THIRD DIVISION

[G.R. NO. 156132 : February 6, 2007]

CITIBANK, N.A. (Formerly First National City Bank) and INVESTORS'

FINANCE CORPORATION, doing business under the name and style of FNCB
Finance, Petitioners, v. MODESTA R. SABENIANO, Respondent.

RESOLUTION

CHICO-NAZARIO, J.:

On 16 October 2006, this Court promulgated its Decision 1 in the above-entitled

case, the dispositive portion of which reads'

IN VIEW OF THE FOREGOING, the instant Petition is PARTLY GRANTED. The

assailed Decision of the Court of Appeals in CA-G.R. No. 51930, dated 26 March
2002, as already modified by its Resolution, dated 20 November 2002, is
hereby AFFIRMED WITH MODIFICATION, as follows '

1. PNs No. 23356 and 23357 are DECLARED subsisting and outstanding. Petitioner
Citibank is ORDERED to return to respondent the principal amounts of the said PNs,
amounting to Three Hundred Eighteen Thousand Eight Hundred Ninety-Seven Pesos
and Thirty-Four Centavos (P318,897.34) and Two Hundred Three Thousand One
Hundred Fifty Pesos (P203,150.00), respectively, plus the stipulated interest of
Fourteen and a half percent (14.5%) per annum, beginning 17 March 1977;

2. The remittance of One Hundred Forty-Nine Thousand Six Hundred Thirty Two US
Dollars and Ninety-Nine Cents (US$149,632.99) from respondent's Citibank-Geneva
accounts to petitioner Citibank in Manila, and the application of the same against
respondent's outstanding loans with the latter, is DECLARED illegal, null and void.
Petitioner Citibank is ORDERED to refund to respondent the said amount, or its
equivalent in Philippine currency using the exchange rate at the time of payment,
plus the stipulated interest for each of the fiduciary placements and current
accounts involved, beginning 26 October 1979;

3. Petitioner Citibank is ORDERED to pay respondent moral damages in the amount

of Three Hundred Thousand Pesos (P300,000.00); exemplary damages in the
amount of Two Hundred Fifty Thousand Pesos (P250,000.00); and attorney's fees in
the amount of Two Hundred Thousand Pesos (P200,000.00); andcralawlibrary

4. Respondent is ORDERED to pay petitioner Citibank the balance of her

outstanding loans, which, from the respective dates of their maturity to 5
September 1979, was computed to be in the sum of One Million Sixty-Nine
Thousand Eight Hundred Forty-Seven Pesos and Forty Centavos (P1,069,847.40),
inclusive of interest. These outstanding loans shall continue to earn interest, at the
rates stipulated in the corresponding PNs, from 5 September 1979 until payment
thereof.

Subsequent thereto, respondent Modesta R. Sabeniano filed an Urgent Motion to

Clarify and/or Confirm Decision with Notice of Judgment on 20 October 2006; while,
petitioners Citibank, N.A. and FNCB Finance 2 filed their Motion for Partial
Reconsideration of the foregoing Decision on 6 November 2006.

The facts of the case, as determined by this Court in its Decision, may be
summarized as follows.

Respondent was a client of petitioners. She had several deposits and market
placements with petitioners, among which were her savings account with the local
branch of petitioner Citibank (Citibank-Manila 3 ); money market placements with
petitioner FNCB Finance; and dollar accounts with the Geneva branch of petitioner
Citibank (Citibank-Geneva). At the same time, respondent had outstanding loans
with petitioner Citibank, incurred at Citibank-Manila, the principal amounts
aggregating to P1,920,000.00, all of which had become due and demandable by
May 1979. Despite repeated demands by petitioner Citibank, respondent failed to
pay her outstanding loans. Thus, petitioner Citibank used respondent's deposits and
money market placements to off-set and liquidate her outstanding obligations, as
follows '

Respondent's outstanding obligation (principal and interest P 2,156,940.

as of 26 October 1979) 58

Les Proceeds from respondent's money market

s: placements with petitioner FNCB Finance (principal (1,022,916.
and interest as of 5 September 1979) 66)

Deposits in respondent's bank accounts with

petitioner Citibank (31,079.14)

Proceeds of respondent's money market placements

and dollar accounts with Citibank-Geneva (peso (1,102,944.
equivalent as of 26 October 1979) 78)

Balance of respondent's obligation P 0.00

Respondent, however, denied having any outstanding loans with petitioner Citibank.
She likewise denied that she was duly informed of the off-setting or compensation
thereof made by petitioner Citibank using her deposits and money market
placements with petitioners. Hence, respondent sought to recover her deposits and
money market placements.
Respondent instituted a complaint for "Accounting, Sum of Money and Damages"
against petitioners, docketed as Civil Case No. 11336, before the Regional Trial
Court (RTC) of Makati City. After trial proper, which lasted for a decade, the RTC
rendered a Decision4 on 24 August 1995, the dispositive portion of which reads'

WHEREFORE, in view of all the foregoing, decision is hereby rendered as follows:

(1) Declaring as illegal, null and void the setoff effected by the defendant Bank
[petitioner Citibank] of plaintiff's [respondent Sabeniano] dollar deposit with
Citibank, Switzerland, in the amount of US$149,632.99, and ordering the said
defendant [petitioner Citibank] to refund the said amount to the plaintiff with legal
interest at the rate of twelve percent (12%) per annum, compounded yearly, from
31 October 1979 until fully paid, or its peso equivalent at the time of payment;

(2) Declaring the plaintiff [respondent Sabeniano] indebted to the defendant Bank
[petitioner Citibank] in the amount of P1,069,847.40 as of 5 September 1979 and
ordering the plaintiff [respondent Sabeniano] to pay said amount, however, there
shall be no interest and penalty charges from the time the illegal setoff was effected
on 31 October 1979;

(3) Dismissing all other claims and counterclaims interposed by the parties against
each other.

Costs against the defendant Bank.

All the parties appealed the afore-mentioned RTC Decision to the Court of Appeals,
docketed as CA-G.R. CV No. 51930. On 26 March 2002, the appellate court
promulgated its Decision,5 ruling entirely in favor of respondent, to wit'

Wherefore, premises considered, the assailed 24 August 1995 Decision of the

court a quo is hereby AFFIRMED with MODIFICATION, as follows:

1. Declaring as illegal, null and void the set-off effected by the defendant-appellant
Bank of the plaintiff-appellant's dollar deposit with Citibank, Switzerland, in the
amount of US$149,632.99, and ordering defendant-appellant Citibank to refund the
said amount to the plaintiff-appellant with legal interest at the rate of twelve
percent (12%) per annum, compounded yearly, from 31 October 1979 until fully
paid, or its peso equivalent at the time of payment;

2. As defendant-appellant Citibank failed to establish by competent evidence the

alleged indebtedness of plaintiff-appellant, the set-off of P1,069,847.40 in the
account of Ms. Sabeniano is hereby declared as without legal and factual basis;

3. As defendants-appellants failed to account the following plaintiff-appellant's

money market placements, savings account and current accounts, the former is
hereby ordered to return the same, in accordance with the terms and conditions
agreed upon by the contending parties as evidenced by the certificates of
investments, to wit:

(i) Citibank NNPN Serial No. 023356 (Cancels and Supersedes NNPN No. 22526)
issued on 17 March 1977, P318,897.34 with 14.50% interest p.a.;

(ii) Citibank NNPN Serial No. 23357 (Cancels and Supersedes NNPN No. 22528)
issued on 17 March 1977, P203,150.00 with 14.50 interest p.a.;

(iii) FNCB NNPN Serial No. 05757 (Cancels and Supersedes NNPN No. 04952), issued
on 02 June 1977, P500,000.00 with 17% interest p.a.;

(iv) FNCB NNPN Serial No. 05758 (Cancels and Supersedes NNPN No. 04962), issued
on 02 June 1977, P500,000.00 with 17% interest per annum;

(v) The Two Million (P2,000,000.00) money market placements of Ms. Sabeniano
with the Ayala Investment & Development Corporation (AIDC) with legal interest at
the rate of twelve percent (12%) per annum compounded yearly, from 30
September 1976 until fully paid;

4. Ordering defendants-appellants to jointly and severally pay the plaintiff-appellant

the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00) by way of moral
damages, FIVE HUNDRED THOUSAND PESOS (P500,000.00) as exemplary damages,
and ONE HUNDRED THOUSAND PESOS (P100,000.00) as attorney's fees.

Acting on petitioners' Motion for Partial Reconsideration, the Court of Appeals issued
a Resolution,6 dated 20 November 2002, modifying its earlier Decision, thus'

WHEREFORE, premises considered, the instant Motion for

Reconsideration is PARTIALLY GRANTED as Sub-paragraph (V) paragraph 3 of the
assailed Decision's dispositive portion is hereby ordered DELETED.

The challenged 26 March 2002 Decision of the Court

is AFFIRMED with MODIFICATION.

Since the Court of Appeals Decision, dated 26 March 2002, as modified by the
Resolution of the same court, dated 20 November 2002, was still principally in favor
of respondent, petitioners filed the instant Petition for Review on Certiorari under
Rule 45 of the Revised Rules of Court. After giving due course to the instant Petition,
this Court promulgated on 16 October 2006 its Decision, now subject of petitioners'
Motion for Partial Reconsideration.rbl rl l lbrr

Among the numerous grounds raised by petitioners in their Motion for Partial
Reconsideration, this Court shall address and discuss herein only particular points
that had not been considered or discussed in its Decision. Even in consideration of
these points though, this Court remains unconvinced that it should modify or
reverse in any way its disposition of the case in its earlier Decision.
As to the off-setting or compensation of respondent's outstanding loan balance with
her dollar deposits in Citibank-Geneva

Petitioners' take exception to the following findings made by this Court in its
Decision, dated 16 October 2006, disallowing the off-setting or compensation of the
balance of respondent's outstanding loans using her dollar deposits in Citibank-
Geneva'

Without the Declaration of Pledge, petitioner Citibank had no authority to demand

the remittance of respondent's dollar accounts with Citibank-Geneva and to apply
them to her outstanding loans. It cannot effect legal compensation under Article
1278 of the Civil Code since, petitioner Citibank itself admitted that Citibank-
Geneva is a distinct and separate entity. As for the dollar accounts, respondent was
the creditor and Citibank-Geneva is the debtor; and as for the outstanding loans,
petitioner Citibank was the creditor and respondent was the debtor. The parties in
these transactions were evidently not the principal creditor of each other.

Petitioners maintain that respondent's Declaration of Pledge, by virtue of which she

supposedly assigned her dollar accounts with Citibank-Geneva as security for her
loans with petitioner Citibank, is authentic and, thus, valid and binding upon
respondent. Alternatively, petitioners aver that even without said Declaration of
Pledge, the off-setting or compensation made by petitioner Citibank using
respondent's dollar accounts with Citibank-Geneva to liquidate the balance of her
outstanding loans with Citibank-Manila was expressly authorized by respondent
herself in the promissory notes (PNs) she signed for her loans, as well as sanctioned
by Articles 1278 to 1290 of the Civil Code. This alternative argument is anchored on
the premise that all branches of petitioner Citibank in the Philippines and abroad are
part of a single worldwide corporate entity and share the same juridical personality.
In connection therewith, petitioners deny that they ever admitted that Citibank-
Manila and Citibank-Geneva are distinct and separate entities.

Petitioners call the attention of this Court to the following provision found in all of
the PNs7executed by respondent for her loans'

At or after the maturity of this note, or when same becomes due under any of the
provisions hereof, any money, stocks, bonds, or other property of any kind
whatsoever, on deposit or otherwise, to the credit of the undersigned on the books
of CITIBANK, N.A. in transit or in their possession, may without notice be applied at
the discretion of the said bank to the full or partial payment of this note.

It is the petitioners' contention that the term "Citibank, N.A." used therein should be
deemed to refer to all branches of petitioner Citibank in the Philippines and abroad;
thus, giving petitioner Citibank the authority to apply as payment for the PNs even
respondent's dollar accounts with Citibank-Geneva. Still proceeding from the
premise that all branches of petitioner Citibank should be considered as a single
entity, then it should not matter that the respondent obtained the loans from
Citibank-Manila and her deposits were with Citibank-Geneva. Respondent should be
considered the debtor (for the loans) and creditor (for her deposits) of the same
entity, petitioner Citibank. Since petitioner Citibank and respondent were principal
creditors of each other, in compliance with the requirements under Article 1279 of
the Civil Code,8 then the former could have very well used off-setting or
compensation to extinguish the parties' obligations to one another. And even
without the PNs, off-setting or compensation was still authorized because according
to Article 1286 of the Civil Code, "Compensation takes place by operation of law,
even though the debts may be payable at different places, but there shall be an
indemnity for expenses of exchange or transportation to the place of payment."

Pertinent provisions of Republic Act No. 8791, otherwise known as the General
Banking Law of 2000, governing bank branches are reproduced below'

SEC. 20. Bank Branches. - Universal or commercial banks may open branches or
other offices within or outside the Philippines upon prior approval of the Bangko
Sentral.

Branching by all other banks shall be governed by pertinent laws.

A bank may, subject to prior approval of the Monetary Board, use any or all of its
branches as outlets for the presentation and/or sale of the financial products of its
allied undertaking or its investment house units.

A bank authorized to establish branches or other offices shall be responsible for all
business conducted in such branches and offices to the same extent and in the
same manner as though such business had all been conducted in the head office. A
bank and its branches and offices shall be treated as one unit.

x x x

SEC. 72. Transacting Business in the Philippines. - The entry of foreign banks in the
Philippines through the establishment of branches shall be governed by the
provisions of the Foreign Banks Liberalization Act.

The conduct of offshore banking business in the Philippines shall be governed by the
provisions of Presidential Decree No. 1034, otherwise known as the "Offshore
Banking System Decree."

x x x

SEC. 74. Local Branches of Foreign Banks. - In case of a foreign bank which has
more than one (1) branch in the Philippines, all such branches shall be treated as
one (1) unit for the purpose of this Act, and all references to the Philippine branches
of foreign banks shall be held to refer to such units.
SEC. 75. Head Office Guarantee. - In order to provide effective protection of the
interests of the depositors and other creditors of Philippine branches of a foreign
bank, the head office of such branches shall fully guarantee the prompt payment of
all liabilities of its Philippine branch.

Residents and citizens of the Philippines who are creditors of a branch in the
Philippines of a foreign bank shall have preferential rights to the assets of such
branch in accordance with existing laws.

Republic Act No. 7721, otherwise known as the Foreign Banks Liberalization Law,
lays down the policies and regulations specifically concerning the establishment and
operation of local branches of foreign banks. Relevant provisions of the said statute
read'

Sec. 2. Modes of Entry. - The Monetary Board may authorize foreign banks to
operate in the Philippine banking system through any of the following modes of
entry: (i) by acquiring, purchasing or owning up to sixty percent (60%) of the voting
stock of an existing bank; (ii) by investing in up to sixty percent (60%) of the voting
stock of a new banking subsidiary incorporated under the laws of the Philippines; or
(iii) by establishing branches with full banking authority: Provided, That a foreign
bank may avail itself of only one (1) mode of entry: Provided, further, That a foreign
bank or a Philippine corporation may own up to a sixty percent (60%) of the voting
stock of only one (1) domestic bank or new banking subsidiary.

Sec. 5. Head Office Guarantee. - The head office of foreign bank branches shall
guarantee prompt payment of all liabilities of its Philippine branches.

It is true that the afore-quoted Section 20 of the General Banking Law of 2000
expressly states that the bank and its branches shall be treated as one unit. It
should be pointed out, however, that the said provision applies to a universal 9 or
commercial bank,10 duly established and organized as a Philippine corporation in
accordance with Section 8 of the same statute, 11 and authorized to establish
branches within or outside the Philippines.

The General Banking Law of 2000, however, does not make the same categorical
statement as regards to foreign banks and their branches in the Philippines. What
Section 74 of the said law provides is that in case of a foreign bank with several
branches in the country, all such branches shall be treated as one unit. As to the
relations between the local branches of a foreign bank and its head office, Section
75 of the General Banking Law of 2000 and Section 5 of the Foreign Banks
Liberalization Law provide for a "Home Office Guarantee," in which the head office
of the foreign bank shall guarantee prompt payment of all liabilities of its Philippine
branches. While the Home Office Guarantee is in accord with the principle that
these local branches, together with its head office, constitute but one legal entity, it
does not necessarily support the view that said principle is true and applicable in all
circumstances.
The Home Office Guarantee is included in Philippine statutes clearly for the
protection of the interests of the depositors and other creditors of the local
branches of a foreign bank.12 Since the head office of the bank is located in another
country or state, such a guarantee is necessary so as to bring the head office within
Philippine jurisdiction, and to hold the same answerable for the liabilities of its
Philippine branches. Hence, the principle of the singular identity of that the local
branches and the head office of a foreign bank are more often invoked by the
clients in order to establish the accountability of the head office for the liabilities of
its local branches. It is under such attendant circumstances in which the American
authorities and jurisprudence presented by petitioners in their Motion for Partial
Reconsideration were rendered.

Now the question that remains to be answered is whether the foreign bank can use
the principle for a reverse purpose, in order to extend the liability of a client to the
foreign bank's Philippine branch to its head office, as well as to its branches in other
countries. Thus, if a client obtains a loan from the foreign bank's Philippine branch,
does it absolutely and automatically make the client a debtor, not just of the
Philippine branch, but also of the head office and all other branches of the foreign
bank around the world? This Court rules in the negative.

There being a dearth of Philippine authorities and jurisprudence on the matter, this
Court, just as what petitioners have done, turns to American authorities and
jurisprudence. American authorities and jurisprudence are significant herein
considering that the head office of petitioner Citibank is located in New York, United
States of America (U.S.A.).

Unlike Philippine statutes, the American legislation explicitly defines the relations
among foreign branches of an American bank. Section 25 of the United States
Federal Reserve Act13 states that -

Every national banking association operating foreign branches shall conduct the
accounts of each foreign branch independently of the accounts of other foreign
branches established by it and of its home office, and shall at the end of each fiscal
period transfer to its general ledger the profit or loss accrued at each branch as a
separate item.

Contrary to petitioners' assertion that the accounts of Citibank-Manila and Citibank-

Geneva should be deemed as a single account under its head office, the foregoing
provision mandates that the accounts of foreign branches of an American bank shall
be conducted independently of each other. Since the head office of petitioner
Citibank is in the U.S.A., then it is bound to treat its foreign branches in accordance
with the said provision. It is only at the end of its fiscal period that the bank is
required to transfer to its general ledger the profit or loss accrued at each branch,
but still reporting it as a separate item. It is by virtue of this provision that the
Circuit Court of Appeals of New York declared in Pan-American Bank and Trust Co. v.
National City Bank of New York 14 that a branch is not merely a teller's window; it is a
separate business entity.

The circumstances in the case of McGrath v. Agency of Chartered Bank of India,

Australia & China15 are closest to the one at bar. In said case, the Chartered Bank
had branches in several countries, including one in Hamburg, Germany and another
in New York, U.S.A., and yet another in London, United Kingdom. The New York
branch entered in its books credit in favor of four German firms. Said credit
represents collections made from bills of exchange delivered by the four German
firms. The same four German firms subsequently became indebted to the Hamburg
branch. The London branch then requested for the transfer of the credit in the name
of the German firms from the New York branch so as to be applied or setoff against
the indebtedness of the same firms to the Hamburg branch. One of the question
brought before the U.S. District Court of New York was "whether or not the debts
and the alleged setoffs thereto are mutual," which could be answered by
determining first whether the New York and Hamburg branches of Chartered Bank
are individual business entities or are one and the same entity. In denying the right
of the Hamburg branch to setoff, the U.S. District Court ratiocinated that -

The structure of international banking houses such as Chartered bank defies one
rigorous description. Suffice it to say for present analysis, branches or agencies
of an international bank have been held to be independent entities for a
variety of purposes (a) deposits payable only at branch where made; Mutaugh v.
Yokohama Specie Bank, Ltd., 1933, 149 Misc. 693, 269 N.Y.S. 65; Bluebird
Undergarment Corp. v. Gomez, 1931, 139 Misc. 742, 249 N.Y.S. 319; (b) checks need
be honored only when drawn on branch where deposited; Chrzanowska v. Corn
Exchange Bank, 1916, 173 App. Div. 285, 159 N.Y.S. 385, affirmed 1919, 225 N.Y.
728, 122 N.E. 877; subpoena duces tecum on foreign bank's record barred; In re
Harris, D.C.S.D.N.Y. 1939, 27 F. Supp. 480; (d) a foreign branch separate for
collection of forwarded paper; Pan-American Bank and Trust Company v. National
City Bank of New York, 2 Cir., 1925, 6 F. 2d 762, certiorari denied 1925, 269 U.S.
554, 46 S. Ct. 18, 70 L. Ed. 408. Thus in law there is nothing innately unitary
about the organization of international banking institutions.

Defendant, upon its oral argument and in its brief, relies heavily on Sokoloff v.
National City Bank of New York, 1928, 250 N.Y. 69, 164 N.E. 745, as authority for the
proposition that Chartered Bank, not the Hamburg or New York Agency, is ultimately
responsible for the amounts owing its German customers and, conversely, it is to
Chartered Bank that the German firms owe their obligations. The Sokoloff case,
aside from its violently different fact situation, is centered on the legal problem of
default of payment and consequent breach of contract by a branch bank. It does
not stand for the principle that in every instance an international bank
with branches is but one legal entity for all purposes. The defendant
concedes in its brief (p. 15) that there are purposes for which the various agencies
and branches of Chartered Bank may be treated in law as separate entities. I fail to
see the applicability of Sokoloff either as a guide to or authority for the resolution of
this problem. The facts before me and the cases catalogued supra lend weight to
the view that we are dealing here with Agencies independent of one another.

x x x

I hold that for instant purposes the Hamburg Agency and defendant were
independent business entities, and the attempted setoff may not be utilized by
defendant against its debt to the German firms obligated to the Hamburg Agency.

Going back to the instant Petition, although this Court concedes that all the
Philippine branches of petitioner Citibank should be treated as one unit with its head
office, it cannot be persuaded to declare that these Philippine branches are likewise
a single unit with the Geneva branch. It would be stretching the principle way
beyond its intended purpose.

Therefore, this Court maintains its original position in the Decision that the off-
setting or compensation of respondent's loans with Citibank-Manila using her dollar
accounts with Citibank-Geneva cannot be effected. The parties cannot be
considered principal creditor of the other. As for the dollar accounts, respondent was
the creditor and Citibank-Geneva was the debtor; and as for the outstanding loans,
petitioner Citibank, particularly Citibank-Manila, was the creditor and respondent
was the debtor. Since legal compensation was not possible, petitioner Citibank could
only use respondent's dollar accounts with Citibank-Geneva to liquidate her loans if
she had expressly authorized it to do so by contract.

Respondent cannot be deemed to have authorized the use of her dollar deposits
with Citibank-Geneva to liquidate her loans with petitioner Citibank when she signed
the PNs16for her loans which all contained the provision that -

At or after the maturity of this note, or when same becomes due under any of the
provisions hereof, any money, stocks, bonds, or other property of any kind
whatsoever, on deposit or otherwise, to the credit of the undersigned on the books
of CITIBANK, N.A. in transit or in their possession, may without notice be applied at
the discretion of the said bank to the full or partial payment of this note.

As has been established in the preceding discussion, "Citibank, N.A." can only refer
to the local branches of petitioner Citibank together with its head office. Unless
there is any showing that respondent understood and expressly agreed to a more
far-reaching interpretation, the reference to Citibank, N.A. cannot be extended to all
other branches of petitioner Citibank all over the world. Although theoretically,
books of the branches form part of the books of the head office, operationally and
practically, each branch maintains its own books which shall only be later integrated
and balanced with the books of the head office. Thus, it is very possible to identify
and segregate the books of the Philippine branches of petitioner Citibank from those
of Citibank-Geneva, and to limit the authority granted for application as payment of
the PNs to respondent's deposits in the books of the former.

Moreover, the PNs can be considered a contract of adhesion, the PNs being in
standard printed form prepared by petitioner Citibank. Generally, stipulations in a
contract come about after deliberate drafting by the parties thereto, there are
certain contracts almost all the provisions of which have been drafted only by one
party, usually a corporation. Such contracts are called contracts of adhesion,
because the only participation of the party is the affixing of his signature or his
"adhesion" thereto. This being the case, the terms of such contract are to be
construed strictly against the party which prepared it. 17

As for the supposed Declaration of Pledge of respondent's dollar accounts with

Citibank-Geneva as security for the loans, this Court stands firm on its ruling that
the non-production thereof is fatal to petitioners' cause in light of respondent's
claim that her signature on such document was a forgery. It bears to note that the
original of the Declaration of Pledge is with Citibank-Geneva, a branch of petitioner
Citibank. As between respondent and petitioner Citibank, the latter has better
access to the document. The constant excuse forwarded by petitioner Citibank that
Citibank-Geneva refused to return possession of the original Declaration of Pledge
to Citibank-Manila only supports this Court's finding in the preceding paragraphs
that the two branches are actually operating separately and independently of each
other.

Further, petitioners keep playing up the fact that respondent, at the beginning of
the trial, refused to give her specimen signatures to help establish whether her
signature on the Declaration of Pledge was indeed forged. Petitioners seem to forget
that subsequently, respondent, on advice of her new counsel, already offered to
cooperate in whatever manner so as to bring the original Declaration of Pledge
before the RTC for inspection. The exchange of the counsels for the opposing sides
during the hearing on 24 July 1991 before the RTC reveals the apparent willingness
of respondent's counsel to undertake whatever course of action necessary for the
production of the contested document, and the evasive, non-committal, and
uncooperative attitude of petitioners' counsel. 18

Lastly, this Court's ruling striking down the Declaration of Pledge is not entirely
based on respondent's allegation of forgery. In its Decision, this Court already
extensively discussed why it found the said Declaration of Pledge highly suspicious
and irregular, to wit'

First of all, it escapes this Court why petitioner Citibank took care to have the Deeds
of Assignment of the PNs notarized, yet left the Declaration of Pledge unnotarized.
This Court would think that petitioner Citibank would take greater cautionary
measures with the preparation and execution of the Declaration of Pledge because
it involved respondent's "all present and future fiduciary placements" with a
Citibank branch in another country, specifically, in Geneva, Switzerland. While there
is no express legal requirement that the Declaration of Pledge had to be notarized
to be effective, even so, it could not enjoy the same prima facie presumption of due
execution that is extended to notarized documents, and petitioner Citibank must
discharge the burden of proving due execution and authenticity of the Declaration
of Pledge.

Second, petitioner Citibank was unable to establish the date when the Declaration
of Pledge was actually executed. The photocopy of the Declaration of Pledge
submitted by petitioner Citibank before the RTC was undated. It presented only a
photocopy of the pledge because it already forwarded the original copy thereof to
Citibank-Geneva when it requested for the remittance of respondent's dollar
accounts pursuant thereto. Respondent, on the other hand, was able to secure a
copy of the Declaration of Pledge, certified by an officer of Citibank-Geneva, which
bore the date 24 September 1979. Respondent, however, presented her passport
and plane tickets to prove that she was out of the country on the said date and
could not have signed the pledge. Petitioner Citibank insisted that the pledge was
signed before 24 September 1979, but could not provide an explanation as to how
and why the said date was written on the pledge. Although Mr. Tan testified that the
Declaration of Pledge was signed by respondent personally before him, he could not
give the exact date when the said signing took place. It is important to note that the
copy of the Declaration of Pledge submitted by the respondent to the RTC was
certified by an officer of Citibank-Geneva, which had possession of the original copy
of the pledge. It is dated 24 September 1979, and this Court shall abide by the
presumption that the written document is truly dated. Since it is undeniable that
respondent was out of the country on 24 September 1979, then she could not have
executed the pledge on the said date.

Third, the Declaration of Pledge was irregularly filled-out. The pledge was in a
standard printed form. It was constituted in favor of Citibank, N.A., otherwise
referred to therein as the Bank. It should be noted, however, that in the space which
should have named the pledgor, the name of petitioner Citibank was typewritten, to
wit'

The pledge right herewith constituted shall secure all claims which the Bank now
has or in the future acquires against Citibank, N.A., Manila (full name and address of
the Debtor), regardless of the legal cause or the transaction (for example current
account, securities transactions, collections, credits, payments, documentary credits
and collections) which gives rise thereto, and including principal, all contractual and
penalty interest, commissions, charges, and costs.

The pledge, therefore, made no sense, the pledgor and pledgee being the same
entity. Was a mistake made by whoever filled-out the form? Yes, it could be a
possibility. Nonetheless, considering the value of such a document, the mistake as
to a significant detail in the pledge could only be committed with gross carelessness
on the part of petitioner Citibank, and raised serious doubts as to the authenticity
and due execution of the same. The Declaration of Pledge had passed through the
hands of several bank officers in the country and abroad, yet, surprisingly and
implausibly, no one noticed such a glaring mistake.

Lastly, respondent denied that it was her signature on the Declaration of Pledge.
She claimed that the signature was a forgery. When a document is assailed on the
basis of forgery, the best evidence rule applies'

Basic is the rule of evidence that when the subject of inquiry is the contents of a
document, no evidence is admissible other than the original document itself except
in the instances mentioned in Section 3, Rule 130 of the Revised Rules of Court.
Mere photocopies of documents are inadmissible pursuant to the best evidence
rule. This is especially true when the issue is that of forgery.

As a rule, forgery cannot be presumed and must be proved by clear, positive and
convincing evidence and the burden of proof lies on the party alleging forgery. The
best evidence of a forged signature in an instrument is the instrument itself
reflecting the alleged forged signature. The fact of forgery can only be established
by a comparison between the alleged forged signature and the authentic and
genuine signature of the person whose signature is theorized upon to have been
forged. Without the original document containing the alleged forged signature, one
cannot make a definitive comparison which would establish forgery. A comparison
based on a mere xerox copy or reproduction of the document under controversy
cannot produce reliable results.

Respondent made several attempts to have the original copy of the pledge
produced before the RTC so as to have it examined by experts. Yet, despite several
Orders by the RTC, petitioner Citibank failed to comply with the production of the
original Declaration of Pledge. It is admitted that Citibank-Geneva had possession of
the original copy of the pledge. While petitioner Citibank in Manila and its branch in
Geneva may be separate and distinct entities, they are still incontestably related,
and between petitioner Citibank and respondent, the former had more influence and
resources to convince Citibank-Geneva to return, albeit temporarily, the original
Declaration of Pledge. Petitioner Citibank did not present any evidence to convince
this Court that it had exerted diligent efforts to secure the original copy of the
pledge, nor did it proffer the reason why Citibank-Geneva obstinately refused to
give it back, when such document would have been very vital to the case of
petitioner Citibank. There is thus no justification to allow the presentation of a mere
photocopy of the Declaration of Pledge in lieu of the original, and the photocopy of
the pledge presented by petitioner Citibank has nil probative value. In addition,
even if this Court cannot make a categorical finding that respondent's signature on
the original copy of the pledge was forged, it is persuaded that petitioner Citibank
willfully suppressed the presentation of the original document, and takes into
consideration the presumption that the evidence willfully suppressed would be
adverse to petitioner Citibank if produced.

As far as the Declaration of Pledge is concerned, petitioners failed to submit any

new evidence or argument that was not already considered by this Court when it
rendered its Decision.

As to the value of the dollar deposits in Citibank-Geneva ordered refunded to

respondent

In case petitioners are still ordered to refund to respondent the amount of her dollar
accounts with Citibank-Geneva, petitioners beseech this Court to adjust the nominal
values of respondent's dollar accounts and/or her overdue peso loans by using the
values of the currencies stipulated at the time the obligations were established in
1979, to address the alleged inequitable consequences resulting from the extreme
and extraordinary devaluation of the Philippine currency that occurred in the course
of the Asian crisis of 1997. Petitioners base their request on Article 1250 of the Civil
Code which reads, "In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the time of the
establishment of the obligation shall be the basis of payment, unless there is an
agreement to the contrary."

It is well-settled that Article 1250 of the Civil Code becomes applicable only when
there is extraordinary inflation or deflation of the currency. Inflation has been
defined as the sharp increase of money or credit or both without a corresponding
increase in business transaction. There is inflation when there is an increase in the
volume of money and credit relative to available goods resulting in a substantial
and continuing rise in the general price level. 19 In Singson v. Caltex (Philippines),
Inc.,20 this Court already provided a discourse as to what constitutes as
extraordinary inflation or deflation of currency, thus'

We have held extraordinary inflation to exist when there is a decrease or increase in

the purchasing power of the Philippine currency which is unusual or beyond the
common fluctuation in the value of said currency, and such increase or decrease
could not have been reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the establishment of the obligation.

An example of extraordinary inflation, as cited by the Court in Filipino Pipe and

Foundry Corporation v. NAWASA, supra, is that which happened to
the deutschmark in 1920. Thus:

"More recently, in the 1920s, Germany experienced a case of hyperinflation. In early

1921, the value of the German mark was 4.2 to the U.S. dollar. By May of the same
year, it had stumbled to 62 to the U.S. dollar. And as prices went up rapidly, so that
by October 1923, it had reached 4.2 trillion to the U.S. dollar!" (Bernardo M. Villegas
& Victor R. Abola, Economics, An Introduction [Third Edition]).
As reported, "prices were going up every week, then every day, then every hour.
Women were paid several times a day so that they could rush out and exchange
their money for something of value before what little purchasing power was left
dissolved in their hands. Some workers tried to beat the constantly rising prices by
throwing their money out of the windows to their waiting wives, who would rush to
unload the nearly worthless paper. A postage stamp cost millions of marks and a
loaf of bread, billions." (Sidney Rutberg, "The Money Balloon", New York: Simon and
Schuster, 1975, p. 19, cited in "Economics, An Introduction" by Villegas & Abola, 3rd
ed.)

The supervening of extraordinary inflation is never assumed. The party alleging it

must lay down the factual basis for the application of Article 1250.

Thus, in the Filipino Pipe case, the Court acknowledged that the voluminous records
and statistics submitted by plaintiff-appellant proved that there has been a decline
in the purchasing power of the Philippine peso, but this downward fall cannot be
considered "extraordinary" but was simply a universal trend that has not spared our
country. Similarly, in Huibonhoa v. Court of Appeals, the Court dismissed plaintiff-
appellant's unsubstantiated allegation that the Aquino assassination in 1983 caused
building and construction costs to double during the period July 1983 to February
1984. In Serra v. Court of Appeals, the Court again did not consider the decline in
the peso's purchasing power from 1983 to 1985 to be so great as to result in an
extraordinary inflation.

Like the Serra and Huibonhoa cases, the instant case also raises as basis for the
application of Article 1250 the Philippine economic crisis in the early 1980s - - -
when, based on petitioner's evidence, the inflation rate rose to 50.34% in 1984. We
hold that there is no legal or factual basis to support petitioner's allegation of the
existence of extraordinary inflation during this period, or, for that matter, the entire
time frame of 1968 to 1983, to merit the adjustment of the rentals in the lease
contract dated July 16, 1968. Although by petitioner's evidence there was a decided
decline in the purchasing power of the Philippine peso throughout this period, we
are hard put to treat this as an "extraordinary inflation" within the meaning and
intent of Article 1250.

Rather, we adopt with approval the following observations of the Court of Appeals
on petitioner's evidence, especially the NEDA certification of inflation rates based on
consumer price index:

xxx (a) from the period 1966 to 1986, the official inflation rate never exceeded
100% in any single year; (b) the highest official inflation rate recorded was in 1984
which reached only 50.34%; (c) over a twenty one (21) year period, the Philippines
experienced a single-digit inflation in ten (10) years (i.e., 1966, 1967, 1968, 1969,
1975, 1976, 1977, 1978, 1983 and 1986); (d) in other years (i.e., 1970, 1971, 1972,
1973, 1974, 1979, 1980, 1981, 1982, 1984 and 1989) when the Philippines
experienced double-digit inflation rates, the average of those rates was only
20.88%; (e) while there was a decline in the purchasing power of the Philippine
currency from the period 1966 to 1986, such cannot be considered as extraordinary;
rather, it is a normal erosion of the value of the Philippine peso which is a
characteristic of most currencies.

"Erosion" is indeed an accurate description of the trend of decline in the value of the
peso in the past three to four decades. Unfortunate as this trend may be, it is
certainly distinct from the phenomenon contemplated by Article 1250.

Moreover, this Court has held that the effects of extraordinary inflation are not to be
applied without an official declaration thereof by competent authorities.

The burden of proving that there had been extraordinary inflation or deflation of the
currency is upon the party that alleges it. Such circumstance must be proven by
competent evidence, and it cannot be merely assumed. In this case, petitioners
presented no proof as to how much, for instance, the price index of goods and
services had risen during the intervening period. 21 All the information petitioners
provided was the drop of the U.S. dollar-Philippine peso exchange rate by 17 points
from June 1997 to January 1998. While the said figure was based on the statistics of
the Bangko Sentral ng Pilipinas (BSP), it is also significant to note that the BSP did
not categorically declare that the same constitute as an extraordinary inflation. The
existence of extraordinary inflation must be officially proclaimed by competent
authorities, and the only competent authority so far recognized by this Court to
make such an official proclamation is the BSP.22

Neither can this Court, by merely taking judicial notice of the Asian currency crisis in
1997, already declare that there had been extraordinary inflation. It should be
recalled that the Philippines likewise experienced economic crisis in the 1980s, yet
this Court did not find that extraordinary inflation took place during the said period
so as to warrant the application of Article 1250 of the Civil Code.

Furthermore, it is incontrovertible that Article 1250 of the Civil Code is based on

equitable considerations. Among the maxims of equity are (1) he who seeks equity
must do equity, and (2) he who comes into equity must come with clean hands. The
latter is a frequently stated maxim which is also expressed in the principle that he
who has done inequity shall not have equity. 23 Petitioner Citibank, hence, cannot
invoke Article 1250 of the Civil Code because it does not come to court with clean
hands. The delay in the recovery 24 by respondent of her dollar accounts with
Citibank-Geneva was due to the unlawful act of petitioner Citibank in using the
same to liquidate respondent's loans. Petitioner Citibank even attempted to justify
the off-setting or compensation of respondent's loans using her dollar accounts with
Citibank-Geneva by the presentation of a highly suspicious and irregular, and even
possibly forged, Declaration of Pledge.
The damage caused to respondent of the deprivation of her dollar accounts for
more than two decades is unquestionably relatively more extensive and
devastating, as compared to whatever damage petitioner Citibank, an international
banking corporation with undoubtedly substantial capital, may have suffered for
respondent's non-payment of her loans. It must also be remembered that petitioner
Citibank had already considered respondent's loans paid or liquidated by 26 October
1979 after it had fully effected compensation thereof using respondents deposits
and money market placements. All this time, respondent's dollar accounts are
unlawfully in the possession of and are being used by petitioner Citibank for its
business transactions. In the meantime, respondent's businesses failed and her
properties were foreclosed because she was denied access to her funds when she
needed them most. Taking these into consideration, respondent's dollar accounts
with Citibank-Geneva must be deemed to be subsisting and continuously deposited
with petitioner Citibank all this while, and will only be presently withdrawn by
respondent. Therefore, petitioner Citibank should refund to respondent the U.S.
$149,632.99 taken from her Citibank-Geneva accounts, or its equivalent in
Philippine currency using the exchange rate at the time of payment, plus the
stipulated interest for each of the fiduciary placements and current accounts
involved, beginning 26 October 1979.

As to respondent's Motion to Clarify and/or Confirm Decision with Notice of

Judgment

Respondent, in her Motion, is of the mistaken notion that the Court of Appeals
Decision, dated 26 March 2002, as modified by the Resolution of the same court,
dated 20 November 2002, would be implemented or executed together with this
Court's Decision.

This Court clarifies that its affirmation of the Decision of the Court of Appeals, as
modified, is only to the extent that it recognizes that petitioners had liabilities to the
respondent. However, this Court's Decision modified that of the appellate court's by
making its own determination of the specific liabilities of the petitioners to
respondent and the amounts thereof; as well as by recognizing that respondent also
had liabilities to petitioner Citibank and the amount thereof.

Thus, for purposes of execution, the parties need only refer to the dispositive
portion of this Court's Decision, dated 16 October 2006, should it already become
final and executory, without any further modifications.

As the last point, there is no merit in respondent's Motion for this Court to already
declare its Decision, dated 16 October 2006, final and executory. A judgment
becomes final and executory by operation of law and, accordingly, the finality of the
judgment becomes a fact upon the lapse of the reglementary period without an
appeal or a motion for new trial or reconsideration being filed. 25 This Court cannot
arbitrarily disregard the reglementary period and declare a judgment final and
executory upon the mere motion of one party, for to do so will be a culpable
violation of the right of the other parties to due process.

IN VIEW OF THE FOREGOING, petitioners' Motion for Partial Reconsideration of this

Court's Decision, dated 16 October 2006, and respondent's Motion for this Court to
declare the same Decision already final and executory, are both DENIED for lack of
merit.

SO ORDERED.

HIRD DIVISION

NATIONAL POWER CORPORATION, G.R. No. 170491

Petitioner,

Present:

- versus - YNARES-SANTIAGO, J.,

Chairperson,

AUSTRIA-MARTINEZ,

HON. RAMON G. CODILLA, JR., CALLEJO, SR.,

Presiding Judge, RTC
of Cebu, Br. 19, BANGPAI SHIPPING
 COMPANY, and WALLEM SHIPPING, CHICO-NAZARIO, and
INCORPORATED,
NACHURA, JJ.
Respondents.

Promulgated:

April 4, 2007

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

Before Us is a Petition for Review on Certiorari under Rule 45 of the Rules of Civil
Procedure, assailing the Decision [1] of the Court of Appeals in CA-G.R. CEB-SP No.
00848, dated 9 November 2005, which dismissed the Petition for Certiorari filed by
the National Power Corporation seeking to set aside the Order [2] issued by the
Regional Trial Court (RTC) of Cebu, Branch 19 dated 16 November 2004, denying
admission and excluding from the records plaintiffs (herein petitioner) Exhibits A, C,
D, E, H and its sub-markings, I, J, and its sub-markings, K, L, M and its sub-markings,
N and its sub-markings, O, P and its sub-markings, Q and its sub-markings, R and S
and its sub-markings.

On 20 April 1996, M/V Dibena Win, a vessel of foreign registry owned and operated
by private respondent Bangpai Shipping, Co., allegedly bumped and damaged
petitioners Power Barge 209 which was then moored at the Cebu International
Port. Thus, on 26 April 1996, petitioner filed before the Cebu RTC a complaint for
damages against private respondent Bangpai Shipping Co., for the alleged damages
caused on petitioners power barges.

Thereafter, petitioner filed an Amended Complaint dated 8 July

1996 impleading herein private respondent Wallem Shipping, Inc., as additional
defendant, contending that the latter is a ship agent of Bangpai Shipping Co. On 18
September 1996, Wallem Shipping, Inc. filed a Motion to Dismiss which was
subsequently denied by public respondent Judge in an Order dated 20 October
1998. Bangpai Shipping Co. likewise filed a Motion to Dismiss which was also denied
by public respondent Judge in an Order issued on 24 January 2003.

Petitioner, after adducing evidence during the trial of the case, filed a formal offer of
evidence before the lower court on 2 February 2004 consisting of Exhibits A to V
together with the sub-marked portions thereof. Consequently, private
respondents Bangpai Shipping Co. and Wallem Shipping, Inc. filed their respective
objections to petitioners formal offer of evidence.

On 16 November 2004, public respondent judge issued the assailed order denying
the admission and excluding from the records petitioners Exhibits A, C, D, E, H and
its sub-markings, I, J and its sub-markings, K, L, M and its sub-markings, N and its
sub-markings, O, P and its sub-markings, Q and its sub-markings, R and S and its
sub-markings.According to the court a quo:

The Court finds merit in the objections raised and the motion to strike out filed
respectively by the defendants. The record shows that the plaintiff has been given
every opportunity to present the originals of the Xerox or photocopies of the
documents it offered. It never produced the originals. The plaintiff attempted to
justify the admission of the photocopies by contending that the photocopies offered
are equivalent to the original of the document on the basis of the Electronic
Evidence (Comment to Defendant Wallem Philippines Objections and Motion to
Strike). But as rightly pointed out in defendant Wallems Reply to the Comment of
Plaintiff, the Xerox copies do not constitute the electronic evidence defined in
Section 1 of Rule 2 of the Rules on Electronic Evidence as follows:

(h) Electronic document refers to information or the representation of information,

data, figures, symbols or other models of written expression, described or however
represented, by which a right is established or an obligation extinguished, or by
which a fact may be proved and affirmed, which is received, recorded, transmitted,
stored, processed, retrieved or produced electronically. It includes digitally signed
documents and any printout, readable by sight or other means which accurately
reflects the electronic data message or electronic document. For the purpose of
these Rules, the term electronic document may be used interchangeably with
electronic data message.

The information in those Xerox or photocopies was not received, recorded, retrieved
or produced electronically. Moreover, such electronic evidence must be
authenticated (Sections 1 and 2, Rule 5, Rules on Electronic Evidence), which the
plaintiff failed to do. Finally, the required Affidavit to prove the admissibility and
evidentiary weight of the alleged electronic evidence (Sec. 1, Rule 9, Ibid) was not
executed, much less presented in evidence.

The Xerox or photocopies offered should, therefore, be stricken off the record. Aside
from their being not properly identified by any competent witness, the loss of the
principals thereof was not established by any competent proof.

xxxx

WHEREFORE, plaintiffs Exhibits A, C, D, E, H and its sub-markings, I, J, and its sub-

markings, K, L, M and its sub-markings, N and its sub-markings, O, P and its sub-
markings, Q and its sub-markings, and R are hereby DENIED admission and
excluded from the records. However, these excluded evidence should be attached
to the records of this case to enable the appellate court to pass upon them should
an appeal be taken from the decision on the merits to be rendered upon the
termination of the trial of this case.

Exhibits S and its sub-markings are also DENIED admission for lack of proper
identification since the witness who brought these pictures expressly admitted that
he was not present when the photos were taken and had not knowledge when the
same where taken.[3]

Upon denial of petitioners Motion for Reconsideration in an Order dated 20 April

2005, petitioner filed a Petition for Certiorari under Rule 65 of the Rules of Civil
Procedure before the Court of Appeals maintaining that public respondent Judge
acted with grave abuse of discretion amounting to lack or excess of jurisdiction in
denying the admission of its Exhibits A, C, D, E, H and its sub-markings, I, J and its
sub-markings, K, L, M and its sub-markings, N and its sub-markings, O, P and its
sub-markings, Q and its sub-markings, R, and S and its sub-markings.

On 9 November 2005, the appellate court issued a Decision dismissing petitioners

petition for certiorari, the pertinent portions of which elucidate:

After a judicious scrutiny of the record of the case on hand, together with the rules
and jurisprudence which are applicable in the premises, we have come up with a
finding that the petition for certiorari filed in this case is not meritorious.

It appears that there is no sufficient showing by the petitioner that the respondent
judge acted with grave abuse of discretion in issuing the assailed orders in Civil
Case No. CEB-18662.As what our jurisprudence tells us, grave abuse of discretion is
meant such capricious and whimsical exercise of judgment as would be equivalent
to lack of jurisdiction x x x.

In the case at bench, what has been shown to the contrary by the totality of the
record on hand is that the respondent judge acted correctly and within the pale of
his sound discretion in issuing the assailed order, dated November 16, 2004, in Civil
Case No. CEB-18662.

Indeed, it appears that the pieces of petitioners documentary evidence which were
denied admission by the respondent judge were not properly identified by any
competent witness. As pointed out by the respondent Bangpai Shipping Company in
its comment on the petition filed in this case which reproduces some excerpts of the
testimonies in the court a quo of Atty. Marianito De Los Santos, Engr. Nestor
Enriquez, Jr. and Mr. Rodulfo I. Pagaling, the said witnesses did not have personal
knowledge of and participation in the preparation and making of the pieces of
documentary evidence denied admission by respondent judge x x x. In other words,
there was lack of proper identification of said pieces of documentary
evidence. x x x.

Then another ground for denying admission of petitioners Exhibits A, C, D, E, H, I, J,

K, L, M, N, O, P, Q, R, and S by the respondent judge is that said pieces of
documentary evidence were merely photocopies of purported documents or
papers. There is no gainsaying the fact that the respondent judge acted within the
pale of his discretion when he denied admission of said documentary
evidence. Section 3 of Rule 130 of the Rules of Court of the Philippines is very
explicit in providing that, when the subject of inquiry are the contents of documents,
no evidence shall be admissible other than the original documents themselves,
except in certain cases specifically so enumerated therein, and the petitioner has
not shown that the non-presentation or non-production of its original documentary
pieces of evidence falls under such exceptions. As aptly pointed out by the
respondent judge in the order issued by him on November 16, 2004:

x x x The record shows that the plaintiff (petitioner herein) has been given every
opportunity to present the originals of the Xerox or photocopies of the documents it
offered. It never produced said originals.

So, the petitioner has only itself to blame for the respondent judges denial of
admission of its aforementioned documentary evidence.

Of course, the petitioner tries to contend that the photocopies of documents offered
by it are equivalent to the original documents that it sought to offer in evidence,
based on the Rules on Electronic Evidence which were in force and effect
since August 1, 2001. However, such a contention is devoid of merit. The pieces of
documentary evidence offered by the petitioner in Civil Case CEB-18662 which were
denied admission by the respondent judge do not actually constitute as electronic
evidence as defined in the Rules on Electronic Evidence. The informationstherein
were not received, retrieved or produced electronically. The petitioner has not
adequately established that its documentary evidence were electronic
evidence. it has not properly authenticated such evidence as electronic documents,
assuming arguendo that they are. Lastly, the petitioner has not properly established
by affidavit pursuant to Rule 9 of the Rules on Electronic Evidence the admissibility
and evidentiary weight of said documentary evidence.

Thus, by any legal yardstick, it is manifest that the respondent judge did not commit
grave abuse of discretion in denying admission of the aforementioned documentary
evidence of petitioner.

But even if it be granted just for the sake of argument that the respondent judge
committed an error in denying the aforementioned documentary evidence of the
petitioner, still the petition for certiorari filed in this case must fail. Such error would
at most be only an error of law and not an error of jurisdiction. In Lee vs. People,
393 SCRA 397, the Supreme Court of the Philippines said that certiorari will not lie in
case of an error of law. x x x.

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us

DISMISSING the petition filed in this case and AFFIRMING the assailed orders issued
by respondent judge in Civil Case No. CEB-18662.[4]

Aggrieved by the aforequoted decision, petitioner filed the instant petition.

The focal point of this entire controversy is petitioners obstinate contention that the
photocopies it offered as formal evidence before the trial court are the functional
equivalent of their original based on its inimitable interpretation of the Rules on
Electronic Evidence.

Petitioner insists that, contrary to the rulings of both the trial court and the
appellate court, the photocopies it presented as documentary evidence actually
constitute electronic evidence based on its own premise that an electronic
document as defined under Section 1(h), Rule 2 of the Rules on Electronic Evidence
is not limited to information that is received, recorded, retrieved or produced
electronically. Rather, petitioner maintains that an electronic document can also
refer to other modes of written expression that is produced electronically, such as
photocopies, as included in the sections catch-all proviso: any print-out or output,
readable by sight or other means.

We do not agree.

In order to shed light to the issue of whether or not the photocopies are indeed
electronic documents as contemplated in Republic Act No. 8792 or the
Implementing Rules and Regulations of the Electronic Commerce Act, as well as the
Rules on Electronic Evidence, we shall enumerate the following documents offered
as evidence by the petitioner, to wit:
1. Exhibit A is a photocopy of a letter manually signed by a certain Jose C. Troyo,
with RECEIVED stamped thereon, together with a handwritten date;

2. Exhibit C is a photocopy of a list of estimated cost of damages of petitioners

power barges 207 and 209 prepared by Hopewell Mobile Power Systems
Corporation and manually signed by Messrs. Rex Malaluan and Virgilio Asprer;

3. Exhibit D is a photocopy of a letter manually signed by a certain Nestor G.

Enriquez, Jr., with RECEIVED stamped thereon, together with a handwritten
notation of the date it was received;

4. Exhibit E is a photocopy of a Standard Marine Protest Form which was filled

up and accomplished by Rex Joel C. Malaluan in his own handwriting and
signed by him. Portions of the Jurat were handwritten, and manually signed
by the Notary Public;

5. Exhibit H is a photocopy of a letter manually signed by Mr. Nestor G.

Enriquez, Jr. with RECEIVED stamped thereon, together with a handwritten
notation of the date it was received;

6. Exhibit I is a photocopy of a computation of the estimated energy loss

allegedly suffered by petitioner which was manually signed by Mr. Nestor G.
Enriquez, Jr.;

7. Exhibit J is a photocopy of a letter containing the breakdown of the cost

estimate, manually signed by Mr. Nestor G. Enriquez, Jr., with RECEIVED
stamped thereon, together with a handwritten notation of the date it was
received, and other handwritten notations;

8. Exhibit K is a photocopy of the

Subpoena Duces Tecum Ad Testificandum written using a manual typewriter,
signed manually by Atty. Ofelia Polo-De Los Reyes, with a handwritten
notation when it was received by the party;
 9. Exhibit L is a photocopy of a portion of the electricity supply and operation
and maintenance agreement between petitioner and Hopewell, containing
handwritten notations and every page containing three unidentified manually
placed signatures;

10.Exhibit M is a photocopy of the Notice of Termination with attachments

addressed to Rex Joel C. Malaluan, manually signed by Jaime S. Patinio, with a
handwritten notation of the date it was received. The sub-markings also
contain manual signatures and/or handwritten notations;

11.Exhibit N is a photocopy of a letter of termination with attachments

addressed to VIrgilio Asprer and manually signed by Jaime S. Patino. The sub-
markings contain manual signatures and/or handwritten notations;

12.Exhibit O is the same photocopied document marked as Annex C;

13.Exhibit P is a photocopy of an incident report manually signed by

Messrs. Malaluan and Bautista and by the Notary Public, with other
handwritten notations;

14.Exhibit Q is a photocopy of a letter manually signed by Virgilio Asprer and by

a Notary Public, together with other handwritten notations.

On the other hand, an electronic document refers to information or the

representation of information, data, figures, symbols or other models of
written expression, described or however represented, by which a right is
established or an obligation extinguished, or by which a fact may be proved and
affirmed, which is received, recorded, transmitted, stored, processed,
retrieved or produced electronically. [5] It includes digitally signed documents
and any printout, readable by sight or other means which accurately reflects the
electronic data message or electronic document. [6]

The rules use the word information to define an electronic document received,
recorded, transmitted, stored, processed, retrieved or produced electronically. This
would suggest that an electronic document is relevant only in terms of the
information contained therein, similar to any other document which is presented in
evidence as proof of its contents. [7] However, what differentiates an electronic
document from a paper-based document is the manner by which the information is
processed; clearly, the information contained in an electronic document is received,
recorded, transmitted, stored, processed, retrieved or produced electronically.

A perusal of the information contained in the photocopies submitted by petitioner

will reveal that not all of the contents therein, such as the signatures of the persons
who purportedly signed the documents, may be recorded or produced
electronically. By no stretch of the imagination can a persons signature affixed
manually be considered as information electronically received, recorded,
transmitted, stored, processed, retrieved or produced. Hence, the argument of
petitioner that since these paper printouts were produced through an electronic
process, then these photocopies are electronic documents as defined in the Rules
on Electronic Evidence is obviously an erroneous, if not preposterous, interpretation
of the law. Having thus declared that the offered photocopies are not tantamount to
electronic documents, it is consequential that the same may not be considered as
the functional equivalent of their original as decreed in the law.

Furthermore, no error can be ascribed to the court a quo in denying admission and
excluding from the records petitioners Exhibits A, C, D, E, H and its sub-markings, I, J
and its sub-markings, K, L, M and its sub-markings, N and its sub-markings, O, P and
its sub-markings, Q and its sub-markings, and R. The trial court was correct in
rejecting these photocopies as they violate the best evidence rule and are therefore
of no probative value being incompetent pieces of evidence. Before the onset of
liberal rules of discovery, and modern technique of electronic copying, the best
evidence rule was designed to guard against incomplete or fraudulent proof and the
introduction of altered copies and the withholding of the originals. [8] But the modern
justification for the rule has expanded from the prevention of fraud to a
recognition that writings occupy a central position in the law. [9] The importance of
the precise terms of writings in the world of legal relations, the fallibility of the
human memory as reliable evidence of the terms, and the hazards of inaccurate or
incomplete duplicate are the concerns addressed by the best evidence rule. [10]

Moreover, as mandated under Section 2, Rule 130 of the Rules of Court:

"SECTION 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."

When the original document has been lost or destroyed, or cannot be produced in
court, the offeror, upon proof of its execution or existence and the cause of its
unavailability without bad faith on his part, may prove its contents by a copy, or by
a recital of its contents in some authentic document, or by the testimony of
witnesses in the order stated.[11] The offeror of secondary evidence is burdened to
prove the predicates thereof: (a) the loss or destruction of the original without bad
faith on the part of the proponent/offeror which can be shown by circumstantial
evidence of routine practices of destruction of documents; [12] (b) the proponent
must prove by a fair preponderance of evidence as to raise a reasonable inference
of the loss or destruction of the original copy; and (c) it must be shown that a
diligent and bona fide but unsuccessful search has been made for the document in
the proper place or places. [13] However, in the case at bar, though petitioner insisted
in offering the photocopies as documentary evidence, it failed to establish that such
offer was made in accordance with the exceptions as enumerated under
the abovequoted rule. Accordingly, we find no error in the Order of the court a
quodenying admissibility of the photocopies offered by petitioner as documentary
evidence.

Finally, it perplexes this Court why petitioner continued to obdurately disregard the
opportunities given by the trial court for it to present the originals of the
photocopies it presented yet comes before us now praying that it be allowed to
present the originals of the exhibits that were denied admission or in case the same
are lost, to lay the predicate for the admission of secondary evidence. Had
petitioner presented the originals of the documents to the court instead of the
photocopies it obstinately offered as evidence, or at the very least laid the predicate
for the admission of said photocopies, this controversy would not have
unnecessarily been brought before the appellate court and finally to this Court for
adjudication. Had it not been for petitioners intransigence, the merits of petitioners
complaint for damages would have been decided upon by the trial court long ago.As
aptly articulated by the Court of Appeals, petitioner has only itself to blame for the
respondent judges denial of admission of its aforementioned documentary evidence
and consequently, the denial of its prayer to be given another opportunity to
present the originals of the documents that were denied admission nor to lay the
predicate for the admission of secondary evidence in case the same has been lost.

WHEREFORE, premises considered, the instant petition is hereby DENIED. The

Decision of the Court of Appeals in CA-G.R. CEB-SP No. 00848, dated 9 November
2005 is hereby AFFIRMED. Costs against petitioner.

SO ORDERED.
 G.R. No. 109293 August 18, 1993

HOME INSURANCE CORPORATION, petitioner,

vs.
THE HON. COURT OF APPEALS, FORMER 7th DIVISION and MABUHAY
BROKERAGE CO., INC., respondents.

Quasha, Asperilla, Ancheta Law Office for petitioner.

Gonzales & Ysip Law Office for private respondent.

CRUZ, J.:

Filipro Phil. now known as Nestle Phil., was the consignee of two hydraulic engines
shipped on April 25, 1979, by INREDECO from the United States on the M/S Oriental
Satesman. The cargo arrived in Manila on May 17, 1979, on board the M/S Pacific
Conveyor. It was turned over to E. Razon Arrastre, which retained custody until July
20, 1979. The cargo was later hauled by Mabuhay Brokerage Co. to its warehouse,
where it stayed until July 26, 1979. On this date it was delivered to the consignee.

When the skidded plywood cases were opened by the consignee, one of the engines
was found to be damaged. Its fan cover was broken and misaligned and its cap
deformed. The consignee refused to accept the unit.

Nestle subsequently filed a claim against E. Razon, Mabuhay, the Port Authority, and
its insurer, the Home Insurance Corporation, for P49,170.00. When the other
companies denied liability, Home Insurance paid the claim and was issued a
subrogation receipt for $6,070.00. 1

Mabuhay alone was sued by Home Insurance for the recovery of the amount it had
paid to Nestle. Mabuhay again denied liability. After trial, the Regional Trial Court of
Manila rendered judgment dismissing the complaint. 2Judge Lorenzo B. Veneracion
declared that the plaintiff failed to establish the legal and factual bases for its claim.

The decision noted that the insurance contract between the corporation and the
consignee was not presented and that the other supporting documents were all only
photocopies. No explanation was given for the failure of the plaintiffs to submit the
originals. The trial court also observed that the crates of the shipment did not
comply with the accepted international standards, taking into consideration the
length of the voyage and the transshipment of the cargo. Its conlusion was that
whatever damage was sustained by the engine must have occurred while it was at
sea, for which Mabuhay could not be held liable.
The judgment was affirmed on appeal. 3 In addition, the respondent court held that
the appellant had failed to establish a valid subrogation, which could not be
presumed, 4 and to prove the amount Home had paid to Nestle. There was no
evidence either of what happened to the damaged engine, which still retained value
despite its defects.

The Court of Appeals stressed that the petitioner could be excused from presenting
the original of the insurance contract only if there was proof that this had been lost.
The unrebutted claim, however, is that the original was in its possession all the
time. 5 The respondent court added that even if a valid subrogation could be
established, Mabuhay was nevertheless not an absolute insurer against all risks of
the transport of the goods. In any case, it appeared that Mabuhay had exercised
extraordinary diligence for the safe delivery of the cargo.

The challenged decision, however, deleted the award of P8,000.00 for litigation
expenses for lack of legal or equitable justification.

In the present petition, it is argued that: (1) the subrogation receipt proves the
existence of the insurance contract between Nestle and the Home Insurance and
the amount paid by the latter to the former; and (2) the law or presumption of
negligence operates against the carrier.

The petition has no merit.

Home's section against Mabuhay supposedly arose from its contract of insurance
with Nestle. Having paid the consignee the damages it sustained during the
shipment, Home now claims it is rightfully subrogated under such contract to the
rights of the consignee. But the problem is what rights? And against whom?

The insurance contract has not been presented. It may be assumed for the sake of
argument that the subrogation receipt may nevertheless be used to establish the
relationship between the petitioner and the consignee and the amount paid to settle
the claim. But that is all the document can do. By itself alone, the subrogation
receipt is not sufficient to prove the petitioner's claim holding the respondent liable
for the damage to the engine.

The shipment of the cargo passed through several stages: first, from the shipper to
the port of departure; second, from the port of departure to the M/S Oriental
Statesman; third, from the M/S Oriental Statesman; third, from the M/S Pacific
Conveyor to the port of arrival; fifth, from the port of arrival to the operator; sixth,
from the arrastre operator to the hauler; and lastly, from the hauler to the
consignee.
In the absence of proof of stipulations to the contrary, the hauler can be liable only
to any damage that occurred from the time it received the cargo until it finally
delivered it to the consignee. It cannot be held responsible for handling of the cargo
before it actually received it, particularly since there was no indication from the
external appearance of the crates, which Mabuhay did not open, that the engined
was damaged.

As a mere subrogee of Nestle, Home can exercise only such rights against the
parties handling the cargo as were granted to Nestle under the insurance contract.
The insurance contract would have clearly indicated the scope of the coverage but
there is no evidence of this. It cannot simply be supposed that the hauling was
included in the coverage; it is possible that the coverage ended with the arrastre. In
other words, then rights transferred to Home by Nestle still assuming there was a
valid subrogation might not include the right to sue Mabuhay.

The petitioner cites Article 1735 of the Civil Code reading as follows:

Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4,

and 5 of the preceding article, if the goods are lost, destroyed or
deteriorated, common carriers are presumed to have been at fault or
to have acted negligently unless they proved that they observed
extraordinary diligence as required in Article 1733.

This presumption is applicable only if the shipper or consignee has, to begin with, a
right of action against the carrier. It has not been shown in the case at bar that
Home, as the supposed subrogee of Nestle, has acquired such a right against
Mabuhay.

The insurance contract might have proved that it covered the hauling portion of the
shipment and was not limited to the transport of the cargo while at sea, if that were
really the case. It could have shown that the agreement was not only a marine
transportation insurance but covered all phases of the cargo's shipment, from the
time the cargo was loaded on the vessel in the United States until it was delivered
to the consignee in the Philippines. But there is no acceptable evidence of these
stipulations because the original contract of insurance has not been presented.

Rule 130, Section 3, of the Rules of Court is quite clear:

Sec. 3. Original document must be produced; exceptions. When the

subject of inquiry is the contents of a document, no evidence shall be
admissible other than the original document itself, except in the
following cases:
 (a) When the original has been lost or destroyed, or cannot be
produced in court, without bad faith on the part of the offeror;

(b) When the original is in the custody or under the control of the party
against whom the evidence is offered, and the latter fails to produce it
after reasonable notice;

(c) When the original consists of numerous accounts or other

documents which cannot be examined in court without great loss of
time and the fact sought to be established from them is only the
general result of the whole; and

(d) When the original is a public record in the custody of a public officer
or is recorded in a public office.

It is curious that the petitioner disregarded this rule, knowing that the best evidence
of the insurance contract was its original copy, which was presumably in the
possession of Home itself. Failure to present this original (or even a copy of it), for
reasons the Court cannot comprehend, must prove fatal to this petition.

WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so

Ordered.

Grio-Aquino, Davide, Jr., Bellosillo and Quiazon, JJ., concur.

 G.R. No. L-40098 August 29, 1975

ANTONIO LIM TANHU, DY OCHAY, ALFONSO LEONARDO NG SUA and

CO OYO, petitioners,
vs.
HON. JOSE R. RAMOLETE as Presiding Judge, Branch III, CFI, Cebu
and TAN PUT, respondents.

Zosa, Zosa, Castillo, Alcudia & Koh for petitioners.

Fidel Manalo and Florido & Associates for respondents.

BARREDO, J.:

Petition for (1) certiorari to annul and set aside certain actuations of
respondent Court of First Instance of Cebu Branch III in its Civil Case No.
12328, an action for accounting of properties and money totalling allegedly
about P15 million pesos filed with a common cause of action against six
defendants, in which after declaring four of the said defendants herein
petitioners, in default and while the trial as against the two defendants not
declared in default was in progress, said court granted plaintiff's motion to
dismiss the case in so far as the non-defaulted defendants were concerned
and thereafter proceeded to hear ex-parte the rest of the plaintiffs evidence
and subsequently rendered judgment by default against the defaulted
defendants, with the particularities that notice of the motion to dismiss was
not duly served on any of the defendants, who had alleged a compulsory
counterclaim against plaintiff in their joint answer, and the judgment so
rendered granted reliefs not prayed for in the complaint, and (2) prohibition
to enjoin further proceedings relative to the motion for immediate execution
of the said judgment.

Originally, this litigation was a complaint filed on February 9, 1971 by

respondent Tan Put only against the spouses-petitioners Antonio Lim Tanhu
and Dy Ochay. Subsequently, in an amended complaint dated September 26,
1972, their son Lim Teck Chuan and the other spouses-petitioners Alfonso
Leonardo Ng Sua and Co Oyo and their son Eng Chong Leonardo were
included as defendants. In said amended complaint, respondent Tan alleged
that she "is the widow of Tee Hoon Lim Po Chuan, who was a partner in the
commercial partnership, Glory Commercial Company ... with Antonio Lim
Tanhu and Alfonso Ng Sua that "defendant Antonio Lim Tanhu, Alfonso
Leonardo Ng Sua, Lim Teck Chuan, and Eng Chong Leonardo, through fraud
and machination, took actual and active management of the partnership and
although Tee Hoon Lim Po Chuan was the manager of Glory Commercial
Company, defendants managed to use the funds of the partnership to
purchase lands and building's in the cities of Cebu, Lapulapu, Mandaue, and
the municipalities of Talisay and Minglanilla, some of which were hidden, but
the description of those already discovered were as follows: (list of
properties) ...;" and that:

13. (A)fter the death of Tee Hoon Lim Po Chuan, the defendants,
without liquidation continued the business of Glory Commercial
Company by purportedly organizing a corporation known as the
Glory Commercial Company, Incorporated, with paid up capital in
the sum of P125,000.00, which money and other assets of the
said Glory Commercial Company, Incorporated are actually the
assets of the defunct Glory Commercial Company partnership, of
which the plaintiff has a share equivalent to one third (/ 3)
thereof;

14. (P)laintiff, on several occasions after the death of her

husband, has asked defendants of the above-mentioned
properties and for the liquidation of the business of the defunct
partnership, including investments on real estate in Hong Kong,
but defendants kept on promising to liquidate said properties and
just told plaintiff to

15. (S)ometime in the month of November, 1967, defendants,

Antonio Lim Tanhu, by means of fraud deceit and
misrepresentations did then and there, induce and convince the
plaintiff to execute a quitclaim of all her rights and interests, in
the assets of the partnership of Glory Commercial Company,
which is null and void, executed through fraud and without any
legal effect. The original of said quitclaim is in the possession of
the adverse party defendant Antonio Lim Tanhu.

16. (A)s a matter of fact, after the execution of said quitclaim,

defendant Antonio Lim Tanhu offered to pay the plaintiff the
amount P65,000.00 within a period of one (1) month, for which
plaintiff was made to sign a receipt for the amount of P65,000.00
although no such amount was given and plaintiff was not even
given a copy of said document;

17. (T)hereafter, in the year 1968-69, the defendants who had

earlier promised to liquidate the aforesaid properties and assets
in favor among others of plaintiff and until the middle of the year
1970 when the plaintiff formally demanded from the defendants
the accounting of real and personal properties of the Glory
Commercial Company, defendants refused and stated that they
would not give the share of the plaintiff. (Pp. 36-37, Record.)

She prayed as follows:

WHEREFORE, it is most respectfully prayed that judgment be

rendered:

a) Ordering the defendants to render an accounting of the real

and personal properties of the Glory Commercial Company
including those registered in the names of the defendants and
other persons, which properties are located in the Philippines and
in Hong Kong;

b) Ordering the defendants to deliver to the plaintiff after

accounting, one third (/ 3) of the total value of all the properties
which is approximately P5,000,000.00 representing the just share
of the plaintiff;

c) Ordering the defendants to pay the attorney of the plaintiff the

sum of Two Hundred Fifty Thousand Pesos (P250,000.00) by way
 of attorney's fees and damages in the sum of One Million Pesos
(P1,000,000.00).

This Honorable Court is prayed for other remedies and reliefs

consistent with law and equity and order the defendants to pay
the costs. (Page 38, Record.)

The admission of said amended complaint was opposed by defendants upon

the ground that there were material modifications of the causes of action
previously alleged, but respondent judge nevertheless allowed the
amendment reasoning that:

The present action is for accounting of real and personal

properties as well as for the recovery of the same with damages.

An objective consideration of pars. 13 and 15 of the amended

complaint pointed out by the defendants to sustain their
opposition will show that the allegations of facts therein are
merely to amplify material averments constituting the cause of
action in the original complaint. It likewise include necessary and
indispensable defendants without whom no final determination
can be had in the action and in order that complete relief is to be
accorded as between those already parties.

Considering that the amendments sought to be introduced do

not change the main causes of action in the original complaint
and the reliefs demanded and to allow amendments is the rule,
and to refuse them the exception and in order that the real
question between the parties may be properly and justly
threshed out in a single proceeding to avoid multiplicity of
actions. (Page 40, Record.)

In a single answer with counterclaim, over the signature of their common

counsel, defendants denied specifically not only the allegation that
respondent Tan is the widow of Tee Hoon because, according to them, his
legitimate wife was Ang Siok Tin still living and with whom he had four (4)
legitimate children, a twin born in 1942, and two others born in 1949 and
1965, all presently residing in Hongkong, but also all the allegations of fraud
and conversion quoted above, the truth being, according to them, that
proper liquidation had been regularly made of the business of the
partnership and Tee Hoon used to receive his just share until his death, as a
result of which the partnership was dissolved and what corresponded to him
were all given to his wife and children. To quote the pertinent portions of said
answer:

AND BY WAY OF SPECIAL AND AFFIRMATIVE DEFENSES,

defendants hereby incorporate all facts averred and alleged in

the answer, and further most respectfully declare:

1. That in the event that plaintiff is filing the present complaint

as an heir of Tee Hoon Lim Po Chuan, then, she has no legal
capacity to sue as such, considering that the legitimate wife,
namely: Ang Siok Tin, together with their children are still alive.
Under Sec. 1, (d), Rule 16 of the Revised Rules of Court, lack of
legal capacity to sue is one of the grounds for a motion to
dismiss and so defendants prays that a preliminary hearing be
conducted as provided for in Sec. 5, of the same rule;

2. That in the alternative case or event that plaintiff is filing the

present case under Art. 144 of the Civil Code, then, her claim or
demand has been paid, waived abandoned or otherwise
extinguished as evidenced by the 'quitclaim' Annex 'A' hereof,
the ground cited is another ground for a motion to dismiss (Sec.
1, (h), Rule 16) and hence defendants pray that a preliminary
hearing be made in connection therewith pursuant to Section 5
of the aforementioned rule;

3. That Tee Hoon Lim Po Chuan was legally married to Ang Siok
Tin and were blessed with the following children, to wit: Ching
Siong Lim and Ching Hing Lim (twins) born on February 16, 1942;
Lim Shing Ping born on March 3, 1949 and Lim Eng Lu born on
June 25, 1965 and presently residing in Hongkong;

4. That even before the death of Tee Hoon Lim Po Chuan, the
plaintiff was no longer his common law wife and even though she
was not entitled to anything left by Tee Hoon Lim Po Chuan, yet,
out of the kindness and generosity on the part of the defendants,
particularly Antonio Lain Tanhu, who, was inspiring to be monk
and in fact he is now a monk, plaintiff was given a substantial
amount evidenced by the 'quitclaim' (Annex 'A');
5. That the defendants have acquired properties out of their own
personal fund and certainly not from the funds belonging to the
partnership, just as Tee Hoon Lim Po Chuan had acquired
properties out of his personal fund and which are now in the
possession of the widow and neither the defendants nor the
partnership have anything to do about said properties;

6. That it would have been impossible to buy properties from

funds belonging to the partnership without the other partners
knowing about it considering that the amount taken allegedly is
quite big and with such big amount withdrawn the partnership
would have been insolvent;

7. That plaintiff and Tee Hoon Lim Po Chuan were not blessed
with children who would have been lawfully entitled to succeed
to the properties left by the latter together with the widow and
legitimate children;

8. That despite the fact that plaintiff knew that she was no longer
entitled to anything of the shares of the late Tee Hoon Lim Po
Chuan, yet, this suit was filed against the defendant who have to
interpose the following

COUNTERCLAIM

A. That the defendants hereby reproduced, by way of reference,

all the allegations and foregoing averments as part of this
counterclaim; .

B. That plaintiff knew and was aware she was merely the
common-law wife of Tee Hoon Lim Po Chuan and that the lawful
and legal is still living, together with the legitimate children, and
yet she deliberately suppressed this fact, thus showing her bad
faith and is therefore liable for exemplary damages in an amount
which the Honorable Court may determine in the exercise of its
sound judicial discretion. In the event that plaintiff is married to
Tee Hoon Lim Po Chuan, then, her marriage is bigamous and
should suffer the consequences thereof;

C. That plaintiff was aware and had knowledge about the

'quitclaim', even though she was not entitled to it, and yet she
 falsely claimed that defendants refused even to see her and for
filing this unfounded, baseless, futile and puerile complaint,
defendants suffered mental anguish and torture conservatively
estimated to be not less than P3,000.00;

D. That in order to defend their rights in court, defendants were

constrained to engage the services of the undersigned counsel,
obligating themselves to pay P500,000.00 as attorney's fees;

E. That by way of litigation expenses during the time that this

case will be before this Honorable Court and until the same will
be finally terminated and adjudicated, defendants will have to
spend at least P5,000.00. (Pp. 44-47. Record.)

After unsuccessfully trying to show that this counterclaim is merely

permissive and should be dismissed for non-payment of the corresponding
filing fee, and after being overruled by the court, in due time, plaintiff
answered the same, denying its material allegations.

On February 3, 1973, however, the date set for the pre-trial, both of the two
defendants-spouses the Lim Tanhus and Ng Suas, did not appear, for which
reason, upon motion of plaintiff dated February 16, 1973, in an order of
March 12, 1973, they were all "declared in DEFAULT as of February 3, 1973
when they failed to appear at the pre-trial." They sought to hive this order
lifted thru a motion for reconsideration, but the effort failed when the court
denied it. Thereafter, the trial started, but at the stage thereof where the first
witness of the plaintiff by the name of Antonio Nuez who testified that he is
her adopted son, was up for re-cross-examination, said plaintiff unexpectedly
filed on October 19, 1974 the following simple and unreasoned

MOTION TO DROP DEFENDANTS LIM TECK

CHUAN AND ENG CHONG LEONARDO

COMES now plaintiff, through her undersigned counsel, unto the

Honorable Court most respectfully moves to drop from the
complaint the defendants Lim Teck Chuan and Eng Chong
Leonardo and to consider the case dismissed insofar as said
defendants Lim Teck Chuan and Eng Chong Leonardo are
concerned.
 WHEREFORE, it is most respectfully prayed of the Honorable
Court to drop from the complaint the defendants Lim Teck Chuan
and Eng Chong Leonardo and to dismiss the case against them
without pronouncement as to costs. (Page 50, Record.)

which she set for hearing on December 21, 1974. According to

petitioners, none of the defendants declared in default were
notified of said motion, in violation of Section 9 of Rule 13, since
they had asked for the lifting of the order of default, albeit
unsuccessfully, and as regards the defendants not declared in
default, the setting of the hearing of said motion on October 21,
1974 infringed the three-day requirement of Section 4 of Rule 15,
inasmuch as Atty. Adelino Sitoy of Lim Teck Chuan was served
with a copy of the motion personally only on October 19, 1974,
while Atty. Benjamin Alcudia of Eng Chong Leonardo was served
by registered mail sent only on the same date.

Evidently without even verifying the notices of service, just as

simply as plaintiff had couched her motion, and also without any
legal grounds stated, respondent court granted the prayer of the
above motion thus:

ORDER

Acting on the motion of the plaintiff praying for the dismissal of

the complaint as against defendants Lim Teck Chuan and Eng
Chong Leonardo.

The same is hereby GRANTED. The complaint as against

defendant Lim Teck Chuan and Eng Chong Leonardo is hereby
ordered DISMISSED without pronouncement as to costs.

Simultaneously, the following order was also issued:

Considering that defendants Antonio Lim Tanhu and his spouse

Dy Ochay as well as defendants Alfonso Ng Sua and his spouse
Co Oyo have been declared in default for failure to appear during
the pre-trial and as to the other defendants the complaint had
already been ordered dismissed as against them.
 Let the hearing of the plaintiff's evidence ex-parte be set on
November 20, 1974, at 8:30 A.M. before the Branch Clerk of
Court who is deputized for the purpose, to swear in witnesses
and to submit her report within ten (10) days thereafter. Notify
the plaintiff.

SO ORDERED.

Cebu City, Philippines, October 21, 1974. (Page 52, Record.)

But, in connection with this last order, the scheduled ex-parte reception of
evidence did not take place on November 20, 1974, for on October 28, 1974,
upon verbal motion of plaintiff, the court issued the following self-
explanatory order: .

Acting favorably on the motion of the plaintiff dated October 18,

1974, the Court deputized the Branch Clerk of Court to receive
the evidence of the plaintiff ex-parte to be made on November
20, 1974. However, on October 28, 1974, the plaintiff, together
with her witnesses, appeared in court and asked, thru counsel,
that she be allowed to present her evidence.

Considering the time and expenses incurred by the plaintiff in

bringing her witnesses to the court, the Branch Clerk of Court is
hereby authorized to receive immediately the evidence of the
plaintiff ex-parte.

SO ORDERED.

Cebu City, Philippines, October 28, 1974. (Page 53. Record.)

Upon learning of these orders on October 23, 1973, the defendant Lim Teck
Cheng, thru counsel, Atty. Sitoy, filed a motion for reconsideration thereof,
and on November 1, 1974, defendant Eng Chong Leonardo, thru counsel Atty.
Alcudia, filed also his own motion for reconsideration and clarification of the
same orders. These motions were denied in an order dated December 6,
1974 but received by the movants only on December 23, 1974. Meanwhile,
respondent court rendered the impugned decision on December 20, 1974. It
does not appear when the parties were served copies of this decision.
Subsequently, on January 6, 1975, all the defendants, thru counsel, filed a
motion to quash the order of October 28, 1974. Without waiting however for
the resolution thereof, on January 13, 1974, Lim Teck Chuan and Eng Chong
Leonardo went to the Court of Appeals with a petition for certiorari seeking
the annulment of the above-mentioned orders of October 21, 1974 and
October 28, 1974 and decision of December 20, 1974. By resolution of
January 24, 1975, the Court of Appeals dismissed said petition, holding that
its filing was premature, considering that the motion to quash the order of
October 28, 1974 was still unresolved by the trial court. This holding was
reiterated in the subsequent resolution of February 5, 1975 denying the
motion for reconsideration of the previous dismissal.

On the other hand, on January 20, 1975, the other defendants, petitioners
herein, filed their notice of appeal, appeal bond and motion for extension to
file their record on appeal, which was granted, the extension to expire after
fifteen (15) days from January 26 and 27, 1975, for defendants Lim Tanhu
and Ng Suas, respectively. But on February 7, 1975, before the perfection of
their appeal, petitioners filed the present petition with this Court. And with
the evident intent to make their procedural position clear, counsel for
defendants, Atty. Manuel Zosa, filed with respondent court a manifestation
dated February 14, 1975 stating that "when the non-defaulted defendants
Eng Chong Leonardo and Lim Teck Chuan filed their petition in the Court of
Appeals, they in effect abandoned their motion to quash the order of October
28, 1974," and that similarly "when Antonio Lim Tanhu, Dy Ochay, Alfonso
Leonardo Ng Sua and Co Oyo, filed their petition for certiorari and prohibition
... in the Supreme Court, they likewise abandoned their motion to quash."
This manifestation was acted upon by respondent court together with
plaintiffs motion for execution pending appeal in its order of the same date
February 14, 1975 this wise:

ORDER

When these incidents, the motion to quash the order of October

28, 1974 and the motion for execution pending appeal were
called for hearing today, counsel for the defendants-movants
submitted their manifestation inviting the attention of this Court
that by their filing for certiorari and prohibition with preliminary
injunction in the Court of Appeals which was dismissed and later
the defaulted defendants filed with the Supreme Court certiorari
with prohibition they in effect abandoned their motion to quash.
 IN VIEW HEREOF, the motion to quash is ordered ABANDONED.
The resolution of the motion for execution pending appeal shall
be resolved after the petition for certiorari and prohibition shall
have been resolved by the Supreme Court.

SO ORDERED.

Cebu City, Philippines, February 14, 1975. (Page 216, Record.)

Upon these premises, it is the position of petitioners that respondent court

acted illegally, in violation of the rules or with grave abuse of discretion in
acting on respondent's motion to dismiss of October 18, 1974 without
previously ascertaining whether or not due notice thereof had been served
on the adverse parties, as, in fact, no such notice was timely served on the
non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo and no
notice at all was ever sent to the other defendants, herein petitioners, and
more so, in actually ordering the dismissal of the case by its order of October
21, 1974 and at the same time setting the case for further hearing as against
the defaulted defendants, herein petitioners, actually hearing the same ex-
parte and thereafter rendering the decision of December 20, 1974 granting
respondent Tan even reliefs not prayed for in the complaint. According to the
petitioners, to begin with, there was compulsory counterclaim in the common
answer of the defendants the nature of which is such that it cannot be
decided in an independent action and as to which the attention of
respondent court was duly called in the motions for reconsideration. Besides,
and more importantly, under Section 4 of Rule 18, respondent court had no
authority to divide the case before it by dismissing the same as against the
non-defaulted defendants and thereafter proceeding to hear it ex-parte and
subsequently rendering judgment against the defaulted defendants,
considering that in their view, under the said provision of the rules, when a
common cause of action is alleged against several defendants, the default of
any of them is a mere formality by which those defaulted are not allowed to
take part in the proceedings, but otherwise, all the defendants, defaulted
and not defaulted, are supposed to have but a common fate, win or lose. In
other words, petitioners posit that in such a situation, there can only be one
common judgment for or against all the defendant, the non-defaulted and
the defaulted. Thus, petitioners contend that the order of dismissal of
October 21, 1974 should be considered also as the final judgment insofar as
they are concerned, or, in the alternative, it should be set aside together
with all the proceedings and decision held and rendered subsequent thereto,
and that the trial be resumed as of said date, with the defendants Lim Teck
Chuan and Eng Chong Leonardo being allowed to defend the case for all the
defendants.

On the other hand, private respondent maintains the contrary view that
inasmuch as petitioners had been properly declared in default, they have no
personality nor interest to question the dismissal of the case as against their
non-defaulted co-defendants and should suffer the consequences of their
own default. Respondent further contends, and this is the only position
discussed in the memorandum submitted by her counsel, that since
petitioners have already made or at least started to make their appeal, as
they are in fact entitled to appeal, this special civil action has no reason for
being. Additionally, she invokes the point of prematurity upheld by the Court
of Appeals in regard to the above-mentioned petition therein of the non-
defaulted defendants Lim Teck Chuan and Eng Chong Leonardo. Finally, she
argues that in any event, the errors attributed to respondent court are errors
of judgment and may be reviewed only in an appeal.

After careful scrutiny of all the above-related proceedings, in the court below
and mature deliberation, the Court has arrived at the conclusion that
petitioners should be granted relief, if only to stress emphatically once more
that the rules of procedure may not be misused and abused as instruments
for the denial of substantial justice. A review of the record of this case
immediately discloses that here is another demonstrative instance of how
some members of the bar, availing of their proficiency in invoking the letter
of the rules without regard to their real spirit and intent, succeed in inducing
courts to act contrary to the dictates of justice and equity, and, in some
instances, to wittingly or unwittingly abet unfair advantage by ironically
camouflaging their actuations as earnest efforts to satisfy the public clamor
for speedy disposition of litigations, forgetting all the while that the plain
injunction of Section 2 of Rule 1 is that the "rules shall be liberally construed
in order to promote their object and to assist the parties in obtaining not only
'speedy' but more imperatively, "just ... and inexpensive determination of
every action and proceeding." We cannot simply pass over the impression
that the procedural maneuvers and tactics revealed in the records of the
case at bar were deliberately planned with the calculated end in view of
depriving petitioners and their co-defendants below of every opportunity to
properly defend themselves against a claim of more than substantial
character, considering the millions of pesos worth of properties involved as
found by respondent judge himself in the impugned decision, a claim that
appears, in the light of the allegations of the answer and the documents
already brought to the attention of the court at the pre-trial, to be rather
dubious. What is most regrettable is that apparently, all of these alarming
circumstances have escaped respondent judge who did not seem to have
hesitated in acting favorably on the motions of the plaintiff conducive to the
deplorable objective just mentioned, and which motions, at the very least,
appeared to be 'of highly controversial' merit, considering that their obvious
tendency and immediate result would be to convert the proceedings into a
one-sided affair, a situation that should be readily condemnable and
intolerable to any court of justice.

Indeed, a seeming disposition on the part of respondent court to lean more

on the contentions of private respondent may be discerned from the manner
it resolved the attempts of defendants Dy Ochay and Antonio Lim Tanhu to
have the earlier order of default against them lifted. Notwithstanding that Dy
Ochay's motion of October 8, 1971, co-signed by her with their counsel, Atty.
Jovencio Enjambre (Annex 2 of respondent answer herein) was over the jurat
of the notary public before whom she took her oath, in the order of
November 2, 1971, (Annex 3 id.) it was held that "the oath appearing at the
bottom of the motion is not the one contemplated by the abovequoted
pertinent provision (See. 3, Rule 18) of the rules. It is not even a verification.
(See. 6, Rule 7.) What the rule requires as interpreted by the Supreme Court
is that the motion must have to be accompanied by an affidavit of merits
that the defendant has a meritorious defense, thereby ignoring the very
simple legal point that the ruling of the Supreme Court in Ong Peng vs.
Custodio, 1 SCRA 781, relied upon by His Honor, under which a separate
affidavit of merit is required refers obviously to instances where the motion is
not over oath of the party concerned, considering that what the cited
provision literally requires is no more than a "motion under oath." Stated
otherwise, when a motion to lift an order of default contains the reasons for
the failure to answer as well as the facts constituting the prospective defense
of the defendant and it is sworn to by said defendant, neither a formal
verification nor a separate affidavit of merit is necessary.

What is worse, the same order further held that the motion to lift the order of
default "is an admission that there was a valid service of summons" and that
said motion could not amount to a challenge against the jurisdiction of the
court over the person of the defendant. Such a rationalization is patently
specious and reveals an evident failure to grasp the import of the legal
concepts involved. A motion to lift an order of default on the ground that
service of summons has not been made in accordance with the rules is in
order and is in essence verily an attack against the jurisdiction of the court
over the person of the defendant, no less than if it were worded in a manner
specifically embodying such a direct challenge.

And then, in the order of February 14, 1972 (Annex 6, id.) lifting at last the
order of default as against defendant Lim Tanhu, His Honor posited that said
defendant "has a defense (quitclaim) which renders the claim of the plaintiff
contentious." We have read defendants' motion for reconsideration of
November 25, 1971 (Annex 5, id.), but We cannot find in it any reference to a
"quitclaim". Rather, the allegation of a quitclaim is in the amended complaint
(Pars. 15-16, Annex B of the petition herein) in which plaintiff maintains that
her signature thereto was secured through fraud and deceit. In truth, the
motion for reconsideration just mentioned, Annex 5, merely reiterated the
allegation in Dy Ochay's earlier motion of October 8, 1971, Annex 2, to set
aside the order of default, that plaintiff Tan could be but the common law
wife only of Tee Hoon, since his legitimate wife was still alive, which
allegation, His Honor held in the order of November 2, 1971, Annex 3, to be
"not good and meritorious defense". To top it all, whereas, as already stated,
the order of February 19, 1972, Annex 6, lifted the default against Lim Tanhu
because of the additional consideration that "he has a defense (quitclaim)
which renders the claim of the plaintiff contentious," the default of Dy Ochay
was maintained notwithstanding that exactly the same "contentions"
defense as that of her husband was invoked by her.

Such tenuous, if not altogether erroneous reasonings and manifest

inconsistency in the legal postures in the orders in question can hardly
convince Us that the matters here in issue were accorded due and proper
consideration by respondent court. In fact, under the circumstances herein
obtaining, it seems appropriate to stress that, having in view the rather
substantial value of the subject matter involved together with the obviously
contentious character of plaintiff's claim, which is discernible even on the
face of the complaint itself, utmost care should have been taken to avoid the
slightest suspicion of improper motivations on the part of anyone concerned.
Upon the considerations hereunder to follow, the Court expresses its grave
concern that much has to be done to dispel the impression that herein
petitioners and their co-defendants are being railroaded out of their rights
and properties without due process of law, on the strength of procedural
technicalities adroitly planned by counsel and seemingly unnoticed and
undetected by respondent court, whose orders, gauged by their tenor and
the citations of supposedly pertinent provisions and jurisprudence made
therein, cannot be said to have proceeded from utter lack of juridical
knowledgeability and competence.

The first thing that has struck the Court upon reviewing the record is the
seeming alacrity with which the motion to dismiss the case against non-
defaulted defendants Lim Teck Chuan and Eng Chong Leonardo was disposed
of, which definitely ought not to have been the case. The trial was
proceeding with the testimony of the first witness of plaintiff and he was still
under re-cross-examination. Undoubtedly, the motion to dismiss at that
stage and in the light of the declaration of default against the rest of the
defendants was a well calculated surprise move, obviously designed to
secure utmost advantage of the situation, regardless of its apparent
unfairness. To say that it must have been entirely unexpected by all the
defendants, defaulted and non-defaulted , is merely to rightly assume that
the parties in a judicial proceeding can never be the victims of any
procedural waylaying as long as lawyers and judges are imbued with the
requisite sense of equity and justice.

But the situation here was aggravated by the indisputable fact that the
adverse parties who were entitled to be notified of such unanticipated
dismissal motion did not get due notice thereof. Certainly, the non-defaulted
defendants had the right to the three-day prior notice required by Section 4
of Rule 15. How could they have had such indispensable notice when the
motion was set for hearing on Monday, October 21, 1974, whereas the
counsel for Lim Teck Chuan, Atty. Sitoy was personally served with the notice
only on Saturday, October 19, 1974 and the counsel for Eng Chong Leonardo,
Atty. Alcudia, was notified by registered mail which was posted only that
same Saturday, October 19, 1974? According to Chief Justice Moran, "three
days at least must intervene between the date of service of notice and the
date set for the hearing, otherwise the court may not validly act on the
motion." (Comments on the Rules of Court by Moran, Vol. 1, 1970 ed. p. 474.)
Such is the correct construction of Section 4 of Rule 15. And in the instant
case, there can be no question that the notices to the non-defaulted
defendants were short of the requirement of said provision.

We can understand the over-anxiety of counsel for plaintiff, but what is

incomprehensible is the seeming inattention of respondent judge to the
explicit mandate of the pertinent rule, not to speak of the imperatives of
fairness, considering he should have realized the far-reaching implications,
specially from the point of view he subsequently adopted, albeit erroneously,
of his favorably acting on it. Actually, he was aware of said consequences, for
simultaneously with his order of dismissal, he immediately set the case for
the ex-parte hearing of the evidence against the defaulted defendants,
which, incidentally, from the tenor of his order which We have quoted above,
appears to have been done by him motu propio As a matter of fact, plaintiff's
motion also quoted above did not pray for it.

Withal, respondent court's twin actions of October 21, 1974 further ignores
or is inconsistent with a number of known juridical principles concerning
defaults, which We will here take occasion to reiterate and further elucidate
on, if only to avoid a repetition of the unfortunate errors committed in this
case. Perhaps some of these principles have not been amply projected and
elaborated before, and such paucity of elucidation could be the reason why
respondent judge must have acted as he did. Still, the Court cannot but
express its vehement condemnation of any judicial actuation that unduly
deprives any party of the right to be heard without clear and specific warrant
under the terms of existing rules or binding jurisprudence. Extreme care
must be the instant reaction of every judge when confronted with a situation
involving risks that the proceedings may not be fair and square to all the
parties concerned. Indeed, a keen sense of fairness, equity and justice that
constantly looks for consistency between the letter of the adjective rules and
these basic principles must be possessed by every judge, If substance is to
prevail, as it must, over form in our courts. Literal observance of the rules,
when it is conducive to unfair and undue advantage on the part of any
litigant before it, is unworthy of any court of justice and equity. Withal, only
those rules and procedure informed, with and founded on public policy
deserve obedience in accord with their unequivocal language or words..

Before proceeding to the discussion of the default aspects of this case,

however, it should not be amiss to advert first to the patent incorrectness,
apparent on the face of the record, of the aforementioned order of dismissal
of October 21, 1974 of the case below as regards non-defaulted defendants
Lim and Leonardo. While it is true that said defendants are not petitioners
herein, the Court deems it necessary for a full view of the outrageous
procedural strategy conceived by respondent's counsel and sanctioned by
respondent court to also make reference to the very evident fact that in
ordering said dismissal respondent court disregarded completely the
existence of defendant's counterclaim which it had itself earlier held if
indirectly, to be compulsory in nature when it refused to dismiss the same on
the ground alleged by respondent Tan that he docketing fees for the filing
thereof had not been paid by defendants.

Indeed, that said counterclaim is compulsory needs no extended elaboration.

As may be noted in the allegations hereof aforequoted, it arose out of or is
necessarily connected with the occurrence that is the subject matter of the
plaintiff's claim, (Section 4, Rule 9) namely, plaintiff's allegedly being the
widow of the deceased Tee Hoon entitled, as such, to demand accounting of
and to receive the share of her alleged late husband as partner of
defendants Antonio Lim Tanhu and Alfonso Leonardo Ng Sua in Glory
Commercial Company, the truth of which allegations all the defendants have
denied. Defendants maintain in their counterclaim that plaintiff knew of the
falsity of said allegations even before she filed her complaint, for she had in
fact admitted her common-law relationship with said deceased in a
document she had jointly executed with him by way of agreement to
terminate their illegitimate relationship, for which she received P40,000 from
the deceased, and with respect to her pretended share in the capital and
profits in the partnership, it is also defendants' posture that she had already
quitclaimed, with the assistance of able counsel, whatever rights if any she
had thereto in November, 1967, for the sum of P25,000 duly receipted by
her, which quitclaim was, however, executed, according to respondent
herself in her amended complaint, through fraud. And having filed her
complaint knowing, according to defendants, as she ought to have known,
that the material allegations thereof are false and baseless, she has caused
them to suffer damages. Undoubtedly, with such allegations, defendants'
counterclaim is compulsory, not only because the same evidence to sustain
it will also refute the cause or causes of action alleged in plaintiff's
complaint, (Moran, supra p. 352) but also because from its very nature, it is
obvious that the same cannot "remain pending for independent adjudication
by the court." (Section 2, Rule 17.)

The provision of the rules just cited specifically enjoins that "(i)f a
counterclaim has been pleaded by a defendant prior to the service upon him
of the plaintiff's motion to dismiss, the action shall not be dismissed against
the defendant's objection unless the counterclaim can remain pending for
independent adjudication by the court." Defendants Lim and Leonardo had
no opportunity to object to the motion to dismiss before the order granting
the same was issued, for the simple reason that they were not opportunity
notified of the motion therefor, but the record shows clearly that at least
defendant Lim immediately brought the matter of their compulsory
counterclaim to the attention of the trial court in his motion for
reconsideration of October 23, 1974, even as the counsel for the other
defendant, Leonardo, predicated his motion on other grounds. In its order of
December 6, 1974, however, respondent court not only upheld the plaintiffs
supposed absolute right to choose her adversaries but also held that the
counterclaim is not compulsory, thereby virtually making unexplained and
inexplicable 180-degree turnabout in that respect.

There is another equally fundamental consideration why the motion to

dismiss should not have been granted. As the plaintiff's complaint has been
framed, all the six defendants are charged with having actually taken part in
a conspiracy to misappropriate, conceal and convert to their own benefit the
profits, properties and all other assets of the partnership Glory Commercial
Company, to the extent that they have allegedly organized a corporation,
Glory Commercial Company, Inc. with what they had illegally gotten from the
partnership. Upon such allegations, no judgment finding the existence of the
alleged conspiracy or holding the capital of the corporation to be the money
of the partnership is legally possible without the presence of all the
defendants. The non-defaulted defendants are alleged to be stockholders of
the corporation and any decision depriving the same of all its assets cannot
but prejudice the interests of said defendants. Accordingly, upon these
premises, and even prescinding from the other reasons to be discussed anon
it is clear that all the six defendants below, defaulted and non-defaulted, are
indispensable parties. Respondents could do no less than grant that they are
so on page 23 of their answer. Such being the case, the questioned order of
dismissal is exactly the opposite of what ought to have been done. Whenever
it appears to the court in the course of a proceeding that an indispensable
party has not been joined, it is the duty of the court to stop the trial and to
order the inclusion of such party. (The Revised Rules of Court, Annotated &
Commented by Senator Vicente J. Francisco, Vol. 1, p. 271, 1973 ed. See also
Cortez vs. Avila, 101 Phil. 705.) Such an order is unavoidable, for the
"general rule with reference to the making of parties in a civil action requires
the joinder of all necessary parties wherever possible, and the joinder of all
indispensable parties under any and all conditions, the presence of those
latter being a sine qua non of the exercise of judicial power." (Borlasa vs.
Polistico, 47 Phil. 345, at p. 347.) It is precisely " when an indispensable party
is not before the court (that) the action should be dismissed." (People v.
Rodriguez, 106 Phil. 325, at p. 327.) The absence of an indispensable party
renders all subsequent actuations of the court null and void, for want of
authority to act, not only as to the absent parties but even as to those
present. In short, what respondent court did here was exactly the reverse of
what the law ordains it eliminated those who by law should precisely be
joined.

As may he noted from the order of respondent court quoted earlier, which
resolved the motions for reconsideration of the dismissal order filed by the
non-defaulted defendants, His Honor rationalized his position thus:

It is the rule that it is the absolute prerogative of the plaintiff to

choose, the theory upon which he predicates his right of action,
or the parties he desires to sue, without dictation or imposition
by the court or the adverse party. If he makes a mistake in the
choice of his right of action, or in that of the parties against
whom he seeks to enforce it, that is his own concern as he alone
suffers therefrom. The plaintiff cannot be compelled to choose
his defendants, He may not, at his own expense, be forced to
implead anyone who, under the adverse party's theory, is to
answer for defendant's liability. Neither may the Court compel
him to furnish the means by which defendant may avoid or
mitigate their liability. (Vao vs. Alo, 95 Phil. 495-496.)

This being the rule this court cannot compel the plaintiff to
continue prosecuting her cause of action against the defendants-
movants if in the course of the trial she believes she can enforce
it against the remaining defendants subject only to the limitation
provided in Section 2, Rule 17 of the Rules of Court. ... (Pages
6263, Record.)

Noticeably, His Honor has employed the same equivocal terminology as in

plaintiff's motion of October 18, 1974 by referring to the action he had taken
as being "dismissal of the complaint against them or their being dropped
therefrom", without perceiving that the reason for the evidently intentional
ambiguity is transparent. The apparent idea is to rely on the theory that
under Section 11 of Rule 3, parties may be dropped by the court upon motion
of any party at any stage of the action, hence "it is the absolute right
prerogative of the plaintiff to choosethe parties he desires to sue, without
dictation or imposition by the court or the adverse party." In other words, the
ambivalent pose is suggested that plaintiff's motion of October 18, 1974 was
not predicated on Section 2 of Rule 17 but more on Section 11 of Rule 3. But
the truth is that nothing can be more incorrect. To start with, the latter rule
does not comprehend whimsical and irrational dropping or adding of parties
in a complaint. What it really contemplates is erroneous or mistaken non-
joinder and misjoinder of parties. No one is free to join anybody in a
complaint in court only to drop him unceremoniously later at the pleasure of
the plaintiff. The rule presupposes that the original inclusion had been made
in the honest conviction that it was proper and the subsequent dropping is
requested because it has turned out that such inclusion was a mistake. And
this is the reason why the rule ordains that the dropping be "on such terms
as are just" just to all the other parties. In the case at bar, there is nothing
in the record to legally justify the dropping of the non-defaulted defendants,
Lim and Leonardo. The motion of October 18, 1974 cites none. From all
appearances, plaintiff just decided to ask for it, without any relevant
explanation at all. Usually, the court in granting such a motion inquires for
the reasons and in the appropriate instances directs the granting of some
form of compensation for the trouble undergone by the defendant in
answering the complaint, preparing for or proceeding partially to trial, hiring
counsel and making corresponding expenses in the premises. Nothing of
these, appears in the order in question. Most importantly, His Honor ought to
have considered that the outright dropping of the non-defaulted defendants
Lim and Leonardo, over their objection at that, would certainly be unjust not
only to the petitioners, their own parents, who would in consequence be
entirely defenseless, but also to Lim and Leonardo themselves who would
naturally correspondingly suffer from the eventual judgment against their
parents. Respondent court paid no heed at all to the mandate that such
dropping must be on such terms as are just" meaning to all concerned
with its legal and factual effects.

Thus, it is quite plain that respondent court erred in issuing its order of
dismissal of October 21, 1974 as well as its order of December 6, 1974
denying reconsideration of such dismissal. As We make this ruling, We are
not oblivious of the circumstance that defendants Lim and Leonardo are not
parties herein. But such consideration is inconsequential. The fate of the
case of petitioners is inseparably tied up with said order of dismissal, if only
because the order of ex-parte hearing of October 21, 1974 which directly
affects and prejudices said petitioners is predicated thereon. Necessarily,
therefore, We have to pass on the legality of said order, if We are to decide
the case of herein petitioners properly and fairly.
The attitude of the non-defaulted defendants of no longer pursuing further
their questioning of the dismissal is from another point of view
understandable. On the one hand, why should they insist on being
defendants when plaintiff herself has already release from her claims? On
the other hand, as far as their respective parents-co-defendants are
concerned, they must have realized that they (their parents) could even be
benefited by such dismissal because they could question whether or not
plaintiff can still prosecute her case against them after she had secured the
order of dismissal in question. And it is in connection with this last point that
the true and correct concept of default becomes relevant.

At this juncture, it may also be stated that the decision of the Court of
Appeals of January 24, 1975 in G. R. No. SP-03066 dismissing the petition for
certiorari of non-defaulted defendants Lim and Leonardo impugning the
order of dismissal of October 21, 1974, has no bearing at all in this case, not
only because that dismissal was premised by the appellate court on its
holding that the said petition was premature inasmuch as the trial court had
not yet resolved the motion of the defendants of October 28, 1974 praying
that said disputed order be quashed, but principally because herein
petitioners were not parties in that proceeding and cannot, therefore, be
bound by its result. In particular, We deem it warranted to draw the attention
of private respondent's counsel to his allegations in paragraphs XI to XIV of
his answer, which relate to said decision of the Court of Appeals and which
have the clear tendency to make it appear to the Court that the appeals
court had upheld the legality and validity of the actuations of the trial court
being questioned, when as a matter of indisputable fact, the dismissal of the
petition was based solely and exclusively on its being premature without in
any manner delving into its merits. The Court must and does admonish
counsel that such manner of pleading, being deceptive and lacking in
candor, has no place in any court, much less in the Supreme Court, and if We
are adopting a passive attitude in the premises, it is due only to the fact that
this is counsel's first offense. But similar conduct on his part in the future will
definitely be dealt with more severely. Parties and counsel would be well
advised to avoid such attempts to befuddle the issues as invariably then will
be exposed for what they are, certainly unethical and degrading to the
dignity of the law profession. Moreover, almost always they only betray the
inherent weakness of the cause of the party resorting to them.

2
Coming now to the matter itself of default, it is quite apparent that the
impugned orders must have proceeded from inadequate apprehension of the
fundamental precepts governing such procedure under the Rules of Court. It
is time indeed that the concept of this procedural device were fully
understood by the bench and bar, instead of being merely taken for granted
as being that of a simple expedient of not allowing the offending party to
take part in the proceedings, so that after his adversary shall have presented
his evidence, judgment may be rendered in favor of such opponent, with
hardly any chance of said judgment being reversed or modified.

The Rules of Court contain a separate rule on the subject of default, Rule 18.
But said rule is concerned solely with default resulting from failure of the
defendant or defendants to answer within the reglementary period. Referring
to the simplest form of default, that is, where there is only one defendant in
the action and he fails to answer on time, Section 1 of the rule provides that
upon "proof of such failure, (the court shall) declare the defendant in default.
Thereupon the court shall proceed to receive the plaintiff's evidence and
render judgment granting him such relief as the complaint and the facts
proven may warrant." This last clause is clarified by Section 5 which says
that "a judgment entered against a party in default shall not exceed the
amount or be different in kind from that prayed for."

Unequivocal, in the literal sense, as these provisions are, they do not readily
convey the full import of what they contemplate. To begin with, contrary to
the immediate notion that can be drawn from their language, these
provisions are not to be understood as meaning that default or the failure of
the defendant to answer should be "interpreted as an admission by the said
defendant that the plaintiff's cause of action find support in the law or that
plaintiff is entitled to the relief prayed for." (Moran, supra, p. 535 citing
Macondary & Co. v. Eustaquio, 64 Phil. 466, citing with approval Chaffin v.
McFadden, 41 Ark. 42; Johnson v. Pierce, 12 Ark. 599; Mayden v. Johnson, 59
Ga. 105; People v. Rust, 292 111. 328; Ken v. Leopold 21 111. A. 163;
Chicago, etc. Electric R. Co. v. Krempel 116 111. A. 253.)

Being declared in default does not constitute a waiver of rights except that of
being heard and of presenting evidence in the trial court. According to
Section 2, "except as provided in Section 9 of Rule 13, a party declared in
default shall not be entitled to notice of subsequent proceedings, nor to take
part in the trial." That provision referred to reads: "No service of papers other
than substantially amended pleadings and final orders or judgments shall be
necessary on a party in default unless he files a motion to set aside the order
of default, in which event he shall be entitled to notice of all further
proceedings regardless of whether the order of default is set aside or not."
And pursuant to Section 2 of Rule 41, "a party who has been declared in
default may likewise appeal from the judgment rendered against him as
contrary to the evidence or to the law, even if no petition for relief to set
aside the order of default has been presented by him in accordance with Rule
38.".

In other words, a defaulted defendant is not actually thrown out of court.

While in a sense it may be said that by defaulting he leaves himself at the
mercy of the court, the rules see to it that any judgment against him must be
in accordance with law. The evidence to support the plaintiff's cause is, of
course, presented in his absence, but the court is not supposed to admit that
which is basically incompetent. Although the defendant would not be in a
position to object, elementary justice requires that, only legal evidence
should be considered against him. If the evidence presented should not be
sufficient to justify a judgment for the plaintiff, the complaint must be
dismissed. And if an unfavorable judgment should be justifiable, it cannot
exceed in amount or be different in kind from what is prayed for in the
complaint.

Incidentally, these considerations argue against the present widespread

practice of trial judges, as was done by His Honor in this case, of delegating
to their clerks of court the reception of the plaintiff's evidence when the
defendant is in default. Such a Practice is wrong in principle and orientation.
It has no basis in any rule. When a defendant allows himself to be declared in
default, he relies on the faith that the court would take care that his rights
are not unduly prejudiced. He has a right to presume that the law and the
rules will still be observed. The proceedings are held in his forced absence,
and it is but fair that the plaintiff should not be allowed to take advantage of
the situation to win by foul or illegal means or with inherently incompetent
evidence. Thus, in such instances, there is need for more attention from the
court, which only the judge himself can provide. The clerk of court would not
be in a position much less have the authority to act in the premises in the
manner demanded by the rules of fair play and as contemplated in the law,
considering his comparably limited area of discretion and his presumably
inferior preparation for the functions of a judge. Besides, the default of the
defendant is no excuse for the court to renounce the opportunity to closely
observe the demeanor and conduct of the witnesses of the plaintiff, the
better to appreciate their truthfulness and credibility. We therefore declare as
a matter of judicial policy that there being no imperative reason for judges to
do otherwise, the practice should be discontinued.

Another matter of practice worthy of mention at this point is that it is

preferable to leave enough opportunity open for possible lifting of the order
of default before proceeding with the reception of the plaintiff's evidence and
the rendition of the decision. "A judgment by default may amount to a
positive and considerable injustice to the defendant; and the possibility of
such serious consequences necessitates a careful and liberal examination of
the grounds upon which the defendant may seek to set it aside."
(Moran, supra p. 534, citing Coombs vs. Santos, 24 Phil. 446; 449-450.) The
expression, therefore, in Section 1 of Rule 18 aforequoted which says that
"thereupon the court shall proceed to receive the plaintiff's evidence etc." is
not to be taken literally. The gain in time and dispatch should the court
immediately try the case on the very day of or shortly after the declaration of
default is far outweighed by the inconvenience and complications involved in
having to undo everything already done in the event the defendant should
justify his omission to answer on time.

The foregoing observations, as may be noted, refer to instances where the

only defendant or all the defendants, there being several, are declared in
default. There are additional rules embodying more considerations of justice
and equity in cases where there are several defendants against whom a
common cause of action is averred and not all of them answer opportunely
or are in default, particularly in reference to the power of the court to render
judgment in such situations. Thus, in addition to the limitation of Section 5
that the judgment by default should not be more in amount nor different in
kind from the reliefs specifically sought by plaintiff in his complaint, Section 4
restricts the authority of the court in rendering judgment in the situations
just mentioned as follows:

Sec. 4. Judgment when some defendants answer, and other

make difficult. When a complaint states a common cause of
action against several defendant some of whom answer, and the
others fail to do so, the court shall try the case against all upon
the answer thus filed and render judgment upon the evidence
presented. The same proceeding applies when a common cause
of action is pleaded in a counterclaim, cross-claim and third-
party claim.
Very aptly does Chief Justice Moran elucidate on this provision and the
controlling jurisprudence explanatory thereof this wise:

Where a complaint states a common cause of action against

several defendants and some appear to defend the case on the
merits while others make default, the defense interposed by
those who appear to litigate the case inures to the benefit of
those who fail to appear, and if the court finds that a good
defense has been made, all of the defendants must be absolved.
In other words, the answer filed by one or some of the
defendants inures to the benefit of all the others, even those who
have not seasonably filed their answer. (Bueno v. Ortiz, L-22978,
June 27, 1968, 23 SCRA 1151.) The proper mode of proceeding
where a complaint states a common cause of action against
several defendants, and one of them makes default, is simply to
enter a formal default order against him, and proceed with the
cause upon the answers of the others. The defaulting defendant
merely loses his standing in court, he not being entitled to the
service of notice in the cause, nor to appear in the suit in any
way. He cannot adduce evidence; nor can he be heard at the
final hearing, (Lim Toco v. Go Fay, 80 Phil. 166.) although he may
appeal the judgment rendered against him on the merits. (Rule
41, sec. 2.) If the case is finally decided in the plaintiff's favor, a
final decree is then entered against all the defendants; but if the
suit should be decided against the plaintiff, the action will be
dismissed as to all the defendants alike. (Velez v. Ramas, 40 Phil.
787-792; Frow v. de la Vega, 15 Wal. 552,21 L. Ed. 60.) In other
words the judgment will affect the defaulting defendants either
favorably or adversely. (Castro v. Pea, 80 Phil. 488.)

Defaulting defendant may ask execution if judgment is in his

favor. (Castro v. Pea, supra.) (Moran, Rules of Court, Vol. 1, pp.
538-539.)

In Castro vs. Pea, 80 Phil. 488, one of the numerous cases cited
by Moran, this Court elaborated on the construction of the same
rule when it sanctioned the execution, upon motion and for the
benefit of the defendant in default, of a judgment which was
adverse to the plaintiff. The Court held:
As above stated, Emilia Matanguihan, by her counsel, also was a
movant in the petition for execution Annex 1. Did she have a
right to be such, having been declared in default? In Frow vs. De
la Vega, supra, cited as authority in Velez vs. Ramas, supra, the
Supreme Court of the United States adopted as ground for its
own decision the following ruling of the New York Court of Errors
in Clason vs. Morris, 10 Jons., 524:

It would be unreasonable to hold that because one defendant

had made default, the plaintiff should have a decree even
against him, where the court is satisfied from the proofs offered
by the other, that in fact the plaintiff is not entitled to a decree.
(21 Law, ed., 61.)

The reason is simple: justice has to be consistent. The complaint

stating a common cause of action against several defendants,
the complainant's rights or lack of them in the controversy
have to be the same, and not different, as against all the
defendant's although one or some make default and the other or
others appear, join issue, and enter into trial. For instance, in the
case of Clason vs. Morris above cited, the New York Court of
Errors in effect held that in such a case if the plaintiff is not
entitled to a decree, he will not be entitled to it, not only as
against the defendant appearing and resisting his action but also
as against the one who made default. In the case at bar, the
cause of action in the plaintiff's complaint was common against
the Mayor of Manila, Emilia Matanguihan, and the other
defendants in Civil Case No. 1318 of the lower court. The Court of
First Instance in its judgment found and held upon the evidence
adduced by the plaintiff and the defendant mayor that as
between said plaintiff and defendant Matanguihan the latter was
the one legally entitled to occupy the stalls; and it decreed,
among other things, that said plaintiff immediately vacate them.
Paraphrasing the New York Court of Errors, it would be
unreasonable to hold now that because Matanguihan had made
default, the said plaintiff should be declared, as against her,
legally entitled to the occupancy of the stalls, or to remain
therein, although the Court of First Instance was so firmly
satisfied, from the proofs offered by the other defendant, that the
same plaintiff was not entitled to such occupancy that it
 peremptorily ordered her to vacate the stalls. If in the cases
of Clason vs. Morris, supra, Frow vs. De la Vega, supra, and Velez
vs. Ramas, supra the decrees entered inured to the benefit of the
defaulting defendants, there is no reason why that entered in
said case No. 1318 should not be held also to have inured to the
benefit of the defaulting defendant Matanguihan and the
doctrine in said three cases plainly implies that there is nothing
in the law governing default which would prohibit the court from
rendering judgment favorable to the defaulting defendant in such
cases. If it inured to her benefit, it stands to reason that she had
a right to claim that benefit, for it would not be a benefit if the
supposed beneficiary were barred from claiming it; and if the
benefit necessitated the execution of the decree, she must be
possessed of the right to ask for the execution thereof as she did
when she, by counsel, participated in the petition for execution
Annex 1.

Section 7 of Rule 35 would seem to afford a solid support to the

above considerations. It provides that when a complaint states a
common cause of action against several defendants, some of
whom answer, and the others make default, 'the court shall try
the case against all upon the answer thus filed and render
judgment upon the evidence presented by the parties in court'. It
is obvious that under this provision the case is tried jointly not
only against the defendants answering but also against those
defaulting, and the trial is held upon the answer filed by the
former; and the judgment, if adverse, will prejudice the
defaulting defendants no less than those who answer. In other
words, the defaulting defendants are held bound by the answer
filed by their co-defendants and by the judgment which the court
may render against all of them. By the same token, and by all
rules of equity and fair play, if the judgment should happen to be
favorable, totally or partially, to the answering defendants, it
must correspondingly benefit the defaulting ones, for it would not
be just to let the judgment produce effects as to the defaulting
defendants only when adverse to them and not when favorable.

In Bueno vs. Ortiz, 23 SCRA 1151, the Court applied the provision under
discussion in the following words:
 In answer to the charge that respondent Judge had committed a
grave abuse of discretion in rendering a default judgment against
the PC, respondents allege that, not having filed its answer
within the reglementary period, the PC was in default, so that it
was proper for Patanao to forthwith present his evidence and for
respondent Judge to render said judgment. It should be noted,
however, that in entering the area in question and seeking to
prevent Patanao from continuing his logging operations therein,
the PC was merely executing an order of the Director of Forestry
and acting as his agent. Patanao's cause of action against the
other respondents in Case No. 190, namely, the Director of
Forestry, the District Forester of Agusan, the Forest Officer of
Bayugan, Agusan, and the Secretary of Agriculture and Natural
Resources. Pursuant to Rule 18, Section 4, of the Rules of Court,
'when a complaint states a common cause of action against
several defendants some of whom answer and the others fail to
do so, the court shall try the case against all upon the answer
thus filed (by some) and render judgment upon the evidence
presented.' In other words, the answer filed by one or some of
the defendants inures to the benefit of all the others, even those
who have not seasonably filed their answer.

Indeed, since the petition in Case No. 190 sets forth a common
cause of action against all of the respondents therein, a decision
in favor of one of them would necessarily favor the others. In
fact, the main issue, in said case, is whether Patanao has a
timber license to undertake logging operations in the disputed
area. It is not possible to decide such issue in the negative,
insofar as the Director of Forestry, and to settle it otherwise, as
regards the PC, which is merely acting as agent of the Director of
Forestry, and is, therefore, his alter ego, with respect to the
disputed forest area.

Stated differently, in all instances where a common cause of action is alleged

against several defendants, some of whom answer and the others do not, the
latter or those in default acquire a vested right not only to own the defense
interposed in the answer of their co- defendant or co-defendants not in
default but also to expect a result of the litigation totally common with them
in kind and in amount whether favorable or unfavorable. The substantive
unity of the plaintiff's cause against all the defendants is carried through to
its adjective phase as ineluctably demanded by the homogeneity and
indivisibility of justice itself. Indeed, since the singleness of the cause of
action also inevitably implies that all the defendants are indispensable
parties, the court's power to act is integral and cannot be split such that it
cannot relieve any of them and at the same time render judgment against
the rest. Considering the tenor of the section in question, it is to be assumed
that when any defendant allows himself to be declared in default knowing
that his defendant has already answered, he does so trusting in the
assurance implicit in the rule that his default is in essence a mere formality
that deprives him of no more than the right to take part in the trial and that
the court would deem anything done by or for the answering defendant as
done by or for him. The presumption is that otherwise he would not -have
seen to that he would not be in default. Of course, he has to suffer the
consequences of whatever the answering defendant may do or fail to do,
regardless of possible adverse consequences, but if the complaint has to be
dismissed in so far as the answering defendant is concerned it becomes his
inalienable right that the same be dismissed also as to him. It does not
matter that the dismissal is upon the evidence presented by the plaintiff or
upon the latter's mere desistance, for in both contingencies, the lack of
sufficient legal basis must be the cause. The integrity of the common cause
of action against all the defendants and the indispensability of all of them in
the proceedings do not permit any possibility of waiver of the plaintiff's right
only as to one or some of them, without including all of them, and so, as a
rule, withdrawal must be deemed to be a confession of weakness as to all.
This is not only elementary justice; it also precludes the concomitant hazard
that plaintiff might resort to the kind of procedural strategem practiced by
private respondent herein that resulted in totally depriving petitioners of
every opportunity to defend themselves against her claims which, after all,
as will be seen later in this opinion, the record does not show to be
invulnerable, both in their factual and legal aspects, taking into consideration
the tenor of the pleadings and the probative value of the competent
evidence which were before the trial court when it rendered its assailed
decision where all the defendants are indispensable parties, for which reason
the absence of any of them in the case would result in the court losing its
competency to act validly, any compromise that the plaintiff might wish to
make with any of them must, as a matter of correct procedure, have to await
until after the rendition of the judgment, at which stage the plaintiff may
then treat the matter of its execution and the satisfaction of his claim as
variably as he might please. Accordingly, in the case now before Us together
with the dismissal of the complaint against the non-defaulted defendants,
the court should have ordered also the dismissal thereof as to petitioners.

Indeed, there is more reason to apply here the principle of unity and
indivisibility of the action just discussed because all the defendants here
have already joined genuine issues with plaintiff. Their default was only at
the pre-trial. And as to such absence of petitioners at the pre-trial, the same
could be attributed to the fact that they might not have considered it
necessary anymore to be present, since their respective children Lim and
Leonardo, with whom they have common defenses, could take care of their
defenses as well. Anything that might have had to be done by them at such
pre-trial could have been done for them by their children, at least initially,
specially because in the light of the pleadings before the court, the prospects
of a compromise must have appeared to be rather remote. Such attitude of
petitioners is neither uncommon nor totally unjustified. Under the
circumstances, to declare them immediately and irrevocably in default was
not an absolute necessity. Practical considerations and reasons of equity
should have moved respondent court to be more understanding in dealing
with the situation. After all, declaring them in default as respondent court did
not impair their right to a common fate with their children.

Another issue to be resolved in this case is the question of whether or not

herein petitioners were entitled to notice of plaintiff's motion to drop their co-
defendants Lim and Leonardo, considering that petitioners had been
previously declared in default. In this connection, the decisive consideration
is that according to the applicable rule, Section 9, Rule 13, already quoted
above, (1) even after a defendant has been declared in default, provided he
"files a motion to set aside the order of default, he shall be entitled to
notice of all further proceedings regardless of whether the order of default is
set aside or not" and (2) a party in default who has not filed such a motion to
set aside must still be served with all "substantially amended or
supplemented pleadings." In the instant case, it cannot be denied that
petitioners had all filed their motion for reconsideration of the order
declaring them in default. Respondents' own answer to the petition therein
makes reference to the order of April 3, 1973, Annex 8 of said answer, which
denied said motion for reconsideration. On page 3 of petitioners'
memorandum herein this motion is referred to as "a motion to set aside the
order of default." But as We have not been favored by the parties with a copy
of the said motion, We do not even know the excuse given for petitioners'
failure to appear at the pre-trial, and We cannot, therefore, determine
whether or not the motion complied with the requirements of Section 3 of
Rule 18 which We have held to be controlling in cases of default for failure to
answer on time. (The Philippine-British Co. Inc. etc. et al. vs. The Hon.
Walfrido de los Angeles etc. et al., 63 SCRA 50.)

We do not, however, have here, as earlier noted, a case of default for failure
to answer but one for failure to appear at the pre-trial. We reiterate, in the
situation now before Us, issues have already been joined. In fact, evidence
had been partially offered already at the pre-trial and more of it at the actual
trial which had already begun with the first witness of the plaintiff
undergoing re-cross-examination. With these facts in mind and considering
that issues had already been joined even as regards the defaulted
defendants, it would be requiring the obvious to pretend that there was still
need for an oath or a verification as to the merits of the defense of the
defaulted defendants in their motion to reconsider their default. Inasmuch as
none of the parties had asked for a summary judgment there can be no
question that the issues joined were genuine, and consequently, the reason
for requiring such oath or verification no longer holds. Besides, it may also be
reiterated that being the parents of the non-defaulted defendants,
petitioners must have assumed that their presence was superfluous,
particularly because the cause of action against them as well as their own
defenses are common. Under these circumstances, the form of the motion by
which the default was sought to be lifted is secondary and the requirements
of Section 3 of Rule 18 need not be strictly complied with, unlike in cases of
default for failure to answer. We can thus hold as We do hold for the
purposes of the revival of their right to notice under Section 9 of Rule 13,
that petitioner's motion for reconsideration was in substance legally
adequate regardless of whether or not it was under oath.

In any event, the dropping of the defendants Lim and Leonardo from
plaintiff's amended complaint was virtually a second amendment of plaintiffs
complaint. And there can be no doubt that such amendment was substantial,
for with the elimination thereby of two defendants allegedly solidarily liable
with their co-defendants, herein petitioners, it had the effect of increasing
proportionally what each of the remaining defendants, the said petitioners,
would have to answer for jointly and severally. Accordingly, notice to
petitioners of the plaintiff's motion of October 18, 1974 was legally
indispensable under the rule above-quoted. Consequently, respondent court
had no authority to act on the motion, to dismiss, pursuant to Section 6 of
Rule 15, for according to Senator Francisco, "(t) he Rules of Court clearly
provide that no motion shall be acted upon by the Court without the proof of
service of notice thereof, together with a copy of the motion and other
papers accompanying it, to all parties concerned at least three days before
the hearing thereof, stating the time and place for the hearing of the motion.
(Rule 26, section 4, 5 and 6, Rules of Court (now Sec. 15, new Rules). When
the motion does not comply with this requirement, it is not a motion. It
presents no question which the court could decide. And the Court acquires
no jurisdiction to consider it. (Roman Catholic Bishop of Lipa vs. Municipality
of Unisan 44 Phil., 866; Manakil vs. Revilla, 42 Phil., 81.) (Laserna vs. Javier,
et al., CA-G.R. No. 7885, April 22, 1955; 21 L.J. 36, citing Roman Catholic
Bishop of Lipa vs. Municipality of Unisan 44 Phil., 866; Manakil vs. Revilla, 42
Phil., 81.) (Francisco. The Revised Rules of Court in the Philippines, pp. 861-
862.) Thus, We see again, from a different angle, why respondent court's
order of dismissal of October 21, 1974 is fatally ineffective.

The foregoing considerations notwithstanding, it is respondents' position that

certiorari is not the proper remedy of petitioners. It is contended that
inasmuch as said petitioners have in fact made their appeal already by filing
the required notice of appeal and appeal bond and a motion for extension to
file their record on appeal, which motion was granted by respondent court,
their only recourse is to prosecute that appeal. Additionally, it is also
maintained that since petitioners have expressly withdrawn their motion to
quash of January 4, 1975 impugning the order of October 28, 1974, they
have lost their right to assail by certiorari the actuations of respondent court
now being questioned, respondent court not having been given the
opportunity to correct any possible error it might have committed.

We do not agree. As already shown in the foregoing discussion, the

proceedings in the court below have gone so far out of hand that prompt
action is needed to restore order in the entangled situation created by the
series of plainly illegal orders it had issued. The essential purpose
of certiorari is to keep the proceedings in lower judicial courts and tribunals
within legal bounds, so that due process and the rule of law may prevail at all
times and arbitrariness, whimsicality and unfairness which justice abhors
may immediately be stamped out before graver injury, juridical and
otherwise, ensues. While generally these objectives may well be attained in
an ordinary appeal, it is undoubtedly the better rule to allow the special
remedy of certiorari at the option of the party adversely affected, when the
irregularity committed by the trial court is so grave and so far reaching in its
consequences that the long and cumbersome procedure of appeal will only
further aggravate the situation of the aggrieved party because other
untoward actuations are likely to materialize as natural consequences of
those already perpetrated. If the law were otherwise, certiorari would have
no reason at all for being.

No elaborate discussion is needed to show the urgent need for corrective

measures in the case at bar. Verily, this is one case that calls for the exercise
of the Supreme Court's inherent power of supervision over all kinds of judicial
actions of lower courts. Private respondent's procedural technique designed
to disable petitioners to defend themselves against her claim which appears
on the face of the record itself to be at least highly controversial seems to
have so fascinated respondent court that none would be surprised should her
pending motion for immediate execution of the impugned judgment receive
similar ready sanction as her previous motions which turned the proceedings
into a one-sided affair. The stakes here are high. Not only is the subject
matter considerably substantial; there is the more important aspect that not
only the spirit and intent of the rules but even the basic rudiments of fair
play have been disregarded. For the Court to leave unrestrained the obvious
tendency of the proceedings below would be nothing short of wittingly
condoning inequity and injustice resulting from erroneous construction and
unwarranted application of procedural rules.

The sum and total of all the foregoing disquisitions is that the decision here
in question is legally anomalous. It is predicated on two fatal malactuations
of respondent court namely (1) the dismissal of the complaint against the
non-defaulted defendants Lim and Leonardo and (2) the ex-parte reception
of the evidence of the plaintiff by the clerk of court, the subsequent using of
the same as basis for its judgment and the rendition of such judgment.

For at least three reasons which We have already fully discussed above, the
order of dismissal of October 21, 1974 is unworthy of Our sanction: (1) there
was no timely notice of the motion therefor to the non-defaulted defendants,
aside from there being no notice at all to herein petitioners; (2) the common
answer of the defendants, including the non-defaulted, contained a
compulsory counterclaim incapable of being determined in an independent
action; and (3) the immediate effect of such dismissal was the removal of the
two non-defaulted defendants as parties, and inasmuch as they are both
indispensable parties in the case, the court consequently lost the" sine qua
non of the exercise of judicial power", per Borlasa vs. Polistico, supra. This is
not to mention anymore the irregular delegation to the clerk of court of the
function of receiving plaintiff's evidence. And as regards the ex-parte
reception of plaintiff's evidence and subsequent rendition of the judgment by
default based thereon, We have seen that it was violative of the right of the
petitioners, under the applicable rules and principles on default, to a
common and single fate with their non-defaulted co-defendants. And We are
not yet referring, as We shall do this anon to the numerous reversible errors
in the decision itself.

It is to be noted, however, that the above-indicated two fundamental flaws in

respondent court's actuations do not call for a common corrective remedy.
We cannot simply rule that all the impugned proceedings are null and void
and should be set aside, without being faced with the insurmountable
obstacle that by so doing We would be reviewing the case as against the two
non-defaulted defendants who are not before Us not being parties hereto.
Upon the other hand, for Us to hold that the order of dismissal should be
allowed to stand, as contended by respondents themselves who insist that
the same is already final, not only because the period for its finality has long
passed but also because allegedly, albeit not very accurately, said 'non-
defaulted defendants unsuccessfully tried to have it set aside by the Court of
Appeals whose decision on their petition is also already final, We would have
to disregard whatever evidence had been presented by the plaintiff against
them and, of course, the findings of respondent court based thereon which,
as the assailed decision shows, are adverse to them. In other words,
whichever of the two apparent remedies the Court chooses, it would
necessarily entail some kind of possible juridical imperfection. Speaking of
their respective practical or pragmatic effects, to annul the dismissal would
inevitably prejudice the rights of the non-defaulted defendants whom We
have not heard and who even respondents would not wish to have anything
anymore to do with the case. On the other hand, to include petitioners in the
dismissal would naturally set at naught every effort private respondent has
made to establish or prove her case thru means sanctioned by respondent
court. In short, We are confronted with a legal para-dilemma. But one thing is
certain this difficult situations has been brought about by none other than
private respondent who has quite cynically resorted to procedural
maneuvers without realizing that the technicalities of the adjective law, even
when apparently accurate from the literal point of view, cannot prevail over
the imperatives of the substantive law and of equity that always underlie
them and which have to be inevitably considered in the construction of the
pertinent procedural rules.

All things considered, after careful and mature deliberation, the Court has
arrived at the conclusion that as between the two possible alternatives just
stated, it would only be fair, equitable and proper to uphold the position of
petitioners. In other words, We rule that the order of dismissal of October 21,
1974 is in law a dismissal of the whole case of the plaintiff, including as to
petitioners herein. Consequently, all proceedings held by respondent court
subsequent thereto including and principally its decision of December 20,
1974 are illegal and should be set aside.

This conclusion is fully justified by the following considerations of equity:

1. It is very clear to Us that the procedural maneuver resorted to by private

respondent in securing the decision in her favor was ill-conceived. It was
characterized by that which every principle of law and equity disdains
taking unfair advantage of the rules of procedure in order to unduly deprive
the other party of full opportunity to defend his cause. The idea of "dropping"
the non-defaulted defendants with the end in view of completely
incapacitating their co-defendants from making any defense, without
considering that all of them are indispensable parties to a common cause of
action to which they have countered with a common defense readily
connotes an intent to secure a one-sided decision, even improperly. And
when, in this connection, the obvious weakness of plaintiff's evidence is
taken into account, one easily understands why such tactics had to be
availed of. We cannot directly or indirectly give Our assent to the commission
of unfairness and inequity in the application of the rules of procedure,
particularly when the propriety of reliance thereon is not beyond controversy.

2. The theories of remedial law pursued by private respondents, although

approved by His Honor, run counter to such basic principles in the rules on
default and such elementary rules on dismissal of actions and notice of
motions that no trial court should be unaware of or should be mistaken in
applying. We are at a loss as to why His Honor failed to see through counsel's
inequitous strategy, when the provisions (1) on the three-day rule on notice
of motions, Section 4 of Rule 15, (2) against dismissal of actions on motion of
plaintiff when there is a compulsory counterclaim, Section 2, Rule 17, (3)
against permitting the absence of indispensable parties, Section 7, Rule 3,
(4) on service of papers upon defendants in default when there are
substantial amendments to pleadings, Section 9, Rule 13, and (5) on the
unity and integrity of the fate of defendants in default with those not in
default where the cause of action against them and their own defenses are
common, Section 4, Rule 18, are so plain and the jurisprudence declaratory
of their intent and proper construction are so readily comprehensible that
any error as to their application would be unusual in any competent trial
court.

3. After all, all the malactuations of respondent court are traceable to the
initiative of private respondent and/or her counsel. She cannot, therefore,
complain that she is being made to unjustifiably suffer the consequences of
what We have found to be erroneous orders of respondent court. It is only
fair that she should not be allowed to benefit from her own frustrated
objective of securing a one-sided decision.

4. More importantly, We do not hesitate to hold that on the basis of its own
recitals, the decision in question cannot stand close scrutiny. What is more,
the very considerations contained therein reveal convincingly the inherent
weakness of the cause of the plaintiff. To be sure, We have been giving
serious thought to the idea of merely returning this case for a resumption of
trial by setting aside the order of dismissal of October 21, 1974, with all its
attendant difficulties on account of its adverse effects on parties who have
not been heard, but upon closer study of the pleadings and the decision and
other circumstances extant in the record before Us, We are now persuaded
that such a course of action would only lead to more legal complications
incident to attempts on the part of the parties concerned to desperately
squeeze themselves out of a bad situation. Anyway, We feel confident that
by and large, there is enough basis here and now for Us to rule out the claim
of the plaintiff.

Even a mere superficial reading of the decision would immediately reveal

that it is littered on its face with deficiencies and imperfections which would
have had no reason for being were there less haste and more circumspection
in rendering the same. Recklessness in jumping to unwarranted conclusions,
both factual and legal, is at once evident in its findings relative precisely to
the main bases themselves of the reliefs granted. It is apparent therein that
no effort has been made to avoid glaring inconsistencies. Where references
are made to codal provisions and jurisprudence, inaccuracy and
inapplicability are at once manifest. It hardly commends itself as a deliberate
and consciencious adjudication of a litigation which, considering the
substantial value of the subject matter it involves and the unprecedented
procedure that was followed by respondent's counsel, calls for greater
attention and skill than the general run of cases would.

Inter alia, the following features of the decision make it highly improbable
that if We took another course of action, private respondent would still be
able to make out any case against petitioners, not to speak of their co-
defendants who have already been exonerated by respondent herself thru
her motion to dismiss:

1. According to His Honor's own statement of plaintiff's case, "she is the

widow of the late Tee Hoon Po Chuan (Po Chuan, for short) who was then one
of the partners in the commercial partnership, Glory Commercial Co. with
defendants Antonio Lim Tanhu (Lim Tanhu, for short) and Alfonso Leonardo
Ng Sua (Ng Sua, for short) as co-partners; that after the death of her
husband on March 11, 1966 she is entitled to share not only in the capital
and profits of the partnership but also in the other assets, both real and
personal, acquired by the partnership with funds of the latter during its
lifetime."

Relatedly, in the latter part of the decision, the findings are to the following
effect: .

That the herein plaintiff Tan Put and her late husband Po Chuan
married at the Philippine Independent Church of Cebu City on
December, 20, 1949; that Po Chuan died on March 11, 1966; that
the plaintiff and the late Po Chuan were childless but the former
has a foster son Antonio Nuez whom she has reared since his
birth with whom she lives up to the present; that prior to the
marriage of the plaintiff to Po Chuan the latter was already
managing the partnership Glory Commercial Co. then engaged in
a little business in hardware at Manalili St., Cebu City; that prior
to and just after the marriage of the plaintiff to Po Chuan she was
engaged in the drugstore business; that not long after her
marriage, upon the suggestion of Po Chuan the plaintiff sold her
drugstore for P125,000.00 which amount she gave to her
husband in the presence of defendant Lim Tanhu and was
 invested in the partnership Glory Commercial Co. sometime in
1950; that after the investment of the above-stated amount in
the partnership its business flourished and it embarked in the
import business and also engaged in the wholesale and retail
trade of cement and GI sheets and under huge profits;

xxx xxx xxx

That the late Po Chuan was the one who actively managed the
business of the partnership Glory Commercial Co. he was the one
who made the final decisions and approved the appointments of
new personnel who were taken in by the partnership; that the
late Po Chuan and defendants Lim Tanhu and Ng Sua are
brothers, the latter two (2) being the elder brothers of the
former; that defendants Lim Tanhu and Ng Sua are both
naturalized Filipino citizens whereas the late Po Chuan until the
time of his death was a Chinese citizen; that the three (3)
brothers were partners in the Glory Commercial Co. but Po Chuan
was practically the owner of the partnership having the
controlling interest; that defendants Lim Tanhu and Ng Sua were
partners in name but they were mere employees of Po Chuan ....
(Pp. 89-91, Record.)

How did His Honor arrive at these conclusions? To start with, it is not clear in
the decision whether or not in making its findings of fact the court took into
account the allegations in the pleadings of the parties and whatever might
have transpired at the pre-trial. All that We can gather in this respect is that
references are made therein to pre-trial exhibits and to Annex A of the
answer of the defendants to plaintiff's amended complaint. Indeed, it was
incumbent upon the court to consider not only the evidence formally offered
at the trial but also the admissions, expressed or implied, in the pleadings, as
well as whatever might have been placed before it or brought to its attention
during the pre-trial. In this connection, it is to be regretted that none of the
parties has thought it proper to give Us an idea of what took place at the pre-
trial of the present case and what are contained in the pre-trial order, if any
was issued pursuant to Section 4 of Rule 20.

The fundamental purpose of pre-trial, aside from affording the parties every
opportunity to compromise or settle their differences, is for the court to be
apprised of the unsettled issues between the parties and of their respective
evidence relative thereto, to the end that it may take corresponding
measures that would abbreviate the trial as much as possible and the judge
may be able to ascertain the facts with the least observance of technical
rules. In other words whatever is said or done by the parties or their counsel
at the pre- trial serves to put the judge on notice of their respective basic
positions, in order that in appropriate cases he may, if necessary in the
interest of justice and a more accurate determination of the facts, make
inquiries about or require clarifications of matters taken up at the pre-trial,
before finally resolving any issue of fact or of law. In brief, the pre-trial
constitutes part and parcel of the proceedings, and hence, matters dealt with
therein may not be disregarded in the process of decision making. Otherwise,
the real essence of compulsory pre-trial would be insignificant and worthless.

Now, applying these postulates to the findings of respondent court just

quoted, it will be observed that the court's conclusion about the supposed
marriage of plaintiff to the deceased Tee Hoon Lim Po Chuan is contrary to
the weight of the evidence brought before it during the trial and the pre-trial.

Under Article 55 of the Civil Code, the declaration of the contracting parties
that they take each other as husband and wife "shall be set forth in an
instrument" signed by the parties as well as by their witnesses and the
person solemnizing the marriage. Accordingly, the primary evidence of a
marriage must be an authentic copy of the marriage contract. While a
marriage may also be proved by other competent evidence, the absence of
the contract must first be satisfactorily explained. Surely, the certification of
the person who allegedly solemnized a marriage is not admissible evidence
of such marriage unless proof of loss of the contract or of any other
satisfactory reason for its non-production is first presented to the court. In
the case at bar, the purported certification issued by a Mons. Jose M.
Recoleto, Bishop, Philippine Independent Church, Cebu City, is not, therefore,
competent evidence, there being absolutely no showing as to unavailability
of the marriage contract and, indeed, as to the authenticity of the signature
of said certifier, the jurat allegedly signed by a second assistant provincial
fiscal not being authorized by law, since it is not part of the functions of his
office. Besides, inasmuch as the bishop did not testify, the same is hearsay.

As regards the testimony of plaintiff herself on the same point and that of her
witness Antonio Nuez, there can be no question that they are both self-
serving and of very little evidentiary value, it having been disclosed at the
trial that plaintiff has already assigned all her rights in this case to said
Nuez, thereby making him the real party in interest here and, therefore,
naturally as biased as herself. Besides, in the portion of the testimony of
Nuez copied in Annex C of petitioner's memorandum, it appears admitted
that he was born only on March 25, 1942, which means that he was less than
eight years old at the supposed time of the alleged marriage. If for this
reason alone, it is extremely doubtful if he could have been sufficiently
aware of such event as to be competent to testify about it.

Incidentally, another Annex C of the same memorandum purports to be the

certificate of birth of one Antonio T. Uy supposed to have been born on March
23, 1937 at Centro Misamis, Misamis Occidental, the son of one Uy Bien,
father, and Tan Put, mother. Significantly, respondents have not made any
adverse comment on this document. It is more likely, therefore, that the
witness is really the son of plaintiff by her husband Uy Kim Beng. But she
testified she was childless. So which is which? In any event, if on the strength
of this document, Nuez is actually the legitimate son of Tan Put and not her
adopted son, he would have been but 13 years old in 1949, the year of her
alleged marriage to Po Chuan, and even then, considering such age, his
testimony in regard thereto would still be suspect.

Now, as against such flimsy evidence of plaintiff, the court had before it, two
documents of great weight belying the pretended marriage. We refer to (1)
Exhibit LL, the income tax return of the deceased Tee Hoon Lim Po Chuan
indicating that the name of his wife was Ang Sick Tin and (2) the quitclaim,
Annex A of the answer, wherein plaintiff Tan Put stated that she had been
living with the deceased without benefit of marriage and that she was his
"common-law wife". Surely, these two documents are far more reliable than
all the evidence of the plaintiff put together.

Of course, Exhibit LL is what might be termed as pre-trial evidence. But it is

evidence offered to the judge himself, not to the clerk of court, and should
have at least moved him to ask plaintiff to explain if not rebut it before
jumping to the conclusion regarding her alleged marriage to the deceased,
Po Chuan. And in regard to the quitclaim containing the admission of a
common-law relationship only, it is to be observed that His Honor found that
"defendants Lim Tanhu and Ng Sua had the plaintiff execute a quitclaim on
November 29, 1967 (Annex "A", Answer) where they gave plaintiff the
amount of P25,000 as her share in the capital and profits of the business of
Glory Commercial Co. which was engaged in the hardware business", without
making mention of any evidence of fraud and misrepresentation in its
execution, thereby indicating either that no evidence to prove that allegation
of the plaintiff had been presented by her or that whatever evidence was
actually offered did not produce persuasion upon the court. Stated
differently, since the existence of the quitclaim has been duly established
without any circumstance to detract from its legal import, the court should
have held that plaintiff was bound by her admission therein that she was the
common-law wife only of Po Chuan and what is more, that she had already
renounced for valuable consideration whatever claim she might have relative
to the partnership Glory Commercial Co.

And when it is borne in mind that in addition to all these considerations,

there are mentioned and discussed in the memorandum of petitioners (1) the
certification of the Local Civil Registrar of Cebu City and (2) a similar
certification of the Apostolic Prefect of the Philippine Independent Church,
Parish of Sto. Nio, Cebu City, that their respective official records
corresponding to December 1949 to December 1950 do not show any
marriage between Tee Hoon Lim Po Chuan and Tan Put, neither of which
certifications have been impugned by respondent until now, it stands to
reason that plaintiff's claim of marriage is really unfounded. Withal, there is
still another document, also mentioned and discussed in the same
memorandum and unimpugned by respondents, a written agreement
executed in Chinese, but purportedly translated into English by the Chinese
Consul of Cebu, between Tan Put and Tee Hoon Lim Po Chuan to the following
effect:

CONSULATE OF THE REPUBLIC OF CHINA Cebu City, Philippines

TRANSLATION

This is to certify that 1, Miss Tan Ki Eng Alias Tan Put, have lived
with Mr. Lim Po Chuan alias TeeHoon since 1949 but it recently
occurs that we are incompatible with each other and are not in
the position to keep living together permanently. With the mutual
concurrence, we decided to terminate the existing relationship of
common law-marriage and promised not to interfere each other's
affairs from now on. The Forty Thousand Pesos (P40,000.00) has
been given to me by Mr. Lim Po Chuan for my subsistence.

Witnesses:

Mr. Lim Beng Guan Mr. Huang Sing Se

 Signed on the 10 day of the 7th month of the 54th year of the
Republic of China (corresponding to the year 1965).

(SGD) TAN KI ENG

Verified from the records. JORGE TABAR (Pp. 283-284, Record.)

Indeed, not only does this document prove that plaintiff's relation to the
deceased was that of a common-law wife but that they had settled their
property interests with the payment to her of P40,000.

In the light of all these circumstances, We find no alternative but to hold that
plaintiff Tan Put's allegation that she is the widow of Tee Hoon Lim Po Chuan
has not been satisfactorily established and that, on the contrary, the
evidence on record convincingly shows that her relation with said deceased
was that of a common-law wife and furthermore, that all her claims against
the company and its surviving partners as well as those against the estate of
the deceased have already been settled and paid. We take judicial notice of
the fact that the respective counsel who assisted the parties in the quitclaim,
Attys. H. Hermosisima and Natalio Castillo, are members in good standing of
the Philippine Bar, with the particularity that the latter has been a member of
the Cabinet and of the House of Representatives of the Philippines, hence,
absent any credible proof that they had allowed themselves to be parties to
a fraudulent document His Honor did right in recognizing its existence, albeit
erring in not giving due legal significance to its contents.

2. If, as We have seen, plaintiff's evidence of her alleged status as legitimate

wife of Po Chuan is not only unconvincing but has been actually overcome by
the more competent and weighty evidence in favor of the defendants, her
attempt to substantiate her main cause of action that defendants Lim Tanhu
and Ng Sua have defrauded the partnership Glory Commercial Co. and
converted its properties to themselves is even more dismal. From the very
evidence summarized by His Honor in the decision in question, it is clear that
not an iota of reliable proof exists of such alleged misdeeds.

Of course, the existence of the partnership has not been denied, it is actually
admitted impliedly in defendants' affirmative defense that Po Chuan's share
had already been duly settled with and paid to both the plaintiff and his
legitimate family. But the evidence as to the actual participation of the
defendants Lim Tanhu and Ng Sua in the operation of the business that could
have enabled them to make the extractions of funds alleged by plaintiff is at
best confusing and at certain points manifestly inconsistent.

In her amended complaint, plaintiff repeatedly alleged that as widow of Po

Chuan she is entitled to / 3 share of the assets and properties of the
partnership. In fact, her prayer in said complaint is, among others, for the
delivery to her of such / 3 share. His Honor's statement of the case as well as
his findings and judgment are all to that same effect. But what did she
actually try to prove at the ex- parte hearing?

According to the decision, plaintiff had shown that she had money of her own
when she "married" Po Chuan and "that prior to and just after the marriage
of the plaintiff to Po Chuan, she was engaged in the drugstore business; that
not long after her marriage, upon the suggestion of Po Chuan, the plaintiff
sold her drugstore for P125,000 which amount she gave to her husband in
the presence of Tanhu and was invested in the partnership Glory Commercial
Co. sometime in 1950; that after the investment of the above-stated amount
in the partnership, its business flourished and it embarked in the import
business and also engaged in the wholesale and retail trade of cement and
GI sheets and under (sic) huge profits." (pp. 25-26, Annex L, petition.)

To begin with, this theory of her having contributed of P125,000 to the

capital of the partnership by reason of which the business flourished and
amassed all the millions referred to in the decision has not been alleged in
the complaint, and inasmuch as what was being rendered was a judgment by
default, such theory should not have been allowed to be the subject of any
evidence. But inasmuch as it was the clerk of court who received the
evidence, it is understandable that he failed to observe the rule. Then, on the
other hand, if it was her capital that made the partnership flourish, why
would she claim to be entitled to only to / 3 of its assets and profits? Under
her theory found proven by respondent court, she was actually the owner of
everything, particularly because His Honor also found "that defendants Lim
Tanhu and Ng Sua were partners in the name but they were employees of Po
Chuan that defendants Lim Tanhu and Ng Sua had no means of livelihood at
the time of their employment with the Glory Commercial Co. under the
management of the late Po Chuan except their salaries therefrom; ..." (p.
27, id.) Why then does she claim only / 3 share? Is this an indication of her
generosity towards defendants or of a concocted cause of action existing
only in her confused imagination engendered by the death of her common-
law husband with whom she had settled her common-law claim for
recompense of her services as common law wife for less than what she must
have known would go to his legitimate wife and children?

Actually, as may be noted from the decision itself, the trial court was
confused as to the participation of defendants Lim Tanhu and Ng Sua in Glory
Commercial Co. At one point, they were deemed partners, at another point
mere employees and then elsewhere as partners-employees, a newly found
concept, to be sure, in the law on partnership. And the confusion is worse
comfounded in the judgment which allows these "partners in name" and
"partners-employees" or employees who had no means of livelihood and who
must not have contributed any capital in the business, "as Po Chuan was
practically the owner of the partnership having the controlling interest",
/ 3 each of the huge assets and profits of the partnership. Incidentally, it may
be observed at this juncture that the decision has made Po Chuan play the
inconsistent role of being "practically the owner" but at the same time
getting his capital from the P125,000 given to him by plaintiff and from
which capital the business allegedly "flourished."

Anent the allegation of plaintiff that the properties shown by her exhibits to
be in the names of defendants Lim Tanhu and Ng Sua were bought by them
with partnership funds, His Honor confirmed the same by finding and holding
that "it is likewise clear that real properties together with the improvements
in the names of defendants Lim Tanhu and Ng Sua were acquired with
partnership funds as these defendants were only partners-employees of
deceased Po Chuan in the Glory Commercial Co. until the time of his death
on March 11, 1966." (p. 30, id.) It Is Our considered view, however, that this
conclusion of His Honor is based on nothing but pure unwarranted
conjecture. Nowhere is it shown in the decision how said defendants could
have extracted money from the partnership in the fraudulent and illegal
manner pretended by plaintiff. Neither in the testimony of Nuez nor in that
of plaintiff, as these are summarized in the decision, can there be found any
single act of extraction of partnership funds committed by any of said
defendants. That the partnership might have grown into a multi-million
enterprise and that the properties described in the exhibits enumerated in
the decision are not in the names of Po Chuan, who was Chinese, but of the
defendants who are Filipinos, do not necessarily prove that Po Chuan had not
gotten his share of the profits of the business or that the properties in the
names of the defendants were bought with money of the partnership. In this
connection, it is decisively important to consider that on the basis of the
concordant and mutually cumulative testimonies of plaintiff and Nuez,
respondent court found very explicitly that, and We reiterate:

xxx xxx xxx

That the late Po Chuan was the one who actively managed the
business of the partnership Glory Commercial Co. he was the one
who made the final decisions and approved the appointments of
new Personnel who were taken in by the partnership; that the
late Po Chuan and defendants Lim Tanhu and Ng Sua are
brothers, the latter to (2) being the elder brothers of the former;
that defendants Lim Tanhu and Ng Sua are both naturalized
Filipino citizens whereas the late Po Chuan until the time of his
death was a Chinese citizen; that the three (3) brothers were
partners in the Glory Commercial Co. but Po Chuan was
practically the owner of the partnership having the controlling
interest; that defendants Lim Tanhu and Ng Sua were partners in
name but they were mere employees of Po Chuan; .... (Pp. 90-91,
Record.)

If Po Chuan was in control of the affairs and the running of the partnership,
how could the defendants have defrauded him of such huge amounts as
plaintiff had made his Honor believe? Upon the other hand, since Po Chuan
was in control of the affairs of the partnership, the more logical inference is
that if defendants had obtained any portion of the funds of the partnership
for themselves, it must have been with the knowledge and consent of Po
Chuan, for which reason no accounting could be demanded from them
therefor, considering that Article 1807 of the Civil Code refers only to what is
taken by a partner without the consent of the other partner or partners.
Incidentally again, this theory about Po Chuan having been actively
managing the partnership up to his death is a substantial deviation from the
allegation in the amended complaint to the effect that "defendants Antonio
Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan and Eng Chong
Leonardo, through fraud and machination, took actual and active
management of the partnership and although Tee Hoon Lim Po Chuan was
the manager of Glory Commercial Co., defendants managed to use the funds
of the partnership to purchase lands and buildings etc. (Par. 4, p. 2 of
amended complaint, Annex B of petition) and should not have been
permitted to be proven by the hearing officer, who naturally did not know
any better.
Moreover, it is very significant that according to the very tax declarations
and land titles listed in the decision, most if not all of the properties
supposed to have been acquired by the defendants Lim Tanhu and Ng Sua
with funds of the partnership appear to have been transferred to their names
only in 1969 or later, that is, long after the partnership had been
automatically dissolved as a result of the death of Po Chuan. Accordingly,
defendants have no obligation to account to anyone for such acquisitions in
the absence of clear proof that they had violated the trust of Po Chuan
during the existence of the partnership. (See Hanlon vs. Hansserman and.
Beam, 40 Phil. 796.)

There are other particulars which should have caused His Honor to readily
disbelieve plaintiffs' pretensions. Nuez testified that "for about 18 years he
was in charge of the GI sheets and sometimes attended to the imported
items of the business of Glory Commercial Co." Counting 18 years back from
1965 or 1966 would take Us to 1947 or 1948. Since according to Exhibit LL,
the baptismal certificate produced by the same witness as his birth
certificate, shows he was born in March, 1942, how could he have started
managing Glory Commercial Co. in 1949 when he must have been barely six
or seven years old? It should not have escaped His Honor's attention that the
photographs showing the premises of Philippine Metal Industries after its
organization "a year or two after the establishment of Cebu Can Factory in
1957 or 1958" must have been taken after 1959. How could Nuez have
been only 13 years old then as claimed by him to have been his age in those
photographs when according to his "birth certificate", he was born in 1942?
His Honor should not have overlooked that according to the same witness,
defendant Ng Sua was living in Bantayan until he was directed to return to
Cebu after the fishing business thereat floundered, whereas all that the
witness knew about defendant Lim Teck Chuan's arrival from Hongkong and
the expenditure of partnership money for him were only told to him allegedly
by Po Chuan, which testimonies are veritably exculpatory as to Ng Sua and
hearsay as to Lim Teck Chuan. Neither should His Honor have failed to note
that according to plaintiff herself, "Lim Tanhu was employed by her husband
although he did not go there always being a mere employee of Glory
Commercial Co." (p. 22, Annex the decision.)

The decision is rather emphatic in that Lim Tanhu and Ng Sua had no known
income except their salaries. Actually, it is not stated, however, from what
evidence such conclusion was derived in so far as Ng Sua is concerned. On
the other hand, with respect to Lim Tanhu, the decision itself states that
according to Exhibit NN-Pre trial, in the supposed income tax return of Lim
Tanhu for 1964, he had an income of P4,800 as salary from Philippine Metal
Industries alone and had a total assess sable net income of P23,920.77 that
year for which he paid a tax of P4,656.00. (p. 14. Annex L, id.) And per
Exhibit GG-Pretrial in the year, he had a net income of P32,000 for which be
paid a tax of P3,512.40. (id.) As early as 1962, "his fishing business in
Madridejos Cebu was making money, and he reported "a net gain from
operation (in) the amount of P865.64" (id., per Exhibit VV-Pre-trial.) From
what then did his Honor gather the conclusion that all the properties
registered in his name have come from funds malversed from the
partnership?

It is rather unusual that His Honor delved into financial statements and books
of Glory Commercial Co. without the aid of any accountant or without the
same being explained by any witness who had prepared them or who has
knowledge of the entries therein. This must be the reason why there are
apparent inconsistencies and inaccuracies in the conclusions His Honor made
out of them. In Exhibit SS-Pre-trial, the reported total assets of the company
amounted to P2,328,460.27 as of December, 1965, and yet, Exhibit TT-Pre-
trial, according to His Honor, showed that the total value of goods available
as of the same date was P11,166,327.62. On the other hand, per Exhibit XX-
Pre-trial, the supposed balance sheet of the company for 1966, "the value of
inventoried merchandise, both local and imported", as found by His Honor,
was P584,034.38. Again, as of December 31, 1966, the value of the
company's goods available for sale was P5,524,050.87, per Exhibit YY and
YY-Pre-trial. Then, per Exhibit II-3-Pre-trial, the supposed Book of Account,
whatever that is, of the company showed its "cash analysis" was
P12,223,182.55. We do not hesitate to make the observation that His Honor,
unless he is a certified public accountant, was hardly qualified to read such
exhibits and draw any definite conclusions therefrom, without risk of erring
and committing an injustice. In any event, there is no comprehensible
explanation in the decision of the conclusion of His Honor that there were
P12,223,182.55 cash money defendants have to account for, particularly
when it can be very clearly seen in Exhibits 11-4, 11-4- A, 11-5 and 11-6-Pre-
trial, Glory Commercial Co. had accounts payable as of December 31, 1965
in the amount of P4,801,321.17. (p. 15, id.) Under the circumstances, We are
not prepared to permit anyone to predicate any claim or right from
respondent court's unaided exercise of accounting knowledge.
Additionally, We note that the decision has not made any finding regarding
the allegation in the amended complaint that a corporation denominated
Glory Commercial Co., Inc. was organized after the death of Po Chuan with
capital from the funds of the partnership. We note also that there is
absolutely no finding made as to how the defendants Dy Ochay and Co Oyo
could in any way be accountable to plaintiff, just because they happen to be
the wives of Lim Tanhu and Ng Sua, respectively. We further note that while
His Honor has ordered defendants to deliver or pay jointly and severally to
the plaintiff P4,074,394.18 or / 3 of the P12,223,182.55, the supposed cash
belonging to the partnership as of December 31, 1965, in the same breath,
they have also been sentenced to partition and give / 3 share of the
properties enumerated in the dispositive portion of the decision, which
seemingly are the very properties allegedly purchased from the funds of the
partnership which would naturally include the P12,223,182.55 defendants
have to account for. Besides, assuming there has not yet been any
liquidation of the partnership, contrary to the allegation of the defendants,
then Glory Commercial Co. would have the status of a partnership in
liquidation and the only right plaintiff could have would be to what might
result after such liquidation to belong to the deceased partner, and before
this is finished, it is impossible to determine, what rights or interests, if any,
the deceased had (Bearneza vs. Dequilla 43 Phil. 237). In other words, no
specific amounts or properties may be adjudicated to the heir or legal
representative of the deceased partner without the liquidation being first
terminated.

Indeed, only time and the fear that this decision would be much more
extended than it is already prevent us from further pointing out the
inexplicable deficiencies and imperfections of the decision in question. After
all, what have been discussed should be more than sufficient to support Our
conclusion that not only must said decision be set aside but also that the
action of the plaintiff must be totally dismissed, and, were it not seemingly
futile and productive of other legal complications, that plaintiff is liable on
defendants' counterclaims. Resolution of the other issues raised by the
parties albeit important and perhaps pivotal has likewise become
superfluous.

IN VIEW OF ALL THE FOREGOING, the petition is granted. All proceedings

held in respondent court in its Civil Case No. 12328 subsequent to the order
of dismissal of October 21, 1974 are hereby annulled and set aside,
particularly the ex-parte proceedings against petitioners and the decision on
December 20, 1974. Respondent court is hereby ordered to enter an order
extending the effects of its order of dismissal of the action dated October 21,
1974 to herein petitioners Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo
Ng Sua and Co Oyo. And respondent court is hereby permanently enjoined
from taking any further action in said civil case gave and except as herein
indicated. Costs against private respondent.

Makalintal, C.J., Fernando, Aquino and Concepcion Jr., JJ., concur.

G.R. No. L-21438 September 28, 1966

AIR FRANCE, petitioner,

vs.
RAFAEL CARRASCOSO and the HONORABLE COURT OF
APPEALS, respondents.

Lichauco, Picazo and Agcaoili for petitioner.

Bengzon Villegas and Zarraga for respondent R. Carrascoso.

SANCHEZ, J.:

The Court of First Instance of Manila 1 sentenced petitioner to pay respondent Rafael
Carrascoso P25,000.00 by way of moral damages; P10,000.00 as exemplary
damages; P393.20 representing the difference in fare between first class and tourist
class for the portion of the trip Bangkok-Rome, these various amounts with interest
at the legal rate, from the date of the filing of the complaint until paid; plus
P3,000.00 for attorneys' fees; and the costs of suit.

On appeal,2 the Court of Appeals slightly reduced the amount of refund on

Carrascoso's plane ticket from P393.20 to P383.10, and voted to affirm the appealed
decision "in all other respects", with costs against petitioner.

The case is now before us for review on certiorari.

The facts declared by the Court of Appeals as " fully supported by the evidence of
record", are:
 Plaintiff, a civil engineer, was a member of a group of 48 Filipino pilgrims that
left Manila for Lourdes on March 30, 1958.

On March 28, 1958, the defendant, Air France, through its authorized agent,
Philippine Air Lines, Inc., issued to plaintiff a "first class" round trip airplane
ticket from Manila to Rome. From Manila to Bangkok, plaintiff travelled in
"first class", but at Bangkok, the Manager of the defendant airline forced
plaintiff to vacate the "first class" seat that he was occupying because, in the
words of the witness Ernesto G. Cuento, there was a "white man", who, the
Manager alleged, had a "better right" to the seat. When asked to vacate his
"first class" seat, the plaintiff, as was to be expected, refused, and told
defendant's Manager that his seat would be taken over his dead body; a
commotion ensued, and, according to said Ernesto G. Cuento, "many of the
Filipino passengers got nervous in the tourist class; when they found out that
Mr. Carrascoso was having a hot discussion with the white man [manager],
they came all across to Mr. Carrascoso and pacified Mr. Carrascoso to give his
seat to the white man" (Transcript, p. 12, Hearing of May 26, 1959); and
plaintiff reluctantly gave his "first class" seat in the plane. 3

1. The trust of the relief petitioner now seeks is that we review "all the findings" 4 of
respondent Court of Appeals. Petitioner charges that respondent court failed to
make complete findings of fact on all the issues properly laid before it. We are asked
to consider facts favorable to petitioner, and then, to overturn the appellate court's
decision.

Coming into focus is the constitutional mandate that "No decision shall be rendered
by any court of record without expressing therein clearly and distinctly the facts and
the law on which it is based". 5 This is echoed in the statutory demand that a
judgment determining the merits of the case shall state "clearly and distinctly the
facts and the law on which it is based"; 6 and that "Every decision of the Court of
Appeals shall contain complete findings of fact on all issues properly raised before
it". 7

A decision with absolutely nothing to support it is a nullity. It is open to direct

attack. 8 The law, however, solely insists that a decision state the "essential ultimate
facts" upon which the court's conclusion is drawn. 9 A court of justice is not
hidebound to write in its decision every bit and piece of evidence 10 presented by
one party and the other upon the issues raised. Neither is it to be burdened with the
obligation "to specify in the sentence the facts" which a party "considered as
proved". 11 This is but a part of the mental process from which the Court draws the
essential ultimate facts. A decision is not to be so clogged with details such that
prolixity, if not confusion, may result. So long as the decision of the Court of Appeals
contains the necessary facts to warrant its conclusions, it is no error for said court to
withhold therefrom "any specific finding of facts with respect to the evidence for the
defense". Because as this Court well observed, "There is no law that so
requires". 12 Indeed, "the mere failure to specify (in the decision) the contentions of
the appellant and the reasons for refusing to believe them is not sufficient to hold
the same contrary to the requirements of the provisions of law and the
Constitution". It is in this setting that in Manigque, it was held that the mere fact
that the findings "were based entirely on the evidence for the prosecution without
taking into consideration or even mentioning the appellant's side in the controversy
as shown by his own testimony", would not vitiate the judgment. 13 If the court did
not recite in the decision the testimony of each witness for, or each item of
evidence presented by, the defeated party, it does not mean that the court has
overlooked such testimony or such item of evidence. 14 At any rate, the legal
presumptions are that official duty has been regularly performed, and that all the
matters within an issue in a case were laid before the court and passed upon by
it. 15

Findings of fact, which the Court of Appeals is required to make, maybe defined as
"the written statement of the ultimate facts as found by the court ... and essential
to support the decision and judgment rendered thereon". 16They consist of the
court's "conclusions" with respect to the determinative facts in issue". 17 A question
of law, upon the other hand, has been declared as "one which does not call for an
examination of the probative value of the evidence presented by the parties." 18

2. By statute, "only questions of law may be raised" in an appeal by certiorari from a

judgment of the Court of Appeals. 19 That judgment is conclusive as to the facts. It is
not appropriately the business of this Court to alter the facts or to review the
questions of fact. 20

With these guideposts, we now face the problem of whether the findings of fact of
the Court of Appeals support its judgment.

3. Was Carrascoso entitled to the first class seat he claims?

It is conceded in all quarters that on March 28, 1958 he paid to and received from
petitioner a first class ticket. But petitioner asserts that said ticket did not represent
the true and complete intent and agreement of the parties; that said respondent
knew that he did not have confirmed reservations for first class on any specific
flight, although he had tourist class protection; that, accordingly, the issuance of a
first class ticket was no guarantee that he would have a first class ride, but that
such would depend upon the availability of first class seats.

These are matters which petitioner has thoroughly presented and discussed in its
brief before the Court of Appeals under its third assignment of error, which reads:
"The trial court erred in finding that plaintiff had confirmed reservations for, and a
right to, first class seats on the "definite" segments of his journey, particularly that
from Saigon to Beirut". 21

And, the Court of Appeals disposed of this contention thus:

Defendant seems to capitalize on the argument that the issuance of a first-

class ticket was no guarantee that the passenger to whom the same had
been issued, would be accommodated in the first-class compartment, for as
in the case of plaintiff he had yet to make arrangements upon arrival at every
station for the necessary first-class reservation. We are not impressed by
such a reasoning. We cannot understand how a reputable firm like defendant
airplane company could have the indiscretion to give out tickets it never
meant to honor at all. It received the corresponding amount in payment of
first-class tickets and yet it allowed the passenger to be at the mercy of its
employees. It is more in keeping with the ordinary course of business that the
company should know whether or riot the tickets it issues are to be honored
or not.22

Not that the Court of Appeals is alone. The trial court similarly disposed of
petitioner's contention, thus:

On the fact that plaintiff paid for, and was issued a "First class" ticket, there can be
no question. Apart from his testimony, see plaintiff's Exhibits "A", "A-1", "B", "B-1,"
"B-2", "C" and "C-1", and defendant's own witness, Rafael Altonaga, confirmed
plaintiff's testimony and testified as follows:

Q. In these tickets there are marks "O.K." From what you know, what does
this OK mean?

A. That the space is confirmed.

Q. Confirmed for first class?

A. Yes, "first class". (Transcript, p. 169)

xxx xxx xxx

Defendant tried to prove by the testimony of its witnesses Luis Zaldariaga and
Rafael Altonaga that although plaintiff paid for, and was issued a "first class"
airplane ticket, the ticket was subject to confirmation in Hongkong. The court cannot
give credit to the testimony of said witnesses. Oral evidence cannot prevail over
written evidence, and plaintiff's Exhibits "A", "A-l", "B", "B-l", "C" and "C-1" belie the
testimony of said witnesses, and clearly show that the plaintiff was issued, and paid
for, a first class ticket without any reservation whatever.
Furthermore, as hereinabove shown, defendant's own witness Rafael Altonaga
testified that the reservation for a "first class" accommodation for the plaintiff was
confirmed. The court cannot believe that after such confirmation defendant had a
verbal understanding with plaintiff that the "first class" ticket issued to him by
defendant would be subject to confirmation in Hongkong. 23

We have heretofore adverted to the fact that except for a slight difference of a few
pesos in the amount refunded on Carrascoso's ticket, the decision of the Court of
First Instance was affirmed by the Court of Appeals in all other respects. We hold the
view that such a judgment of affirmance has merged the judgment of the lower
court. 24Implicit in that affirmance is a determination by the Court of Appeals that
the proceeding in the Court of First Instance was free from prejudicial error and "all
questions raised by the assignments of error and all questions that might have been
raised are to be regarded as finally adjudicated against the appellant". So also, the
judgment affirmed "must be regarded as free from all error". 25 We reached this
policy construction because nothing in the decision of the Court of Appeals on this
point would suggest that its findings of fact are in any way at war with those of the
trial court. Nor was said affirmance by the Court of Appeals upon a ground or
grounds different from those which were made the basis of the conclusions of the
trial court. 26

If, as petitioner underscores, a first-class-ticket holder is not entitled to a first class

seat, notwithstanding the fact that seat availability in specific flights is therein
confirmed, then an air passenger is placed in the hollow of the hands of an airline.
What security then can a passenger have? It will always be an easy matter for an
airline aided by its employees, to strike out the very stipulations in the ticket, and
say that there was a verbal agreement to the contrary. What if the passenger had a
schedule to fulfill? We have long learned that, as a rule, a written document speaks
a uniform language; that spoken word could be notoriously unreliable. If only to
achieve stability in the relations between passenger and air carrier, adherence to
the ticket so issued is desirable. Such is the case here. The lower courts refused to
believe the oral evidence intended to defeat the covenants in the ticket.

The foregoing are the considerations which point to the conclusion that there are
facts upon which the Court of Appeals predicated the finding that respondent
Carrascoso had a first class ticket and was entitled to a first class seat at Bangkok,
which is a stopover in the Saigon to Beirut leg of the flight. 27 We perceive no "welter
of distortions by the Court of Appeals of petitioner's statement of its position", as
charged by petitioner. 28 Nor do we subscribe to petitioner's accusation that
respondent Carrascoso "surreptitiously took a first class seat to provoke an
issue". 29 And this because, as petitioner states, Carrascoso went to see the
Manager at his office in Bangkok "to confirm my seat and because from Saigon I
was told again to see the Manager". 30 Why, then, was he allowed to take a first
class seat in the plane at Bangkok, if he had no seat? Or, if another had a better
right to the seat?

4. Petitioner assails respondent court's award of moral damages. Petitioner's

trenchant claim is that Carrascoso's action is planted upon breach of contract; that
to authorize an award for moral damages there must be an averment of fraud or
bad faith;31 and that the decision of the Court of Appeals fails to make a finding of
bad faith. The pivotal allegations in the complaint bearing on this issue are:

3. That ... plaintiff entered into a contract of air carriage with the Philippine
Air Lines for a valuable consideration, the latter acting as general agents for
and in behalf of the defendant, under which said contract, plaintiff was
entitled to, as defendant agreed to furnish plaintiff, First Class passage on
defendant's plane during the entire duration of plaintiff's tour of Europe with
Hongkong as starting point up to and until plaintiff's return trip to Manila, ... .

4. That, during the first two legs of the trip from Hongkong to Saigon and
from Saigon to Bangkok, defendant furnished to the plaintiff First Class
accommodation but only after protestations, arguments and/or insistence
were made by the plaintiff with defendant's employees.

5. That finally, defendant failed to provide First Class passage, but instead
furnished plaintiff only Tourist Class accommodations from Bangkok to
Teheran and/or Casablanca, ... the plaintiff has been compelled by
defendant's employees to leave the First Class accommodation berths at
Bangkok after he was already seated.

6. That consequently, the plaintiff, desiring no repetition of the inconvenience

and embarrassments brought by defendant's breach of contract was forced to
take a Pan American World Airways plane on his return trip from Madrid to
Manila.32

xxx xxx xxx

2. That likewise, as a result of defendant's failure to furnish First Class

accommodations aforesaid, plaintiff suffered inconveniences, embarrassments, and
humiliations, thereby causing plaintiff mental anguish, serious anxiety, wounded
feelings, social humiliation, and the like injury, resulting in moral damages in the
amount of P30,000.00. 33

xxx xxx xxx

The foregoing, in our opinion, substantially aver: First, That there was a contract to
furnish plaintiff a first class passage covering, amongst others, the Bangkok-Teheran
leg; Second, That said contract was breached when petitioner failed to furnish first
class transportation at Bangkok; and Third, that there was bad faith when
petitioner's employee compelled Carrascoso to leave his first class accommodation
berth "after he was already, seated" and to take a seat in the tourist class, by
reason of which he suffered inconvenience, embarrassments and humiliations,
thereby causing him mental anguish, serious anxiety, wounded feelings and social
humiliation, resulting in moral damages. It is true that there is no specific mention
of the term bad faith in the complaint. But, the inference of bad faith is there, it may
be drawn from the facts and circumstances set forth therein. 34 The contract was
averred to establish the relation between the parties. But the stress of the action is
put on wrongful expulsion.

Quite apart from the foregoing is that (a) right the start of the trial, respondent's
counsel placed petitioner on guard on what Carrascoso intended to prove: That
while sitting in the plane in Bangkok, Carrascoso was ousted by petitioner's
manager who gave his seat to a white man; 35 and (b) evidence of bad faith in the
fulfillment of the contract was presented without objection on the part of the
petitioner. It is, therefore, unnecessary to inquire as to whether or not there is
sufficient averment in the complaint to justify an award for moral damages.
Deficiency in the complaint, if any, was cured by the evidence. An amendment
thereof to conform to the evidence is not even required. 36 On the question of bad
faith, the Court of Appeals declared:

That the plaintiff was forced out of his seat in the first class compartment of
the plane belonging to the defendant Air France while at Bangkok, and was
transferred to the tourist class not only without his consent but against his
will, has been sufficiently established by plaintiff in his testimony before the
court, corroborated by the corresponding entry made by the purser of the
plane in his notebook which notation reads as follows:

"First-class passenger was forced to go to the tourist class against his

will, and that the captain refused to intervene",

and by the testimony of an eye-witness, Ernesto G. Cuento, who was a co-

passenger. The captain of the plane who was asked by the manager of
defendant company at Bangkok to intervene even refused to do so. It is
noteworthy that no one on behalf of defendant ever contradicted or denied
this evidence for the plaintiff. It could have been easy for defendant to
present its manager at Bangkok to testify at the trial of the case, or yet to
secure his disposition; but defendant did neither. 37

The Court of appeals further stated

Neither is there evidence as to whether or not a prior reservation was made
by the white man. Hence, if the employees of the defendant at Bangkok sold
a first-class ticket to him when all the seats had already been taken, surely
the plaintiff should not have been picked out as the one to suffer the
consequences and to be subjected to the humiliation and indignity of being
ejected from his seat in the presence of others. Instead of explaining to the
white man the improvidence committed by defendant's employees, the
manager adopted the more drastic step of ousting the plaintiff who was then
safely ensconsced in his rightful seat. We are strengthened in our belief that
this probably was what happened there, by the testimony of defendant's
witness Rafael Altonaga who, when asked to explain the meaning of the
letters "O.K." appearing on the tickets of plaintiff, said "that the space is
confirmed for first class. Likewise, Zenaida Faustino, another witness for
defendant, who was the chief of the Reservation Office of defendant, testified
as follows:

"Q How does the person in the ticket-issuing office know what
reservation the passenger has arranged with you?

A They call us up by phone and ask for the confirmation." (t.s.n., p.

247, June 19, 1959)

In this connection, we quote with approval what the trial Judge has said on
this point:

Why did the, using the words of witness Ernesto G. Cuento, "white
man" have a "better right" to the seat occupied by Mr. Carrascoso? The
record is silent. The defendant airline did not prove "any better", nay,
any right on the part of the "white man" to the "First class" seat that
the plaintiff was occupying and for which he paid and was issued a
corresponding "first class" ticket.

If there was a justified reason for the action of the defendant's

Manager in Bangkok, the defendant could have easily proven it by
having taken the testimony of the said Manager by deposition, but
defendant did not do so; the presumption is that evidence willfully
suppressed would be adverse if produced [Sec. 69, par (e), Rules of
Court]; and, under the circumstances, the Court is constrained to find,
as it does find, that the Manager of the defendant airline in Bangkok
not merely asked but threatened the plaintiff to throw him out of the
plane if he did not give up his "first class" seat because the said
Manager wanted to accommodate, using the words of the witness
Ernesto G. Cuento, the "white man".38
 It is really correct to say that the Court of Appeals in the quoted portion first
transcribed did not use the term "bad faith". But can it be doubted that the
recital of facts therein points to bad faith? The manager not only prevented
Carrascoso from enjoying his right to a first class seat; worse, he imposed his
arbitrary will; he forcibly ejected him from his seat, made him suffer the
humiliation of having to go to the tourist class compartment - just to give way
to another passenger whose right thereto has not been established.
Certainly, this is bad faith. Unless, of course, bad faith has assumed a
meaning different from what is understood in law. For, "bad faith"
contemplates a "state of mind affirmatively operating with furtive design or
with some motive of self-interest or will or for ulterior purpose." 39

And if the foregoing were not yet sufficient, there is the express finding
of bad faith in the judgment of the Court of First Instance, thus:

The evidence shows that the defendant violated its contract of

transportation with plaintiff in bad faith, with the aggravating
circumstances that defendant's Manager in Bangkok went to the extent
of threatening the plaintiff in the presence of many passengers to have
him thrown out of the airplane to give the "first class" seat that he was
occupying to, again using the words of the witness Ernesto G. Cuento,
a "white man" whom he (defendant's Manager) wished to
accommodate, and the defendant has not proven that this "white man"
had any "better right" to occupy the "first class" seat that the plaintiff
was occupying, duly paid for, and for which the corresponding "first
class" ticket was issued by the defendant to him. 40

5. The responsibility of an employer for the tortious act of its employees need not
be essayed. It is well settled in law. 41 For the willful malevolent act of petitioner's
manager, petitioner, his employer, must answer. Article 21 of the Civil Code says:

ART. 21. Any person who willfully causes loss or injury to another in a manner
that is contrary to morals, good customs or public policy shall compensate
the latter for the damage.

In parallel circumstances, we applied the foregoing legal precept; and, we held that
upon the provisions of Article 2219 (10), Civil Code, moral damages are
recoverable. 42

6. A contract to transport passengers is quite different in kind and degree from any
other contractual relation. 43And this, because of the relation which an air-carrier
sustains with the public. Its business is mainly with the travelling public. It invites
people to avail of the comforts and advantages it offers. The contract of air carriage,
therefore, generates a relation attended with a public duty. Neglect or malfeasance
of the carrier's employees, naturally, could give ground for an action for damages.

Passengers do not contract merely for transportation. They have a right to be

treated by the carrier's employees with kindness, respect, courtesy and due
consideration. They are entitled to be protected against personal misconduct,
injurious language, indignities and abuses from such employees. So it is, that any
rule or discourteous conduct on the part of employees towards a passenger gives
the latter an action for damages against the carrier. 44

Thus, "Where a steamship company 45 had accepted a passenger's check, it was a

breach of contract and a tort, giving a right of action for its agent in the presence of
third persons to falsely notify her that the check was worthless and demand
payment under threat of ejection, though the language used was not insulting and
she was not ejected." 46 And this, because, although the relation of passenger and
carrier is "contractual both in origin and nature" nevertheless "the act that breaks
the contract may be also a tort". 47 And in another case, "Where a passenger on a
railroad train, when the conductor came to collect his fare tendered him the cash
fare to a point where the train was scheduled not to stop, and told him that as soon
as the train reached such point he would pay the cash fare from that point to
destination, there was nothing in the conduct of the passenger which justified the
conductor in using insulting language to him, as by calling him a lunatic," 48 and the
Supreme Court of South Carolina there held the carrier liable for the mental
suffering of said passenger.1awphl.nt

Petitioner's contract with Carrascoso is one attended with public duty. The stress of
Carrascoso's action as we have said, is placed upon his wrongful expulsion. This is a
violation of public duty by the petitioner air carrier a case of quasi-delict.
Damages are proper.

7. Petitioner draws our attention to respondent Carrascoso's testimony, thus

Q You mentioned about an attendant. Who is that attendant and purser?

A When we left already that was already in the trip I could not help it. So
one of the flight attendants approached me and requested from me my ticket
and I said, What for? and she said, "We will note that you transferred to the
tourist class". I said, "Nothing of that kind. That is tantamount to accepting
my transfer." And I also said, "You are not going to note anything there
because I am protesting to this transfer".

Q Was she able to note it?

A No, because I did not give my ticket.

 Q About that purser?

A Well, the seats there are so close that you feel uncomfortable and you don't
have enough leg room, I stood up and I went to the pantry that was next to
me and the purser was there. He told me, "I have recorded the incident in my
notebook." He read it and translated it to me because it was recorded in
French "First class passenger was forced to go to the tourist class against
his will, and that the captain refused to intervene."

Mr. VALTE

I move to strike out the last part of the testimony of the witness because the
best evidence would be the notes. Your Honor.

COURT

49
I will allow that as part of his testimony.

Petitioner charges that the finding of the Court of Appeals that the purser made an
entry in his notebook reading "First class passenger was forced to go to the tourist
class against his will, and that the captain refused to intervene" is predicated upon
evidence [Carrascoso's testimony above] which is incompetent. We do not think so.
The subject of inquiry is not the entry, but the ouster incident. Testimony on the
entry does not come within the proscription of the best evidence rule. Such
testimony is admissible. 49a

Besides, from a reading of the transcript just quoted, when the dialogue happened,
the impact of the startling occurrence was still fresh and continued to be felt. The
excitement had not as yet died down. Statements then, in this environment, are
admissible as part of the res gestae. 50 For, they grow "out of the nervous
excitement and mental and physical condition of the declarant". 51 The utterance of
the purser regarding his entry in the notebook was spontaneous, and related to the
circumstances of the ouster incident. Its trustworthiness has been guaranteed. 52 It
thus escapes the operation of the hearsay rule. It forms part of the res gestae.

At all events, the entry was made outside the Philippines. And, by an employee of
petitioner. It would have been an easy matter for petitioner to have contradicted
Carrascoso's testimony. If it were really true that no such entry was made, the
deposition of the purser could have cleared up the matter.

We, therefore, hold that the transcribed testimony of Carrascoso is admissible in

evidence.
8. Exemplary damages are well awarded. The Civil Code gives the court ample
power to grant exemplary damages in contracts and quasi- contracts. The only
condition is that defendant should have "acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner." 53 The manner of ejectment of respondent
Carrascoso from his first class seat fits into this legal precept. And this, in addition
to moral damages.54

9. The right to attorney's fees is fully established. The grant of exemplary damages
justifies a similar judgment for attorneys' fees. The least that can be said is that the
courts below felt that it is but just and equitable that attorneys' fees be given. 55 We
do not intend to break faith with the tradition that discretion well exercised as it
was here should not be disturbed.

10. Questioned as excessive are the amounts decreed by both the trial court and
the Court of Appeals, thus: P25,000.00 as moral damages; P10,000.00, by way of
exemplary damages, and P3,000.00 as attorneys' fees. The task of fixing these
amounts is primarily with the trial court. 56 The Court of Appeals did not interfere
with the same. The dictates of good sense suggest that we give our imprimatur
thereto. Because, the facts and circumstances point to the reasonableness thereof. 57

On balance, we say that the judgment of the Court of Appeals does not suffer from
reversible error. We accordingly vote to affirm the same. Costs against petitioner. So
ordered.

Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Zaldivar and
Castro, JJ., concur.
Bengzon, J.P., J., took no part.
 G.R. No. L-23924 April 29, 1968

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
FELIPE S. TANJUTCO, defendant-appellant.

Office of the Solicitor General for plaintiff-appellee.

Felimon Cajator for defendant-appellant.
Laurea and Pison as private prosecutors.

REYES, J.B.L., Actg. C.J.:

In an information filed in the Court of First Instance of Manila (Crim. Case No. 34595)
on March 5, 1956, Felipe S. Tanjutco was accused of the crime of qualified theft,
allegedly committed as follows:

That in, about and during the period comprised between January 7, 1953 and
January, 1955, inclusive, in the City of Manila, Philippines, the said accused,
being then the private secretary of Roman R. Santos, and as such is entrusted
with the duty of depositing large sums of money in the bank for and in behalf
of the said Roman R. Santos, with grave abuse of confidence did then and
there willfully, unlawfully and feloniously, with intent of gain and without the
knowledge and consent of the owner thereof, take, steal and carry away
various sums of money amounting to P400,086.19, belonging to the said
Roman R. Santos, to the damage and prejudice of the said owner in the
aforesaid sum of P400,086.19, Philippine currency.

After a protracted trial, decision was rendered on October 14, 1964, the court
finding the accused guilty beyond reasonable doubt of the crime charged, and
sentencing him to life imprisonment and to the accessory penalties of the law, to
indemnify the estate of the deceased Roman S. Santos in the sum of P400,086.19,
and to pay the costs.
From this decision, the accused appealed to this Court assigning 15 errors allegedly
committed by the court below, all boiling down to the question of sufficiency of
evidence to support the lower court's conclusion that he had misappropriated the
total sum of P400,086.19, and in sentencing him to life imprisonment. In short, the
main issue here is not whether the accused had committed acts of
misappropriation, but how much had misappropriated, according to the evidence on
record.

The abovementioned judgment of the court below was based on the findings that
during the period specified in the complaint, the accused was the private secretary
of the complainant Roman R. Santos, businessman, financier and, at the time,
Chairman of the Board of Directors of the Prudential Bank and Trust Company
(PBTC) which he had founded. As such secretary to the Board-Chairman, the
accused held office in the bank premises, had free access to all offices of the bank
and free use of its equipment. The relationship between the accused and his
employer was so intimate and confidential that the latter used to send to the former
sums of money to be deposited in his (Don Roman's) current accounts with the
Prudential Bank. It was in the discharge of this duty that the accused betrayed the
confidence reposed on him by his employer by retaining for his personal use part of
the money entrusted to him, resulting in shortage in the accounts of the employer,
which was discovered only in January, 1957.

The intricate operation said to have been resorted to by the accused and enabled
him to cover up his defalcations for some time, was succinctly described in the
decision now on appeal, thus:

Mr. Santos (Roman) maintained four accounts, all current, with the bank. They
were identified as accounts Nos. 1, 2, 3, and 4. Every time Mr. Santos sent
money to the accused to be deposited, the former indicated the current
account number to which said amount should be deposited. The accused
would then deposit the amount with the bank and obtain a duplicate of the
deposit slip duly stamped by the bank. This duplicate deposit slip would later
on be shown to Mr. Santos to satisfy the latter that the money entrusted to
the accused was already deposited according to his instructions. After the
latter shall have checked the correctness of the amount appearing in the
duplicate deposit slip, he would return said duplicate to the accused for
safekeeping.

For its part, the bank kept the original of the deposit slips and a separate
ledger for each account of every depositor. In this ledger were entered the
deposits and withdrawal during the month, arranged according to the dates
of the transactions. Said entries were taken from the original deposit slips in
its possession.

In the case of Mr. Santos, the deposit slips prepared by the accused indicated
the account number to be credited with the amount of each deposit and the
check used in withdrawing from the deposits likewise carried the account
number to be debited with the amount of the check. These ledgers were
prepared in duplicate, and the bank sent the duplicate to the depositor after
the end of each month. In this manner, the depositor could check the
 duplicate deposit slips in his possession with the entries in the duplicate
ledger received by him monthly to determine whether or not correct entries
of the deposits and withdrawals were made.

The accused, at first, proved to be loyal, faithful and trustworthy a secretary

and confident as his employer wished and thought him to be. Later on,
however, he was tempted to use part of the money entrusted to him.
Probably, he expected to replace it before his dishonesty was discovered.
However, the temptation to use more of the money entrusted to him was
stronger than his will to replace the amounts he abstracted. Hence, the
amount he stole grew bigger and bigger until realized that it was only a
question of time when his crime would be discovered.

Sometimes, he deposited a smaller amount than that he received from his

employer. At times, he did not deposit anything at all, although he received
money for deposit.

To hide his crime, the accused used to falsify duplicate deposit slips which he
showed to Mr. Santos. And when he received the monthly customer's ledger,
he likewise falsified a duplicate monthly customer's ledger, entering in the
falsified ledger the correct amount he received from Mr. Santos for deposit in
place of the amount he actually deposited. It was this falsified ledger which
the accused showed to Mr. Santos monthly. It is obvious that Mr. Santos could
not detect any defalcation if he relied solely on the falsified duplicate deposit
slips and falsified duplicate customer's monthly ledgers.

Appellant does not dispute that a number of duplicate deposit slips and monthly
bank statements, supposed to have been submitted by him to complainant Roman
Santos, were found to be falsified. What he is contesting here is the lower court's
finding that he, appellant, authored such falsifications, which conclusion, he claims,
is not supported by the evidence.

This allegation is without merit. We found established, through the testimony of

prosecution witnesses, that when he deposited money for the accounts of
complainant Roman Santos, accused-appellant used to prepare two deposit slips
one, the original, to be submitted to the bank, and the other to be shown to Don
Roman and later to be kept in his file; 1 that the accused himself picked up the
monthly bank statements of Roman R. Santos, 2which he would either withhold or
destroy, that he would thereafter prepare in the bank machine after office hours,
other statements indicating amounts he purportedly deposited, 3 although actually
the deposits must have been for lesser amounts or no deposits were made at all (as
later revealed by the original deposit slips and bank ledgers).

It is true that not a single witness testified to having personally seen the accused in
the act of falsifying the duplicate deposit slips or bank statements. But direct
evidence on this point is not imperative. Considering that it was the accused-
appellant who prepared the original and deposit slips; that there appeared
discrepancies between the original deposit slips retained by the Prudential Bank and
the duplicates thereof which were found by the auditors; that the amounts indicated
in the originals were accordingly credited by the bank for the account of the
depositor Roman R. Santos; that there were supposed duplicate deposit slips, duly
signed by accused-appellant which contained forged initials of the bank-teller, or
else not covered by any original slip at all; 4 that accused-appellant admitted, not
only of having manipulated the records of his employer, but also of having been
able, by that means, to abstract an undetermined amount from the funds of the
latter5 no other conclusion could be drawn from the foregoing facts than that the
falsified documents were the ones prepared by appellant to hide his misdeeds. Even
assuming these evidences to be circumstantial, they nevertheless constitute legal
evidence6 that may support a conviction, affording as they are basis for a
reasonable inference of the existence of the fact thereby sought to be proved. 7

Contrary to appellant's contention, there is even no necessity for all these duplicate
deposit slips to be identified one by one, before they may properly be considered
against the accused. These slips were not only bundled into a bunch and formally
presented as Exhibit Q; they had also been consistently referred to as one of the
bases of the prosecution's claim that the misappropriation amount totalled
P400,086.19. As ruled by this Court in another criminal case, the absence of any
record of the formal presentation of certain exhibits does not render their
consideration reversible error, if repeated references thereto in the course of the
trial by counsel for the accused and of the court convincingly show that the
documents were part of the prosecution's evidence. 8 No error, therefore, was
committed by the trial court in giving due credence and weight to the deposit slips
(Exh. Q).

Appellant also challenges the competence of 40 duplicate deposit slips which do not
bear his signature, and urges that the amount covered there P233,744.63
should be deducted from the total amount covered by the duplicate deposit slip,
coming from the files of Don Roman Santos.

We have gone over these 40 documents, and found the following:

One (1) deposit slip, dated July 21, 1953 for P13,283.07, Account No. 2; although
unsigned by accused-appellant, this tallies with an original deposit slip retained by
the Prudential Bank. The amount it covered was duly credited for the account of
Roman R. Santos, as per the bank ledger, Exhibit Y-8.

Two (2) duplicates dated November 19, 1953, for P2,562.00 and P2,689.00,
respectively (Account No. 4), are evidently genuine; they tally with the originals. The
amounts they covered were credited in favor of complainant Roman Santos (Exh. R-
2b).

One (1) duplicate dated September 8, 1953, for P3,762.07, for Account No. 2, tallies
with the original (Exh. 6), and the amount covered thereby is duly credited for the
account of complainant Santos.

One (1) slip dated September 10, 1953, for P12,274.65 (Account No. 2), is supposed
to be the duplicate of the original (Exh. Q-29). It is noted, however, that while in the
original, the cash deposit was P1,535.20, which amount was accordingly entered in
the bank ledger for the account of complainant Santos, in the purported duplicate,
the cash deposit was placed only at P1,319.65. The total amount covered by this
particular deposit slip (P12,274.48), is not deductible from the sum covered by all
the duplicate deposit slips found in the possession of complainant Roman Santos,
because it is clear that the said amount of P12,274.48 was actually received by the
accused and in fact deposited by him in the bank.

Nine (9) duplicates (Account No. 2), all dated June 17, 1954, for P5,523.78, P500.00,
P1,000.00, P733.51, P564.25, P1,000.00, P974.57, P3,000.00, P3,058.84,
respectively, tally with the originals left with the bank (Exh. 7), and the amounts
thereby covered were duly credited in favor of complainant Santos (Exh. Z-10). It
was noted that no signature also appear over the appellant's typewritten name
even in the originals submitted to the bank.

Six (6) duplicate slips (Account No. 2) for P1,724.40, P1,509.20, P1,510.30,
P1,485.75, P1,487.85 and P3,851.14, all dated October 13, 1954, are genuine
duplicates of the originals in the possession of the Prudential Bank. It may be
mentioned that where the duplicates are duly covered with original deposit slips,
the number and denominations of the cash deposits made were noted in said
original slips. Both original and duplicate slips of these deposits are not signed: the
amount thus covered were duly credited to the complainant Santos (Exh. Z-14).

One (1) duplicate slip dated November 9, 1954, for a deposit of P1,782.00; one of
the several deposits made by the accused for the account of complainant Santos on
the same day. Both the original and duplicate slips have no signature over the
typewritten name of appellant. Amount covered thereby duly credited in favor of
complainant (Exh. Z-16).

Thirteen (13) unsigned deposit slips (Account No. 2), for P1,281.00, P1,374.45,
P1,323.00, P1,416.96, P1,256.64, P1,346.40, P1,330.17, P1,438.80, P1,490.00,
P1,201.00, P1,122.70, P1,747.27, and P1,235.52, respectively, formed part of a
group of 25 deposit slips, all dated December 23, 1954. These 13 unsigned
duplicates, however, have their corresponding originals in the custody of the bank,
and the amounts they covered were duly credited to the account of complainant
Santos. They are apparently genuine copies of the originals (Exh. Z-16).

One (1) duplicate deposit slip dated March 12, 1954 (Account No. 3). This slip was
accomplished in handwriting, on the face of which was written diagonally: "Non-
negotiable PBTC Teller No. 2 (True Copy)"; the covered amount of P7,809.40 was
duly credited in favor of the complainant. This is apparently a reconstructed
duplicate of the original.

One slip dated January 5, 1953, bearing the rubber stampmark of PBTC Teller No. 4,
but without said teller's initials. No signature also appears over the typewritten
name of the depositor "F. S. Tanjutco". This slip purportedly showed that a cash
deposit of P2,034.15 and checks for P8,917.33 were made on that day. A checking
of the bank entry for that day established that seven out of the eight checks
specified in this duplicate deposit slip (PBTC Checks Nos. 12955, for P1,081.10;
12959 for P941.31; 12960 for P545.88; 12961 for P871.66; 12963 for P440.00;
12978 for P2,887.39, and 12979 for P150.00 were debited as withdrawals from the
same Account No. 2 on January 5, 1954. Clearly, this supposed duplicate slip is
falsified. Considering that by appellant's own admission, he was able to cover up
the shortages in the funds of his employer by manipulation of records and
documents (see the testimonies of witnesses Amado S. Carlos, Felix Costa and
Nazario L. Cruz),9the inclusion of the amount covered by this slip in the computation
of the sum of which appellant is accountable, is justified. The very existence of this
simulated deposit slip is sufficient proof that it was intended to be shown to
complainant Roman Santos and thus escape detection by the latter of appellant's
defalcation of his (complainant's) funds.

Two (2) deposit slips purporting to be duplicates, but without the corresponding
originals, dated December 16, 1954 and December 27, 1954 for P2,780.27 and
P126,692.89, respectively, did not have appellant's signature; said amounts were
not also reflected in the bank ledger as actual deposits made by appellant.
Nevertheless, we have to sustain the inclusion of these amounts in the computation
of the money under appellant's accountability for the same reason as that given in
the discussion of the preceding item.

These 40 duplicate deposit slips were admitted by the Court below, not to prove
falsification, but only to establish the fact that accused-appellant has received
money to be deposited for the account of his employer, and determine the exact
amount thus received. The relevancy of these documents to prove that fact is not
affected by the absence of appellant's signature thereon.

In the first place, having been passed upon and favorably considered by the trial
court, the matter of relevancy of these documents ordinarily cannot be reviewed on
appeal. This lies within the sound discretion of said court and deserves the respect
of the appellate tribunal.10 Secondly, most of the amounts covered by these 40
deposit slips are sufficiently backed by the original deposit slips and the bank
ledgers. And, there is no showing that the figures indicated in both the original and
duplicate slips are separately treated or that the amount thus covered is included
twice in the summing up of the missing amounts. As regards those without
corresponding originals, we have given the reason for their inclusion in the total
sum for which appellant is accountable, in our discussion of those individuals items.
Furthermore, it appearing that even some of the original deposit slips delivered to
the bank do not bear appellant's signature, the absence alone of such signature is
no indication that the 40 duplicate slips in question were not in fact prepared by
him.

Appellant likewise assails the admissibility of entries appearing in the ledgers of the
Prudential Bank (Exhs. W, W-1 to W-4, X, X-1 to X-6, Y, Y-1 to Y-13, Z, Z-1 to Z-18, TT,
TT-1 to TT-5), of the bank statements from its file (Exhs. R, R-1 to R-5), and the
monthly bank statements taken from the files of complainant Roman Santos (Exhs.
S, S-1 to S-3), claiming that under the prosecution's theory, 11 the best evidence to
prove his guilt would be the original slips and their duplicates.

There is no merit to the contention. It must be remembered that the prosecution

had to prove the amount allegedly embezzled by the accused. This, the prosecution
tried to do by establishing the amounts received by the accused-appellant and
comparing it with those deposited in the bank; the resulting difference being treated
as the amount abstracted from the funds of the complainant. Under this theory, the
ledgers and bank statements naturally are not just secondary, but the primary
evidence of the deposits made, while the monthly bank statements found in the
files of complainant Roman Santos which were supposed to confirm the amounts he
had ordered the accused-appellant to be deposited, are the best evidence of the
amounts actually entrusted to the latter. Consequently, the trial court committed no
error in ruling in favor of the admissibility of the above-mentioned exhibits.

We also find as untenable appellant's allegation that there was no "positive, direct
evidence" to show that the monthly bank statements found in the file of the
complainant were the same documents delivered by him to the latter. By urging in
his Fifth Assignment of Error the deduction from the total sum covered by all the
duplicate deposit slips coming from the files of complainant, of the amounts
covered by the 40 unsigned deposit slips, claiming that the resulting difference is
the "correct total amount covered by duplicate deposit slips for which accused can
be held liable" (p. 27, appellant's brief), said accused-appellant in fact
acknowledged that these duplicate deposit slips were the ones delivered by him to
complainant Santos.

Neither would it be accurate to say that the decision of the lower court was based
solely on the alleged hearsay report of the auditing firm of Costa & Cruz (Exh. P).
Said court, in its decision, stated:

The auditors Costa and Cruz found that the accused manipulated only
accounts Nos. 2, 3, and 4. As stated above, he at various times deposited less
than what he received for deposit and at times he did not deposit anything at
all but simply used the entire amount he received for deposit. To cover up for
his criminal act and in order to avoid detection especially when he feared that
Don Roman Santos might make a big withdrawal, the accused also resorted
to transferring of funds of Don Roman from his fixed deposits to his current
account. The report of the auditors (Exh. P) is clear and the evidence
introduced in Court in support of their report and the testimony of Mr. Costa
convinced the Court of the correctness of the figures arrived at by them.
(Decision, pp. 8-9).

In other words, the lower court gave due weight to the report of the auditors
because it was found to be clear and duly supported by testimonial and
documentary evidence (monthly bank accounts, bank statement, deposit slips
the materiality and relevancy of which were already here sustained) presented
during the trial, to which conclusion we fully agree.1wph1.t

After going with the evidence on record, the court below concluded that the accused
had defalcated out of the money delivered to him for deposit in the bank, the
following amounts:

I. Deficiency from:

a. Account No. 2 (Exhibit No. I)

1954 P134,105.99
 1955 15,760.58

P149,866.
47
b. Account No. 3 (Exhibit No. II)
1953 P 14,405.05
1954 13,114.01

P
27,519.06
c. Account No. 4 (Exhibit No. III)
1953 P 23,733.87
P
198,725.83
1954 222,59.70

Total shortage of Accounts Nos. 2, P399,845.

3&4...... 23

II. Interest from FIXED DEPOSIT:

a. F/d No. 182 12/27/54

Schedule I P20.96
Notation
b. F/d No. 208
220.00 240.96
1/20/54

P400,086.19
TOTAL SHORTAGES
==========
==

Appellant maintains that the amount he misappropriated could not have exceeded
P50,000.00. But this allegation is not only unsupported by any corroborative
evidence, but is in itself uncertain, appellant having admitted in court that he never
kept any record of the sums he abstracted from the funds of the complainant, and
that the amount of P50,000.00 was only his estimate (t.s.n., p. 2114, hearing of Feb.
24, 1964). Such bare testimony indeed cannot overcome the prosecution's proof
that the unaccounted amount, for which appellant is answerable, totalled
P400,086.19.

Finally, making capital of the acceptance by complainant of properties belonging to

the accused and his relatives allegedly assigned to the former for the settlement of
his obligations, accused-appellant claims that there had been novation of the
relationship between him and the said complainant, resulting in the obliteration or
extinction of his criminal liability. This argument is anchored on the alleged
recognition by this Court of the novation theory (to extinguish criminal liability) in
the case of People vs. Nery, G.R. No. L-19567, February 5, 1964.

Reliance on the aforecited Nery case, in support of the contention that the
acceptance by complainant of payment converted the liability of the accused-
appellant into a civil obligation or else that it estopped said complainant from
proceeding with the prosecution of the case, is misplaced and unwarranted.

Firstly, in the Nery case, which is an action for estafa, there

was contractual relationship between the parties that can be validly novated by the
settlement of the obligation of the offender. Whatever was said in that case,
therefore, cannot be invoked in the present case where no contractual relationship
or bilateral agreement, which can be modified or altered by the parties, is involved.
There is here merely a taking of the complainant's property by one who never
acquired juridical possession thereof, qualified by grave abuse of confidence.

Secondly, it is inaccurate to say unqualifiedly that the theory that payment can
obliterate or extinguish criminal liability was upheld in the Nery case. On the
contrary, it was there explicitly said:

It may be observed in this regard that novation is not one of the means
recognized by the Penal Code whereby criminal liability can be extinguished;
hence, the role of novation may only be to either prevent the rise of criminal
liability or to cast doubt on the true nature of the original basic transaction,
whether or not it was such that its breach would not give rise to penal
responsibility, as when money loaned is made to appear as a deposit, or
other similar disguise is resorted to (cf. Abeto vs. People, 90 Phil. 58; U.S. vs.
Villareal, 27 Phil. 481).

Even in Civil Law the acceptance of partial payments, without further change
in the original relation between the complainant and the accused, can not
produce novation. For the latter to exist, there must be proof of intent to
extinguish the original relationship, and such intent can not be inferred from
the mere acceptance of payments on account of what is totally due. Much
less can it be said that the acceptance of partial satisfaction can effect the
nullification of a criminal liability that is fully matured, and already in the
process of enforcement. Thus, this Court has ruled that the offended party's
acceptance of a promisory note for all or part of the amount misapplied does
not obliterate the criminal offense. (Camus vs Court of Appeals, 48 O.G.
3898).

Assuming, therefore, that there was partial payment 12 by the accused-appellant of

the amount he misappropriated, that would not have sufficed to bar the filing and
prosecution of the criminal case for qualified theft against him, considering that he
concedes having actually used money belonging to his employer although in an
amount less than P400,086.19. Furthermore, it may be mentioned that the mother
and sister of accused-appellant, before the criminal case here was filed, instituted in
the Court of First Instance of Pampanga an action for annulment of the deeds of
assignment of their properties (Civil Case No. 875) on the ground that they were
induced to execute the same through fraud and deceit. In view of our ruling on the
foregoing issue, the outcome of this annulment-case will certainly not affect the
accused-appellant's liability for the crime he had committed.

WHEREFORE, finding no error in the decision appealed from, the same is hereby
affirmed, in all respects, with costs against the appellant.

G.R. No. 86062 June 6, 1990

INTERPACIFIC TRANSIT, INC., petitioner,

vs.
RUFO AVILES and JOSEPHINE AVILES, respondents.

Balane, Barican, Cruz, Alampay Law Office for petitioner.

Francisco G. Mendoza private respondents.

CRUZ, J.:

This case hinges on the proper interpretation and application of the rules on the
admissibility of documentary evidence and the viability. of a civil action for damages
arising from the same acts imputed to the defendant in a criminal action where he
has been acquitted.

In the information filed against Rufo and Josephine Aviles, the private respondents
herein, it was alleged that being then sub-agents of Interpacific Transit, Inc. and as
such enjoying its trust and confidence, they collected from its various clients
payments for airway bills in the amount of P204,030.66 which, instead of remitting
it to their principal, they unlawfully converted to their own personal use and
benefit. 1

At the trial, the prosecution introduced photocopies of the airway bills supposedly
received by the accused for which they had not rendered proper accounting. This
was done in, the course of the direct examination of one of the prosecution
witnesses. 2 The defense objected to their presentation, invoking the best evidence
rule. The prosecution said it would submit the original airway bills in due time. Upon
such undertaking, the trial court allowed the marking of the said documents a s
Exhibits "B" to "OO." The e prosecution n did submit the original airway bills nor did
it prove their loss to justify their substitution with secondary evidence.
Nevertheless, when the certified photocopies of the said bills formally were
offered, 3 in evidence, the defense interposed no objection.

In acquitting the accused, Judge Herminio I. Benito of the Regional Trial Court of
Makati rejected the agency theory of the prosecution and held that the relationship
between the petitioner and Rufo Aviles was that of creditor and debtor only. "Under
such relationship,' it declared, "the outstanding account, if any, of the accused in
favor of ITI would be in the nature of an indebtedness, the non- payment of which
does not Constitute estafa." 4

The court' also held that the certified photocopies of the airway by were not
admissible under the rule that "there can be no evidence of a writing the content of
which is the subject of inquiry other' than the writing itself." Loss of the originals
had not been proved to justify the exception to the rule as one of the prosecution
witness had testified that they were still in the ITI bodega. Neither had it been
shown that the originals had been "recorded in an existing record a certified copy of
which is made evidence by law."

In its order denying the motion for reconsideration, the trial court declared that it
"had resolved the issue of whether the accused has civil obligation to ITI on the
basis of the admissibility in evidence of the xerox copies of the airway bills." 5

Right or wrong, the acquittal on the merits of the accused can no longer be the
subject of an appeal under the double jeopardy rule. However, the petitioner seeks
to press the civil liability of the private respondents, on the ground that the
dismissal of the criminal action did not abate the civil claim for the recovery of the
amount. More to the point, ITI argues that the evidence of the airways bills should
not have been rejected and that it had sufficiently established the indebtedness of
the private respondents to it.

The Court of Appeals 6 affirmed, the decision of the trial court in toto, adding that
the existing record spoken of in Section 2 (e) and (d) of Rule 130 of the Rules of
Court must be in the custody, of a public officer only. It also declared that:

Since no evidence of civil liability was presented, no necessity existed

on the part of the private respondents to present evidence of payment
of an obligation which was not shown to exist.

The petitioner now asks this Court to annul that judgment as contrary to law and
the facts established at the As in the courts below, it is insisting on the admissibility
of its evidence to prove the civil liability of the private respondents.

We agree with the petitioner. The certified photocopies of the airway bills should
have been considered.

In assessing this evidence, the lower courts confined themselves to the best
evidence rule and the nature of the documents being presented, which they held
did not come under any of the exceptions to the rule. There is no question that the
photocopies were secondary evidence and as such were not admissible unless there
was ample proof of the loss of the originals; and neither were the other exceptions
allowed by the Rules applicable. The trouble is that in rejecting these copies under
Rule 130, Section 2, the respondent court disregarded an equally important
principle long observed in our trial courts and amply supported by jurisprudence.

This is the rule that objection to documentary evidence must be made at the time it
is formally offered. as an exhibit and not before. Objection prior to that time is
premature.

It is instructive at this paint to make a distinction between Identification of

documentary evidence and its formal offer as an exhibit. The first is done in the
course of the trial and is accompanied by the marking of the evidence an an exhibit.
The second is done only when the party rests its case and not before. The mere fact
that a particular document is Identified and marked as an exhibit does not mean it
will be or has been offered as part of the evidence of the party. The party may
decide to formally offer it if it believes this will advance its cause, and then again it
may decide not to do so at all. In the latter event, the trial court is, under Rule 132,
Section 35, not authorized to consider it.

Objection to the documentary evidence must be made at the time it is formally

offered, not earlier. The Identification of the document before it is marked as an
exhibit does not constitute the formal offer of the document as evidence for the
party presenting it. Objection to the Identification and marking of the document is
not equivalent to objection to the document when it is formally offered in evidence.
What really matters is the objection to the document at the time it is formally
offered as an exhibit.

In the case at bar, the photocopies of the airway bills were objected to by the
private respondents as secondary evidence only when they, were being Identified
for marking by the prosecution. They were nevertheless marked as exhibits upon
the promise that the original airway bills would be submitted later. it is true that the
originals were never produced. Yet, notwithstanding this omission, the defense did
not object when the exhibits as previously marked were formally offered in
evidence. And these were subsequently admitted by the trial court. 7

In People v. Teodoro, 8 a document being Identified by a prosecution witness was

objected to as merely secondary, whereupon the trial judge ordered the testimony
stricken out. This Court, in holding the objection to be premature, said:

It must be noted that the Fiscal was only Identifying the official records
of service of the defendant preparatory to introducing them as
evidence. ... The time for the presentation of the records had not yet
come; presentation was to be made after their Identification. For what
purpose and to what end the Fiscal would introduce them as evidence
 was not yet stated or disclosed. ... The objection of counsel for the
defendant was, therefore, premature, especially as the Fiscal had not
yet stated for what purpose he would introduce the said records. ...

The time for objecting the evidence is when the same is offered.
(Emphasis supplied).

The objection of the defense to the photocopies of the airway bins while they were
being Identified and marked as exhibits did not constitute the objection it should
have made when the exhibits were formally offered in evidence by the prosecution.
No valid and timely objection was made at that time. And it is no argument to say
that the earlier objection should be considered a continuing objection under Sec. 37
of Rule 132, for that provision obviously refers to a single objection to a class of
evidence (testimonial or documentary) which when first offered is considered to
encompass the rest of the evidence. The presumption is, of course, that there was
an offer and a seasonable objection thereto. But, to repeat, no objection was really
made in the case before us because it was not made at the proper time.

It would have been so simple for the defense to reiterate its former objection, this
time seasonably, when the formal offer of exhibits was made. It is curious that it did
not, especially so since the objections to the formal offer of exhibits was made in
writing. In fact, the defense filed no objection at all not only to the photocopies but
to all the other exhibits of the prosecution.

The effect of such omission is obvious. The rule is that evidence not objected to is
deemed admitted and may be validly considered by the court in arriving at its
judgment. 9 This is true even if by its nature the evidence is inadmissible and would
have surely been rejected if it had been challenged at the proper time.

The records certainly would have been the, beet proof of such former
conviction. The certificate was not the best proof. There seems to be
no justification for the presentation of proof of a character. ... Under an
objection upon the ground that the said certificate was not the best
proof, it should have been rejected. Once admitted, however, without
objection, even though not admissible under an objection, we are not
inclined now to reject it. If the defendant had opportunely presented an
objection to the admissibility of said certificate, no doubt the
prosecution would have presented the best proof upon the questions to
which said certificate relates. 10

(It) is universally accepted that when secondary or incompetent

evidence is presented and accepted without any objection on the part
of the other party, the latter is bound thereby and the court is obliged
to grant it the probatory value it deserves. 11
We hold therefore that it was erroneous for the lower courts to reject the
photocopies of the airway bills to prove the liability of the private respondents to
the petitioner. While we may agree that there was really no criminal liability that
could attach to them because they had no fiduciary relationship with ITI, the
rejected evidence sufficiently established their indebtedness to the petitioner.
Hence, we must reverse the ruling below that "on account of the inadmissibility of
the prosecution's Exhibits 'B' and 'OO', coupled with the denial made by the
accused, there appears to be no concrete proof of such accountability."

Accoording to Rule 120, Section 2, of the Rules of Court:

In case of acquittal, unless there is a clear showing that the act from
which the civil liability might arise did not exist, the judgment shall
make a finding on the civil liability of the accused in favor of the
offended party.

With the admission of such exhibits pursuant to the ruling above made, we find that
there is concrete proof of the defendant's accountability. More than this, we also
disbelieve the evidence of the private respondents that the said airway bills had
been paid for. The evidence consists only of check stubs corresponding to payments
allegedly made by the accused to the ITI, and we find this insufficient.

As it is Aviles who has alleged payment, it is for him to prove that allegation. He did
not produce any receipt of such payment. He said that the cancelled payment
checks had been lost and relied merely on the check stubs, which are self-serving.
The prosecution correctly stressed in its motion for reconsideration that the accused
could have easily secured a certification from the bank that the checks allegedly
issued to ITI had been honored. No such certification was presented. In short, the
private respondents failed to establish their allegation that payment for the airway
bills delivered to them had been duly remitted to ITI.

12
In Padilla v. Court of Appeals, we held:

There appear to be no sound reasons to require a separate civil action

to still be filed considering that the facts to be proved in the civil case
have already been established in the criminal proceedings where the
accused was acquitted. He was, in fact, exonerated of the charge. The
constitutional presumption of innocence called for more vigilant efforts
on the part of prosecuting attorneys and defense counsel, a keener
awareness by all witnesses of the serious implications of perjury, and a
more studied consideration by the judge of the entire records and of
applicable statutes and precedents. To require a separate civil action
simply because the accused was I acquitted would mean needless
clogging of court dockets and unnecessary duplication of litigation with
 all its attendant loss of time, effort, and money on the part of all
concerned.

By the same token, we find that remand of this case to, the trial court for further
hearings would be a needless waste of time and effort to the prejudice of the
speedy administration of justice. Applying the above ruling, we hereby declare
therefore, on the basis of the evidence submitted at the trial as reflected in the
records before us, that the private respondents are liable to the petitioner in the
sum of P204,030.66, representing the cost of the airway bills.

WHEREFORE, the petition is GRANTED. The challenged decision of the Court of

Appeals is SET ASIDE and a new one is rendered ORDERING the private respondents
to. pay to the petitioner the sum of P204,030.66, with 6% interest from November
16, 1981, plus the costs of this suit.

SO ORDERED.

EVANGELINE D. IMANI,* G.R. No. 187023

Petitioner,

Present:

CARPIO, J.,

Chairperson,

- versus - NACHURA,

PERALTA,

ABAD, and

MENDOZA, JJ.
 METROPOLITAN BANK & TRUST Promulgated:

COMPANY,

Respondent. November 17, 2010

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

On appeal is the July 3, 2008 Decision [1] of the Court of Appeals (CA) in CA-G.R. SP
No. 93061, setting aside the November 22, 2005 Order [2] of the Regional Trial Court
(RTC) of Makati City, Branch 64, as well as its subsequent Resolution dated March 3,
2009,[3] denying petitioners motion for reconsideration.

On August 28, 1981, Evangeline D. Imani (petitioner) signed a Continuing

Suretyship Agreement in favor of respondent Metropolitan Bank & Trust Company
(Metrobank), with Cesar P. Dazo, Nieves Dazo, Benedicto C. Dazo, Cynthia C. Dazo,
Doroteo Fundales, Jr., and Nicolas Ponce as her co-sureties. As sureties, they bound
themselves to pay Metrobank whatever indebtedness C.P. Dazo Tannery, Inc.
(CPDTI) incurs, but not exceeding Six Million Pesos (P6,000,000.00).

Later, CPDTI obtained loans of P100,000.00 and P63,825.45, respectively. The loans
were evidenced by promissory notes signed by Cesar and Nieves Dazo.
CPDTI defaulted in the payment of its loans. Metrobank made several demands for
payment upon CPDTI, but to no avail. This prompted Metrobank to file a collection
suit against CPDTI and its sureties, including herein petitioner. The case was
docketed as Civil Case No. 15717.

After due proceedings, the RTC rendered a decision [4] in favor of Metrobank. The
dispositive portion of the decision reads:

WHEREFORE, in view of the foregoing, the Court renders a judgment in favor of

[Metrobank] ordering defendants, C.P. Dazo Tannery, Inc., Cesar P. Dazo, Nieves
Dazo, Benedicto C. Dazo, Evangelina D. Imani, Cynthia C. Dazo, Doroteo Fundales,
Jr., and Nicolas Ponce to pay [respondent] Metropolitan Bank and Trust Company:

1. Under the First Cause of Action, the sum of P175,451.48 plus the stipulated
interest, penalty charges and bank charges from March 1, 1984 and until the whole
amount is fully paid;

2. Under the Second Cause of Action, the sum of P92,158.85 plus the stipulated
interest, penalty charges and bank charges from February 24, 1985, and until the
whole amount is fully paid;

3. The sum equivalent to ten percent (10%) of the total amount due under the First
and Second Cause of Action; and

4. Ordering the defendants to pay the costs of suit and expenses of litigation.

SO ORDERED.[5]
Therein defendants appealed to the CA. On September 29, 1997, the CA issued a
Resolution dismissing the appeal.[6] Consequently, on October 22, 1997, the CA
issued an Entry of Judgment.[7]

Metrobank then filed with the RTC a motion for execution, [8] which was granted on
December 7, 1999.[9] A writ of execution[10] was issued against CPDTI and its co-
defendants. The sheriff levied on a property covered by Transfer Certificate of Title
(TCT) No. T-27957 P(M) and registered in the name of petitioner. A public auction
was conducted and the property was awarded to Metrobank, as the highest bidder.

Metrobank undertook to consolidate the title covering the subject property in its
name, and filed a Manifestation and Motion,[11] praying that spouses Sina and
Evangline Imani be directed to surrender the owners copy of TCT No. T-27957 P(M)
for cancellation. Petitioner opposed the motion and filed her Comment with Urgent
Motion to Cancel and Nullify the Levy on Execution, the Auction Sale and Certificate
of Sale Over TCT No. T-27957 P(M).[12] She argued that the subject property belongs
to the conjugal partnership; as such, it cannot be held answerable for the liabilities
incurred by CPDTI to Metrobank. Neither can it be subject of levy on execution
or public auction. Hence, petitioner prayed for the nullification of the levy on
execution and the auction sale, as well as the certificate of sale in favor of
Metrobank.

On June 20, 2005, the RTC issued an Order [13] denying Metrobanks motion,
explaining that:

[Petitioner] Evangelina D. Imani incurred the obligation to [Metrobank] by the mere

fact that she executed the Continuing Suretyship Agreement in favor of
[Metrobank]. The loan proceeds were not intended for [petitioner] Evangelina D.
Imani. It cannot therefore be presumed that the loan proceeds had redounded to
the benefit of her family. It is also worth stressing that the records of this case is
bereft of any showing that at the time of the signing of the Suretyship Agreement
and even at the time of execution and sale at public auction of the subject property,
[petitioner] Evangelina D. Imani has the authority to dispose of or encumber their
conjugal partnership properties. Neither was she conferred the power of
administration over the said properties. Hence, when she executed the Suretyship
Agreement, she had placed the Conjugal Partnership in danger of being
dissipated. The law could have not allowed this in keeping with the mandate of
protecting and safeguarding the conjugal partnership. This is also the reason why
the husband or the wife cannot dispose of the conjugal partnership properties even
onerously, if without the consent of the other, or gratuitously, as by way of
donation.[14]

The RTC decreed that:

WHEREFORE, in view of the foregoing, [Metrobanks] motion for issuance of an Order

directing Spouses Sina Imani and Evangeline Dazo-Imani to surrender the owners
copy of TCT No. T-27957 P(M) to the Register of Deeds of Meycauayan, Bulacan for
cancellation, is DENIED.

On the other hand, [petitioners] Motion to Cancel and Nullify the Levy on Execution,
the Auction Sale and Certificate of Sale with respect to the real property covered by
TCT No. T-27957 P(M) is GRANTED.

The Levy on Execution and the Sale by Public Auction of the property covered by
TCT No. T-27957 P(M) are nullified and the Certificate of Sale over the same
property is hereby Cancelled.

SO ORDERED.[15]

Metrobank filed a motion for reconsideration. Petitioner opposed the motion,

asserting that the property belongs to the conjugal partnership. [16] Attached to her
opposition were an Affidavit[17]executed by Crisanto Origen, the former owner of the
property, attesting that spouses Sina and Evangeline Imani were the vendees of the
subject property; and the photocopies of the checks [18] allegedly issued by Sina
Imani as payment for the subject property.

However, despite petitioners opposition, the RTC issued an Order dated August 15,
2005, setting aside its June 20, 2005 Order. Thus:

WHEREFORE, premises considered, the Motion for Reconsideration is GRANTED. The

Order dated June 20, 2005 is set aside. Evangelina Dazo-Imani is hereby ordered to
surrender TCT No. T-27957 P(M) to the Register of Deeds of Meycauayan, Bulacan
for cancellation.

The effectivity of the Levy on Execution, the Auction Sale and the Certificate of Sale
with respect to the real property covered by TCT No. T-27957 P(M) is reinstated.

SO ORDERED.[19]

But on petitioners motion for reconsideration, the RTC issued an Order dated
November 22, 2005,[20] reinstating its June 20, 2005 Order. In so ruling, the RTC
relied on the affidavit of Crisanto Origen, and declared the property levied upon as
conjugal, which cannot be held answerable for petitioners personal liability.

Metrobank assailed the November 22, 2005 Order via a petition for certiorari in the
CA, ascribing grave abuse of discretion on the part of the RTC for annulling the levy
on execution and the auction sale, and for canceling the certificate of sale.

On July 3, 2008, the CA rendered the now challenged Decision reversing the RTC,
the dispositive portion of which reads:
WHEREFORE, the instant petition is hereby GRANTED. ACCORDINGLY, the Order
dated November 22, 2005 of the Regional Trial Court of Makati City, Branch 64, is
hereby REVERSED and new one is entered declaring the Levy on Execution, Sale by
Public Auction of the property covered by Transfer Certificate of Title T-27957 [P](M)
and the Certificate of Sale over said property as valid and legal.

SO ORDERED.[21]

Petitioner filed a motion for reconsideration, but the CA denied it on March 3, 2009.
[22]

Hence, this recourse by petitioner, arguing that:

THE HONORABLE COURT OF APPEALS ERRS (sic) IN REVERSING THE FINDING OF

FACT OF THE TRIAL COURT THAT THE PROPERTY IS CONJUGAL IN NATURE BASED ON
MERE SPECULATIONS AND CONJECTURES.[23]

II

THE UNSUPPORTED TEMPORARY RULING THAT THE PROPERTY IS NOT CONJUGAL

AND THE SUGGESTION TO VINDICATE THE RIGHTS OF SINA IMANI AND THE
CONJUGAL PARTNERSHIP IN A SEPARATE ACTION UNDER SEC. 16, RULE 39
ENCOURAGE MULTIPLICITY OF SUITS AND VIOLATE THE POLICY OF THE RULES FOR
EXPEDIENT AND INEXPENSIVE DISPOSITION OF ACTIONS.
III

THE PROPERTY IN QUESTION, B[EI]NG A ROAD RIGHT OF WAY, IS NOT SUBJECT TO

EXECUTION UNDER SEC. 50, 2ND PARAGRAPH, OF PD [NO.] 1529.[24]

First, the procedural issue on the propriety of the course of action taken by
petitioner in the RTC in vindication of her claim over the subject property.

Petitioner takes exception to the CA ruling that she committed a procedural gaffe in
seeking the annulment of the writ of execution, the auction sale, and the certificate
of sale. The issue on the conjugal nature of the property, she insists, can be
adjudicated by the executing court; thus, the RTC correctly gave due course to her
motion. She asserts that it was error for the CA to propose the filing of a separate
case to vindicate her claim.

We agree with petitioner.

The CA explained the faux pas committed by petitioner in this wise:

Under [Section 16, Rule 39], a third-party claimant or a stranger to the foreclosure
suit, can opt to file a remedy known as terceria against the sheriff or officer
effecting the writ by serving on him an affidavit of his title and a copy thereof upon
the judgment creditor. By the terceria, the officer shall not be bound to keep the
property and could be answerable for damages.A third-party claimant may also
resort to an independent separate action, the object of which is the recovery of
ownership or possession of the property seized by the sheriff, as well as damages
arising from wrongful seizure and detention of the property despite the third-party
claim. If a separate action is the recourse, the third-party claimant must institute in
a forum of competent jurisdiction an action, distinct and separate from the action in
which the judgment is being enforced, even before or without need of filing a claim
in the court that issued the writ.Both remedies are cumulative and may be availed
of independently of or separately from the other. Availment of the terceria is not a
condition sine qua non to the institution of a separate action.

It is worthy of note that Sina Imani should have availed of the remedy of terceria
authorized under Section 16 of Rule 39 which is the proper remedy considering that
he is not a party to the case against [petitioner]. Instead, the trial court allowed
[petitioner] to file an urgent motion to cancel and nullify the levy of execution the
auction sale and certificate of sale over TCT No. T27957 [P](M). [Petitioner] then
argue[s] that it is the ministerial duty of the levying officer to release the property
the moment a third-party claim is filed.

It is true that once a third-party files an affidavit of his title or right to the
possession of the property levied upon, the sheriff is bound to release the property
of the third-party claimant unless the judgment creditor files a bond approved by
the court. Admittedly, [petitioners] motion was already pending in court at the time
that they filed the Affidavit of Crisanto Origen, the former owner, dated July 27,
2005.

In the instant case, the one who availed of the remedy of terceria is the [petitioner],
the party to the main case and not the third party contemplated by Section 16, Rule
39 of the Rules of Court.

Moreover, the one who made the affidavit is not the third-party referred to in said
Rule but Crisanto Origen who was the former owner of the land in question. [25]
Apparently, the CA lost sight of our ruling in Ong v. Tating,[26] elucidating on the
applicability of Section 16 of Rule 39 of the Rules of Court, thus:

When the sheriff thus seizes property of a third person in which the judgment
debtor holds no right or interest, and so incurs in error, the supervisory power of the
Court which has authorized execution may be invoked by the third person. Upon
due application by the third person, and after summary hearing, the Court may
command that the property be released from the mistaken levy and restored to the
rightful owner or possessor. What the Court can do in these instances however is
limited to a determination of whether the sheriff has acted rightly or wrongly in the
performance of his duties in the execution of the judgment, more specifically, if he
has indeed taken hold of property not belonging to the judgment debtor. The Court
does not and cannot pass upon the question of title to the property, with any
character of finality. It can treat the matter only in so far as may be necessary to
decide if the Sheriff has acted correctly or not. x x x.

xxxx

Upon the other hand, if the claim of impropriety on the part of the sherif
in the execution proceedings is made by a party to the action, not a
stranger thereto, any relief therefrom may only be applied with, and
obtained from, only the executing court; and this is true even if a new party
has been impleaded in the suit.[27]

The filing of the motion by petitioner to annul the execution, the auction sale, and
the certificate of sale was, therefore, a proper remedy. As further held by this Court:

Certain it is that the Trial Court has plenary jurisdiction over the proceedings for the
enforcement of its judgments. It has undeniable competence to act on motions for
execution (whether execution be a matter of right or discretionary upon the Court),
issue and quash writs, determine if property is exempt from execution, or fix
the value of property claimed by third persons so that a bond equal to such value
may be posted by a judgment creditor to indemnify the sheriff against liability for
damages, resolve questions involving redemption, examine the judgment debtor
and his debtors, and otherwise perform such other acts as may be necessary or
incidental to the carrying out of its decisions. It may and should exercise control and
supervision over the sheriff and other court officers and employees taking part in
the execution proceedings, and correct them in the event that they should err in the
discharge of their functions. [28]

Contrary to the CAs advice, the remedy of terceria or a separate action under
Section 16, Rule 39 is no longer available to Sina Imani because he is not deemed
a strangerto the case filed against petitioner:

[T]he husband of the judgment debtor cannot be deemed a stranger to the case
prosecuted and adjudged against his wife. [29]

Thus, it would have been inappropriate for him to institute a separate case for
annulment of writ of execution.

In Spouses Ching v. Court of Appeals,[30] we explained:

Is a spouse, who was not a party to the suit but whose conjugal property is being
executed on account of the other spouse being the judgment obligor, considered a
"stranger?" In Mariano v. Court of Appeals, we answered this question in the
negative. In that case, the CFI of Caloocan City declared the wife to be the judgment
obligor and, consequently, a writ of execution was issued against her. Thereupon,
the sheriff proceeded to levy upon the conjugal properties of the wife and her
husband. The wife initially filed a petition for certiorari with the Court of Appeals
praying for the annulment of the writ of execution. However, the petition was
adjudged to be without merit and was accordingly dismissed. The husband then
filed a complaint with the CFI of Quezon City for the annulment of the writ of
execution, alleging therein that the conjugal properties cannot be made to answer
for obligations exclusively contracted by the wife. The executing party moved to
dismiss the annulment case, but the motion was denied. On appeal, the Court of
Appeals, in Mariano, ruled that the CFI of Quezon City, in continuing to hear the
annulment case, had not interfered with the executing court. We reversed the Court
of Appeals' ruling and held that there was interference by the CFI of Quezon City
with the execution of the CFI of Caloocan City. We ruled that the husband of the
judgment debtor cannot be deemed a "stranger" to the case prosecuted and
adjudged against his wife, which would allow the filing of a separate and
independent action.

The facts of the Mariano case are similar to this case. Clearly, it was inappropriate
for petitioners to institute a separate case for annulment when they could have
easily questioned the execution of their conjugal property in the collection case. We
note in fact that the trial court in the Rizal annulment case specifically informed
petitioners that Encarnacion Ching's rights could be ventilated in
the Manila collection case by the mere expedient of intervening therein. Apparently,
petitioners ignored the trial court's advice, as Encarnacion Ching did not intervene
therein and petitioners instituted another annulment case after their conjugal
property was levied upon and sold on execution.

There have been instances where we ruled that a spouse may file a separate case
against a wrongful execution. However, in those cases, we allowed the institution of
a separate and independent action because what were executed upon were the
paraphernal or exclusive property of a spouse who was not a party to the case. In
those instances, said spouse can truly be deemed a "stranger." In the present case,
the levy and sale on execution was made upon the conjugal property.

Ineluctably, the RTC cannot be considered whimsical for ruling on petitioners

motion. The CA, therefore, erred for declaring otherwise.

Now, on the merits of the case.

Petitioner asserts that the subject property belongs to the conjugal partnership. As
such, it cannot be made to answer for her obligation with Metrobank. She faults the
CA for sustaining the writ of execution, the public auction, and the certificate of
sale.

We sustain the CA ruling on this point.

Indeed, all property of the marriage is presumed to be conjugal. However, for this
presumption to apply, the party who invokes it must first prove that the property
was acquired during the marriage. Proof of acquisition during the coverture is a
condition sine qua non to the operation of the presumption in favor of the conjugal
partnership.[31]Thus, the time when the property was acquired is material. [32]

Francisco v. CA[33] is instructive, viz.:

Article 160 of the New Civil Code provides that all property of the marriage is
presumed to belong to the conjugal partnership, unless it be proved that it pertains
exclusively to the husband or to the wife. However, the party who invokes this
presumption must first prove that the property in controversy was acquired during
the marriage. Proof of acquisition during the coverture is a condition sine qua
non for the operation of the presumption in favor of the conjugal partnership. The
party who asserts this presumption must first prove said time element. Needless to
say, the presumption refers only to the property acquired during the marriage and
does not operate when there is no showing as to when property alleged to be
conjugal was acquired.[34]

To support her assertion that the property belongs to the conjugal partnership,
petitioner submitted the Affidavit[35] of Crisanto Origen, attesting that petitioner and
her husband were the vendees of the subject property, and the photocopies of the
checks[36] allegedly issued by Sina Imani as payment for the subject property

Unfortunately for petitioner, the said Affidavit can hardly be considered sufficient
evidence to prove her claim that the property is conjugal. As correctly pointed out
by Metrobank, the said Affidavit has no evidentiary weight because Crisanto Origen
was not presented in the RTC to affirm the veracity of his Affidavit:

The basic rule of evidence is that unless the affiants themselves are placed on the
witness stand to testify on their affidavits, such affidavits must be rejected for being
hearsay. Stated differently, the declarants of written statements pertaining to
disputed facts must be presented at the trial for cross-examination. [37]

In the same vein, the photocopies of the checks cannot be given any probative
value. In Concepcion v. Atty. Fandio, Jr. [38] and Intestate Estate of the Late Don
Mariano San Pedro y Esteban v. Court of Appeals, [39] we held that a photocopy of a
document has no probative value and is inadmissible in evidence. Thus, the CA was
correct in disregarding the said pieces of evidence.

Similarly, the certificate of title could not support petitioners assertion. As aptly
ruled by the CA, the fact that the land was registered in the name of Evangelina
Dazo-Imani married to Sina Imani is no proof that the property was acquired during
the spouses coverture. Acquisition of title and registration thereof are two different
acts. It is well settled that registration does not confer title but merely confirms one
already existing.[40]
Indubitably, petitioner utterly failed to substantiate her claim that the property
belongs to the conjugal partnership. Thus, it cannot be rightfully said that the CA
reversed the RTC ruling without valid basis.

As a last ditch effort, petitioner asserts that the property is a road right of way; thus,
it cannot be subject of a writ of execution.

The argument must be rejected because it was raised for the first time in this
petition. In the trial court and the CA, petitioners arguments zeroed in on the
alleged conjugal nature of the property. It is well settled that issues raised for the
first time on appeal and not raised in the proceedings in the lower court are barred
by estoppel. Points of law, theories, issues, and arguments not brought to the
attention of the trial court ought not to be considered by a reviewing court, as these
cannot be raised for the first time on appeal. To consider the alleged facts and
arguments raised belatedly would amount to trampling on the basic principles of
fair play, justice, and due process. [41]

WHEREFORE, the petition is DENIED. The Decision and the Resolution of the Court
of Appeals in CA-G.R. SP No. 93061 sustaining the validity of the writ of execution,
the auction sale, and the certificate of sale are AFFIRMED.

SO ORDERED.