and was known to respondent at the time of the filing of his
Answer with Counterclaim. He should have demanded payment of his
commission and share in the proceeds of the sale in that Answer with
Compulsory Counterclaim, but he did not. He is, therefore, proscribed from
incorporating the same and making such demand via a supplemental
pleading. The supplemental pleading must be based on matters arising
subsequent to the filing of the original pleading related to the claim or
defense presented therein, and founded on the same cause of action. [34]
Supplemental pleadings must state transactions, occurrences or events which
took place since the time the pleading sought to be supplemented was filed.
[35]

Even on the merits of the case, for reasons that will be discussed below,
respondent's counterclaim is doomed to fail.
Petitioner's Complaint
In its complaint for sum of money, petitioner prayed that respondent be
ordered to pay his obligation amounting to P1,936,800.00 plus interest and
penalty charges, and attorney's fees. This obligation was evidenced by two
promissory notes executed by respondent. Respondent, however, denied
liability on the ground that his obligation was subject to a condition that did
not occur. He explained that the promissory notes were dependent upon the
happening of a remote event that the parties tried to anticipate at the time
they transacted with each other, and the event did not happen. [36] He further
insisted that he did not receive the proceeds of the loan.
To ascertain whether or not respondent is bound by the promissory notes, it
must be established that all the elements of a contract of loan are present.
Like any other contract, a contract of loan is subject to the rules governing
the requisites and validity of contracts in general. It is elementary in this
jurisdiction that what determines the validity of a contract, in general, is the
presence of the following elements: (1) consent of the contracting parties;
(2) object certain which is the subject matter of the contract; and (3) cause
of the obligation which is established.[37]

In this case, respondent denied liability on the ground that the promissory
notes lacked consideration as he did not receive the proceeds of the loan.
We cannot sustain his contention.
Under Article 1354 of the Civil Code, it is presumed that consideration exists
and is lawful unless the debtor proves the contrary.[38] Moreover, under
Section 3, Rule 131 of the Rules of Court, the following are disputable
presumptions: (1) private transactions have been fair and regular; (2) the
ordinary course of business has been followed; and (3) there was sufficient
consideration for a contract.[39] A presumption may operate against an
adversary who has not introduced proof to rebut it. The effect of a legal
presumption upon a burden of proof is to create the necessity of presenting
evidence to meet the legal presumption or the prima facie case created
thereby, and which, if no proof to the contrary is presented and offered, will
prevail. The burden of proof remains where it is, but by the presumption, the
one who has that burden is relieved for the time being from introducing
evidence in support of the averment, because the presumption stands in the
place of evidence unless rebutted.[40]
In the present case, as proof of his claim of lack of consideration, respondent
denied under oath that he owed petitioner a single centavo. He added that he
did not apply for a loan and that when he signed the promissory notes, they
were all blank forms and all the blank spaces were to be filled up only if the
sale transaction over the subject properties would not push through because
of a possible adverse decision in the civil cases involving them (the
properties). He thus posits that since the sale pushed through, the
promissory notes did not become effective.
Contrary to the conclusions of the RTC and the CA, we find such proof
insufficient to overcome the presumption of consideration. The presumption
that a contract has sufficient consideration cannot be overthrown by the
bare, uncorroborated and self-serving assertion of respondent that it has no
consideration.[41] The alleged lack of consideration must be shown by
preponderance of evidence.[42]
As it now appears, the promissory notes clearly stated that respondent
promised to pay petitioner P1,520,000.00 and P416,800.00, plus interests
and penalty charges, a year after their execution. Nowhere in the notes was
it stated that they were subject to a condition. As correctly observed by
petitioner, respondent is not only a lawyer but a law professor as well. He is,
therefore, legally presumed not only to exercise vigilance over his concerns
but, more importantly, to know the legal and binding effects of promissory
notes and the intricacies involving the execution of negotiable instruments
including the need to execute an agreement to document extraneous
collateral conditions and/or agreements, if truly there were such.[43] This
militates against respondent's claim that there was indeed such an
agreement. Thus, the promissory notes should be accepted as they appear
on their face.
Respondent's liability is not negated by the fact that he has uncollected
commissions from the sale of the Molino properties. As the records of the

case show, at the time of the execution of the promissory notes, the Molino
properties were subject of various court actions commenced by different
parties. Thus, the sale of the properties and, consequently, the payment of
respondent's commissions were put on hold. The non-payment of his
commissions could very well be the reason why he obtained a loan from
petitioner.
In Sierra v. Court of Appeals,[44] we held that:
A promissory note is a solemn acknowledgment of a debt and a formal
commitment to repay it on the date and under the conditions agreed upon by
the borrower and the lender. A person who signs such an instrument is bound
to honor it as a legitimate obligation duly assumed by him through the
signature he affixes thereto as a token of his good faith. If he reneges on his
promise without cause, he forfeits the sympathy and assistance of this Court
and deserves instead its sharp repudiation.
Aside from the payment of the principal obligation of P1,936,800.00, the
parties agreed that respondent pay interest at the rate of 25% from February
17, 1997 until fully paid. Such rate, however, is excessive and thus, void.
Since the stipulation on the interest rate is void, it is as if there was no
express contract thereon. To be sure, courts may reduce the interest rate as
reason and equity demand.[45] In this case, 12% interest is reasonable.
The promissory notes likewise required the payment of a penalty charge of
3% per month or 36% per annum. We find such rates unconscionable. This
Court has recognized a penalty clause as an accessory obligation which the
parties attach to a principal obligation for the purpose of ensuring the
performance thereof by imposing on the debtor a special prestation
(generally consisting of the payment of a sum of money) in case the
obligation is not fulfilled or is irregularly or inadequately fulfilled. [46] However,
a penalty charge of 3% per month is unconscionable;[47] hence, we reduce it
to 1% per month or 12% per annum, pursuant to Article 1229 of the Civil
Code which states:
Art. 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if
there has been no performance, the penalty may also be reduced by the
courts if it is iniquitous or unconscionable.[48]
Lastly, respondent promised to pay 25% of his outstanding obligations as
attorney's fees in case of non-payment thereof. Attorney's fees here are in
the nature of liquidated damages. As long as said stipulation does not
contravene law, morals, or public order, it is strictly binding upon respondent.
Nonetheless, courts are empowered to reduce such rate if the same is
iniquitous or unconscionable pursuant to the above-quoted provision. [49] This
sentiment is echoed in Article 2227 of the Civil Code, to wit:
Art. 2227. Liquidated damages, whether intended as an indemnity or a
penalty, shall be equitably reduced if they are iniquitous or unconscionable.
Hence, we reduce the stipulated attorney's fees from 25% to 10%. [50]

Respondent's Counterclaim and Supplemental Counterclaim

The RTC, affirmed by the CA, granted respondent's counterclaims as it
applied the doctrine of piercing the veil of corporate fiction. It is undisputed
that the parties to the contract of sale of the subject properties are
Pentacapital Realty as the buyer, CRDI as the seller, and respondent as the
agent of CRDI. Respondent insisted, and the RTC and the CA agreed, that
petitioner, as the parent company of Pentacapital Realty, was aware of the
sale transaction, and that it was the former who paid the consideration of the
sale. Hence, they concluded that the two corporations should be treated as
one entity.
Petitioner assails the CA Decision sustaining the grant of respondent's
counterclaim and supplemental counterclaim on the following grounds: first,
respondent's claims are barred by res judicata, the same having been
adjudicated with finality by the RTC-Cebu in Civil Case No. CEB-25032;
second, piercing the veil of corporate fiction is without basis; third, the case
is dismissible for failure to implead Pentacapital Realty as indispensable
party; and last, respondent's supplemental counterclaim is actually a third
party complaint against Pentacapital Realty, the filing thereof requires the
payment of the necessary docket fees.
Petitioner's contentions are meritorious.
Res judicata means "a matter adjudged; a thing judicially acted upon or
decided; a thing or matter settled by judgment." It lays the rule that an
existing final judgment or decree rendered on the merits, without fraud or
collusion, by a court of competent jurisdiction, upon any matter within its
jurisdiction, is conclusive of the rights of the parties or their privies, in all
other actions or suits in the same or any other judicial tribunal of concurrent
jurisdiction on the points and matters in issue in the first suit. [51]
The requisites of res judicata are:
(1) The former judgment or order must be final;
(2) It must be a judgment on the merits;
(3) It must have been rendered by a court having jurisdiction over the
subject matter and the parties; and
(4) There must be between the first and second actions, identity of parties,
subject matter, and cause of action.[52]
These requisites are present in the instant case. It is undisputed that
respondent instituted an action for Preliminary Mandatory Injunction against
Pentacapital Realty, before the RTC of Cebu City, docketed as Civil Case No.
CEB-25032. On motion of Pentacapital Realty, in an Order dated August 15,
2001, the court dismissed the complaint on two grounds: 1) non-payment of
the correct filing fee considering that the complaint was actually a collection
of sum of money although denominated as Preliminary Mandatory Injunction;
and 2) lack of cause of action. The court treated the complaint as a collection
suit because respondent was seeking the payment of his unpaid commission

or share in the proceeds of the sale of the Molino Properties. Additionally, the
RTC found that respondent had no cause of action against Pentacapital
Realty, there being no privity of contract between them. Lastly, the court held
that it was CRDI which agreed that 20% of the total consideration of the sale
be paid and delivered to respondent.[53] Instead of assailing the said Order,
respondent filed his supplemental compulsory counterclaim, demanding
again the payment of his commission, this time, against petitioner in the
instant case. The Order, therefore, became final and executory.
Respondent's supplemental counterclaim against petitioner is anchored on
the doctrine of piercing the veil of corporate fiction. Obviously, after the
dismissal of his complaint before the RTC-Cebu, he now proceeds
against petitioner, through a counterclaim, on the basis of the same cause of
action. Thus, if we follow respondent's contention that petitioner and
Pentacapital Realty are one and the same entity, the latter being a subsidiary
of the former, respondent is barred from instituting the present case based
on the principle of bar by prior judgment. The RTC-Cebu already made a
definitive conclusion that Pentacapital Realty is not a privy to the contract
between respondent and CRDI. It also categorically stated that it was CRDI
which agreed to pay respondent's commission equivalent to 20% of the
proceeds of the sale. With these findings, and considering that petitioner's
alleged liability stems from its supposed relation with Pentacapital Realty,
logic dictates that the findings of the RTC-Cebu, which had become final and
executory, should bind petitioner.
It is well-settled that when material facts or questions in issue in a former
action were conclusively settled by a judgment rendered therein, such facts
or questions constitute res judicata and may not again be litigated in a
subsequent action between the same parties or their privies regardless of the
form of the latter.[54] Absolute identity of parties is not required, and where a
shared identity of interest is shown by the identity of the relief sought by one
person in a prior case and the second person in a subsequent case, such was
deemed sufficient.[55] There is identity of parties not only when the parties in
the cases are the same, but also between those in privity with them.
No other procedural law principle is indeed more settled than that once a
judgment becomes final, it is no longer subject to change, revision,
amendment, or reversal, except only for correction of clerical errors, or the
making of nunc pro tunc entries which cause no prejudice to any party, or
where the judgment itself is void. The underlying reason for the rule is twofold: (1) to avoid delay in the administration of justice and thus make orderly
the discharge of judicial business; and (2) to put judicial controversies to an
end, at the risk of occasional errors, inasmuch as controversies cannot be
allowed to drag on indefinitely and the rights and obligations of every litigant
must not hang in suspense for an indefinite period of time. [56]
In view of the foregoing disquisitions, we find no necessity to discuss the
other issues raised by petitioner.
Forum Shopping
For his part, respondent adopts the conclusions made by the RTC and the CA

in granting his counterclaims. He adds that the petition should be dismissed

on the ground of forum-shopping. He argues that petitioner is guilty of
forum-shopping by filing the petition for review (G.R. No. 181482), assailing
the CA Decision dated October 4, 2007, despite the pendency of G.R. No.
171736 assailing the CA Decision dated December 20, 2005.
We do not agree with respondent.
Forum-shopping is the act of a litigant who repetitively availed of several
judicial remedies in different courts, simultaneously or successively, all
substantially founded on the same transactions and the same essential facts
and circumstances, and all raising substantially the same issues, either
pending in or already resolved adversely by some other court, to increase his
chances of obtaining a favorable decision if not in one court, then in another.
[57]

What is important in determining whether forum-shopping exists is the

vexation caused the courts and parties-litigants by a party who asks different
courts and/or administrative agencies to rule on the same or related causes
and/or grant the same or substantially the same reliefs, in the process
creating the possibility of conflicting decisions being rendered by the different
fora upon the same issues.[58]
Forum-shopping can be committed in three ways: (1) by filing multiple cases
based on the same cause of action and with the same prayer, the previous
case not having been resolved yet (where the ground for dismissal is litis
pendentia); (2) by filing multiple cases based on the same cause of action
and with the same prayer, the previous case having been finally resolved
(where the ground for dismissal is res judicata); and (3) by filing multiple
cases based on the same cause of action but with different prayers (splitting
of causes of action, where the ground for dismissal is also either litis
pendentia or res judicata).[59]
More particularly, the elements of forum-shopping are: (a) identity of parties
or at least such parties that represent the same interests in both actions; (b)
identity of rights asserted and reliefs prayed for, the relief being founded on
the same facts; (c) identity of the two preceding particulars, such that any
judgment rendered in the other action will, regardless of which party is
successful, amount to res judicata in the action under consideration.[60]
These elements are not present in this case. In G.R. No. 171736, petitioner
assails the propriety of the admission of respondent's supplemental
compulsory counterclaim; while in G.R. No. 181482, petitioner assails the
grant of respondent's supplemental compulsory counterclaim. In other words,
the first case originated from an interlocutory order of the RTC, while the
second case is an appeal from the decision of the court on the merits of the
case. There is, therefore, no forum-shopping for the simple reason that the
petition and the appeal involve two different and distinct issues.
WHEREFORE, premises considered, the petitions are hereby GRANTED. The
Decisions and Resolutions of the Court of Appeals dated December 20, 2005
and March 1, 2006, in CA-G.R. SP No. 74851, and October 4, 2007 and

January 21, 2008, in CA-G.R. CV No. 86939, are REVERSED and SET
ASIDE.
Respondent Makilito B. Mahinay is ordered to pay petitioner Pentacapital
Investment Corporation P1,936,800.00 plus 12% interest per annum, and
12% per annum penalty charge, starting February 17, 1997. He is likewise
ordered to pay 10% of his outstanding obligation as attorney's fees. No
pronouncement as to costs.
SO ORDERED.
Carpio, (Chairperson), Peralta, Abad, and Mendoza, JJ., concur.

Penned by Associate Justice Mario L. Guaria III, with Associate Justices

Roberto A. Barrios and Santiago Javier Ranada, concurring; rollo (G.R. No.
171736), pp. 75-82.
[1]

[2]

Id. at 84.

Penned by Associate Justice Jose L. Sabio, Jr., with Associate Justices Noel
G. Tijam and Myrna Dimaranan Vidal, concurring; rollo (G.R. No. 181482),
pp. 114-142.
[3]

[4]

Id. at 99-100.

[5]

Rollo (G.R. No. 181482), pp. 155-157.

[6]

Id. at 171-174.

[7]

Id. at 175-185.

[8]

Id. at 176.

[9]

Id. at 119.

[10]

Id. at 183.

[11]

Id. at 120.

[12]

Id. at 176-177.

[13]

Id. at 208-212.

[14]

Id. at 213-216.

[15]

Id. at 217-218.

[16]

Id. at 158-161.

[17]

Id. at 162-167.

[18]

Id. at 168-170.

[19]

Id. at 219-223.

[20]

Id. at 226.

[21]

Id. at 224-227.

[22]

Id. at 238-239.

[23]

Supra note 1.

[24]

Rollo (G.R. No. 171736), pp. 79-82.

[25]

Id. at 459-460.

Penned by Judge Maria Rosario B. Ragasa, rollo (G.R. No. 181482), pp.
311-323.
[26]

[27]

Id. at 322-323.

[28]

Rollo (G.R. No. 181482), p. 133.

[29]

Id. at 137-139.

[30]

Id. at 140-141.

[31]

Supra note 4.

[32]

Rollo (G.R. No. 181482), pp. 40-43.

Lambino v. Presiding Judge, RTC, Br. 172, Valenzuela City, G.R. No.
169551, January 24, 2007, 512 SCRA 525, 539-540.
[33]

[34]

Id. at 539.

[35]

De Rama v. Court of Appeals, 405 Phil. 531, 547 (2001).

[36]

Rollo (G.R. 181482), p. 176.

Saguid v. Security Finance, Inc., G.R. No. 159467, December 9, 2005,

477 SCRA 256, 268; Santos v. Heirs of Jose P. Mariano & Erlinda MarianoVillanueva, 398 Phil. 174 (2000).
[37]

[38]

Saguid v. Security Finance, Inc., supra, at 270.

Surtida v. Rural Bank of Malinao (Albay), Inc., G.R. No. 170563,

December 20, 2006, 511 SCRA 507, 519.
[39]

[40]

Id. at 519-520.

[41]

Id. at 520; Fernandez v. Fernandez, 416 Phil. 322 (2001).

[42]

Surtida v. Rural Bank of Malinao (Albay), Inc., supra, at 520.

[43]

Rollo (G.R. No. 181482), p. 59.

[44]

G.R. No. 90270, July 24, 1992, 211 SCRA 785, 795.

Ileana Dr. Macalinao v. Bank of the Philippine Islands, G.R. No. 175490,
September 17, 2009.
[45]

Development Bank of the Philippines v. Family Foods Manufacturing Co.,

Ltd., G.R. No. 180458, July 30, 2009, 594 SCRA 461.
[46]

[47]

See Ileana Dr. Maclinao v. Bank of the Philippine Islands, supra note 45.

[48]

Emphasis supplied.

Co v. Admiral United Savings Bank, G.R. No. 154740, April 16, 2008, 551
SCRA 472.
[49]

Id.; Sim v. M.B. Finance Corporation, G.R. No. 164300, November 29,
2006, 508 SCRA 556.
[50]

Heirs of Panfilo F. Abalos v. Bucal, G.R. No. 156224, February 19, 2008,
546 SCRA 252, 271-272.
[51]

The Estate of Don Filemon Y. Sotto v. Palicte, G.R. No. 158642,

September 22, 2008, 566 SCRA 142, 150; Mallion v. Alcantara, G.R. No.
141528, October 31, 2006, 506 SCRA 336, 343-344.
[52]

[53]

Rollo (G.R. No. 181482), pp. 168-170.

Navarro v. Metropolitan Bank & Trust Company, G.R. Nos. 165697 &
166481, August 4, 2009, 595 SCRA 149.
[54]

[55]

The Estate of Don Filemon Y. Sotto v. Palicte, supra note 52, at 152.

[56]

Navarro v. Metropolitan Bank & Trust Company, supra note 54.

Briones v. Henson-Cruz, G.R. No. 159130, August 22, 2008, 563 SCRA
69, 84.
[57]

Collantes v. Court of Appeals, G.R. No. 169604, March 6, 2007, 517 SCRA
561, 568.
[58]

Id. at 569; Ao-As v. Court of Appeals, G.R. No. 128464, June 20, 2006,
491 SCRA 339.
[59]

Id.; Marcopper Mining Corporation v. Solidbank Corporation, 476 Phil. 415

(2004).
[60]

Source: Supreme Court E-Library | Date created: August 05, 2010

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Supreme

ASIAN CATHAY FINANCE AND LEASING CORPORATION,

PETITIONER, VS. SPOUSES CESARIO GRAVADOR AND
NORMA DE VERA AND SPOUSES EMMA CONCEPCION G.
DUMIGPI AND FEDERICO L. DUMIGPI, RESPONDENTS.
DECISION
NACHURA, J.:
On appeal is the June 10, 2008 Decision[1] of the Court of Appeals (CA) in CAG.R. CV No. 83197, setting aside the April 5, 2004 decision [2] of the Regional
Trial Court (RTC), Branch 9, Bulacan, as well as its subsequent Resolution [3]
dated February 11, 2009, denying petitioner's motion for reconsideration.
On October 22, 1999, petitioner Asian Cathay Finance and Leasing
Corporation (ACFLC) extended a loan of Eight Hundred Thousand Pesos
(P800,000.00)[4] to respondent Cesario Gravador, with respondents Norma de
Vera and Emma Concepcion Dumigpi as co-makers. The loan was payable in
sixty (60) monthly installments of P24,400.00 each. To secure the loan,
respondent Cesario executed a real estate mortgage [5] over his property in
Sta. Maria, Bulacan, covered by Transfer Certificate of Title No. T-29234. [6]
Respondents paid the initial installment due in November 1999. However,
they were unable to pay the subsequent ones. Consequently, on February 1,
2000, respondents received a letter demanding payment of P1,871,480.00
within five (5) days from receipt thereof. Respondents requested for an
additional period to settle their account, but ACFLC denied the request.
Petitioner filed a petition for extrajudicial foreclosure of mortgage with the
Office of the Deputy Sheriff of Malolos, Bulacan.
On April 7, 2000, respondents filed a suit for annulment of real estate
mortgage and promissory note with damages and prayer for issuance of a
temporary restraining order (TRO) and writ of preliminary injunction.
Respondents claimed that the real estate mortgage is null and void. They
pointed out that the mortgage does not make reference to the promissory
note dated October 22, 1999. The promissory note does not specify the
maturity date of the loan, the interest rate, and the mode of payment; and it
illegally imposed liquidated damages. The real estate mortgage, on the other
hand, contains a provision on the waiver of the mortgagor's right of
redemption, a provision that is contrary to law and public policy.
Respondents added that ACFLC violated Republic Act No. 3765, or the Truth

in Lending Act, in the disclosure statement that should be issued to the

borrower. Respondents, thus, claimed that ACFLC's petition for foreclosure
lacked factual and legal basis, and prayed that the promissory note, real
estate mortgage, and any certificate of sale that might be issued in
connection with ACFLC's petition for extrajudicial foreclosure be declared null
and void. In the alternative, respondents prayed that the court fix their
obligation at P800,000.00 if the mortgage could not be annulled, and declare
as null and void the provisions on the waiver of mortgagor's right of
redemption and imposition of the liquidated damages. Respondents further
prayed for moral and exemplary damages, as well as attorney's fees, and for
the issuance of a TRO to enjoin ACFLC from foreclosing their property.
On April 12, 2000, the RTC issued an Order,[7] denying respondents'
application for TRO, as the acts sought to be enjoined were already fait
accompli.
On May 12, 2000, ACFLC filed its Answer, denying the material allegations in
the complaint and averring failure to state a cause of action and lack of cause
of action, as defenses. ACFLC claimed that it was merely exercising its right
as mortgagor; hence, it prayed for the dismissal of the complaint.
After trial, the RTC rendered a decision, dismissing the complaint for lack of
cause of action. Sustaining the validity of the promissory note and the real
estate mortgage, the RTC held that respondents are well-educated
individuals who could not feign naivet in the execution of the loan
documents. It, therefore, rejected respondents' claim that ACFLC deceived
them into signing the promissory note, disclosure statement, and deed of
real estate mortgage. The RTC further held that the alleged defects in the
promissory note and in the deed of real estate mortgage are too insubstantial
to warrant the nullification of the mortgage. It added that a promissory note
is not one of the essential elements of a mortgage; thus, reference to a
promissory note is neither indispensable nor imperative for the validity of the
mortgage. The RTC also upheld the interest rate and the penalty charge
imposed by ACFLC, and the waiver of respondents' right of redemption
provided in the deed of real estate mortgage.
The RTC disposed thus:
WHEREFORE, on the basis of the evidence on record and the
laws/jurisprudence applicable thereto, judgment is hereby rendered
DISMISSING the complaint in the above-entitled case for want of cause of
action as well as the counterclaim of [petitioner] Asian Cathay Finance &
Leasing Corporation for moral and exemplary damages and attorney's fees
for abject lack of proof to justify the same.
SO ORDERED.[8]
Aggrieved, respondents appealed to the CA. On June 10, 2008, the CA
rendered the assailed Decision, reversing the RTC. It held that the amount
of P1,871,480.00 demanded by ACFLC from respondents is unconscionable
and excessive. Thus, it declared respondents' principal loan to be
P800,000.00, and fixed the interest rate at 12% per annum and reduced the
penalty charge to 1% per month. It explained that ACFLC could not insist on

the interest rate provided on the note because it failed to provide

respondents with the disclosure statement prior to the consummation of the
loan transaction. Finally, the CA invalidated the waiver of respondents' right
of redemption for reasons of public policy. Thus, the CA ordered:
WHEREFORE, premises considered, the appealed decision is REVERSED
AND SET ASIDE. Judgment is hereby rendered as follows:
1) Affirming the amount of the principal loan under the REM and Disclosure
Statement both dated October 22, 1999 to be P800,000.00, subject to:
a. 1% interest per month (12% per annum) on the principal from November
23, 1999 until the date of the foreclosure sale, less P24,000.00 paid by
[respondents] as first month amortization[;]
b. 1% penalty charge per month on the principal from December 23, 1999
until the date of the foreclosure sale.
2) Declaring par. 14 of the REM as null and void by reason of public policy,
and granting mortgagors a period of one year from the finality of this
Decision within which to redeem the subject property by paying the
redemption price as computed under paragraph 1 hereof, plus one percent
(1%) interest thereon from the time of foreclosure up to the time of the
actual redemption pursuant to Section 28, Rule 39 of the 1997 Rules on Civil
Procedure.
The claim of the [respondents] for moral and exemplary damages and
attorney's fees is dismissed for lack of merit.
SO ORDERED.[9]
ACFLC filed a motion for reconsideration, but the CA denied it on February
11, 2009.
ACFLC is now before us, faulting the CA for reversing the dismissal of
respondents' complaint. It points out that respondents are well-educated
persons who are familiar with the execution of loan documents. Thus, they
cannot be deceived into signing a document containing provisions that they
are not amenable to. ACFLC ascribes error on the part of the CA for
invalidating the interest rates imposed on respondents' loan, and the waiver
of the right of redemption.
The appeal lacks merit.
It is true that parties to a loan agreement have a wide latitude to stipulate on
any interest rate in view of Central Bank Circular No. 905, series of 1982,
which suspended the Usury Law ceiling on interest rate effective January 1,
1983. However, interest rates, whenever unconscionable, may be equitably
reduced or even invalidated. In several cases,[10] this Court had declared as
null and void stipulations on interest and charges that were found excessive,
iniquitous and unconscionable.
Records show that the amount of loan obtained by respondents on October

22, 1999 was P800,000.00. Respondents paid the installment for November
1999, but failed to pay the subsequent ones. On February 1, 2000, ACFLC
demanded payment of P1,871,480.00. In a span of three months,
respondents' obligation ballooned by more than P1,000,000.00. ACFLC failed
to show any computation on how much interest was imposed and on the
penalties charged. Thus, we fully agree with the CA that the amount claimed
by ACFLC is unconscionable.
In Spouses Isagani and Diosdada Castro v. Angelina de Leon Tan, Sps.
Concepcion T. Clemente and Alexander C. Clemente, Sps. Elizabeth T. Carpio
and Alvin Carpio, Sps. Marie Rose T. Soliman and Arvin Soliman and Julius
Amiel Tan,[11] this Court held:
The imposition of an unconscionable rate of interest on a money debt, even if
knowingly and voluntarily assumed, is immoral and unjust. It is tantamount
to a repugnant spoliation and an iniquitous deprivation of property, repulsive
to the common sense of man. It has no support in law, in principles of
justice, or in the human conscience nor is there any reason whatsoever
which may justify such imposition as righteous and as one that may be
sustained within the sphere of public or private morals.
Stipulations authorizing the imposition of iniquitous or unconscionable
interest are contrary to morals, if not against the law. Under Article 1409 of
the Civil Code, these contracts are inexistent and void from the beginning.
They cannot be ratified nor the right to set up their illegality as a defense be
waived. The nullity of the stipulation on the usurious interest does not,
however, affect the lender's right to recover the principal of the loan. Nor
would it affect the terms of the real estate mortgage. The right to foreclose
the mortgage remains with the creditors, and said right can be exercised
upon the failure of the debtors to pay the debt due. The debt due is to be
considered without the stipulation of the excessive interest. A legal interest
of 12% per annum will be added in place of the excessive interest formerly
imposed.[12] The nullification by the CA of the interest rate and the penalty
charge and the consequent imposition of an interest rate of 12% and penalty
charge of 1% per month cannot, therefore, be considered a reversible error.
ACFLC next faults the CA for invalidating paragraph 14 of the real estate
mortgage which provides for the waiver of the mortgagor's right of
redemption. It argues that the right of redemption is a privilege; hence,
respondents are at liberty to waive their right of redemption, as they did in
this case.
Settled is the rule that for a waiver to be valid and effective, it must, in the
first place, be couched in clear and unequivocal terms which will leave no
doubt as to the intention of a party to give up a right or benefit which legally
pertains to him. Additionally, the intention to waive a right or an advantage
must be shown clearly and convincingly.[13] Unfortunately, ACFLC failed to
convince us that respondents waived their right of redemption voluntarily.
As the CA had taken pains to demonstrate:
The supposed waiver by the mortgagors was contained in a statement made
in fine print in the REM. It was made in the form and language prepared by

[petitioner]ACFLC while the [respondents] merely affixed their signatures or

adhesion thereto. It thus partakes of the nature of a contract of adhesion. It
is settled that doubts in the interpretation of stipulations in contracts of
adhesion should be resolved against the party that prepared them. This
principle especially holds true with regard to waivers, which are not
presumed, but which must be clearly and convincingly shown. [Petitioner]
ACFLC presented no evidence hence it failed to show the efficacy of this
waiver.
Moreover, to say that the mortgagor's right of redemption may be waived
through a fine print in a mortgage contract is, in the last analysis,
tantamount to placing at the mortgagee's absolute disposal the property
foreclosed. It would render practically nugatory this right that is provided by
law for the mortgagor for reasons of public policy. A contract of adhesion
may be struck down as void and unenforceable for being subversive to public
policy, when the weaker party is completely deprived of the opportunity to
bargain on equal footing.[14]
In fine, when the redemptioner chooses to exercise his right of redemption, it
is the policy of the law to aid rather than to defeat his right. [15] Thus, we
affirm the CA in nullifying the waiver of the right of redemption provided in
the real estate mortgage.
Finally, ACFLC claims that respondents' complaint for annulment of mortgage
is a collateral attack on its certificate of title. The argument is specious.
The instant complaint for annulment of mortgage was filed on April 7, 2000,
long before the consolidation of ACFLC's title over the property. In fact,
when respondents filed this suit at the first instance, the title to the property
was still in the name of respondent Cesario. The instant case was pending
with the RTC when ACFLC filed a petition for foreclosure of mortgage and
even when a writ of possession was issued. Clearly, ACFLC's title is subject
to the final outcome of the present case.
WHEREFORE, the petition is DENIED. The assailed Decision and Resolution
of the Court of Appeals in CA-G.R. CV No. 83197 are AFFIRMED. Costs
against petitioner.
SO ORDERED.
Carpio, (Chairperson), Peralta, Abad, and Mendoza, JJ., concur.

Penned by Associate Justice Portia Alio-Hormachuelos, with Associate

Justices Rosemari D. Carandang and Estela M. Perlas-Bernabe, concurring;
rollo, pp. 72-88.
[1]

[2]

Records, pp. 207-215.

[3]

Rollo, pp. 90-92.

[4]

Exhibit "C," records, p. 16.

[5]

Exhibit "B," id. at 14-15.

[6]

Exhibit "A," id. at 12.

[7]

Id. at 40.

[8]

Id. at 215.

[9]

Rollo, pp. 86-87.

Heirs of Zoilo Espiritu v. Landrito, G.R. No. 169617, April 3, 2007, 520
SCRA 383, 393; Ruiz v. Court of Appeals, 449 Phil. 419, 433-435 (2003);
Spouses Solan gon v. Salazar, 412 Phil. 816, 822-823 (2001).
[10]

[11]

G.R. No. 168940, November 24, 2009.

[12]

Heirs of Zoilo Espiritu v. Landrito, supra note 11, at 398.

See Thomson v. Court of Appeals, G.R. No. 116631, October 28, 1998,
358 Phil. 761, 778 (1998).
[13]

[14]

Rollo, pp. 85-86.

Iligan Bay Manufacturing Corporation v. Dy, G.R. Nos. 140836 & 140907,
June 8, 2007, 524 SCRA 55, 70.
[15]

Source: Supreme Court E-Library | Date created: August 05, 2010

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Supreme Court E-Library

[ G.R. No. 159665, August 03, 2010 ]

ANSELMO TAGHOY AND THE LATE VICENTA T. APA,
SUBSTITUTED BY HER HEIRS, NAMELY, MANUEL T. APA,
NICASIO T. APA, DELFIN T. APA, ALMA A. JACALAN,
ARLENE A. SUMALINOG, AIDA A. ARONG, ELENA A.
COSEP, ALFREDO T. APA, ISABELO T. APA, JR., ISABELO
T. APA III, SHERWIN T. APA, AND FLORITO T. APA,
PETITIONERS, VS. SPS. FELIXBERTO TIGOL, JR. AND
ROSITA TIGOL, RESPONDENTS.
DECISION

BRION, J.:
We resolve the present petition for review on certiorari[1] filed by petitioners
Anselmo Taghoy and the heirs of Vicenta T. Apa (petitioners) to challenge the
decision[2] and the resolution[3] of the Court of Appeals (CA) in CA-G.R. CV
No. 54385.[4] The CA decision set aside the decision[5] of the Regional Trial
Court (RTC), Branch 27, Lapu-lapu City in Civil Case No. 2247. The CA
resolution denied the petitioners' subsequent motion for reconsideration.
FACTUAL BACKGROUND
The facts of the case, gathered from the records, are briefly summarized
below.
Spouses Filomeno Taghoy and Margarita Amit[6] owned an 11,067 square
meter parcel of land, known as Lot 3635-B of subdivision plan (LRC) Psd212881 (subject property), located in Barrio Agus, Lapu-Lapu City, Cebu
under Transfer Certificate of Title (TCT) No. 6466 of the Lapu-Lapu City
Registry of Deeds.[7]
On August 6, 1975, Filomeno and Margarita[8] executed a special power of
attorney, appointing Felixberto Tigol, Jr. as their attorney-in-fact.[9] On
August 21, 1975, Felixberto, as attorney-in-fact, executed a real estate
mortgage over the subject property to secure a loan of P22,000.00 with the
Philippine National Bank (PNB).[10] Filomeno and Margarita obtained the loan
to finance the shellcraft business of their children.[11]
Filomeno died intestate on February 12, 1976. On July 27, 1979, his widow,
Margarita, and their seven children, namely, Vicenta, Felisa, Pantaleon,
Gaudencio, Anselmo, Anastacia and Rosita, as heirs of the deceased,
executed a Deed of Extrajudicial Settlement and Sale, adjudicating to
themselves the subject property and selling the same to Rosita and her
husband Felixberto (respondents) for P1,000.00.[12]
Subsequently, on September 7, 1981 and August 10, 1982, Filomeno's heirs
executed two (2) Deeds of Confirmation of Sale, confirming the supposed
sale of the subject property by Filomeno and Margarita in favor of the
respondents for P1,000.00.[13] Simultaneous with the execution of the deeds,
however, the respondents executed explanatory Joint Affidavits attesting that
the sale was without any consideration, and was only executed to secure a
loan.[14]
On March 9, 1983, TCT No. 13250 was issued in the respondents' names. [15]
On July 1, 1983, the respondents obtained a P70,000.00 loan with the
Philippine Banking Corporation, secured by a real estate mortgage on the
subject property.[16]
Seven (7) years later, on April 17, 1990, Anselmo and Vicenta, together with
Margarita, Felisa, Gaudencio, and Pantaleon's surviving heir, Annabel, filed a
complaint against the respondents and Anastacia for declaration of nullity of
the respondents' TCT and for judicial partition. [17] They alleged that the deeds
of confirmation of sale became the bases for the transfer of the title in the

respondents' names, but the sale was fictitious or simulated, as evidenced by

the respondents' own explanatory joint affidavits attesting that the transfer
was for the purpose only of convenience in securing a loan, not for
absolute conveyance or sale.
The respondents admitted that they executed the joint affidavits but
countered that they acquired a valid title to the subject property through the
Extrajudicial Settlement of Heirs and Sale. They claimed that when Filomeno
died without the PNB loan being paid, the heirs agreed that the respondents
will advance payment of the loan, subject to reimbursement, to save the
foreclosure of the subject property; the heirs then executed the Extrajudicial
Settlement and Sale in the respondents' favor as their way of reimbursing
the amount the latter paid; the respondents executed the joint affidavits out
of generosity, expressing their willingness to be reimbursed, but when the
heirs failed to reimburse the amounts advanced by them, then they caused
the registration of the title in their names.[18]
Margarita, Felisa, Gaudencio and Annabel failed to appear at the initial
hearing, prompting the petitioners' counsel to manifest that, except for
Anselmo and Vicenta, they were abandoning the complaint. [19] The
petitioners subsequently amended the complaint to implead Margarita,
Felisa, Gaudencio and Annabel as party defendants or unwilling plaintiffs. [20]
THE RTC RULING
In its decision, the RTC found that the sale of the subject property was
absolutely simulated since the deeds of confirmation of sale were executed
only to accommodate the respondents' loan application using the subject
property as collateral. The lower court thus ordered the nullification of the
respondents' title. It likewise ordered the partition of the subject property
after reimbursement of the amount the respondents paid for the loan. [21]
Subsequently, the respondents filed a motion for new trial, anchored on
newly discovered evidence allegedly proving that the subject property is
Margarita's paraphernal property.[22] When the RTC denied[23] the motion for
new trial, the respondents filed an appeal with the CA, under Rule 41 of the
Rules of Court.
THE CA RULING
The CA decided the appeal on August 26, 2002, reversing the RTC decision.
Relying upon Margarita's testimony that the respondents paid the loan, the
CA found that the contract between the parties was relatively simulated; the
respondents' payment of the PNB loan was the real consideration for the
transfer of title.
After the CA denied[24] the motion for reconsideration[25] that followed, the
petitioners filed the present petition.
THE PETITION
The petitioners argue that the heirs, in executing the extrajudicial
settlement, did not intend to divest themselves of their respective rightful

shares, interests and participation in the subject property because it lacked a

consideration, as affirmed by the respondents' own joint affidavits; the
payment of the PNB loan could not be a valid consideration for the transfer
since the loan was still unpaid and outstanding at the time of the execution
of the extrajudicial settlement.[26]
THE CASE FOR THE RESPONDENTS
The respondents, on the other hand, maintain that the Extrajudicial
Settlement and Sale was the basis of their registration of title, and their
payment of the PNB loan was the real consideration for the transfer; the joint
affidavits were executed only out of generosity and kindness, subject to the
heirs' reimbursement of the amounts they paid for the loan, such that when
the heirs did not reimburse the amounts paid, they then caused the
registration of title in their names.[27]
THE ISSUE
The core issue boils down to whether the sale of the subject property
between the parties was absolutely or relatively simulated.
OUR RULING
We find the petition meritorious.
This Court is not a trier of facts. However, if the inference drawn by the
appellate court from the facts is manifestly mistaken, as in the present case,
we can review the evidence to allow us to arrive at the correct factual
conclusions based on the record.[28]
In the interpretation of contracts, the intention of the parties is accorded
primordial consideration;[29] such intention is determined from the express
terms of their agreement,[30] as well as their contemporaneous and
subsequent acts.[31] When the parties do not intend to be bound at all, the
contract is absolutely simulated; if the parties conceal their true agreement,
then the contract is relatively simulated.[32] An absolutely simulated contract
is void, and the parties may recover from each other what they may have
given under the simulated contract, while a relatively simulated contract is
valid and enforceable as the parties' real agreement binds them. [23]
Characteristic of simulation is that the apparent contract is not really desired
or intended to produce legal effects, or in any way, alter the juridical
situation of the parties.[34]
In the present case, the parties never intended to be bound by their
agreement as revealed by the two (2) joint affidavits executed by the
respondents simultaneous with the execution of the deeds of confirmation of
sale. The September 7, 1981 Joint Affidavit stated:
2. That the truth of the matter is that the deed of sale and the confirmation
of said sale by the legal heirs are executed for the purpose of securing a
loan in our name but which amount of said loan shall be divided equally
among the legal heirs, and that every heir shall pay his corresponding share
in the amortization payment of said loan;

3. That said sale was without any consideration, and that we executed
this affidavit to establish the aforestated facts for purposes of loan only
but not for conveyance and transfer in our name absolutely and forever but
during the duration of the terms of the loan;
4. That we executed this affidavit voluntarily and freely in order to establish
this facts (sic) above-mentioned and to undertake to return the said land
to the legal heirs of the late spouse, Filomeno Taghoy, survived by his
widow, Rita Amit-Taghoy, upon full payment of our intended loan.
The August 10, 1982 Joint Affidavit, on the other hand, averred:
3. That the truth of the matter is that said Lot No. 3635-B was sold
without any purchase price or consideration paid to said Filomeno
Taghoy, but for the purpose of securing a loan in our name but which
amount of said loan shall be divided equally among us, the legal heirs of
Filomeno Taghoy;
4. That in case the loan will be fully paid, we shall obligate ourselves to
resell, reconvey the said Lot No. 3635-B in favor of the Heirs of Filomeno
Taghoy and Rita Amit, and in case, the said loan will not be post (sic)
through.
5. That we executed this affidavit voluntarily and freely in order to establish
the aforestated facts and to attest the fact that said deed of confirmation of
sale is only for purposes of convenience in securing the loan and not for
absolute conveyance or sale.[36]
The joint affidavits are very solid pieces of evidence in the petitioners' favor.
They constitute admissions against interest made by the respondents under
oath. An admission against interest is the best evidence that affords the
greatest certainty of the facts in dispute,[37] based on the presumption that
no man would declare anything against himself unless such declaration is
true.[38] It is fair to presume that the declaration corresponds with the truth,
and it is his fault if it does not.[39]
Thus, by the respondents' own admissions, they never intended to be bound
by the sale; they merely executed the documents for convenience in securing
a bank loan, and they agreed to reconvey the subject property upon payment
of the loan. The sale was absolutely simulated and, therefore, void.
We find that the CA misappreciated Margarita's testimony that the
respondents are entitled to the entire property because they redeemed or
paid the bank loan.[40] The failure of the other heirs to reimburse the
amounts advanced by the respondents in payment of the loan did not entitle
the latter to claim full ownership of the co-owned property.[41] It only gave
them the right to claim reimbursement for the amounts they advanced in
behalf of the co-ownership. The respondents' advance payments are in the
nature of necessary expenses for the preservation of the co-ownership.
Article 488 of the Civil Code provides that necessary expenses may be
incurred by one co-owner, subject to his right to collect reimbursement from
the remaining co-owners.[42] Until reimbursed, the respondents hold a lien

upon the subject property for the amount they advanced.

Based on the foregoing, we find that the CA erred in setting aside the
decision of the RTC and in dismissing the petitioners' complaint against the
respondents.
WHEREFORE, we hereby REVERSE and SET ASIDE the decision dated
August 26, 2002 and the resolution dated July 22, 2003 of the Court of
Appeals in CA-G.R. CV No. 54385. The decision dated February 23, 1994 of
the Regional Trial Court, Branch 27, Lapu-Lapu City in Civil Case No. 2247 is
REINSTATED. No pronouncement as to costs.
SO ORDERED.
Carpio Morales, (Chairperson), Bersamin, *Abad, and Villarama, Jr., JJ.,
concur.

Designated additional Member of the Third Division in view of the

retirement of Chief Justice Reynato S. Puno, per Special Order No. 843 dated
May 17,2010.
*

[1]

Filed under Rule 45 of the Rules of Court; rollo, pp. 10-22.

Dated August 26, 2002. Penned by Associate Justice Rebecca de GuiaSalvador, with Associate Justices Godardo A. Jacinto and Eloy R. Bello, Jr.
concurring; id. at 23-32.
[2]

[3]

Dated July 22, 2003; id. at 33.

Entitled "Anselmo Taghoy and Vicenta T. Apa v. Sps. Felixberto Tigol, Jr.
and Rosila T. Tigol, Anastacia T. Pangatungan, Margarita A. Taghoy, Felisa
Taghoy, Gaudencio Taghoy and Annabel Taghoy, represented by Margarita A.
Taghoy."
[4]

[5]

Dated February 23, 1994; Original Records, pp. 109-115.

[6]

Also known as "Rita A. Taghoy" in other parts of the records.

[7]

Original Records, pp. 20-22.

Also referred to in Transfer Certificate of Title No. 6466 as "Rita Amit

Taghoy."
[8]

The Special Power of Attorney was duly annotated in the Memorandum of

Encumbrances of Transfer Certificate of Title No. 666; Original Records, p.
21.
[9]

[10]

Ibid.

[11]

TSN of June 29, 1991, Testimony of Margarita Taghoy, p. 7; id. at 69.

[12]

Id. at 26-27.

[13]

Id. at 9-10.

Id. at 11 and 48; with the mortgage to and loan from PNB duly annotated
in the Memorandum of Encumbrances of Transfer Certificate of Title No.
6466.
[14]

[15]

Id. at 8.

[16]

Ibid, (backpage).

[17]

Id. at 1-7.

[18]

Id. at 16-19.

[19]

Id. at 40.

[20]

Id. at 41-47.

[21]

Supra note 5.

[22]

Id at 117-121.

[23]

Id at 185-186.

[24]

Supra note 3.

[25]

CA rollo, pp. 76-82.

[26]

Rollo, pp. 106-119.

[27]

Id. at 81-94.

Heirs of Flores Restar v. Heirs of Dolores R. Cichon, G.R. No. 161720,

November 22, 2005, 475 SCRA 731, 739; Casol v. Purefoods Corporation,
G.R. No. 166550, September 22, 2005, 470 SCRA 585, 589; Carpio v.
Valmonte, 481 Phil. 352, 358 (2004).
[28]

Valeria v. Refresca, G.R. No. 163687, March 28, 2006, 485 SCRA 494,
501; Ramos v. Heirs of Honorio Ramos, Sr., 431 Phil. 337, 345 (2002).
[29]

CIVIL CODE, Art. 1370. 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.
[30]

If the words appear to be contrary to the evident intention of the parties, the
latter shall prevail over the former.
CIVIL CODE, Art. 1371. In order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall be principally
[31]

considered.
CIVIL CODE, Art. 1345. Simulation of a contract may be absolute or
relative. The former takes place when the parties do not intend to be bound
at all; the latter, when the parties conceal their true agreement.
[32]

Heirs of the late Spouses halite v. Lim, 487 Phil. 281, 293; Sps.
Velasquez v. Court of Appeals, 399 Phil. 193,200(2000).
[33]

Valeria v. Refresca, supra note 29, at 500; Loyola v. Court of Appeals,

383 Phil. 171, 182 (2000).
[34]

[35]

Original Records, p. 48.

[36]

Id. at 11.

Heirs of Miguel Franco v. Court of Appeals, 463 Phil. 417, 428 (2003);
Yuliongsiu v. PNB, 130 Phil. 575,580 (1968).
[37]

Republic v. Bautista, G.R. No. 169801, September 11, 2007, 532 SCRA
598, 609; Bon v. People, 464 Phil. 125; S38(2004).
[38]

[39]

Rufina Patis Factory v. Alusitain, 478 Phil. 544, 558 (2004).

TSN of June 29, 1991, Testimony of Margarita Taghoy, p. 8; Original

Records, p. 70.
[40]

See Paulmitan v. Court of Appeals, G.R. No. 61584, November 25, 1992,
215 SCRA 866. 873-874; Adille v. Court of Appeals, 241 Phil. 487, 493
(1988).
[41]

CIVIL CODE, Art. 488. Each co-owner shall have a right to compel the
other co-owners to contribute to the expenses of preservation of the thing or
right owned in common and to the taxes. Any one of the latter may exempt
himself from this obligation by renouncing so much of his undivided interest
as may be equivalent to his share of the expenses and taxes. No such
waiver shall be made if it is prejudicial to the co-ownership.
[42]

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Supreme Court E-Library

[ G.R. No. 186738, September 27, 2010 ]

PRUDENTIAL BANK AND TRUST COMPANY (NOW BANK

OF THE PHILIPPINE ISLANDS,[1] PETITIONER, VS.
LIWAYWAY ABASOLO, RESPONDENT.
DECISION
CARPIO MORALES, J.:
Leonor Valenzuela-Rosales inherited two parcels of land situated in Palanan,
Sta. Cruz, Laguna (the properties), registered as Original Certificates of Title
Nos. RO-527 and RO-528. After she passed away, her heirs executed on
June 14, 1993 a Special Power of Attorney (SPA) in favor of Liwayway
Abasolo (respondent) empowering her to sell the properties. [2]
Sometime in 1995, Corazon Marasigan (Corazon) wanted to buy the
properties which were being sold for P2,448,960, but as she had no available
cash, she broached the idea of first mortgaging the properties to petitioner
Prudential Bank and Trust Company (PBTC), the proceeds of which would be
paid directly to respondent. Respondent agreed to the proposal.
On Corazon and respondent's consultation with PBTC's Head Office, its
employee, Norberto Mendiola (Mendiola), allegedly advised respondent to
issue an authorization for Corazon to mortgage the properties, and for her
(respondent) to act as one of the co-makers so that the proceeds could be
released to both of them.
To guarantee the payment of the property, Corazon executed on August 25,
1995 a Promissory Note for P2,448,960 in favor of respondent.
By respondent's claim, in October 1995, Mendiola advised her to transfer the
properties first to Corazon for the immediate processing of Corazon's loan
application with assurance that the proceeds thereof would be paid directly to
her (respondent), and the obligation would be reflected in a bank guarantee.
Heeding Mendiola's advice, respondent executed a Deed of Absolute Sale
over the properties in favor of Corazon following which or on December 4,
1995, Transfer Certificates of Title Nos. 164159 and 164160 were issued in
the name of Corazon.
Corazon's application for a loan with PBTC's Tondo Branch was approved on
December 1995. She thereupon executed a real estate mortgage covering
the properties to secure the payment of the loan. In the absence of a written
request for a bank guarantee, the PBTC released the proceeds of the loan to
Corazon.
Respondent later got wind of the approval of Corazon's loan application and
the release of its proceeds to Corazon who, despite repeated demands, failed
to pay the purchase price of the properties.
Respondent eventually accepted from Corazon partial payment in kind
consisting of one owner type jeepney and four passenger jeepneys, [3] plus

installment payments, which, by the trial court's computation, totaled

P665,000.
In view of Corazon's failure to fully pay the purchase price, respondent filed a
complaint for collection of sum of money and annulment of sale and
mortgage with damages, against Corazon and PBTC (hereafter petitioner),
before the Regional Trial Court (RTC) of Sta. Cruz, Laguna.[4]
In her Answer,[5] Corazon denied that there was an agreement that the
proceeds of the loan would be paid directly to respondent. And she claimed
that the vehicles represented full payment of the properties, and had in fact
overpaid P76,040.
Petitioner also denied that there was any arrangement between it and
respondent that the proceeds of the loan would be released to her.[6] It
claimed that it "may process a loan application of the registered owner of the
real property who requests that proceeds of the loan or part thereof be
payable directly to a third party [but] the applicant must submit a letter
request to the Bank."[7]
On pre-trial, the parties stipulated that petitioner was not a party to the
contract of sale between respondent and Corazon; that there was no written
request that the proceeds of the loan should be paid to respondent; and that
respondent received five vehicles as partial payment of the properties. [8]
Despite notice, Corazon failed to appear during the trial to substantiate her
claims.
By Decision of March 12, 2004,[9] Branch 91 of the Sta. Cruz, Laguna RTC
rendered judgment in favor of respondent and against Corazon who was
made directly liable to respondent, and against petitioner who was made
subsidiarily liable in the event that Corazon fails to pay. Thus the trial court
disposed:
WHEREFORE, premises considered, finding the plaintiff has established her
claim against the defendants, Corazon Marasigan and Prudential Bank and
Trust Company, judgment is hereby rendered in favor of the plaintiff
ordering:
Defendant Corazon Marasigan to pay the plaintiff the amount of
P1,783,960.00 plus three percent (3%) monthly interest per month from
August 25, 1995 until fully paid. Further, to pay the plaintiff the sum
equivalent to twenty percent five [sic] (25%) of P1,783,960.00 as attorney's
fees.
Defendant Prudential Bank and Trust Company to pay the plaintiff the
amount of P1,783,960.00 or a portion thereof plus the legal rate of interest
per annum until fully paid in the event that Defendant Corazon
Marasigan fails to pay the said amount or a portion thereof.
Other damages claimed not duly proved are hereby dismissed.

So Ordered.[10] (emphasis in the original; underscoring partly in the

original, partly supplied)
In finding petitioner subsidiarily liable, the trial court held that petitioner
breached its understanding to release the proceeds of the loan to
respondent:
Liwayway claims that the bank should also be held responsible for breach of
its obligation to directly release to her the proceeds of the loan or part
thereof as payment for the subject lots. The evidence shows that her claim is
valid. The Bank had such an obligation as proven by evidence. It failed to
rebut the credible testimony of Liwayway which was given in a frank,
spontaneous, and straightforward manner and withstood the test of rigorous
cross-examination conducted by the counsel of the Bank. Her credibility is
further strengthened by the corroborative testimony of Miguela delos Reyes
who testified that she went with Liwayway to the bank for several times. In
her presence, Norberto Mendiola, the head of the loan department,
instructed Liwayway to transfer the title over the subject lots to Corazon to
facilitate the release of the loan with the guarantee that Liwayway will be
paid upon the release of the proceeds.
Further, Liwayway would not have executed the deed of sale in favor of
Corazon had Norberto Mendiola did not promise and guarantee that the
proceeds of the loan would be directly paid to her. Based on ordinary human
experience, she would not have readily transferred the title over the subject
lots had there been no strong and reliable guarantee. In this case, what
caused her to transfer title is the promise and guarantee made by Norberto
Mendiola that the proceeds of the loan would be directly paid to her. [11]
(emphasis underscoring supplied)
On appeal, the Court of Appeals by Decision of January 14, 2008 [12],
affirmed the trial court's decision with modification on the amount of the
balance of the purchase price which was reduced from P1,783,960 to
P1,753,960. It disposed:
WHEREFORE, premises considered, the assailed Decision dated March 12,
2004 of the Regional Trial Court of Sta. Cruz, Laguna, Branch 91, is
AFFIRMED WITH MODIFICATION as to the amount to be paid which is
P1,753,960.00.
SO ORDERED.[13] (emphasis in the original; underscoring supplied)
Petitioner's motion for reconsideration having been denied by the appellate
court by Resolution of February 23, 2009, the present petition for review was
filed.
The only issue petitioner raises is whether it is subsidiarily liable.
The petition is meritorious.
In the absence of a lender-borrower relationship between petitioner and
Liwayway, there is no inherent obligation of petitioner to release the proceeds
of the loan to her.

To a banking institution, well-defined lending policies and sound lending

practices are essential to perform its lending function effectively and
minimize the risk inherent in any extension of credit.
Thus, Section X302 of the Manual of Regulations for Banks provides:
X-302. To ensure that timely and adequate management action is taken to
maintain the quality of the loan portfolio and other risk assets and that
adequate loss reserves are set up and maintained at a level sufficient to
absorb the loss inherent in the loan portfolio and other risk assets, each bank
shall establish a system of identifying and monitoring existing or potential
problem loans and other risk assets and of evaluating credit policies vis--vis
prevailing circumstances and emerging portfolio trends. Management must
also recognize that loss reserve is a stabilizing factor and that failure to
account appropriately for losses or make adequate provisions for estimated
future losses may result in misrepresentation of the bank's financial
condition.
In order to identify and monitor loans that a bank has extended, a system of
documentation is necessary. Under this fold falls the issuance by a bank of a
guarantee which is essentially a promise to repay the liabilities of a debtor, in
this case Corazon. It would be contrary to established banking practice if
Mendiola issued a bank guarantee, even if no request to that effect was
made.
The principle of relativity of contracts in Article 1311 of the Civil Code
supports petitioner's cause:
Art. 1311. Contracts take effect only between the parties, their assigns and
heirs, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property he
received from the decedent.
If a contract should contain some stipulation in favor of a third person, he
may demand its fulfillment provided he communicated his acceptance to the
obligor before its revocation. A mere incidental benefit or interest of a person
is not sufficient. The contracting parties must have clearly and deliberately
conferred a favor upon a third person. (underscoring supplied)
For Liwayway to prove her claim against petitioner, a clear and deliberate act
of conferring a favor upon her must be present. A written request would have
sufficed to prove this, given the nature of a banking business, not to mention
the amount involved.
Since it has not been established that petitioner had an obligation to
Liwayway, there is no breach to speak of. Liwayway's claim should only be
directed against Corazon. Petitioner cannot thus be held subisidiarily liable.
To the Court, Liwayway did not rely on Mendiola's representations, even if he
indeed made them. The contract for Liwayway to sell to Corazon was
perfected from the moment there was a meeting of minds upon the

properties-object of the contract and upon the price. Only the source of the
funds to pay the purchase price was yet to be resolved at the time the two
inquired from Mendiola. Consider Liwayway's testimony:
Q:

We are referring to the promissory note which you aforementioned a

while ago, why did this promissory note come about?

A:

Because the negotiation was already completed, sir, and the deed of
sale will have to be executed, I asked the defendant (Corazon) to
execute the promissory note first before I could execute a
deed of absolute sale, for assurance that she really pay me, sir.
[14]
(emphasis and underscoring supplied)

That it was on Corazon's execution of a promissory note that prompted

Liwayway to finally execute the Deed of Sale is thus clear.
The trial Court's reliance on the doctrine of apparent authority - that the
principal, in this case petitioner, is liable for the obligations contracted by its
agent, in this case Mendiola, - does not lie. Prudential Bank v. Court of
Appeals[15] instructs:
[A] banking corporation is liable to innocent third persons where the
representation is made in the course of its business by an agent acting within
the general scope of his authority even though, in the particular case, the
agent is secretly abusing his authority and attempting to perpetuate fraud
upon his principal or some person, for his own ultimate benefit.[16]
(underscoring supplied)
The onus probandi that attempt to commit fraud attended petitioner's
employee Mendiola's acts and that he abused his authority lies on Liwayway.
She, however, failed to discharge the onus. It bears noting that Mendiola
was not privy to the approval or disallowance of Corazon's application for a
loan nor that he would benefit by the approval thereof.
Aside from Liwayway's bare allegations, evidence is wanting to show that
there was collusion between Corazon and Mendiola to defraud her. Even in
Liwayway's Complaint, the allegation of fraud is specifically directed against
Corazon.[17]
IN FINE, Liwayway's cause of action lies against only Corazon.
WHEREFORE, the Decision of January 14, 2008 of the Court of Appeals, in
so far as it holds petitioner, Prudential Bank and Trust Company (now Bank of
the Philippine Islands), subsidiary liable in case its co-defendant Corazon
Marasigan, who did not appeal the trial court's decision, fails to pay the
judgment debt, is REVERSED and SET ASIDE. The complaint against
petitioner is accordingly DISMISSED.
SO ORDERED.
Peralta,* Bersamin, Villarama, Jr., and Sereno, JJ., concur.

Prudential Bank and Trust Company was acquired by the Bank of Philippine
Islands (BPI) on September 2005.
[1]

Additional member per Special Order No. 885 dated September 1, 2010.

Vide SPA executed by the heirs of Leonor Valenzuela-Rosales also

authorizing Liwayway to institute and represent them in any court litigation
that may arise out of the transaction, records, p. 9.
[2]

The value of the vehicles as shown in the Acknowledgment Receipts and

Delivery Receipts are as follows: (1) Owner-type Jeepney - P200,000.00, (2)
Passenger Jeep A - P255,000.00, (3) Passenger Jeep B - P340,000.00, (4)
Passenger Jeep C - P325,000.00 (mortgaged to Plaza Lending, Co.) and (5)
Passenger Jeep D - P300,000.00.
[3]

The complaint, Civil Case No. SC-3643, was entitled "Liwayway Abasolo v.
Corazon Marasigan, Prudential Bank and Trust Company and the Register of
Deeds of Laguna." The title of the complaint does not indicate that Liwayway
was prosecuting the case as attorney-in-fact of the Heirs of Leonor
Valenzuela-Rosales, which is not in accordance with Section 3, Rule 3 of the
Rules of Court reading:
[4]

Sec. 3. Representatives as parties. - Where the action is allowed to be

prosecuted or defended by a representative or someone acting in a fiduciary
capacity, the beneficiary shall be included in the title of the case and shall be
deemed to be the real party in interest. A representative may be a trustee of
an express trust, a guardian, an executor or administrator, or a party
authorized by law or these Rules. An agent acting in his own name and for
the benefit of an undisclosed principal may sue or be sued without joining the
principal except when the contract involves things belonging to the principal.
(underscoring supplied)
The defendants never questioned the matter, however.
[5]

Records, pp. 29-35.

[6]

Bank's Answer With Counterclaim, id. at 36-41.

[7]

Id. at 38.

[8]

Pre-Trial Order, id. at 98.

[9]

Id. at 221-226.

[10]

Id. at 226.

[11]

Id. at 224.

Penned by Associate Justice Aurora Santiago-Lagman with the

concurrence of Associate Justices Bienvenido L. Reyes and Apolinario D.
Bruselas, Jr., rollo, pp. 31-43.
[12]

[13]

CA rollo, p. 117.

[14]

TSN, September 21, 1999, p. 23

[15]

G.R. No. 108957, June 14, 1993, 223 SCRA 350

Id. at 357, quoting McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW

818, 40 ALR 1021.
[16]

[17]

Records, p. 6.

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