PAYMENT

SPOUSES DEO AGNER and MARICON AGNER, Petitioners,

vs.
BPI FAMILY SAVINGS BANK, INC., Respondent.
DECISION
PERALTA, J.:
This is a petition for review on certiorari assailing the April 30, 2007 Decision1 and May 19, 2008
Resolution2of the Court of Appeals in CAG.R. CV No. 86021, which affirmed the August 11,
2005 Decision3 of the Regional Trial Court, Branch 33, Manila City.
On February 15, 2001, petitioners spouses Deo Agner and Maricon Agner executed a
Promissory Note with Chattel Mortgage in favor of Citimotors, Inc. The contract provides, among
others, that: for receiving the amount of Php834, 768.00, petitioners shall pay Php 17,391.00
every 15th day of each succeeding month until fully paid; the loan is secured by a 2001
Mitsubishi Adventure Super Sport; and an interest of 6% per month shall be imposed for failure
to pay each installment on or before the stated due date.4
On the same day, Citimotors, Inc. assigned all its rights, title and interests in the Promissory
Note with Chattel Mortgage to ABN AMRO Savings Bank, Inc. (ABN AMRO), which, on May 31,
2002, likewise assigned the same to respondent BPI Family Savings Bank, Inc.5
For failure to pay four successive installments from May 15, 2002 to August 15, 2002,
respondent, through counsel, sent to petitioners a demand letter dated August 29, 2002,
declaring the entire obligation as due and demandable and requiring to pay Php576,664.04, or
surrender the mortgaged vehicle immediately upon receiving the letter.6 As the demand was left
unheeded, respondent filed on October 4, 2002 an action for Replevin and Damages before the
Manila Regional Trial Court (RTC).
A writ of replevin was issued.7 Despite this, the subject vehicle was not seized.8 Trial on the
merits ensued. On August 11, 2005, the Manila RTC Br. 33 ruled for the respondent and ordered
petitioners to jointly and severally pay the amount of Php576,664.04 plus interest at the rate of
72% per annum from August 20, 2002 until fully paid, and the costs of suit.
Petitioners appealed the decision to the Court of Appeals (CA), but the CA affirmed the lower
courts decision and, subsequently, denied the motion for reconsideration; hence, this petition.
Before this Court, petitioners argue that: (1) respondent has no cause of action, because the
Deed of Assignment executed in its favor did not specifically mention ABN AMROs account
receivable from petitioners; (2) petitioners cannot be considered to have defaulted in payment
for lack of competent proof that they received the demand letter; and (3) respondents remedy of
resorting to both actions of replevin and collection of sum of money is contrary to the provision
of Article 14849 of the Civil Code and the Elisco Tool Manufacturing Corporation v. Court of
Appeals10ruling.

The contentions are untenable.

With respect to the first issue, it would be sufficient to state that the matter surrounding the
Deed of Assignment had already been considered by the trial court and the CA. Likewise, it is
an issue of fact that is not a proper subject of a petition for review under Rule 45. An issue is
factual when the doubt or difference arises as to the truth or falsehood of alleged facts, or when
the query invites calibration of the whole evidence, considering mainly the credibility of
witnesses, existence and relevancy of specific surrounding circumstances, their relation to each
other and to the whole, and the probabilities of the situation.11 Time and again, We stress that
this Court is not a trier of facts and generally does not weigh anew evidence which lower courts
have passed upon.
As to the second issue, records bear that both verbal and written demands were in fact made by
respondent prior to the institution of the case against petitioners.12 Even assuming, for
arguments sake, that no demand letter was sent by respondent, there is really no need for it
because petitioners legally waived the necessity of notice or demand in the Promissory Note
with Chattel Mortgage, which they voluntarily and knowingly signed in favor of respondents
predecessor-in-interest. Said contract expressly stipulates:
In case of my/our failure to pay when due and payable, any sum which I/We are obliged to pay
under this note and/or any other obligation which I/We or any of us may now or in the future owe
to the holder of this note or to any other party whether as principal or guarantor x x x then the
entire sum outstanding under this note shall, without prior notice or demand, immediately
become due and payable. (Emphasis and underscoring supplied)
A provision on waiver of notice or demand has been recognized as legal and valid in Bank of the
Philippine Islands v. Court of Appeals,13 wherein We held:
The Civil Code in Article 1169 provides that one incurs in delay or is in default from the time the
obligor demands the fulfillment of the obligation from the obligee. However, the law expressly
provides that demand is not necessary under certain circumstances, and one of these
circumstances is when the parties expressly waive demand. Hence, since the co-signors
expressly waived demand in the promissory notes, demand was unnecessary for them to be in
default.14
Further, the Court even ruled in Navarro v. Escobido15 that prior demand is not a condition
precedent to an action for a writ of replevin, since there is nothing in Section 2, Rule 60 of the
Rules of Court that requires the applicant to make a demand on the possessor of the property
before an action for a writ of replevin could be filed.
Also, petitioners representation that they have not received a demand letter is completely
inconsequential as the mere act of sending it would suffice. Again, We look into the Promissory
Note with Chattel Mortgage, which provides:
All correspondence relative to this mortgage, including demand letters, summonses,
subpoenas, or notifications of any judicial or extrajudicial action shall be sent to the
MORTGAGOR at the address indicated on this promissory note with chattel mortgage or at the

address that may hereafter be given in writing by the MORTGAGOR to the MORTGAGEE or
his/its assignee. The mere act of sending any correspondence by mail or by personal delivery to
the said address shall be valid and effective notice to the mortgagor for all legal purposes and
the fact that any communication is not actually received by the MORTGAGOR or that it has
been returned unclaimed to the MORTGAGEE or that no person was found at the address
given, or that the address is fictitious or cannot be located shall not excuse or relieve the
MORTGAGOR from the effects of such notice.16 (Emphasis and underscoring supplied)
The Court cannot yield to petitioners denial in receiving respondents demand letter. To note,
their postal address evidently remained unchanged from the time they executed the Promissory
Note with Chattel Mortgage up to time the case was filed against them. Thus, the presumption
that "a letter duly directed and mailed was received in the regular course of the mail"17 stands in
the absence of satisfactory proof to the contrary.
Petitioners cannot find succour from Ting v. Court of Appeals18 simply because it pertained to
violation of Batas Pambansa Blg. 22 or the Bouncing Checks Law. As a higher quantum of proof
that is, proof beyond reasonable doubt is required in view of the criminal nature of the case,
We found insufficient the mere presentation of a copy of the demand letter allegedly sent
through registered mail and its corresponding registry receipt as proof of receiving the notice of
dishonor.
Perusing over the records, what is clear is that petitioners did not take advantage of all the
opportunities to present their evidence in the proceedings before the courts below. They
miserably failed to produce the original cash deposit slips proving payment of the monthly
amortizations in question. Not even a photocopy of the alleged proof of payment was appended
to their Answer or shown during the trial. Neither have they demonstrated any written requests
to respondent to furnish them with official receipts or a statement of account. Worse, petitioners
were not able to make a formal offer of evidence considering that they have not marked any
documentary evidence during the presentation of Deo Agners testimony.19
Jurisprudence abounds that, in civil cases, one who pleads payment has the burden of proving
it; the burden rests on the defendant to prove payment, rather than on the plaintiff to prove nonpayment.20 When the creditor is in possession of the document of credit, proof of non-payment
is not needed for it is presumed.21 Respondent's possession of the Promissory Note with Chattel
Mortgage strongly buttresses its claim that the obligation has not been extinguished. As held in
Bank of the Philippine Islands v. Spouses Royeca:22
x x x The creditor's possession of the evidence of debt is proof that the debt has not been
discharged by payment. A promissory note in the hands of the creditor is a proof of
indebtedness rather than proof of payment. In an action for replevin by a mortgagee, it is prima
facie evidence that the promissory note has not been paid. Likewise, an uncanceled mortgage
in the possession of the mortgagee gives rise to the presumption that the mortgage debt is
unpaid.23
Indeed, when the existence of a debt is fully established by the evidence contained in the
record, the burden of proving that it has been extinguished by payment devolves upon the

debtor who offers such defense to the claim of the creditor.24 The debtor has the burden of
showing with legal certainty that the obligation has been discharged by payment.25
Lastly, there is no violation of Article 1484 of the Civil Code and the Courts decision in Elisco
Tool Manufacturing Corporation v. Court of Appeals.26
In Elisco, petitioner's complaint contained the following prayer:
WHEREFORE, plaintiffs pray that judgment be rendered as follows:
ON THE FIRST CAUSE OF ACTION
Ordering defendant Rolando Lantan to pay the plaintiff the sum of P39,054.86 plus legal interest
from the date of demand until the whole obligation is fully paid;
ON THE SECOND CAUSE OF ACTION
To forthwith issue a Writ of Replevin ordering the seizure of the motor vehicle more particularly
described in paragraph 3 of the Complaint, from defendant Rolando Lantan and/or defendants
Rina Lantan, John Doe, Susan Doe and other person or persons in whose possession the said
motor vehicle may be found, complete with accessories and equipment, and direct deliver
thereof to plaintiff in accordance with law, and after due hearing to confirm said seizure and
plaintiff's possession over the same;
PRAYER COMMON TO ALL CAUSES OF ACTION
1. Ordering the defendant Rolando Lantan to pay the plaintiff an amount equivalent to
twenty-five percent (25%) of his outstanding obligation, for and as attorney's fees;
2. Ordering defendants to pay the cost or expenses of collection, repossession, bonding
fees and other incidental expenses to be proved during the trial; and
3. Ordering defendants to pay the costs of suit.
Plaintiff also prays for such further reliefs as this Honorable Court may deem just and equitable
under the premises.27
The Court therein ruled:
The remedies provided for in Art. 1484 are alternative, not cumulative. The exercise of one bars
the exercise of the others. This limitation applies to contracts purporting to be leases of personal
property with option to buy by virtue of Art. 1485. The condition that the lessor has deprived the
lessee of possession or enjoyment of the thing for the purpose of applying Art. 1485 was fulfilled
in this case by the filing by petitioner of the complaint for replevin to recover possession of
movable property. By virtue of the writ of seizure issued by the trial court, the deputy sheriff
seized the vehicle on August 6, 1986 and thereby deprived private respondents of its use. The

car was not returned to private respondent until April 16, 1989, after two (2) years and eight (8)
months, upon issuance by the Court of Appeals of a writ of execution.
Petitioner prayed that private respondents be made to pay the sum of P39,054.86, the amount
that they were supposed to pay as of May 1986, plus interest at the legal rate. At the same time,
it prayed for the issuance of a writ of replevin or the delivery to it of the motor vehicle "complete
with accessories and equipment." In the event the car could not be delivered to petitioner, it was
prayed that private respondent Rolando Lantan be made to pay petitioner the amount
of P60,000.00, the "estimated actual value" of the car, "plus accrued monthly rentals thereof
with interests at the rate of fourteen percent (14%) per annum until fully paid." This prayer of
course cannot be granted, even assuming that private respondents have defaulted in the
payment of their obligation. This led the trial court to say that petitioner wanted to eat its cake
and have it too.28
In contrast, respondent in this case prayed:
(a) Before trial, and upon filing and approval of the bond, to forthwith issue a Writ of
Replevin ordering the seizure of the motor vehicle above-described, complete with all its
accessories and equipments, together with the Registration Certificate thereof, and
direct the delivery thereof to plaintiff in accordance with law and after due hearing, to
confirm the said seizure;
(b) Or, in the event that manual delivery of the said motor vehicle cannot be effected to
render judgment in favor of plaintiff and against defendant(s) ordering them to pay to
plaintiff, jointly and severally, the sum ofP576,664.04 plus interest and/or late payment
charges thereon at the rate of 72% per annum from August 20, 2002 until fully paid;
(c) In either case, to order defendant(s) to pay jointly and severally:
(1) the sum of P297,857.54 as attorneys fees, liquidated damages, bonding fees
and other expenses incurred in the seizure of the said motor vehicle; and
(2) the costs of suit.
Plaintiff further prays for such other relief as this Honorable Court may deem just and equitable
in the premises.29
Compared with Elisco, the vehicle subject matter of this case was never recovered and
delivered to respondent despite the issuance of a writ of replevin. As there was no seizure that
transpired, it cannot be said that petitioners were deprived of the use and enjoyment of the
mortgaged vehicle or that respondent pursued, commenced or concluded its actual foreclosure.
The trial court, therefore, rightfully granted the alternative prayer for sum of money, which is
equivalent to the remedy of "exacting fulfillment of the obligation." Certainly, there is no double
recovery or unjust enrichment30 to speak of.1wphi1

All the foregoing notwithstanding, We are of the opinion that the interest of 6% per month should
be equitably reduced to one percent (1%) per month or twelve percent (12%) per annum, to be
reckoned from May 16, 2002 until full payment and with the remaining outstanding balance of
their car loan as of May 15, 2002 as the base amount.
Settled is the principle which this Court has affirmed in a number of cases that stipulated
interest rates of three percent (3%) per month and higher are excessive, iniquitous,
unconscionable, and exorbitant.31 While Central Bank Circular No. 905-82, which took effect on
January 1, 1983, effectively removed the ceiling on interest rates for both secured and
unsecured loans, regardless of maturity, nothing in the said circular could possibly be read as
granting carte blanche authority to lenders to raise interest rates to levels which would either
enslave their borrowers or lead to a hemorrhaging of their assets.32 Since the stipulation on the
interest rate is void for being contrary to morals, if not against the law, it is as if there was no
express contract on said interest rate; thus, the interest rate may be reduced as reason and
equity demand.33
WHEREFORE, the petition is DENIED and the Court AFFIRMS WITH MODIFICATION the April
30, 2007 Decision and May 19, 2008 Resolution of the Court of Appeals in CA-G.R. CV No.
86021. Petitioners spouses Deo Agner and Maricon Agner are ORDERED to pay, jointly and
severally, respondent BPI Family Savings Bank, Inc. ( 1) the remaining outstanding balance of
their auto loan obligation as of May 15, 2002 with interest at one percent ( 1 o/o) per month from
May 16, 2002 until fully paid; and (2) costs of suit.
SO ORDERED.

EFFECT OF DEATH
STRONGHOLD INSURANCE COMPANY, INC., Petitioner,
vs.
REPUBLIC-ASAHI GLASS CORPORATION, Respondent.
DECISION
PANGANIBAN, CJ:
Asurety companys liability under the performance bond it issues is solidary. The death of the
principal obligor does not, as a rule, extinguish the obligation and the solidary nature of that
liability.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to reverse the
March 13, 2001 Decision2 of the Court of Appeals (CA) in CA-GR CV No. 41630. The assailed
Decision disposed as follows:

"WHEREFORE, the Order dated January 28, 1993 issued by the lower court is REVERSED and
SET ASIDE. Let the records of the instant case be REMANDED to the lower court for the
reception of evidence of all parties."3
The Facts
The facts of the case are narrated by the CA in this wise:
"On May 24, 1989, [respondent] Republic-Asahi Glass Corporation (Republic-Asahi) entered
into a contract with x x x Jose D. Santos, Jr., the proprietor of JDS Construction (JDS), for the
construction of roadways and a drainage system in Republic-Asahis compound in Barrio
Pinagbuhatan, Pasig City, where [respondent] was to pay x x x JDS five million three hundred
thousand pesos (P5,300,000.00) inclusive of value added tax for said construction, which was
supposed to be completed within a period of two hundred forty (240) days beginning May 8,
1989. In order to guarantee the faithful and satisfactory performance of its undertakings x x x
JDS, shall post a performance bond of seven hundred ninety five thousand pesos
(P795,000.00). x x x JDS executed, jointly and severally with [petitioner] Stronghold Insurance
Co., Inc. (SICI) Performance Bond No. SICI-25849/g(13)9769.
"On May 23, 1989, [respondent] paid to x x x JDS seven hundred ninety five thousand pesos
(P795,000.00) by way of downpayment.
"Two progress billings dated August 14, 1989 and September 15, 1989, for the total amount of
two hundred seventy four thousand six hundred twenty one pesos and one centavo
(P274,621.01) were submitted by x x x JDS to [respondent], which the latter paid. According to
[respondent], these two progress billings accounted for only 7.301% of the work supposed to be
undertaken by x x x JDS under the terms of the contract.
"Several times prior to November of 1989, [respondents] engineers called the attention of x x x
JDS to the alleged alarmingly slow pace of the construction, which resulted in the fear that the
construction will not be finished within the stipulated 240-day period. However, said reminders
went unheeded by x x x JDS.
"On November 24, 1989, dissatisfied with the progress of the work undertaken by x x x JDS,
[respondent] Republic-Asahi extrajudicially rescinded the contract pursuant to Article XIII of said
contract, and wrote a letter to x x x JDS informing the latter of such rescission. Such rescission,
according to Article XV of the contract shall not be construed as a waiver of [respondents] right
to recover damages from x x x JDS and the latters sureties.
"[Respondent] alleged that, as a result of x x x JDSs failure to comply with the provisions of the
contract, which resulted in the said contracts rescission, it had to hire another contractor to
finish the project, for which it incurred an additional expense of three million two hundred fifty six
thousand, eight hundred seventy four pesos (P3,256,874.00).
"On January 6, 1990, [respondent] sent a letter to [petitioner] SICI filing its claim under the bond
for not less thanP795,000.00. On March 22, 1991, [respondent] again sent another letter

reiterating its demand for payment under the aforementioned bond. Both letters allegedly went
unheeded.
"[Respondent] then filed [a] complaint against x x x JDS and SICI. It sought from x x x JDS
payment ofP3,256,874.00 representing the additional expenses incurred by [respondent] for the
completion of the project using another contractor, and from x x x JDS and SICI, jointly and
severally, payment of P750,000.00 as damages in accordance with the performance bond;
exemplary damages in the amount of P100,000.00 and attorneys fees in the amount of at
least P100,000.00.
"According to the Sheriffs Return dated June 14, 1991, submitted to the lower court by Deputy
Sheriff Rene R. Salvador, summons were duly served on defendant-appellee SICI. However, x x
x Jose D. Santos, Jr. died the previous year (1990), and x x x JDS Construction was no longer
at its address at 2nd Floor, Room 208-A, San Buena Bldg. Cor. Pioneer St., Pasig, Metro
Manila, and its whereabouts were unknown.
"On July 10, 1991, [petitioner] SICI filed its answer, alleging that the [respondents] money
claims against [petitioner and JDS] have been extinguished by the death of Jose D. Santos, Jr.
Even if this were not the case, [petitioner] SICI had been released from its liability under the
performance bond because there was no liquidation, with the active participation and/or
involvement, pursuant to procedural due process, of herein surety and contractor Jose D.
Santos, Jr., hence, there was no ascertainment of the corresponding liabilities of Santos and
SICI under the performance bond. At this point in time, said liquidation was impossible because
of the death of Santos, who as such can no longer participate in any liquidation. The unilateral
liquidation on the party (sic) of [respondent] of the work accomplishments did not bind SICI for
being violative of procedural due process. The claim of [respondent] for the forfeiture of the
performance bond in the amount of P795,000.00 had no factual and legal basis, as payment of
said bond was conditioned on the payment of damages which [respondent] may sustain in the
event x x x JDS failed to complete the contracted works. [Respondent] can no longer prove its
claim for damages in view of the death of Santos. SICI was not informed by [respondent] of the
death of Santos. SICI was not informed by [respondent] of the unilateral rescission of its
contract with JDS, thus SICI was deprived of its right to protect its interests as surety under the
performance bond, and therefore it was released from all liability. SICI was likewise denied due
process when it was not notified of plaintiff-appellants process of determining and fixing the
amount to be spent in the completion of the unfinished project. The procedure contained in
Article XV of the contract is against public policy in that it denies SICI the right to procedural due
process. Finally, SICI alleged that [respondent] deviated from the terms and conditions of the
contract without the written consent of SICI, thus the latter was released from all liability. SICI
also prayed for the award of P59,750.00 as attorneys fees, and P5,000.00 as litigation
expenses.
"On August 16, 1991, the lower court issued an order dismissing the complaint of [respondent]
against x x x JDS and SICI, on the ground that the claim against JDS did not survive the death
of its sole proprietor, Jose D. Santos, Jr. The dispositive portion of the [O]rder reads as follows:

ACCORDINGLY, the complaint against the defendants Jose D. Santos, Jr., doing business
under trade and style, JDS Construction and Stronghold Insurance Company, Inc. is ordered
DISMISSED.
SO ORDERED.
"On September 4, 1991, [respondent] filed a Motion for Reconsideration seeking
reconsideration of the lower courts August 16, 1991 order dismissing its complaint. [Petitioner]
SICI field its Comment and/or Opposition to the Motion for Reconsideration. On October 15,
1991, the lower court issued an Order, the dispositive portion of which reads as follows:
WHEREFORE, premises considered, the Motion for Reconsideration is hereby given due
course. The Order dated 16 August 1991 for the dismissal of the case against Stronghold
Insurance Company, Inc., is reconsidered and hereby reinstated (sic). However, the case
against defendant Jose D. Santos, Jr. (deceased) remains undisturbed.
Motion for Preliminary hearing and Manifestation with Motion filed by [Stronghold] Insurance
Company Inc., are set for hearing on November 7, 1991 at 2:00 oclock in the afternoon.
SO ORDERED.
"On June 4, 1992, [petitioner] SICI filed its Memorandum for Bondsman/Defendant SICI (Re:
Effect of Death of defendant Jose D. Santos, Jr.) reiterating its prayer for the dismissal of
[respondents] complaint.
"On January 28, 1993, the lower court issued the assailed Order reconsidering its Order dated
October 15, 1991, and ordered the case, insofar as SICI is concerned, dismissed. [Respondent]
filed its motion for reconsideration which was opposed by [petitioner] SICI. On April 16, 1993,
the lower court denied [respondents] motion for reconsideration. x x x."4
Ruling of the Court of Appeals
The CA ruled that SICIs obligation under the surety agreement was not extinguished by the
death of Jose D. Santos, Jr. Consequently, Republic-Asahi could still go after SICI for the bond.
The appellate court also found that the lower court had erred in pronouncing that the
performance of the Contract in question had become impossible by respondents act of
rescission. The Contract was rescinded because of the dissatisfaction of respondent with the
slow pace of work and pursuant to Article XIII of its Contract with JDS.
The CA ruled that "[p]erformance of the [C]ontract was impossible, not because of
[respondents] fault, but because of the fault of JDS Construction and Jose D. Santos, Jr. for
failure on their part to make satisfactory progress on the project, which amounted to nonperformance of the same. x x x [P]ursuant to the [S]urety [C]ontract, SICI is liable for the nonperformance of said [C]ontract on the part of JDS Construction."5
Hence, this Petition.6

Issue
Petitioner states the issue for the Courts consideration in the following manner:
"Death is a defense of Santos heirs which Stronghold could also adopt as its defense against
obligees claim."7
More precisely, the issue is whether petitioners liability under the performance bond was
automatically extinguished by the death of Santos, the principal.
The Courts Ruling
The Petition has no merit.
Sole Issue:
Effect of Death on the Suretys Liability
Petitioner contends that the death of Santos, the bond principal, extinguished his liability under
the surety bond. Consequently, it says, it is automatically released from any liability under the
bond.
As a general rule, the death of either the creditor or the debtor does not extinguish the
obligation.8 Obligations are transmissible to the heirs, except when the transmission is
prevented by the law, the stipulations of the parties, or the nature of the obligation.9 Only
obligations that are personal10 or are identified with the persons themselves are extinguished by
death.11
Section 5 of Rule 8612 of the Rules of Court expressly allows the prosecution of money claims
arising from a contract against the estate of a deceased debtor. Evidently, those claims are not
actually extinguished.13 What is extinguished is only the obligees action or suit filed before the
court, which is not then acting as a probate court.14
In the present case, whatever monetary liabilities or obligations Santos had under his contracts
with respondent were not intransmissible by their nature, by stipulation, or by provision of law.
Hence, his death did not result in the extinguishment of those obligations or liabilities, which
merely passed on to his estate.15 Death is not a defense that he or his estate can set up to wipe
out the obligations under the performance bond. Consequently, petitioner as surety cannot use
his death to escape its monetary obligation under its performance bond.
The liability of petitioner is contractual in nature, because it executed a performance bond
worded as follows:
"KNOW ALL MEN BY THESE PRESENTS:
"That we, JDS CONSTRUCTION of 208-A San Buena Building, contractor, of Shaw Blvd.,
Pasig, MM Philippines, as principal and the STRONGHOLD INSURANCE COMPANY, INC. a

corporation duly organized and existing under and by virtue of the laws of the Philippines with
head office at Makati, as Surety, are held and firmly bound unto the REPUBLIC ASAHI GLASS
CORPORATION and to any individual, firm, partnership, corporation or association supplying
the principal with labor or materials in the penal sum of SEVEN HUNDRED NINETY FIVE
THOUSAND (P795,000.00), Philippine Currency, for the payment of which sum, well and truly to
be made, we bind ourselves, our heirs, executors, administrators, successors and assigns,
jointly and severally, firmly by these presents.
"The CONDITIONS OF THIS OBLIGATION are as follows;
"WHEREAS the above bounden principal on the ___ day of __________, 19__ entered into a
contract with the REPUBLIC ASAHI GLASS CORPORATION represented by
_________________, to fully and faithfully. Comply with the site preparation works road and
drainage system of Philippine Float Plant at Pinagbuhatan, Pasig, Metro Manila.
"WHEREAS, the liability of the Surety Company under this bond shall in no case exceed the
sum of PESOS SEVEN HUNDRED NINETY FIVE THOUSAND (P795,000.00) Philippine
Currency, inclusive of interest, attorneys fee, and other damages, and shall not be liable for any
advances of the obligee to the principal.
"WHEREAS, said contract requires the said principal to give a good and sufficient bond in the
above-stated sum to secure the full and faithfull performance on its part of said contract, and the
satisfaction of obligations for materials used and labor employed upon the work;
"NOW THEREFORE, if the principal shall perform well and truly and fulfill all the undertakings,
covenants, terms, conditions, and agreements of said contract during the original term of said
contract and any extension thereof that may be granted by the obligee, with notice to the surety
and during the life of any guaranty required under the contract, and shall also perform well and
truly and fulfill all the undertakings, covenants, terms, conditions, and agreements of any and all
duly authorized modifications of said contract that may hereinafter be made, without notice to
the surety except when such modifications increase the contract price; and such principal
contractor or his or its sub-contractors shall promptly make payment to any individual, firm,
partnership, corporation or association supplying the principal of its sub-contractors with labor
and materials in the prosecution of the work provided for in the said contract, then, this
obligation shall be null and void; otherwise it shall remain in full force and effect. Any extension
of the period of time which may be granted by the obligee to the contractor shall be considered
as given, and any modifications of said contract shall be considered as authorized, with the
express consent of the Surety.
"The right of any individual, firm, partnership, corporation or association supplying the contractor
with labor or materials for the prosecution of the work hereinbefore stated, to institute action on
the penal bond, pursuant to the provision of Act No. 3688, is hereby acknowledge and
confirmed."16
As a surety, petitioner is solidarily liable with Santos in accordance with the Civil Code, which
provides as follows:

"Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so.
"If a person binds himself solidarily with the principal debtor, the provisions of Section
4,17 Chapter 3, Title I of this Book shall be observed. In such case the contract is called a
suretyship."
xxxxxxxxx
"Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of
them simultaneously. The demand made against one of them shall not be an obstacle to those
which may subsequently be directed against the others, so long as the debt has not been fully
collected."
Elucidating on these provisions, the Court in Garcia v. Court of Appeals18 stated thus:
"x x x. The suretys obligation is not an original and direct one for the performance of his own
act, but merely accessory or collateral to the obligation contracted by the principal.
Nevertheless, although the contract of a surety is in essence secondary only to a valid principal
obligation, his liability to the creditor or promisee of the principal is said to be direct, primary and
absolute; in other words, he is directly and equally bound with the principal. x x x."19
Under the law and jurisprudence, respondent may sue, separately or together, the principal
debtor and the petitioner herein, in view of the solidary nature of their liability. The death of the
principal debtor will not work to convert, decrease or nullify the substantive right of the solidary
creditor. Evidently, despite the death of the principal debtor, respondent may still sue petitioner
alone, in accordance with the solidary nature of the latters liability under the performance bond.
WHEREFORE, the Petition is DENIED and the Decision of the Court of Appeals AFFIRMED.
Costs against petitioner.
SO ORDERED.
TO WHOM PAYMENT SHALL BE MADE ART.1240

PHILIPPINE
NATIONAL BANK,
LORETO TAN,respondents.

petitioner,

vs. COURT

OF

APPEALS

and

SYLLABUS
1.

CIVIL LAW; OBLIGATIONS AND CONTRACTS; A DEBT IS PAID BY COMPLETE

DELIVERY OF THE THING OR RENDITION OF SERVICE. - There is no question that no
payment had ever been made to private respondent as the check was never delivered to
him. When the court ordered petitioner to pay private respondent the amount of
P32,480.00, it had the obligation to deliver the same to him. Under Art. 1233 of the Civil

Code, a debt shall not be understood to have been paid unless the thing or service in which
the obligation consists has been completely delivered or rendered, as the case may be.
2.

REMEDIAL LAW; EVIDENCE; BURDEN OF PROOF OF PAYMENT OF OBLIGATION

LIES WITH THE DEBTOR; PAYMENT NOT PROVED IN CASE AT BAR. - The burden of
proof of such payment lies with the debtor. In the instant case, neither the SPA nor the
check issued by petitioner was ever presented in court. The testimonies of petitioners own
witnesses regarding the check were conflicting. Tagamolila testified that the check was
issued to the order of Sonia Gonzaga as attorney-in-fact of Loreto Tan, while Elvira Tibon,
assistant cashier of PNB (Bacolod Branch), stated that the check was issued to the order of
Loreto Tan. Furthermore, contrary to petitioners contention that all that is needed to be
proved is the existence of the SPA, it is also necessary for evidence to be presented
regarding the nature and extent of the alleged powers and authority granted to Sonia
Gonzaga; more specifically, to determine whether the document indeed authorized her to
receive payment intended for private respondent. However, no such evidence was ever
presented.

3.

ID.; ID.; BEST EVIDENCE RULE; WHEN SECONDARY EVIDENCE IS ALLOWED.

- Section 4, Rule 130 of the Rules of Court allows the presentation of secondary evidence
when the original is lost or destroyed.

4.

ID.; ID.; ID.; PAYMENT OF OBLIGATION NEGATED BY FAILURE TO PRESENT

SPECIAL POWER OF ATTORNEY IN CASE AT BAR. -Considering that the contents of
the SPA are also in issue here, the best evidence rule applies. Hence, only the original
document (which has not been presented at all) is the best evidence of the fact as to
whether or not private respondent indeed authorized Sonia Gonzaga to receive the check
from petitioner. In the absence of such document, petitioners arguments regarding due
payment must fail.

5.

CIVIL LAW; DAMAGES; ATTORNEYS FEES; AVAILABLE TO PARTY WHO WAS

COMPELLED TO LITIGATE. - Regarding the award of attorneys fees, we hold that private
respondent Tan is entitled to the same. Art. 2208 of the Civil Code allows attorneys fees to
be awarded if the claimant is compelled to litigate with third persons or to incur expenses to
protect his interest by reason of an unjustified act or omission of the party from whom it is
sought.

6.

ID.; ID.; EXEMPLARY DAMAGES; WHEN RECOVERABLE. - Under Art. 2232 of the Civil
Code, exemplary damages may be awarded if a party acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner. However, they cannot be recovered as a
matter of right; the court has yet to decide whether or not they should be adjudicated.

7.

ID.; ID.; ID.; REQUIREMENTS FOR GRANT. - Jurisprudence has set down the
requirements for exemplary damages to be awarded: 1. they may be imposed by way of
example in addition to compensatory damages, and only after the claimants right to them
has been established; 2. they cannot be recovered as a matter of right, their determination
depending upon the amount of compensatory damages that may be awarded to the

claimant; 3. the act must be accompanied by bad faith or done in a wanton, fraudulent,
oppressive or malevolent manner.
8.

ID.; ID.; ID.; CANNOT BE RECOVERED WHERE THERE IS NO CLEAR BREACH OF

OBLIGATION TO PAY OR THAT A PARTY ACTED IN FRAUDULENT, WANTON,
RECKLESS OR OPPRESSIVE MANNER. - As for the award of exemplary damages, we
agree with the appellate court that the same should be deleted. In the case at bench, while
there is a clear breach of petitioners obligation to pay private respondents, there is no
evidence that it acted in a fraudulent, wanton, reckless or oppressive manner. Furthermore,
there is no award of compensatory damages which is a prerequisite before exemplary
damages may be awarded. Therefore, the award by the trial court of P5,000.00 as
exemplary damages is baseless.
APPEARANCES OF COUNSEL
Santiago, Jr., Vidad, Corpus & Associates for petitioner.
Jose G. Jover, Jr. for private respondent.
DECISION

ROMERO, J.:
Petitioner Philippine National Bank (PNB) questions the decision1 of the Court of Appeals
partially affirming the judgment of the Regional Trial Court, Branch 44, Bacolod City. The
dispositive portion of the trial courts decision states:
WHEREFORE, premises considered, the Court hereby renders judgment in favor of the plaintiff and
against the defendants as follows:
1) Ordering defendants to pay plaintiff jointly and severally the sum of P32,480.00, with legal rate of
interest to be computed from May 2, 1979, date of filing of this complaint until fully paid;
2)
Ordering defendants to pay plaintiff jointly and severally the sum of P5,000.00 as exemplary
damages;
3) Ordering defendants to pay plaintiff jointly and severally the sum of P5,000.00 as attorneys fees;
4) To pay the costs of this suit.
SO ORDERED.2
The facts are the following:
Private respondent Loreto Tan (Tan) is the owner of a parcel of land abutting the national
highway in Mandalagan, Bacolod City. Expropriation proceedings were instituted by the

government against private respondent Tan and other property owners before the then Court of
First Instance of Negros Occidental, Branch IV, docketed as Civil Case No. 12924.
Tan filed a motion dated May 10, 1978 requesting issuance of an order for the release to
him of the expropriation price of P3 2,480.00.
On May 22, 1978, petitioner PNB (Bacolod Branch) was required by the trial court to
release to Tan the amount of P32,480.00 deposited with it by the government.
On May 24, 1978, petitioner, through its Assistant Branch Manager Juan Tagamolila, issued
a managers check for P3 2,480.00 and delivered the same to one Sonia Gonzaga without Tans
knowledge, consent or authority. Sonia Gonzaga deposited it in her account with Far East Bank
and Trust Co. (FEBTC) and later on withdrew the said amount.
Private respondent Tan subsequently demanded payment in the amount of P32,480.00
from petitioner, but the same was refused on the ground that petitioner had already paid and
delivered the amount to Sonia Gonzaga on the strength of a Special Power of Attorney (SPA)
allegedly executed in her favor by Tan.
On June 8, 1978, Tan executed an affidavit before petitioners lawyer, Alejandro S. Somo,
stating that:
1) he had never executed any Special Power of Attorney in favor of Sonia S. Gonzaga;
2) he had never authorized Sonia Gonzaga to receive the sum of P32,480.00 from petitioner;
3) he signed a motion for the court to issue an Order to release the said sum of money to him and gave the
same to Mr. Nilo Gonzaga (husband of Sonia) to be filed in court. However, after the Order was
subsequently issued by the court, a certain Engineer Decena of the Highway Engineers Office issued the
authority to release the funds not to him but to Mr. Gonzaga.
When he failed to recover the amount from PNB, private respondent filed a motion with the
court to require PNB to pay the same to him.
Petitioner filed an opposition contending that Sonia Gonzaga presented to it a copy of the
May 22, 1978 order and a special power of attorney by virtue of which petitioner delivered the
check to her.
The matter was set for hearing on July 21, 1978 and petitioner was directed by the court to
produce the said special power of attorney thereat. However, petitioner failed to do so.
The court decided that there was need for the matter to be ventilated in a separate civil
action and thus private respondent
filed a complaint with the Regional Trial Court in Bacolod City (Branch 44) against petitioner
and Juan Tagamolila, PNBs Assistant Branch Manager, to recover the said amount.

In its defense, petitioner contended that private respondent had duly authorized Sonia
Gonzaga to act as his agent.
On September 28, 1979, petitioner filed a third-party complaint against the spouses Nilo
and Sonia Gonzaga praying that they be ordered to pay private respondent the amount of
P32,480.00. However, for failure of petitioner to have the summons served on the Gonzagas
despite opportunities given to it, the third-party complaint was dismissed.
Tagamolila, in his answer, stated that Sonia Gonzaga presented a Special Power of
Attorney to him but borrowed it later with the promise to return it, claiming that she needed it to
encash the check.
On June 7, 1989, the trial court rendered judgment ordering petitioner and Tagamolila to
pay private respondent jointly and severally the amount of P32,480.00 with legal interest,
damages and attorneys fees.
Both petitioner and Tagamolila appealed the case to the Court of Appeals.
In a resolution dated April 8, 1991, the appellate court dismissed Tagamolilas appeal for
failure to pay the docket fee within the reglementary period.
On August 31, 1992, the Court of Appeals affirmed the decision of the trial court against
petitioner, with the modification that the award of P5,000.00 for exemplary damages and
P5,000.00 for attorneys fees by the trial court was deleted.
Hence, this petition.
Petitioner PNB states that the issue in this case is whether or not the SPA ever existed. It
argues that the existence of the SPA need not be proved by it under the best evidence rule
because it already proved the existence of the SPA from the testimonies of its witnesses and by
the certification issued by the Far East Bank and Trust Company that it allowed Sonia Gonzaga
to encash Tans check on the basis of the SPA.
We find the petition unmeritorious.
There is no question that no payment had ever been made to private respondent as the
check was never delivered to him. When the court ordered petitioner to pay private respondent
the amount of P3 2,480.00, it had the obligation to deliver the same to him. Under Art. 1233 of
the Civil Code, a debt shall not be understood to have been paid unless the thing or service in
which the obligation consists has been completely delivered or rendered, as the case may be.
The burden of proof of such payment lies with the debtor.3 In the instant case, neither the
SPA nor the check issued by petitioner was ever presented in court.
The testimonies of petitioners own witnesses regarding the check were conflicting.
Tagamolila testified that the check was issued to the order of Sonia Gonzaga as attorney-in-fact

of Loreto Tan,4 while Elvira Tibon, assistant cashier of PNB (Bacolod Branch), stated that the
check was issued to the order of Loreto Tan.5
Furthermore, contrary to petitioners contention that all that is needed to be proved is the
existence of the SPA, it is also necessary for evidence to be presented regarding the nature and
extent of the alleged powers and authority granted to Sonia Gonzaga; more specifically, to
determine whether the document indeed authorized her to receive payment intended for private
respondent. However, no such evidence was ever presented.
Section 2, Rule 130 of the Rules of Court states that:
SEC. 2. Original writing must be produced; exceptions.
- There can be no evidence of a writing the contents of which is the subject of inquiry, other than the
original writing itself, except in the following cases:
(a) When the original has been lost, destroyed, or cannot be produced in court;
(b) When the original is in the possession of the party against whom the evidence is offered, and the latter
fails to produce it after reasonable notice;
(c) When the original is a record or other document in the custody of a public officer;
(d) When the original has been recorded in an existing record a certified copy of which is made evidence
by law;
(e) When the original consists of numerous accounts or other documents which cannot be examined in
court without great loss of time and the fact sought to be established from them is only the general result
of the whole.
Section 4, Rule 130 of the Rules of Court allows the presentation of secondary evidence
when the original is lost or destroyed, thus:
SEC. 4. Secondary evidence when original is lost or destroyed. - When the original writing has been lost
or destroyed, or cannot be produced in court, upon proof of its execution and loss or destruction, or
unavailability, its contents may be proved by a copy, or by a recital of its contents in some authentic
document, or by the recollection of witnesses.
Considering that the contents of the SPA are also in issue here, the best evidence rule
applies. Hence, only the original document (which has not been presented at all) is the best
evidence of the fact as to whether or not private respondent indeed authorized Sonia Gonzaga
to receive the check from petitioner. In the absence of such document, petitioners arguments
regarding due payment must fail.
Regarding the award of attorneys fees, we hold that private respondent Tan is entitled to
the same. Art. 2208 of the Civil Code allows attorneys fees to be awarded if the claimant is

compelled to litigate with third persons or to incur expenses to protect his interest by reason of
an unjustified act or omission of the party from whom it is sought.6
In Rasonable v. NLRC, et al.,7 we held that when a party is forced to litigate to protect his
rights, he is entitled to an award of attorneys fees.
As for the award of exemplary damages, we agree with the appellate court that the same
should be deleted.
Under Art. 2232 of the Civil Code, exemplary damages may be awarded if a party acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner. However, they cannot be
recovered as a matter of right; the court has yet to decide whether or not they should be
adjudicated.8
Jurisprudence has set down the requirements for exemplary damages to be awarded:
1. they may be imposed by way of example in addition to compensatory damages, and only after the
claimants right to them has been established;
2.
they cannot be recovered as a matter of right, their determination depending upon the amount of
compensatory damages that may be awarded to the claimant;
3.
the act must be accompanied by bad faith or done in a wanton, fraudulent, oppressive or malevolent
manner.9
In the case at bench, while there is a clear breach of petitioners obligation to pay private
respondents, there is no evidence that it acted in a fraudulent, wanton, reckless or oppressive
manner. Furthermore, there is no award to compensatory damages which is a prerequisite
before exemplary damages may be awarded. Therefore, the award by the trial court of
P5,000.00 as exemplary damages is baseless.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the modification that
the award by the Regional Trial Court of P5,000.00 as attorneys fees is REINSTATED.
SO ORDERED.

FRANCISCO CULABA and DEMETRIA CULABA, doing business under the name and
style "Culaba Store",petitioners,
vs.
COURT OF APPEALS and SAN MIGUEL CORPORATION, respondents.
DECISION
CALLEJO, SR., J.:

This is a petition for review under Rule 45 of the Revised Rules of Civil Procedure of the
Decision1 of the Court of Appeals in CA-G.R. CV No. 19836 affirming in toto the Decision2 of the
Regional Trial Court of Makati, Branch 138, in Civil Case No. 1033 for collection of sum of
money, and the Resolution3 denying the motion for reconsideration of the said decision.
The Undisputed Facts
The spouses Francisco and Demetria Culaba were the owners and proprietors of the Culaba
Store and were engaged in the sale and distribution of San Miguel Corporations (SMC) beer
products. SMC sold beer products on credit to the Culaba spouses in the amount of
P28,650.00, as evidenced by Temporary Credit Invoice No. 42943.4Thereafter, the Culaba
spouses made a partial payment of P3,740.00, leaving an unpaid balance of P24,910.00. As
they failed to pay despite repeated demands, SMC filed an action for collection of a sum of
money against them before the RTC of Makati, Branch 138.
The defendant-spouses denied any liability, claiming that they had already paid the plaintiff in
full on four separate occasions. To substantiate this claim, the defendants presented four (4)
Temporary Charge Sales (TCS) Liquidation Receipts, as follows:

April 19, 1983

Receipt No. 27331

for P8,0005

April 22, 1983

Receipt No. 27318

for P9,0006

April 27, 1983

Receipt No. 27339

for P4,5007

April 30, 1983

Receipt No. 27346

for P3,4108

Defendant Francisco Culaba testified that he made the foregoing payments to an SMC
supervisor who came in an SMC van. He was then showed a list of customers accountabilities
which included his account. The defendant, in good faith, then paid to the said supervisor, and
he was, in turn, issued genuine SMC liquidation receipts.
For its part, SMC submitted a publishers affidavit9 to prove that the entire booklet of TCSL
Receipts bearing Nos. 27301-27350 were reported lost by it, and that it caused the publication
of the notice of loss in the July 9, 1983 issue of the Daily Express, as follows:
NOTICE OF LOSS
OUR CUSTOMERS ARE HEREBY INFORMED THAT TEMPORARY CHARGE SALES
LIQUIDATION RECEIPTS WITH SERIAL NOS. 27301-27350 HAVE BEEN LOST.

ANY TRANSACTION, THEREFORE, ENTERED INTO WITH THE USE OF THE ABOVE
RECEIPTS WILL NOT BE HONORED.
SAN MIGUEL CORPORATION
BEER DIVISION
Makati Beer Region10
The Trial Courts Ruling
After trial on the merits, the trial court rendered judgment in favor of SMC, and held the Culaba
spouses liable on the balance of its obligation, thus:
Wherefore, judgment is hereby rendered in favor of the plaintiff, as follows:
1. Ordering defendants to pay the amount of P24,910.00 plus legal interest of 6% per
annum from April 12, 1983 until the whole amount is fully paid;
2. Ordering defendants to pay 20% of the amount due to plaintiff as and for attorneys
fees plus costs.
SO ORDERED.11
According to the trial court, it was unusual that defendant Francisco Culaba forgot the name of
the collector to whom he made the payments and that he did not require the said collector to
print his name on the receipts. The court also noted that although they were part of a single
booklet, the TCS Liquidation Receipts submitted by the defendants did not appear to have been
issued in their natural sequence. Furthermore, they were part of the lost booklet receipts, which
the public was duly warned of through the Notice of Loss the plaintiff caused to be published in
a daily newspaper. This confirmed the plaintiffs claim that the receipts presented by the
defendants were spurious ones.
The Case on Appeal
On appeal, the appellants interposed the following assignment of errors:
I
THE TRIAL COURT ERRED IN FINDING THAT THE RECEIPTS PRESENTED BY
DEFENDANTS EVIDENCING HIS PAYMENTS TO PLAINTIFF SAN MIGUEL
CORPORATION, ARE SPURIOUS.
II
THE TRIAL COURT ERRED IN CONCLUDING THAT PLAINTIFF-APPELLEE HAS
SUFFICIENTLY PROVED ITS CAUSE OF ACTION AGAINST THE DEFENDANTS.
III

THE TRIAL COURT ERRED IN ORDERING DEFENDANTS TO PAY 20% OF THE

AMOUNT DUE TO PLAINTIFF AS ATTORNEYS FEES.12
The appellants asserted that while the trial courts observations were true, it was the usual
business practice in previous transactions between them and SMC. The SMC previously
honored receipts not bearing the salesmans name. According to appellant Francisco Culaba,
he even lost some of the receipts, but did not encounter any problems.
According to appellant Francisco, he could not be faulted for paying the SMC collector who
came in a van and was in uniform, and that any regular customer would, without any
apprehension, transact with such an SMC employee. Furthermore, the respective receipts
issued to him at the time he paid on the four occasions mentioned had not yet then been
declared lost. Thus, the subsequent publication in a daily newspaper declaring the booklets lost
did not affect the validity and legality of the payments made. Accordingly, by its actuations, the
SMC was estopped from questioning the legality of the payments and had no cause of action
against the appellants.
Anent the issue of attorneys fees, the order of the trial court for payment thereof is without
basis. According to the appellant, the provision for attorneys fees is a contingent fee, already
provided for in the SMCs contract with the law firm. To further order them to pay 20% of the
amount due as attorneys fees is double payment, tantamount to undue enrichment and
therefore improper.13
The appellee, for its part, contended that the primary issue in the case at bar revolved around
the basic and fundamental principles of agency.14 It was incumbent upon the defendantsappellants to exercise ordinary prudence and reasonable diligence to verify and identify the
extent of the alleged agents authority. It was their burden to establish the true identity of the
assumed agent, and this could not be established by mere representation, rumor or general
reputation. As they utterly failed in this regard, the appellants must suffer the consequences.
The Court of Appeals affirmed the decision of the trial court, thus:
In the face of the somewhat tenuous evidence presented by the appellants, we cannot
fault the lower court for giving more weight to appellees testimonial and documentary
evidence, all of which establish with some degree of preponderance the existence of the
account sued upon.
ALL CONSIDERED, we cannot find any justification to reject the factual findings of the
lower court to which we must accord respect, for which reason, the judgment appealed
from is hereby AFFIRMED in all respects.
SO ORDERED.15
Hence, the instant petition.
The petitioners pose the following issues for the Courts resolution:
I. WHETHER OR NOT THE RESPONDENT HAD PROVEN BY PREPONDERANT
EVIDENCE THAT IT HAD PROPERLY AND TIMELY NOTIFIED PETITIONER OF LOST
BOOKLET OF RECEIPTS

II. WHETHER OR NOT RESPONDENT HAD PROVEN BY PREPONDERANT

EVIDENCE THAT PETITIONER WAS REMISS IN THE PAYMENT OF HIS ACCOUNTS
TO ITS AGENT.16
According to the petitioners, receiving receipts from the private respondents agents instead of
its salesmen was a usual occurrence, as they had been operating the store since 1979. Thus,
on four occasions in April 1983, when an agent of the respondent came to the store wearing an
SMC uniform and driving an SMC van, petitioner Francisco Culaba, without question, paid his
accounts. He received the receipts without fear, as they were similar to what he used to receive
before. Furthermore, the petitioners assert that, common experience will attest that unless the
attention of the customers is called for, they would not take note of the serial number of the
receipts.
The petitioners contend that the private respondent advertised its warning to the public only
after the damage was done, or on July 9, 1993. Its belated notice showed its glaring lack of
interest or concern for its customers welfare, and, in sum, its negligence.
Anent the second issue, petitioner Francisco Culaba avers that the agent to whom the accounts
were paid had all the physical and material attributes or indications of a representative of the
private respondent, leaving no doubt that he was duly authorized by the latter. Petitioner
Francisco Culabas testimony that "he does not necessarily check the contents of the receipts
issued to him except for the amount indicated if [the] same accurately reflects his actual
payment" is a common attitude of customers. He could, thus, not be faulted for paying the
private respondents agent on four occasions. Petitioner Francisco Culaba asserts that he made
the payment in good faith, to an agent who issued SMC receipts which appeared to be genuine.
Thus, according to the petitioners, they had duly paid their obligation in accordance with Articles
1240 and 1242 of the New Civil Code.
The private respondent, for its part, avers that the burden of proving payment is with the debtor,
in consonance with the express provision of Article 1233 of the New Civil Code. The petitioners
miserably failed to prove the self-serving allegation that they already paid their liability to the
private respondent. Furthermore, under normal circumstances, an obligor would not just pay a
substantial amount to someone whom he saw for the first time, without even asking for the
latters name.
The Ruling of the Court
The petition is dismissed.
The petitioners question the findings of the Court of Appeals as to whether the payment of the
petitioners obligation to the private respondent was properly made, thus, extinguishing the
same. This is clearly a factual issue, and beyond the purview of the Court to delve into. This is in
consonance with the well-settled rule that findings of fact of the trial court, especially when
affirmed by the Court of Appeals, are accorded the highest degree of respect, and generally will
not be disturbed on appeal. Such findings are binding and conclusive on the
Court.17 Furthermore, it is not the Courts function under Rule 45 of the Rules of Court, as
amended, to review, examine and evaluate or weigh the probative value of the evidence
presented.18

To reiterate, the issue being raised by the petitioners does not involve a question of law, but a
question of fact, not cognizable by this Court in a petition for review under Rule 45. The
jurisdiction of the Court in such a case is limited to reviewing only errors of law, unless the
factual findings being assailed are not supported by evidence on record or the impugned
judgment is based on a misapprehension of facts.19
A careful study of the records of the case reveal that the appellate court affirmed the trial courts
factual findings as follows:
First. Receipts Nos. 27331, 27318, 27339 and 27346 were included in the private respondents
lost booklet, which loss was duly advertised in a newspaper of general circulation; thus, the
private respondent could not have officially issued them to the petitioners to cover the alleged
payments on the dates appearing thereon.
Second. There was something amiss in the way the receipts were issued to the petitioners, as
one receipt bearing a higher serial number was issued ahead of another receipt bearing a lower
serial number, supposedly covering a later payment. The petitioners failed to explain the
apparent mix-up in these receipts, and no attempt was made in this regard.
Third. The fact that the salesmans name was invariably left blank in the four receipts and that
the petitioners could not even remember the name of the supposed impostor who received the
said payments strongly argue against the veracity of the petitioners claim.
We find no cogent reason to reverse the said findings.
The dismissal of the petition is inevitable even upon close perusal of the merits of the case.
Payment is a mode of extinguishing an obligation.20 Article 1240 of the Civil Code provides that
payment shall be made to the person in whose favor the obligation has been constituted, or his
successor-in-interest, or any person authorized to receive it.21 In this case, the payments were
purportedly made to a "supervisor" of the private respondent, who was clad in an SMC uniform
and drove an SMC van. He appeared to be authorized to accept payments as he showed a list
of customers accountabilities and even issued SMC liquidation receipts which looked genuine.
Unfortunately for petitioner Francisco Culaba, he did not ascertain the identity and authority of
the said supervisor, nor did he ask to be shown any identification to prove that the latter was,
indeed, an SMC supervisor. The petitioners relied solely on the mans representation that he
was collecting payments for SMC. Thus, the payments the petitioners claimed they made were
not the payments that discharged their obligation to the private respondent.
The basis of agency is representation.22 A person dealing with an agent is put upon inquiry and
must discover upon his peril the authority of the agent.23 In the instant case, the petitioners loss
could have been avoided if they had simply exercised due diligence in ascertaining the identity
of the person to whom they allegedly made the payments. The fact that they were parting with
valuable consideration should have made them more circumspect in handling their business
transactions. Persons dealing with an assumed agent are bound at their peril to ascertain not
only the fact of agency but also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to establish it.24 The petitioners in this case failed
to discharge this burden, considering that the private respondent vehemently denied that the
payments were accepted by it and were made to its authorized representative.

Negligence is the omission to do something which a reasonable man, guided by those

considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something, which a prudent and reasonable man would not do.25 In the case at bar, the most
prudent thing the petitioners should have done was to ascertain the identity and authority of the
person who collected their payments. Failing this, the petitioners cannot claim that they acted in
good faith when they made such payments. Their claim therefor is negated by their negligence,
and they are bound by its consequences. Being negligent in this regard, the petitioners cannot
seek relief on the basis of a supposed agency.26
WHEREFORE, the instant petition is hereby DENIED. The assailed Decision dated April 16,
1996, and the Resolution dated July 19, 1996 of the Court of Appeals are AFFIRMED. Costs
against the petitioners.
SO ORDERED.

ALLIED BANKING CORPORATION, Petitioner,

vs.
LIM SIO WAN, METROPOLITAN BANK AND TRUST CO., and PRODUCERS
BANK, Respondents.
DECISION
VELASCO, JR., J.:
To ingratiate themselves to their valued depositors, some banks at times bend over backwards
that they unwittingly expose themselves to great risks.
The Case
This Petition for Review on Certiorari under Rule 45 seeks to reverse the Court of Appeals
(CAs) Decision promulgated on March 18, 19981 in CA-G.R. CV No. 46290 entitled Lim Sio
Wan v. Allied Banking Corporation, et al. The CA Decision modified the Decision dated
November 15, 19932 of the Regional Trial Court (RTC), Branch 63 in Makati City rendered in
Civil Case No. 6757.
The Facts
The facts as found by the RTC and affirmed by the CA are as follows:
On November 14, 1983, respondent Lim Sio Wan deposited with petitioner Allied Banking
Corporation (Allied) at its Quintin Paredes Branch in Manila a money market placement of PhP
1,152,597.35 for a term of 31 days to mature on December 15, 1983,3 as evidenced by
Provisional Receipt No. 1356 dated November 14, 1983.4
On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an officer of
Allied, and instructed the latter to pre-terminate Lim Sio Wans money market placement, to

issue a managers check representing the proceeds of the placement, and to give the check to
one Deborah Dee Santos who would pick up the check.5 Lim Sio Wan described the
appearance of Santos so that So could easily identify her.6
Later, Santos arrived at the bank and signed the application form for a managers check to be
issued.7 The bank issued Managers Check No. 035669 for PhP 1,158,648.49, representing the
proceeds of Lim Sio Wans money market placement in the name of Lim Sio Wan, as
payee.8 The check was cross-checked "For Payees Account Only" and given to Santos.9
Thereafter, the managers check was deposited in the account of Filipinas Cement Corporation
(FCC) at respondent Metropolitan Bank and Trust Co. (Metrobank),10 with the forged signature
of Lim Sio Wan as indorser.11
Earlier, on September 21, 1983, FCC had deposited a money market placement for PhP 2
million with respondent Producers Bank. Santos was the money market trader assigned to
handle FCCs account.12 Such deposit is evidenced by Official Receipt No. 31756813 and a
Letter dated September 21, 1983 of Santos addressed to Angie Lazo of FCC, acknowledging
receipt of the placement.14 The placement matured on October 25, 1983 and was rolled-over
until December 5, 1983 as evidenced by a Letter dated October 25, 1983.15 When the
placement matured, FCC demanded the payment of the proceeds of the placement.16 On
December 5, 1983, the same date that So received the phone call instructing her to preterminate Lim Sio Wans placement, the managers check in the name of Lim Sio Wan was
deposited in the account of FCC, purportedly representing the proceeds of FCCs money market
placement with Producers Bank.17 In other words, the Allied check was deposited with
Metrobank in the account of FCC as Producers Banks payment of its obligation to FCC.
To clear the check and in compliance with the requirements of the Philippine Clearing House
Corporation (PCHC) Rules and Regulations, Metrobank stamped a guaranty on the check,
which reads: "All prior endorsements and/or lack of endorsement guaranteed."18
The check was sent to Allied through the PCHC. Upon the presentment of the check, Allied
funded the check even without checking the authenticity of Lim Sio Wans purported
indorsement. Thus, the amount on the face of the check was credited to the account of FCC.19
On December 9, 1983, Lim Sio Wan deposited with Allied a second money market placement to
mature on January 9, 1984.20
On December 14, 1983, upon the maturity date of the first money market placement, Lim Sio
Wan went to Allied to withdraw it.21 She was then informed that the placement had been preterminated upon her instructions. She denied giving any instructions and receiving the proceeds
thereof. She desisted from further complaints when she was assured by the banks manager
that her money would be recovered.22
When Lim Sio Wans second placement matured on January 9, 1984, So called Lim Sio Wan to
ask for the latters instructions on the second placement. Lim Sio Wan instructed So to roll-over
the placement for another 30 days.23On January 24, 1984, Lim Sio Wan, realizing that the
promise that her money would be recovered would not materialize, sent a demand letter to

Allied asking for the payment of the first placement.24 Allied refused to pay Lim Sio Wan,
claiming that the latter had authorized the pre-termination of the placement and its subsequent
release to Santos.25
Consequently, Lim Sio Wan filed with the RTC a Complaint dated February 13, 198426 docketed
as Civil Case No. 6757 against Allied to recover the proceeds of her first money market
placement. Sometime in February 1984, she withdrew her second placement from Allied.
Allied filed a third party complaint27 against Metrobank and Santos. In turn, Metrobank filed a
fourth party complaint28 against FCC. FCC for its part filed a fifth party complaint29 against
Producers Bank. Summonses were duly served upon all the parties except for Santos, who was
no longer connected with Producers Bank.30
On May 15, 1984, or more than six (6) months after funding the check, Allied informed
Metrobank that the signature on the check was forged.31 Thus, Metrobank withheld the amount
represented by the check from FCC. Later on, Metrobank agreed to release the amount to FCC
after the latter executed an Undertaking, promising to indemnify Metrobank in case it was made
to reimburse the amount.32
Lim Sio Wan thereafter filed an amended complaint to include Metrobank as a party-defendant,
along with Allied.33The RTC admitted the amended complaint despite the opposition of
Metrobank.34 Consequently, Allieds third party complaint against Metrobank was converted into
a cross-claim and the latters fourth party complaint against FCC was converted into a third
party complaint.35
After trial, the RTC issued its Decision, holding as follows:
WHEREFORE, judgment is hereby rendered as follows:
1. Ordering defendant Allied Banking Corporation to pay plaintiff the amount of
P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully paid;
2. Ordering defendant Allied Bank to pay plaintiff the amount of P100,000.00 by way of
moral damages;
3. Ordering defendant Allied Bank to pay plaintiff the amount of P173,792.20 by way of
attorneys fees; and,
4. Ordering defendant Allied Bank to pay the costs of suit.
Defendant Allied Banks cross-claim against defendant Metrobank is DISMISSED.
Likewise defendant Metrobanks third-party complaint as against Filipinas Cement Corporation
is DISMISSED.
Filipinas Cement Corporations fourth-party complaint against Producers Bank is also
DISMISSED.

SO ORDERED.36
The Decision of the Court of Appeals
Allied appealed to the CA, which in turn issued the assailed Decision on March 18, 1998,
modifying the RTC Decision, as follows:
WHEREFORE, premises considered, the decision appealed from is MODIFIED. Judgment is
rendered ordering and sentencing defendant-appellant Allied Banking Corporation to pay sixty
(60%) percent and defendant-appellee Metropolitan Bank and Trust Company forty (40%) of the
amount of P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully paid. The
moral damages, attorneys fees and costs of suit adjudged shall likewise be paid by defendantappellant Allied Banking Corporation and defendant-appellee Metropolitan Bank and Trust
Company in the same proportion of 60-40. Except as thus modified, the decision appealed from
is AFFIRMED.
SO ORDERED.37
Hence, Allied filed the instant petition.
The Issues
Allied raises the following issues for our consideration:
The Honorable Court of Appeals erred in holding that Lim Sio Wan did not authorize [Allied] to
pre-terminate the initial placement and to deliver the check to Deborah Santos.
The Honorable Court of Appeals erred in absolving Producers Bank of any liability for the
reimbursement of amount adjudged demandable.
The Honorable Court of Appeals erred in holding [Allied] liable to the extent of 60% of amount
adjudged demandable in clear disregard to the ultimate liability of Metrobank as guarantor of all
endorsement on the check, it being the collecting bank.38
The petition is partly meritorious.
A Question of Fact
Allied questions the finding of both the trial and appellate courts that Allied was not authorized to
release the proceeds of Lim Sio Wans money market placement to Santos. Allied clearly raises
a question of fact. When the CA affirms the findings of fact of the RTC, the factual findings of
both courts are binding on this Court.39
We also agree with the CA when it said that it could not disturb the trial courts findings on the
credibility of witness So inasmuch as it was the trial court that heard the witness and had the
opportunity to observe closely her deportment and manner of testifying. Unless the trial court
had plainly overlooked facts of substance or value, which, if considered, might affect the result

of the case,40 we find it best to defer to the trial court on matters pertaining to credibility of
witnesses.
Additionally, this Court has held that the matter of negligence is also a factual question.41 Thus,
the finding of the RTC, affirmed by the CA, that the respective parties were negligent in the
exercise of their obligations is also conclusive upon this Court.
The Liability of the Parties
As to the liability of the parties, we find that Allied is liable to Lim Sio Wan. Fundamental and
familiar is the doctrine that the relationship between a bank and a client is one of debtor-creditor.
Articles 1953 and 1980 of the Civil Code provide:
Art. 1953. A person who receives a loan of money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and
quality.
Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall
be governed by the provisions concerning simple loan.
Thus, we have ruled in a line of cases that a bank deposit is in the nature of a simple loan or
mutuum.42 More succinctly, in Citibank, N.A. (Formerly First National City Bank) v. Sabeniano,
this Court ruled that a money market placement is a simple loan or mutuum.43 Further, we
defined a money market in Cebu International Finance Corporation v. Court of Appeals, as
follows:
[A] money market is a market dealing in standardized short-term credit instruments (involving
large amounts) where lenders and borrowers do not deal directly with each other but through a
middle man or dealer in open market. In a money market transaction, the investor is a lender
who loans his money to a borrower through a middleman or dealer.
In the case at bar, the money market transaction between the petitioner and the private
respondent is in the nature of a loan.44
Lim Sio Wan, as creditor of the bank for her money market placement, is entitled to payment
upon her request, or upon maturity of the placement, or until the bank is released from its
obligation as debtor. Until any such event, the obligation of Allied to Lim Sio Wan remains
unextinguished.
Art. 1231 of the Civil Code enumerates the instances when obligations are considered
extinguished, thus:
Art. 1231. Obligations are extinguished:
(1) By payment or performance;

(2) By the loss of the thing due;

(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a
resolutory condition, and prescription, are governed elsewhere in this Code. (Emphasis
supplied.)
From the factual findings of the trial and appellate courts that Lim Sio Wan did not authorize the
release of her money market placement to Santos and the bank had been negligent in so doing,
there is no question that the obligation of Allied to pay Lim Sio Wan had not been extinguished.
Art. 1240 of the Code states that "payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in interest, or any person authorized to receive
it." As commented by Arturo Tolentino:
Payment made by the debtor to a wrong party does not extinguish the obligation as to the
creditor, if there is no fault or negligence which can be imputed to the latter. Even when the
debtor acted in utmost good faith and by mistake as to the person of his creditor, or through
error induced by the fraud of a third person, the payment to one who is not in fact his creditor, or
authorized to receive such payment, is void, except as provided in Article 1241. Such payment
does not prejudice the creditor, and accrual of interest is not suspended by it.45 (Emphasis
supplied.)
Since there was no effective payment of Lim Sio Wans money market placement, the bank still
has an obligation to pay her at six percent (6%) interest from March 16, 1984 until the payment
thereof.
We cannot, however, say outright that Allied is solely liable to Lim Sio Wan.
Allied claims that Metrobank is the proximate cause of the loss of Lim Sio Wans money. It
points out that Metrobank guaranteed all prior indorsements inscribed on the managers check,
and without Metrobanks guarantee, the present controversy would never have occurred.
According to Allied:
Failure on the part of the collecting bank to ensure that the proceeds of the check is paid to the
proper party is, aside from being an efficient intervening cause, also the last negligent act, x x x
contributory to the injury caused in the present case, which thereby leads to the conclusion that
it is the collecting bank, Metrobank that is the proximate cause of the alleged loss of the plaintiff
in the instant case.46
We are not persuaded.

Proximate cause is "that cause, which, in natural and continuous sequence, unbroken by any
efficient intervening cause, produces the injury and without which the result would not have
occurred."47 Thus, there is an efficient supervening event if the event breaks the sequence
leading from the cause to the ultimate result. To determine the proximate cause of a
controversy, the question that needs to be asked is: If the event did not happen, would the injury
have resulted? If the answer is NO, then the event is the proximate cause.
In the instant case, Allied avers that even if it had not issued the check payment, the money
represented by the check would still be lost because of Metrobanks negligence in indorsing the
check without verifying the genuineness of the indorsement thereon.
Section 66 in relation to Sec. 65 of the Negotiable Instruments Law provides:
Section 66. Liability of general indorser.Every indorser who indorses without qualification,
warrants to all subsequent holders in due course;
a) The matters and things mentioned in subdivisions (a), (b) and (c) of the next
preceding section; and
b) That the instrument is at the time of his indorsement valid and subsisting;
And in addition, he engages that on due presentment, it shall be accepted or paid, or both, as
the case may be according to its tenor, and that if it be dishonored, and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any
subsequent indorser who may be compelled to pay it.
Section 65. Warranty where negotiation by delivery, so forth.Every person negotiating an
instrument by delivery or by a qualified indorsement, warrants:
a) That the instrument is genuine and in all respects what it purports to be;
b) That he has a good title of it;
c) That all prior parties had capacity to contract;
d) That he has no knowledge of any fact which would impair the validity of the instrument
or render it valueless.
But when the negotiation is by delivery only, the warranty extends in favor of no holder other
than the immediate transferee.
The provisions of subdivision (c) of this section do not apply to persons negotiating public or
corporation securities, other than bills and notes. (Emphasis supplied.)
The warranty "that the instrument is genuine and in all respects what it purports to be" covers all
the defects in the instrument affecting the validity thereof, including a forged indorsement. Thus,
the last indorser will be liable for the amount indicated in the negotiable instrument even if a

previous indorsement was forged. We held in a line of cases that "a collecting bank which
indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees
all prior indorsements, including the forged indorsement itself, and ultimately should be held
liable therefor."48
However, this general rule is subject to exceptions. One such exception is when the issuance of
the check itself was attended with negligence. Thus, in the cases cited above where the
collecting bank is generally held liable, in two of the cases where the checks were negligently
issued, this Court held the institution issuing the check just as liable as or more liable than the
collecting bank.
In isolated cases where the checks were deposited in an account other than that of the payees
on the strength of forged indorsements, we held the collecting bank solely liable for the whole
amount of the checks involved for having indorsed the same. In Republic Bank v. Ebrada,49 the
check was properly issued by the Bureau of Treasury. While in Banco de Oro Savings and
Mortgage Bank (Banco de Oro) v. Equitable Banking Corporation,50 Banco de Oro admittedly
issued the checks in the name of the correct payees. And in Traders Royal Bank v. Radio
Philippines Network, Inc.,51 the checks were issued at the request of Radio Philippines Network,
Inc. from Traders Royal Bank.1avvphi1
However, in Bank of the Philippine Islands v. Court of Appeals, we said that the drawee bank is
liable for 60% of the amount on the face of the negotiable instrument and the collecting bank is
liable for 40%. We also noted the relative negligence exhibited by two banks, to wit:
Both banks were negligent in the selection and supervision of their employees resulting in the
encashment of the forged checks by an impostor. Both banks were not able to overcome the
presumption of negligence in the selection and supervision of their employees. It was the gross
negligence of the employees of both banks which resulted in the fraud and the subsequent loss.
While it is true that petitioner BPIs negligence may have been the proximate cause of the loss,
respondent CBCs negligence contributed equally to the success of the impostor in encashing
the proceeds of the forged checks. Under these circumstances, we apply Article 2179 of the
Civil Code to the effect that while respondent CBC may recover its losses, such losses are
subject to mitigation by the courts. (See Phoenix Construction Inc. v. Intermediate Appellate
Courts, 148 SCRA 353 [1987]).
Considering the comparative negligence of the two (2) banks, we rule that the demands of
substantial justice are satisfied by allocating the loss of P2,413,215.16 and the costs of the
arbitration proceeding in the amount of P7,250.00 and the cost of litigation on a 60-40 ratio.52
Similarly, we ruled in Associated Bank v. Court of Appeals that the issuing institution and the
collecting bank should equally share the liability for the loss of amount represented by the
checks concerned due to the negligence of both parties:
The Court finds as reasonable, the proportionate sharing of fifty percent-fifty percent (50%50%). Due to the negligence of the Province of Tarlac in releasing the checks to an
unauthorized person (Fausto Pangilinan), in allowing the retired hospital cashier to receive the
checks for the payee hospital for a period close to three years and in not properly ascertaining

why the retired hospital cashier was collecting checks for the payee hospital in addition to the
hospitals real cashier, respondent Province contributed to the loss amounting to P203,300.00
and shall be liable to the PNB for fifty (50%) percent thereof. In effect, the Province of Tarlac can
only recover fifty percent (50%) of P203,300.00 from PNB.
The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of
P203,300.00. It is liable on its warranties as indorser of the checks which were deposited by
Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements, including that
of the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in its
duty to ascertain the genuineness of the payees indorsement.53
A reading of the facts of the two immediately preceding cases would reveal that the reason why
the bank or institution which issued the check was held partially liable for the amount of the
check was because of the negligence of these parties which resulted in the issuance of the
checks.
In the instant case, the trial court correctly found Allied negligent in issuing the managers check
and in transmitting it to Santos without even a written authorization.54 In fact, Allied did not even
ask for the certificate evidencing the money market placement or call up Lim Sio Wan at her
residence or office to confirm her instructions. Both actions could have prevented the whole
fraudulent transaction from unfolding. Allieds negligence must be considered as the proximate
cause of the resulting loss.
To reiterate, had Allied exercised the diligence due from a financial institution, the check would
not have been issued and no loss of funds would have resulted. In fact, there would have been
no issuance of indorsement had there been no check in the first place.
The liability of Allied, however, is concurrent with that of Metrobank as the last indorser of the
check. When Metrobank indorsed the check in compliance with the PCHC Rules and
Regulations55 without verifying the authenticity of Lim Sio Wans indorsement and when it
accepted the check despite the fact that it was cross-checked payable to payees account
only,56 its negligent and cavalier indorsement contributed to the easier release of Lim Sio Wans
money and perpetuation of the fraud. Given the relative participation of Allied and Metrobank to
the instant case, both banks cannot be adjudged as equally liable. Hence, the 60:40 ratio of the
liabilities of Allied and Metrobank, as ruled by the CA, must be upheld.
FCC, having no participation in the negotiation of the check and in the forgery of Lim Sio Wans
indorsement, can raise the real defense of forgery as against both banks.57
As to Producers Bank, Allied Banks argument that Producers Bank must be held liable as
employer of Santos under Art. 2180 of the Civil Code is erroneous. Art. 2180 pertains to the
vicarious liability of an employer for quasi-delicts that an employee has committed. Such
provision of law does not apply to civil liability arising from delict.
One also cannot apply the principle of subsidiary liability in Art. 103 of the Revised Penal Code
in the instant case. Such liability on the part of the employer for the civil aspect of the criminal

act of the employee is based on the conviction of the employee for a crime. Here, there has
been no conviction for any crime.
As to the claim that there was unjust enrichment on the part of Producers Bank, the same is
correct. Allied correctly claims in its petition that Producers Bank should reimburse Allied for
whatever judgment that may be rendered against it pursuant to Art. 22 of the Civil Code, which
provides: "Every person who through an act of performance by another, or any other means,
acquires or comes into possession of something at the expense of the latter without just cause
or legal ground, shall return the same to him."1avvphi1
The above provision of law was clarified in Reyes v. Lim, where we ruled that "[t]here is unjust
enrichment when a person unjustly retains a benefit to the loss of another, or when a person
retains money or property of another against the fundamental principles of justice, equity and
good conscience."58
In Tamio v. Ticson, we further clarified the principle of unjust enrichment, thus: "Under Article 22
of the Civil Code, there is unjust enrichment when (1) a person is unjustly benefited, and (2)
such benefit is derived at the expense of or with damages to another."59
In the instant case, Lim Sio Wans money market placement in Allied Bank was pre-terminated
and withdrawn without her consent. Moreover, the proceeds of the placement were deposited in
Producers Banks account in Metrobank without any justification. In other words, there is no
reason that the proceeds of Lim Sio Wans placement should be deposited in FCCs account
purportedly as payment for FCCs money market placement and interest in Producers
Bank.lavvphil With such payment, Producers Banks indebtedness to FCC was extinguished,
thereby benefitting the former. Clearly, Producers Bank was unjustly enriched at the expense of
Lim Sio Wan. Based on the facts and circumstances of the case, Producers Bank should
reimburse Allied and Metrobank for the amounts the two latter banks are ordered to pay Lim Sio
Wan.
It cannot be validly claimed that FCC, and not Producers Bank, should be considered as having
been unjustly enriched. It must be remembered that FCCs money market placement with
Producers Bank was already due and demandable; thus, Producers Banks payment thereof
was justified. FCC was entitled to such payment. As earlier stated, the fact that the indorsement
on the check was forged cannot be raised against FCC which was not a part in any stage of the
negotiation of the check. FCC was not unjustly enriched.
From the facts of the instant case, we see that Santos could be the architect of the entire
controversy. Unfortunately, since summons had not been served on Santos, the courts have not
acquired jurisdiction over her.60 We, therefore, cannot ascribe to her liability in the instant case.
Clearly, Producers Bank must be held liable to Allied and Metrobank for the amount of the check
plus 12% interest per annum, moral damages, attorneys fees, and costs of suit which Allied and
Metrobank are adjudged to pay Lim Sio Wan based on a proportion of 60:40.

WHEREFORE, the petition is PARTLY GRANTED. The March 18, 1998 CA Decision in CA-G.R.
CV No. 46290 and the November 15, 1993 RTC Decision in Civil Case No. 6757 are
AFFIRMED with MODIFICATION.
Thus, the CA Decision is AFFIRMED, the fallo of which is reproduced, as follows:
WHEREFORE, premises considered, the decision appealed from is MODIFIED. Judgment is
rendered ordering and sentencing defendant-appellant Allied Banking Corporation to pay sixty
(60%) percent and defendant-appellee Metropolitan Bank and Trust Company forty (40%) of the
amount of P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully paid. The
moral damages, attorneys fees and costs of suit adjudged shall likewise be paid by defendantappellant Allied Banking Corporation and defendant-appellee Metropolitan Bank and Trust
Company in the same proportion of 60-40. Except as thus modified, the decision appealed from
is AFFIRMED.
SO ORDERED.
Additionally and by way of MODIFICATION, Producers Bank is hereby ordered to pay Allied and
Metrobank the aforementioned amounts. The liabilities of the parties are concurrent and
independent of each other.
SO ORDERED.

SPOUSES MINIANO B. DELA CRUZ and LETA L. DELA CRUZ, Petitioners,

vs.
ANA MARIE CONCEPCION, Respondent.
DECISION
PERALTA, J.:
Assailed in this petition for review on certiorari under Rule 45 of the Rules of Court filed by
petitioners spouses Miniano B. Dela Cruz and Leta L. Dela Cruz against respondent Ana Marie
Concepcion are the Court of Appeals (CA) Decision1 dated March 31, 2005 and
Resolution2 dated May 24, 2006 in CA-G.R. CV No. 83030.
The facts of the case are as follows:
On March 25, 1996, petitioners (as vendors) entered into a Contract to Sell3 with respondent (as
vendee) involving a house and lot in Cypress St., Phase I, Town and Country Executive Village,
Antipolo City for a consideration of P2,000,000.00 subject to the following terms and conditions:
a) That an earnest money of P100,000.00 shall be paid immediately;

b) That a full down payment of Four Hundred Thousand Pesos (P400,000.00) shall be
paid on February 29, 1996;
c) That Five Hundred Thousand Pesos (P500,000.00) shall be paid on or before May 5,
1996; and
d) That the balance of One Million Pesos (P1,000,000.00) shall be paid on installment
with interest of Eighteen Percent (18%) per annum or One and a half percent (1-1/2 %)
interest per month, based on the diminishing balance, compounded monthly, effective
May 6, 1996. The interest shall continue to run until the whole obligation shall have been
fully paid. The whole One Million Pesos shall be paid within three years from May 6,
1996;
e) That the agreed monthly amortization of Fifty Thousand Pesos (P50,000.00), principal
and interest included, must be paid to the Vendors, without need of prior demand, on or
before May 6, 1996, and every month thereafter. Failure to pay the monthly amortization
on time, a penalty equal to Five Percent (5%) of the amount due shall be imposed, until
the account is updated. In addition, a penalty of One Hundred Pesos per day shall be
imposed until the account is updated;
f) That after receipt of the full payment, the Vendors shall execute the necessary
Absolute Deed of Sale covering the house and lot mentioned above x x x4
Respondent made the following payments, to wit: (1) P500,000.00 by way of downpayment; (2)
P500,000.00 on May 30, 1996; (3) P500,000.00 paid on January 22, 1997; and (4) P500,000.00
bounced check dated June 30, 1997 which was subsequently replaced by another check of the
same amount, dated July 7, 1997. Respondent was, therefore, able to pay a total of
P2,000,000.00.5
Before respondent issued the P500,000.00 replacement check, she told petitioners that based
on the computation of her accountant as of July 6, 1997, her unpaid obligation which includes
interests and penalties was only P200,000.00.6 Petitioners agreed with respondent and said "if
P200,000.00 is the correct balance, it is okay with us."7
Meanwhile, the title to the property was transferred to respondent. Petitioners later reminded
respondent to pay P209,000.00 within three months.8 They claimed that the said amount
remained unpaid, despite the transfer of the title to the property to respondent. Several months
later, petitioners made further demands stating the supposed correct computation of
respondents liabilities.9 Despite repeated demands, petitioners failed to collect the amounts
they claimed from respondent. Hence, the Complaint for Sum of Money With Damages10 filed
with the Regional Trial Court (RTC)11 of Antipolo, Rizal. The case was docketed as Civil Case
No. 98-4716.
In her Answer with Compulsory Counterclaim,12 respondent claimed that her unpaid obligation to
petitioners is only P200,000.00 as earlier confirmed by petitioners and not P487,384.15 as later
alleged in the complaint. Respondent thus prayed for the dismissal of the complaint. By way of
counterclaim, respondent prayed for the payment of moral damages and attorneys fees. During

the presentation of the parties evidence, in addition to documents showing the statement of her
paid obligations, respondent presented a receipt purportedly indicating payment of the
remaining balance of P200,000.00 to Adoracion Losloso (Losloso) who allegedly received the
same on behalf of petitioners.13
On March 8, 2004, the RTC rendered a Decision14 in favor of respondent, the dispositive portion
of which reads:
WHEREFORE, premises considered, this case is hereby DISMISSED. The plaintiff is hereby
ordered to pay the defendants counterclaim, amounting to wit:
a) P300,000 as moral damages; and
b) P100,000 plus P2,000 per court appearance as attorneys fees.
SO ORDERED.15
The RTC noted that the evidence formally offered by petitioners have not actually been marked
as none of the markings were recorded. Thus, it found no basis to grant their claims, especially
since the amount claimed in the complaint is different from that testified to. The court, on the
other hand, granted respondents counterclaim.16
On appeal, the CA affirmed the decision with modification by deleting the award of moral
damages and attorneys fees in favor of respondent.17 It agreed with the RTC that the evidence
presented by petitioners cannot be given credence in determining the correct liability of
respondent.18 Considering that the purchase price had been fully paid by respondent ahead of
the scheduled date agreed upon by the parties, petitioners were not awarded the excessive
penalties and interests.19 The CA thus maintained that respondents liability is limited to
P200,000.00 as claimed by respondent and originally admitted by petitioners.20 This amount,
however, had already been paid by respondent and received by petitioners
representative.21 Finally, the CA pointed out that the RTC did not explain in its decision why
moral damages and attorneys fees were awarded. Considering also that bad faith cannot be
attributed to petitioners when they instituted the collection suit, the CA deleted the grant of their
counterclaims.22
Aggrieved, petitioners come before the Court in this petition for review on certiorari under Rule
45 of the Rules of Court raising the following errors:
I.
"THE TRIAL COURT ERRED IN DISMISSING THE COMPLAINT ON THE GROUND
THAT PLAINTIFF FAILED TO FORMALLY OFFER THEIR EVIDENCE AS DEFENDANT
JUDICIALLY ADMITTED IN HER ANSWER WITH COMPULS[O]RY COUNTERCLAIM
HER OUTSTANDING OBLIGATION STILL DUE TO PLAINTIFFS AND NEED NO
PROOF.
II.

THE TRIAL COURT ERRED IN DISMISSING THE COMPLAINT FOR ALLEGED

FAILURE OF PLAINTIFFS TO PRESENT COMPUTATION OF THE AMOUNT BEING
CLAIMED AS DEFENDANT JUDICIALLY ADMITTED HAVING RECEIVED THE
DEMAND LETTER DATED OCTOBER 22, 1997 WITH COMPUTATION OF THE
BALANCE DUE.
III.
THE TRIAL COURT ERRED IN DISMISSING THE COMPLAINT ON THE GROUND
THAT THE DEFENDANT FULLY PAID THE CLAIMS OF PLAINTIFFS BASED ON THE
ALLEGED RECEIPT OF PAYMENT BY ADORACION LOSLOSO FROM ANA MARIE
CONCEPCION MAGLASANG WHICH HAS NOTHING TO DO WITH THE JUDICIALLY
ADMITTED OBLIGATION OF APPELLEE."23
Invoking the rule on judicial admission, petitioners insist that respondent admitted in her Answer
with Compulsory Counterclaim that she had paid only a total amount of P2 million and that her
unpaid obligation amounts to P200,000.00.24 They thus maintain that the RTC and the CA erred
in concluding that said amount had already been paid by respondent. Petitioners add that
respondents total liability as shown in the latters statement of account was erroneously
computed for failure to compound the monthly interest agreed upon.25 Petitioners also claim that
the RTC and the CA erred in giving credence to the receipt presented by respondent to show
that her unpaid obligation had already been paid having been allegedly given to a person who
was not armed with authority to receive payment.26
The petition is without merit.
It is undisputed that the parties entered into a contract to sell a house and lot for a total
consideration of P2 million. Considering that the property was payable in installment, they
likewise agreed on the payment of interest as well as penalty in case of default. It is likewise
settled that respondent was able to pay the total purchase price of P2 million ahead of the
agreed term. Afterwhich, they agreed on the remaining balance by way of interest and penalties
which is P200,000.00. Considering that the term of payment was not strictly followed and the
purchase price had already been fully paid by respondent, the latter presented to petitioners her
computation of her liabilities for interests and penalties which was agreed to by petitioners.
Petitioners also manifested their conformity to the statement of account prepared by
respondent.
In paragraph (9) of petitioners Complaint, they stated that:
9) That the Plaintiffs answered the Defendant as follows: "if P200,000 is the correct balance, it is
okay with us." x x x.27
But in paragraph (17) thereof, petitioners claimed that defendants outstanding liability as of
November 6, 1997 was P487,384.15.28 Different amounts, however, were claimed in their
demand letter and in their testimony in court.

With the foregoing factual antecedents, petitioners cannot be permitted to assert a different
computation of the correct amount of respondents liability.
It is noteworthy that in answer to petitioners claim of her purported unpaid obligation,
respondent admitted in her Answer with Compulsory Counterclaim that she paid a total amount
of P2 million representing the purchase price of the subject house and lot. She then manifested
to petitioners and conformed to by respondent that her only balance was P200,000.00. Nowhere
in her Answer did she allege the defense of payment. However, during the presentation of her
evidence, respondent submitted a receipt to prove that she had already paid the remaining
balance. Both the RTC and the CA concluded that respondent had already paid the remaining
balance of P200,000.00. Petitioners now assail this, insisting that the court should have
maintained the judicial admissions of respondent in her Answer with Compulsory Counterclaim,
especially as to their agreed stipulations on interests and penalties as well as the existence of
outstanding obligations.
It is, thus, necessary to discuss the effect of failure of respondent to plead payment of its
obligations.
Section 1, Rule 9 of the Rules of Court states that "defenses and objections not pleaded either
in a motion to dismiss or in the answer are deemed waived." Hence, respondent should have
been barred from raising the defense of payment of the unpaid P200,000.00. However, Section
5, Rule 10 of the Rules of Court allows the amendment to conform to or authorize presentation
of evidence, to wit:
Section 5. Amendment to conform to or authorize presentation of evidence. When issues not
raised by the pleadings are tried with the express or implied consent of the parties, they shall be
treated in all respects as if they had been raised in the pleadings. Such amendment of the
pleadings as may be necessary to cause them to conform to the evidence and to raise these
issues may be made upon motion of any party at any time, even after judgment; but failure to
amend does not affect the result of the trial of these issues. If evidence is objected to at the trial
on the ground that it is not within the issues made by the pleadings, the court may allow the
pleadings to be amended and shall do so with liberality if the presentation of the merits of the
action and the ends of substantial justice will be subserved thereby. The court may grant a
continuance to enable the amendment to be made.
The foregoing provision envisions two scenarios, namely, when evidence is introduced in an
issue not alleged in the pleadings and no objection was interjected; and when evidence is
offered on an issue not alleged in the pleadings but this time an objection was raised.29 When
the issue is tried without the objection of the parties, it should be treated in all respects as if it
had been raised in the pleadings.30 On the other hand, when there is an objection, the evidence
may be admitted where its admission will not prejudice him.31
Thus, while respondent judicially admitted in her Answer that she only paid P2 million and that
she still owed petitioners P200,000.00, respondent claimed later and, in fact, submitted an
evidence to show that she already paid the whole amount of her unpaid obligation. It is
noteworthy that when respondent presented the evidence of payment, petitioners did not object
thereto. When the receipt was formally offered as evidence, petitioners did not manifest their

objection to the admissibility of said document on the ground that payment was not an issue.
Apparently, petitioners only denied receipt of said payment and assailed the authority of Losloso
to receive payment. Since there was an implied consent on the part of petitioners to try the
issue of payment, even if no motion was filed and no amendment of the pleading has been
ordered,32 the RTC cannot be faulted for admitting respondents testimonial and documentary
evidence to prove payment.33
As stressed by the Court in Royal Cargo Corporation v. DFS Sports Unlimited, Inc.,34
The failure of a party to amend a pleading to conform to the evidence adduced during trial does
not preclude adjudication by the court on the basis of such evidence which may embody new
issues not raised in the pleadings. x x x Although, the pleading may not have been amended to
conform to the evidence submitted during trial, judgment may nonetheless be rendered, not
simply on the basis of the issues alleged but also on the issues discussed and the assertions of
fact proved in the course of the trial. The court may treat the pleading as if it had been amended
to conform to the evidence, although it had not been actually amended. x x x Clearly, a court
may rule and render judgment on the basis of the evidence before it even though the relevant
pleading had not been previously amended, so long as no surprise or prejudice is thereby
caused to the adverse party. Put a little differently, so long as the basic requirements of fair play
had been met, as where the litigants were given full opportunity to support their respective
contentions and to object to or refute each other's evidence, the court may validly treat the
pleadings as if they had been amended to conform to the evidence and proceed to adjudicate
on the basis of all the evidence before it. (Emphasis supplied)35
To be sure, petitioners were given ample opportunity to refute the fact of and present evidence
to prove payment.
With the evidence presented by the contending parties, the more important question to resolve
is whether or not respondents obligation had already been extinguished by payment.
We rule in the affirmative as aptly held by the RTC and the CA.
Respondents obligation consists of payment of a sum of money. In order to extinguish said
obligation, payment should be made to the proper person as set forth in Article 1240 of the Civil
Code, to wit:
Article 1240. Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive it. (Emphasis
supplied)
The Court explained in Cambroon v. City of Butuan,36 cited in Republic v. De Guzman,37 to
whom payment should be made in order to extinguish an obligation:
Payment made by the debtor to the person of the creditor or to one authorized by him or by the
law to receive it extinguishes the obligation. When payment is made to the wrong party,
however, the obligation is not extinguished as to the creditor who is without fault or negligence

even if the debtor acted in utmost good faith and by mistake as to the person of the creditor or
through error induced by fraud of a third person.
In general, a payment in order to be effective to discharge an obligation, must be made to the
proper person. Thus, payment must be made to the obligee himself or to an agent having
authority, express or implied, to receive the particular payment. Payment made to one having
apparent authority to receive the money will, as a rule, be treated as though actual authority had
been given for its receipt. Likewise, if payment is made to one who by law is authorized to act
for the creditor, it will work a discharge. The receipt of money due on a judgment by an officer
authorized by law to accept it will, therefore, satisfy the debt.38
Admittedly, payment of the remaining balance of P200,000.00 was not made to the creditors
themselves. Rather, it was allegedly made to a certain Losloso. Respondent claims that Losloso
was the authorized agent of petitioners, but the latter dispute it.
Loslosos authority to receive payment was embodied in petitioners Letter39 addressed to
respondent, dated August 7, 1997, where they informed respondent of the amounts they
advanced for the payment of the 1997 real estate taxes. In said letter, petitioners reminded
respondent of her remaining balance, together with the amount of taxes paid. Taking into
consideration the busy schedule of respondent, petitioners advised the latter to leave the
payment to a certain "Dori" who admittedly is Losloso, or to her trusted helper. This is an
express authority given to Losloso to receive payment.
Moreover, as correctly held by the CA:
Furthermore, that Adoracion Losloso was indeed an agent of the appellant spouses is borne out
by the following admissions of plaintiff-appellant Atty. Miniano dela Cruz, to wit:
Q: You would agree with me that you have authorized this Doiry Losloso to receive payment of
whatever balance is due you coming from Ana Marie Concepcion, that is correct?
A: In one or two times but not total authority, sir.
Q: Yes, but you have authorized her to receive payment?
A: One or two times, yes x x x. (TSN, June 28, 1999, pp. 16-17)40
Thus, as shown in the receipt signed by petitioners agent and pursuant to the authority granted
by petitioners to Losloso, payment made to the latter is deemed payment to petitioners. We find
no reason to depart from the RTC and the CA conclusion that payment had already been made
and that it extinguished respondent's obligations.
WHEREFORE, premises considered, the petition is DENIED for lack of merit. The Court of
Appeals Decision dated March 31, 2005 and Resolution dated May 24, 2006 in CA-G.R. CV No.
83030, are AFFIRMED.
SO ORDERED.