G.R. No.

L-32471 December 29, 1930

SEVERINO JAYME and LEONARDA RAMOS, plaintiffs-appellees,

vs.
JUAN D. SALVADOR, ET AL., defendants-appellants.

Treas and Laserna and Rosauro R. Borromeo for appellant spouses Salvador and Zuiga.
Roman J. Lacson and Francisco Fuentes for appellant National Bank.
Jose Evangelista and Godofredo Escalona for appellees.

ROMUALDEZ, J.:

The dispositive part of the judgment appealed from is as follows:

(a) Holding the deeds Exhibits D, E, F, and G to be null and void and without effect;

(b) Ordering the cancellation of the transfer certificates of title Exhibits 9 and 18, and the
issuance by the registrar of deeds of Iloilo of new transfer certificates of title to the land
or hacienda in Supang, municipality of Buenavista, in the name of Leonarda Ramos,
married to Severino Jayme, and of lot 69-C of the cadastral survey of Iloilo in the name
of Juan D. Salvador, married to Remegia Zuiga;

(c) Holding the portion of the mortgage deed Exhibit 24 referring to the estate in Supang,
municipality of Buenavista, with an area of 330.8733 hectares to be null and void;

(d) Sentencing the plaintiff spouses to pay the defendant spouses the amount of eighteen
thousand pesos (P18,000) which is the principal loaned, plus two thousand one hundred
sixty pesos (P2,160), one year's interest thereon at twelve per centum (12%);

(e) Sentencing the plaintiffs to pay the defendants Juan D. Salvador and Remigia Zuiga
the sum of three hundred eighty three pesos and forty-six centavos (P383.46);

( f ) The mortgage evidenced by Exhibit 24 being held null and void in so far at it refers
to the estate of 330.8733 hectares in Supang, the defendant spouses Juan D. Salvador and
Remigia Zuiga are hereby sentenced to pay the Philippine National Bank the sum of
twenty thousand pesos (P20,000) with interest thereon at nine per centum (9%) from the
date of the contract, November 12, 1928, until fully paid;

(g) Absolving the plaintiffs from the counterclaim and the cross-complaint set up by
defendants Juan D. Salvador and Remigia Zuiga.
 Without express pronouncement of costs. So ordered .(Pages 57 and 58, Bill of
Exceptions.)

From this judgment an appeal was taken by the Philippine National Bank, and by the spouses
Juan D. Salvador and Remigia Zuiga.

The appellants Juan D. Salvador and wife made the following assignments of error:

1. In not holding that Exhibit D of the plaintiffs, or Exhibit 11 of the defendants, is a real
contract of final sale.

2. In not holding that Exhibit E of the plaintiffs or Exhibit 12 of the defendants is another
actual contract final sale.

3. In not holding the Exhibit F of the plaintiffs or Exhibit 14 of the defendants is an actual
contract of lease.

4. In not holding that Exhibit G of the plaintiffs or Exhibit 13 of the defendants is an

actual option to purchase.

5. In declaring said contracts Exhibit D, E, F, and G of the plaintiffs or Exhibits 11, 12,
14, and 13, of the defendants, respectively, to be null and void, and without effect.

6. In ordering that the defendants Juan D. Salvador and Remigia Zuiga receive from the
plaintiffs the sum of P18,000 only, with interest at twelve per cent per annum.

7. In not sentencing the plaintiffs to pay the defendant spouses Juan D. Salvador and
Remigia Zuiga the sum of P6,240 as rental for the land leased by said plaintiffs from
said defendants, during the first two years of the lease, with interest thereon.

8. In not sentencing the plaintiffs to pay the defendant spouses Juan D. Salvador and
Remigia Zuiga the sum of P5,000 by way of liquidated damages.

9. In not holding that the contract of lease evidenced by Exhibit F of the plaintiffs or
Exhibit 14 of the defendants has been rescinded; and in not compelling said plaintiffs to
deliver to the defendant spouses Juan D. Salvador and Remigia Zuiga the possession of
the land leased by them, with all the seeds and products.

10. In not holding that the option to purchase evidenced by Exhibit G of the plaintiffs or
Exhibit 13 of the defendants has been rescinded and ceased to exist.

The Philippine National Bank makes the following assignments of error:

 1. In holding that the deed of sale of the Supang estate executed on May 22, 1928, by the
spouses Severino Jayme and Leonarda Ramos in favor of the spouses Juan D .Salvador
and Remigia Zuiga is null and void on account of fraud.

2. In holding that the mortgage deed upon the Supang estate executed on November 12,
1928, by the spouses Juan D. Salvador and Remigia Zuiga in favor of the Philippine
National Bank is null and void; and.

3. In not absolving the Philippine National Bank from the complaint, with costs against
the plaintiffs.

The facts of the case as shown by the evidence are as follows:

The plaintiff spouses owed Presentacion Hofilena de Evangelista P14,381.13, with interest at 12
per cent per annum, payment of which was secured by a mortgage upon the realty covered by
transfer certificate of title No. 2336. Upon being pressed for payment, said plaintiffs, through
broker Abaya went to the defendant herein, Juan D. Salvador, from whom they obtained a loan of
P18,000 on condition that their realty referred to above should appear to have been sold to the
defendants for P26,000 (Exhibit D), the plaintiffs would purchase of the defendants lot No. 69-C
of the cadastre of Iloilo for P8,000 (Exhibit E), and said plaintiffs would further appear as lessees
of said Supang estate at an annual rental of P3,120 (Exhibit F), although in reality such
conveyance of the land was not the real intention of the parties and the aforesaid rental of P3,120
was no such rent, but the interest thus cloaked, at 12 per cent per annum of the sum of P26,000
stated as the selling price of the said estate.lawphi1>net

It was agreed between the parties that the plaintiffs could repurchase said estate by returning the
principal loaned and the interest thereon, and for this purpose the option, Exhibit G, was
executed, the defendants agreeing to accept the return of said lot No. 69-C.

The amount of P26,000 was represented in these transactions by two checks, one for P18,000
(Exhibit 1) and the other for P8,000 (Exhibit 2). Immediately upon receipt of the latter check by
the plaintiffs, upon instructions from the defendant Salvador, they endorsed it and returned it to
the defendants to pass for the price of said lot No. 69-C.

The check Exhibit 1 for the amount of P18,000 finally reached the hands of the plaintiffs who
deposited it in the National Bank (Exhibit N).

The plaintiff Severino Jayme then paid his debt to Presentacion Hofilena de Evangelista, and in
consequence the mortgage upon said Supang estate was cancelled.

A few days later, the plaintiff Severino Jayme asked the defendant Juan D. Salvador to increase
the loan. The latter answered he had not money, and suggested that he secure a loan from
somebody else upon the security of lot 69-C, for which reason Severino Jayme obtained a
transfer certificate to said lot in his name, and mortgaged it to Go Tiang Tin for a loan of P600,
and another of P320 in favor of said Severino Jayme (Exhibit 4 and 5). These loans were later
paid, the mortgage upon lot no. 69-C being cancelled (Exhibit CC).

Having obtained the transfer certificate of title No. 6212 to the estate referred to (Exhibit 18), on
November 12, 1928, the defendants succeed in obtaining a loan of P20,000 from the Philippine
National Bank, mortgaging said estate.lawphi1>net

Some months later, having obtained the loan of P22,000 from Vicente Lopez, the plaintiff offered
to pay the defendant Juan D. Salvador his debt of P18,000, plus the interest amount to P3,120.
Said defendant refused to accept it, claiming that the sum due from Severino Jayme was
P29,320. As the latter would not admit said claim, he brought this action, depositing with the
clerk of the court below the amount of P6,240 on May 22, 1928 (Exhibit AA), representing the
rental for two years.

To prove the first six errors, the defendants contend that the plaintiffs voluntarily and definitely
entered into the aforementioned contracts according to their proper deeds, and, furthermore,
conveyed to the defendant Juan D. Salvador 80 hectares of land in payment of the rental of the
Supang estate leased to them; that on September 11, 1928, the defendants together with the
plaintiffs made a donation to the municipality of Buenavista of 25,000 square meters of the land
in Supang, evidenced by Exhibit 7; that the defendants conveyed to said municipality the use of
the house located thereon, and that the plaintiffs acquiesced therein, and that the defendant
Salvador paid the land tax upon the estate in Supang for the years 1928 and 1929.

The defendants contend that inasmuch as the plaintiffs read all said contracts and will full
knowledge of the contents and conditions thereof signed Exhibit D and E, which are deeds of
final sale, as well as Exhibit F, which is a contract of lease, we must take these documents
literally, since they are set forth in clear terms and leave no room for doubt as to the intention of
the contracting parties, citing in support thereof, articles 1281 and 1283 of the Civil Code, and
the decision in Tolentino and Mario vs. Gonzales Sy Chiam (50 Phil., 558). With respect to the
real intention of the parties in executing said contracts, the defendants invoke the testimony of
broker Abaya, witness for the plaintiffs. The defendants do not deny that the plaintiffs' first
intention was to obtain from them a loan secured by a mortgage upon said estate; but they allege
that they rejected the proposal and in turn proposed to the plaintiffs the purchase of said estate,
which was agreed to by the plaintiffs; the defendants also attempt to show the validity of said
contracts by the plaintiffs' subsequent acts in paying the land tax of the Tansa lot bought by them
from the defendants; and in mortgaging said lot several times in favor of Go Julian. The
defendants argue that these acts performed at the time of the contract and subsequent thereto
indicate, according to article 1282 of the Civil Code, the intention of the plaintiffs. Among the
acts performed by the plaintiffs subsequent to the contract, the defendants point out those
evidenced by Exhibits 3, 4, 5, 6, 7 and 8, which the defendants contend amount to a ratification
of the contracts set forth in Exhibits D, E, F, and G, a ratification which, according to article
1313 of the Civil Code, purges these contracts of all defects to which they may have been
subject.

After examining the record, we have reached the conclusion that the transactions alluded to
between the plaintiffs and the defendants constitute a loan of P18,000 granted by the latter to the
former with interest at 12 per cent per annum .We agree with the court below, that the plaintiffs
did not intend to sell their Supang estate. It is true that the plaintiffs were aware of the contents
of the contracts, but the preponderance of the evidence shows that they signed them knowing that
said contracts did not express their real intention, and if they did so notwithstanding this, it was
due to the urgent necessity of obtaining funds. Therefore article 1282 of the Civil Code and those
cognate thereto cannot be applied to the case before us, where it sufficiently appears that what
the parties really intended was different from what appears in said contracts.

Plaintiff Severino Jayme paid the land tax upon the Tansa lot, according to him, with money
furnished him, by the defendant Juan D. Salvador.

As to the mortgage of the Tansa lot, we here quote and adopt the findings of the lower court,
being supported by the evidence of record:

Exhibit 6, executed on September 5, 1928, shows that the mortgage of lot 69-C to Go
Julian or Go Tiang Tin was made, not only with the knowledge of the defendant Juan D.
Salvador, but at his suggestion, as testified by the plaintiff Severino Jayme (pages 97 and
98, t. s. n.), for, as said lot 69-C appeared as security of the payment of the yearly rental
of the contract of lease, Exhibit F, and in order that said lot 69-C might appear to be free
and unencumbered on being mortgaged to Go Tiang Tin or Go Julian, the defendant Juan
D. Salvador, through said Exhibit 6, succeeded in making plaintiff Severino Jayme
substitute the lot 69-C for his other land located in Bamban, San Pedro, municipality of
Buenavista, with an area of 83.3156 hectares, to secure the payment of the yearly rental
of said contract of lease Exhibit F. (Pages 38 and 39, Bill of Exceptions.)

With respect to the donation of the 25,000 square meters of land in Supang in favor of the
municipality of Buenavista, the evidence shows that said gift was an offer made by the plaintiffs
in exchange of the condition that the residential part of the municipality of Buenavista should be
transferred to the barrio of Supang, where said estate of the plaintiffs is situated; the latter having
promised said municipality before May 22, 1928, that when said transactions took place with the
defendants, they would convey a part of said estate gratis, as also the use of the building of
strong materials located thereon; and this donation and cession was respected by the defendants,
being the ones who executed Exhibits 7 and 8, in compliance with a promise not made by them,
but by the plaintiffs, this act of theirs constituting an open acknowledgment of the fact that said
estate belonged to said plaintiffs.

This latter is one of the most salient facts showing that the real intention of both parties in
executing the principal contracts referred to heretofore, was that of a loan granted by the
defendants to the plaintiffs in the amount of P18,000 with interest thereon at 12 per cent per
annum, secured by a mortgage on said estate situated in Supang .Among these circumstances
may be mentioned the assessed value of the land, which, even taking that of P19,920 in May,
1928, is already greater than the P18,000 received by the plaintiffs. The fact that upon the same
date were executed the sale of the said Supang Estate (Exhibit D), the option in favor of the
plaintiffs to repurchase said estate (Exhibit G), the lease of said estate in favor of said plaintiffs
(Exhibit F), and the transfer of the lot in Tansa (Exhibit E), in exchange of the endorsement or
return to the defendant Salvador of his check for P8,000 (Exhibit 2), taken together with the
remainder of the circumstances of the case, corroborate and strengthen the conclusion set forth
above.

The Philippine National Bank impugns the judgment appealed from in so far as it holds that the
deed of sale of the Supang estate is null and void on account of fraud. By virtue of the foregoing,
it is held that the court below committed no such error.

In its second assignment of error the bank refers to the mortgage deed upon the said estate,
executed in its favor.

There is some merit in this allegation of the bank's although said mortgage ought not to appear in
the transfer certificate of title issued to the defendants (which certificate is void and must be
cancelled), but in the former certificate issued in favor of the plaintiffs.

This mortgage must be respected as a whole because the Philippine National Bank in the case
before us is an innocent creditor perfectly entitled to believe the apparent validity of the transfer
certificate of title presented to it by the defendants. And for the same reasons, the whole P20,000
must be noted as a mortgage upon said estate because as to the plaintiffs, although it is true that
their debt to the defendants only amounts of P18,000, nevertheless as between said plaintiffs and
the bank, the latter's right must be deemed preferential, said entity being entirely innocent,
whereas the plaintiffs, having signed the fictitious transfer of said estate to the defendants,
though compelled thereto by necessity, have, under the circumstances, made it possible that said
transfer certificate of title should be issued in the name of the defendants, thereby cooperating in
inducing the Philippine National Bank to believe in the validity and enforceability of said
certificate of title.

The third error assigned by the bank is a consequence of the preceding ones.
By virtue of the foregoing considerations, the judgment appealed from is modified as follows:

(1) The deeds Exhibits D, E, F, and G, are hereby held null and void;

(2) It is ordered that transfer certificates of title Exhibits 9 and 18 be cancelled and that the
registrar of deeds of Iloilo issue to Juan D. Salvador, married to Remigia Zuiga, a new transfer
certificate of title to lot 69-C of the Iloilo cadastre, and to Leonarda Ramos, married to Severino
Jayme, a new transfer certificate of title to the land or estate in Supang, according to the result
after the donation and conveyance appearing in Exhibits 7 and 8 in this case, and noting in said
new transfer certificate of title to the land or estate in Supang, a mortgage in favor of the
Philippine National Bank to answer for the payment of the sum of P20,000 subject to the
conditions stipulated in the deed, Exhibit 24, with the understanding that the mortgagors are the
plaintiffs herein;

(3) The plaintiffs are hereby sentenced to pay the Philippine National Bank the sum of P18,000
(which they received from the defendants), plus P2,160 (interest thereon) taking the total, or
P20,000 as the payment of the principal owed to the bank aforesaid by the defendants, and the
P160 remaining on account of the interest on said P20,000 in accordance with the mortgage
deed, Exhibit 24;

(4) The defendants are hereby sentenced to reimburse the plaintiffs for any amount which the
latter may have to pay to the Philippine National Bank hereafter in order to make up the balance
of the interest due upon said P20,000 in accordance with the Exhibit 24, deducting from such
reimbursement the amount of P383.46 which the plaintiffs were by the judgment appealed from
sentenced to pay to the defendants; and

(5) The judgment appealed from is affirmed as regards the remainder, in so far as no
incompatible with this decision.

Without express pronouncement of costs. So ordered.

In Bank of Philippine Islands vs. Spouses Norman and Angelina Yu, the Supreme Court
explained that to resolve the issue of the excessive charges allegedly incorporated into the
auction bid price, the RTC simply had to look at a) the pleadings of the parties; b) the loan
agreements, the promissory note, and the real estate mortgages between them; c) the foreclosure
and bidding documents; and d) the admissions and other disclosures between the parties during
pre-trial. Since the parties admitted not only the existence, authenticity, and genuine execution of
these documents but also what they stated, the trial court did not need to hold a trial for the
reception of the evidence of the parties.

Be that as it may, BPI contends that a summary judgment was not proper given the
following issues that the parties raised: 1) whether or not the loan agreements between them
were valid and enforceable; 2) whether or not the Yus have a cause of action against BPI; 3)
whether or not the Yus are proper parties in interest; 4) whether or not the Yus are estopped from
questioning the foreclosure proceeding after entering into a compromise agreement with
Magnacraft; 5) whether or not the penalty charges and fees and expenses of litigation and
publication are excessive; and 6) whether or not BPI violated the Truth in Lending Act.(RULES
OF COURT, Rule 35, Section 5).

But, the Supreme Court held that these are issues that could be readily resolved based
on the facts established by the pleadings and the admissions of the parties.(A.M. No. 03-1-09-SC,
Guidelines to be Observed by Trial Court Judges and Clerks of Court in Conduct of Pre-trial
and Use of Deposition-Discovery Measures, August 16, 2004). Indeed, BPI has failed to name
any document or item of fact that it would have wanted to adduce at the trial of the case. A trial
would have been such a great waste of time and resources. Otherwise stated, a summary
judgment is apt when the essential facts of the case are uncontested or the parties do not raise any
genuine issue of fac

Pentacapital Investment Corporation vs. Mahinay, 623 SCRA 284 , G.R. No. 181482, July
05, 2010

G.R. No. 171736 July 5, 2010

PENTACAPITAL INVESTMENT CORPORATION, Petitioner,

vs.
MAKILITO B. MAHINAY, Respondent.

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

G.R. No. 181482

PENTACAPITAL INVESTMENT CORPORATION, Petitioner,

vs.
MAKILITO B. MAHINAY, Respondent.

DECISION

NACHURA, J.:

Before us are two consolidated petitions for review on certiorari under Rule 45 of the Rules of
Court filed by petitioner Pentacapital Investment Corporation. In G.R. No. 171736, petitioner
assails the Court of Appeals (CA) Decision1 dated December 20, 2005 and Resolution2 dated
March 1, 2006 in CA-G.R. SP No. 74851; while in G.R. No. 181482, it assails the CA Decision3
dated October 4, 2007 and Resolution4 dated January 21, 2008 in CA-G.R. CV No. 86939.

The Facts

Petitioner filed a complaint for a sum of money against respondent Makilito Mahinay based on
two separate loans obtained by the latter, amounting to P1,520,000.00 and P416,800.00, or a total
amount of P1,936,800.00. These loans were evidenced by two promissory notes5 dated February
23, 1996. Despite repeated demands, respondent failed to pay the loans, hence, the complaint.6

In his Answer with Compulsory Counterclaim,7 respondent claimed that petitioner had no cause
of action because the promissory notes on which its complaint was based were subject to a
condition that did not occur.8 While admitting that he indeed signed the promissory notes, he
insisted that he never took out a loan and that the notes were not intended to be evidences of
indebtedness.9 By way of counterclaim, respondent prayed for the payment of moral and
exemplary damages plus attorneys fees.10

Respondent explained that he was the counsel of Ciudad Real Development Inc. (CRDI). In
1994, Pentacapital Realty Corporation (Pentacapital Realty) offered to buy parcels of land known
as the Molino Properties, owned by CRDI, located in Molino, Bacoor, Cavite. The Molino
Properties, with a total area of 127,708 square meters, were sold at P400.00 per sq m. As the
Molino Properties were the subject of a pending case, Pentacapital Realty paid only the down
payment amounting to P12,000,000.00. CRDI allegedly instructed Pentacapital Realty to pay the
formers creditors, including respondent who thus received a check worth P1,715,156.90.11 It
was further agreed that the balance would be payable upon the submission of an Entry of
Judgment showing that the case involving the Molino Properties had been decided in favor of
CRDI.12

Respondent, Pentacapital Realty and CRDI allegedly agreed that respondent had a charging lien
equivalent to 20% of the total consideration of the sale in the amount of P10,277,040.00.
Pending the submission of the Entry of Judgment and as a sign of good faith, respondent
purportedly returned the P1,715,156.90 check to Pentacapital Realty. However, the Molino
Properties continued to be haunted by the seemingly interminable court actions initiated by
different parties which thus prevented respondent from collecting his commission.

On motion13 of respondent, the Regional Trial Court (RTC) allowed him to file a Third Party
Complaint14 against CRDI, subject to the payment of docket fees.15

Admittedly, respondent earlier instituted an action for Specific Performance against Pentacapital
Realty before the RTC of Cebu City, Branch 57, praying for the payment of his commission on
the sale of the Molino Properties.16 In an Amended Complaint,17 respondent referred to the
action he instituted as one of Preliminary Mandatory Injunction instead of Specific Performance.
Acting on Pentacapital Realtys Motion to Dismiss, the RTC dismissed the case for lack of cause
of action.18 The dismissal became final and executory.
With the dismissal of the aforesaid case, respondent filed a Motion to Permit Supplemental
Compulsory Counterclaim.19 In addition to the damages that respondent prayed for in his
compulsory counterclaim, he sought the payment of his commission amounting to
P10,316,640.00, plus interest at the rate of 16% per annum, as well as attorneys fees equivalent
to 12% of his principal claim.20 Respondent claimed that Pentacapital Realty is a 100%
subsidiary of petitioner. Thus, although petitioner did not directly participate in the transaction
between Pentacapital Realty, CRDI and respondent, the latters claim against petitioner was
based on the doctrine of piercing the veil of corporate fiction. Simply stated, respondent alleged
that petitioner and Pentacapital Realty are one and the same entity belonging to the Pentacapital
Group of Companies.21

Over the opposition of petitioner, the RTC, in an Order22 dated August 22, 2002, allowed the
filing of the supplemental counterclaim. Aggrieved, petitioner sought recourse in the CA through
a special civil action for certiorari, seeking to reverse and set aside the RTC Order. The case was
docketed as CA-G.R. SP No. 74851. On December 20, 2005, the CA rendered the assailed
Decision dismissing the petition.23 The appellate court sustained the allowance of the
supplemental compulsory counterclaim based on the allegations in respondents pleading. The
CA further concluded that there was a logical relationship between the claims of petitioner in its
complaint and those of respondent in his supplemental compulsory counterclaim. The CA
declared that it was inconsequential that respondent did not clearly allege the facts required to
pierce the corporate separateness of petitioner and its subsidiary, the Pentacapital
Realty.241avvphi1

Petitioner now comes before us in G.R. No. 171736, raising the following issues:

A.

WHETHER RESPONDENT MAHINAY IS BARRED FROM ASSERTING THE CLAIM

CONTAINED IN HIS "SUPPLEMENTAL COMPULSORY COUNTERCLAIM" ON THE
GROUNDS OF (1) RES JUDICATA, (2) WILLFUL AND DELIBERATE FORUM SHOPPING,
AND (3) FAILURE TO INTERPOSE SUCH CLAIM ON TIME PURSUANT TO SECTION 2
OF RULE 9 OF THE RULES OF COURT;

B.

WHETHER RESPONDENT MAHINAYS SUPPLEMENTAL COMPULSORY

COUNTERCLAIM IS ACTUALLY A THIRD-PARTY COMPLAINT AGAINST
PENTACAPITAL REALTY, THE INTRODUCTION OF WHICH REQUIRES THE PAYMENT
OF THE NECESSARY DOCKET FEES;

C.

ASSUMING FOR THE SAKE OF PURE ARGUMENT THAT IT IS PROPER TO PIERCE

THE CORPORATE VEIL AND TO ALLOW RESPONDENT MAHINAY TO LODGE A
"SUPPLEMENTAL COMPULSORY COUNTERCLAIM" AGAINST HEREIN PETITIONER
PENTACAPITAL INVESTMENT FOR AN ALLEGED OBLIGATION OF ITS SUBSIDIARY,
PENTACAPITAL REALTY, ON THE THEORY THAT THEY ARE "ONE AND THE SAME
COMPANY," WHETHER PENTACAPITAL REALTY SHOULD HAVE AT LEAST BEEN
MADE A PARTY TO THE CASE AS RULED BY THIS HONORABLE COURT IN
FILMERCO COMMERCIAL CO., INC. VS. INTERMEDIATE APPELLATE COURT;

D.

WHETHER RESPONDENT MAHINAY SHOULD BE ALLOWED TO PRESENT EVIDENCE

ON HIS SO-CALLED "SUPPLEMENTAL COMPULSORY COUNTERCLAIM" INASMUCH
AS (1) RESPONDENT MAHINAYS PLEADINGS ARE BEREFT OF ANY ALLEGATIONS
TO BUTTRESS THE MERGING OF PENTACAPITAL REALTY AND PENTACAPITAL
INVESTMENT INTO ONE ENTITY AND THE CONSEQUENT IMPUTATION ON THE
LATTER OF THE FORMERS SUPPOSED LIABILITY ON RESPONDENT MAHINAYS
SUPPLEMENTAL COMPULSORY COUNTERCLAIM, AND (2) THE INCIDENTS
ALLEGEDLY PERTAINING TO, AND WHICH WOULD THEREBY SUPPORT, THE
PIERCING OF CORPORATE VEIL ARE NOT EVIDENTIARY MATTERS MATERIAL TO
THE PROCEEDINGS BEFORE THE COURT A QUO CONSIDERING THAT THE SAME
ARE BEYOND THE SCOPE OF THE PLEADINGS;

E.

WHETHER THE DOCTRINE OF PIERCING THE CORPORATE VEIL MAY BE INVOKED

AND APPLIED IN ORDER TO EVADE AN OBLIGATION AND FACILITATE
PROCEDURAL WRONGDOING; AND

F.

WHETHER PETITIONER PENTACAPITAL INVESTMENT COMMITTED FORUM

SHOPPING WHEN IT FILED THE PRESENT PETITION DURING THE PENDENCY OF
THE MOTION FOR RECONSIDERATION IT FILED BEFORE THE COURT A QUO AND,
SUBSEQUENTLY, OF THE APPEAL BEFORE THE COURT OF APPEALS TO QUESTION
THE JUDGMENT OF THE COURT A QUO.25

There being no writ of injunction or Temporary Restraining Order (TRO), the proceedings before
the RTC continued and respondent was allowed to present his evidence on his supplemental
compulsory counterclaim. After trial on the merits, the RTC rendered a decision26 dated March
20, 2006, the dispositive portion of which reads:

WHEREFORE, PREMISES CONSIDERED, plaintiffs complaint is hereby ordered dismissed

for lack of merit. This court, instead, finds that defendant was able to prove by a clear
preponderance of evidence his cause of action against plaintiff as to defendants compulsory and
supplemental counterclaims. That, therefore, this court hereby orders the plaintiff to pay unto
defendant the following sums, to wit:
1. P1,715,156.90 representing the amount plaintiff is obligated to pay defendant as provided for
in the deed of sale and the supplemental agreement, plus interest at the rate of 16% per annum, to
be computed from September 23, 1998 until the said amount shall have been fully paid;

2. Php 10,316,640.00 representing defendants share of the proceeds of the sale of the Molino
property (defendants charging lien) plus interest at the rate of 16% per annum, to be computed
from September 23, 1998 until the said amount shall have been fully paid;

3. Php 50,000.00 as attorneys fees based on quantum meruit;

4. Php 50,000.00 litigation expenses, plus costs of suit.

This court finds it unnecessary to rule on the third party complaint, the relief prayed for therein
being dependent on the possible award by this court of the relief of plaintiffs complaint.27

On appeal, the CA, in CA-G.R. CV No. 86939, affirmed in toto the above decision. The CA
found no basis for petitioner to collect the amount demanded, there being no perfected contract
of loan for lack of consideration.28 As to respondents supplemental compulsory counterclaim,
quoting the findings of the RTC, the appellate court held that respondent was able to prove by
preponderance of evidence that it was the intent of Pentacapital Group of Companies and CRDI
to give him P10,316,640.00 and P1,715,156.90.29 The CA likewise affirmed the award of
interest at the rate of 16% per annum, plus damages.30

Unsatisfied, petitioner moved for reconsideration of the aforesaid Decision, but it was denied in a
Resolution31 dated January 21, 2008. Hence, the present petition in G.R. No. 181482, anchored
on the following arguments:

A.

Considering that the inferences made in the present case are manifestly absurd, mistaken or
impossible, and are even contrary to the admissions of respondent Mahinay, and inasmuch as the
judgment is premised on a misapprehension of facts, this Honorable Court may validly take
cognizance of the errors relative to the findings of fact of both the Honorable Court of Appeals
and the court a quo.

B.

Respondent Mahinay is liable to petitioner PentaCapital Investment for the PhP1,936,800.00

loaned to him as well as for damages and attorneys fees.

1.

The Honorable Court of Appeals erred in concluding that respondent Mahinay failed to receive
the money he borrowed when there is not even any dispute as to the fact that respondent
Mahinay did indeed receive the PhP1,936,800.00 from petitioner PentaCapital Investment.
2.

The Promissory Notes executed by respondent Mahinay are valid instruments and are binding
upon him.

C.

Petitioner PentaCapital Investment cannot be held liable on the supposed "supplemental

compulsory counterclaim" of respondent Mahinay.

1.

The findings of fact as well as the conclusions arrived at by the Court of Appeals in its decision
were based on mistaken assumptions and on erroneous appreciation of the evidence on record.

2.

There is no evidence on record to support the merging of PentaCapital Realty and petitioner
PentaCapital Investment into one entity and the consequent imputation on the latter of the
formers supposed liability on respondent Mahinays supplemental compulsory counterclaim.

3.

Inasmuch as the claim of respondent Mahinay is supposedly against PentaCapital Realty, and
considering that petitioner PentaCapital Investment is a separate, distinct entity from
PentaCapital Realty, the latter should have been impleaded as it is an indispensable party.

D.

Assuming for the sake of pure argument that it is proper to disregard the corporate fiction and to
consider herein petitioner PentaCapital Investment and its subsidiary, PentaCapital Realty, as one
and the same entity, respondent Mahinays "supplemental compulsory counterclaim" must still
necessarily fail.

1.

The cause of action of respondent Mahinay, as contained in his "supplemental compulsory

counterclaim," is already barred by a prior judgment (res judicata).

2.

Considering that the dismissal on the merits by the RTC Cebu of respondent Mahinays
complaint against PentaCapital Realty for attorneys fees has attained finality, respondent
Mahinay committed a willful act of forum shopping when he interposed the exact same claim in
the proceedings a quo as a supposed supplemental compulsory counterclaim against what he
claims to be "one and the same" company.
3.

Respondent Mahinays supplemental compulsory counterclaim is actually a third party complaint

against PentaCapital Realty; the filing thereof therefore requires the payment of the necessary
docket fees.

E.

The doctrine of piercing the corporate veil is an equitable remedy which cannot and should not
be invoked, much less applied, in order to evade an obligation and facilitate procedural
wrongdoing.32

Simply put, the issues for resolution are: 1) whether the admission of respondents supplemental
compulsory counterclaim is proper; 2) whether respondents counterclaim is barred by res
judicata; and (3) whether petitioner is guilty of forum-shopping.

The Courts Ruling

Admission of Respondents

Supplemental Compulsory Counterclaim

The pertinent provision of the Rules of Court is Section 6 of Rule 10, which reads:

Sec. 6. Supplemental pleadings. Upon motion of a party, the court may, upon reasonable notice
and upon such terms as are just, permit him to serve a supplemental pleading setting forth
transactions, occurrences or events which have happened since the date of the pleading sought to
be supplemented. The adverse party may plead thereto within ten (10) days from notice of the
order admitting the supplemental pleading.

As a general rule, leave will be granted to a party who desires to file a supplemental pleading
that alleges any material fact which happened or came within the partys knowledge after the
original pleading was filed, such being the office of a supplemental pleading. The application of
the rule would ensure that the entire controversy might be settled in one action, avoid
unnecessary repetition of effort and unwarranted expense of litigants, broaden the scope of the
issues in an action owing to the light thrown on it by facts, events and occurrences which have
accrued after the filing of the original pleading, and bring into record the facts enlarging or
charging the kind of relief to which plaintiff is entitled. It is the policy of the law to grant relief
as far as possible for wrongs complained of, growing out of the same transaction and thus put an
end to litigation.33

In his Motion to Permit Supplemental Compulsory Counterclaim, respondent admitted that, in

his Answer with Compulsory Counterclaim, he claimed that, as one of the corporations
composing the Pentacapital Group of Companies, petitioner is liable to him for P10,316,640.00,
representing 20% attorneys fees and share in the proceeds of the sale transaction between
Pentacapital Realty and CRDI. In the same pleading, he further admitted that he did not include
this amount in his compulsory counterclaim because he had earlier commenced another action
for the collection of the same amount against Pentacapital Realty before the RTC of Cebu. With
the dismissal of the RTC-Cebu case, there was no more legal impediment for respondent to file
the supplemental counterclaim.

Moreover, in his Answer with Compulsory Counterclaim, respondent already alleged that he
demanded from Pentacapital Group of Companies to which petitioner supposedly belongs, the
payment of his 20% commission. This, in fact, was what prompted respondent to file a complaint
before the RTC-Cebu for preliminary mandatory injunction for the release of the said amount.

Given these premises, it is obvious that the alleged obligation of petitioner already existed and
was known to respondent at the time of the filing of his Answer with Counterclaim. He should
have demanded payment of his commission and share in the proceeds of the sale in that Answer
with Compulsory Counterclaim, but he did not. He is, therefore, proscribed from incorporating
the same and making such demand via a supplemental pleading. The supplemental pleading must
be based on matters arising subsequent to the filing of the original pleading related to the claim
or defense presented therein, and founded on the same cause of action.34 Supplemental
pleadings must state transactions, occurrences or events which took place since the time the
pleading sought to be supplemented was filed.35

Even on the merits of the case, for reasons that will be discussed below, respondents
counterclaim is doomed to fail.

Petitioners Complaint

In its complaint for sum of money, petitioner prayed that respondent be ordered to pay his
obligation amounting to P1,936,800.00 plus interest and penalty charges, and attorneys fees.
This obligation was evidenced by two promissory notes executed by respondent. Respondent,
however, denied liability on the ground that his obligation was subject to a condition that did not
occur. He explained that the promissory notes were dependent upon the happening of a remote
event that the parties tried to anticipate at the time they transacted with each other, and the event
did not happen.36 He further insisted that he did not receive the proceeds of the loan.

To ascertain whether or not respondent is bound by the promissory notes, it must be established
that all the elements of a contract of loan are present. Like any other contract, a contract of loan
is subject to the rules governing the requisites and validity of contracts in general. It is
elementary in this jurisdiction that what determines the validity of a contract, in general, is the
presence of the following elements: (1) consent of the contracting parties; (2) object certain
which is the subject matter of the contract; and (3) cause of the obligation which is
established.37

In this case, respondent denied liability on the ground that the promissory notes lacked
consideration as he did not receive the proceeds of the loan.

We cannot sustain his contention.

Under Article 1354 of the Civil Code, it is presumed that consideration exists and is lawful
unless the debtor proves the contrary.38 Moreover, under Section 3, Rule 131 of the Rules of
Court, the following are disputable presumptions: (1) private transactions have been fair and
regular; (2) the ordinary course of business has been followed; and (3) there was sufficient
consideration for a contract.39 A presumption may operate against an adversary who has not
introduced proof to rebut it. The effect of a legal presumption upon a burden of proof is to create
the necessity of presenting evidence to meet the legal presumption or the prima facie case
created thereby, and which, if no proof to the contrary is presented and offered, will prevail. The
burden of proof remains where it is, but by the presumption, the one who has that burden is
relieved for the time being from introducing evidence in support of the averment, because the
presumption stands in the place of evidence unless rebutted.40

In the present case, as proof of his claim of lack of consideration, respondent denied under oath
that he owed petitioner a single centavo. He added that he did not apply for a loan and that when
he signed the promissory notes, they were all blank forms and all the blank spaces were to be
filled up only if the sale transaction over the subject properties would not push through because
of a possible adverse decision in the civil cases involving them (the properties). He thus posits
that since the sale pushed through, the promissory notes did not become effective.

Contrary to the conclusions of the RTC and the CA, we find such proof insufficient to overcome
the presumption of consideration. The presumption that a contract has sufficient consideration
cannot be overthrown by the bare, uncorroborated and self-serving assertion of respondent that it
has no consideration.41 The alleged lack of consideration must be shown by preponderance of
evidence.42

As it now appears, the promissory notes clearly stated that respondent promised to pay petitioner
P1,520,000.00 and P416,800.00, plus interests and penalty charges, a year after their execution.
Nowhere in the notes was it stated that they were subject to a condition. As correctly observed by
petitioner, respondent is not only a lawyer but a law professor as well. He is, therefore, legally
presumed not only to exercise vigilance over his concerns but, more importantly, to know the
legal and binding effects of promissory notes and the intricacies involving the execution of
negotiable instruments including the need to execute an agreement to document extraneous
collateral conditions and/or agreements, if truly there were such.43 This militates against
respondents claim that there was indeed such an agreement. Thus, the promissory notes should
be accepted as they appear on their face.

Respondents liability is not negated by the fact that he has uncollected commissions from the
sale of the Molino properties. As the records of the case show, at the time of the execution of the
promissory notes, the Molino properties were subject of various court actions commenced by
different parties. Thus, the sale of the properties and, consequently, the payment of respondents
commissions were put on hold. The non-payment of his commissions could very well be the
reason why he obtained a loan from petitioner.

In Sierra v. Court of Appeals,44 we held that:

A promissory note is a solemn acknowledgment of a debt and a formal commitment to repay it
on the date and under the conditions agreed upon by the borrower and the lender. A person who
signs such an instrument is bound to honor it as a legitimate obligation duly assumed by him
through the signature he affixes thereto as a token of his good faith. If he reneges on his promise
without cause, he forfeits the sympathy and assistance of this Court and deserves instead its
sharp repudiation.

Aside from the payment of the principal obligation of P1,936,800.00, the parties agreed that
respondent pay interest at the rate of 25% from February 17, 1997 until fully paid. Such rate,
however, is excessive and thus, void. Since the stipulation on the interest rate is void, it is as if
there was no express contract thereon. To be sure, courts may reduce the interest rate as reason
and equity demand.45 In this case, 12% interest is reasonable.

The promissory notes likewise required the payment of a penalty charge of 3% per month or
36% per annum. We find such rates unconscionable. This Court has recognized a penalty clause
as an accessory obligation which the parties attach to a principal obligation for the purpose of
ensuring the performance thereof by imposing on the debtor a special prestation (generally
consisting of the payment of a sum of money) in case the obligation is not fulfilled or is
irregularly or inadequately fulfilled.46 However, a penalty charge of 3% per month is
unconscionable;47 hence, we reduce it to 1% per month or 12% per annum, pursuant to Article
1229 of the Civil Code which states:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has been no performance, the
penalty may also be reduced by the courts if it is iniquitous or unconscionable.48

Lastly, respondent promised to pay 25% of his outstanding obligations as attorneys fees in case
of non-payment thereof. Attorneys fees here are in the nature of liquidated damages. As long as
said stipulation does not contravene law, morals, or public order, it is strictly binding upon
respondent. Nonetheless, courts are empowered to reduce such rate if the same is iniquitous or
unconscionable pursuant to the above-quoted provision.49 This sentiment is echoed in Article
2227 of the Civil Code, to wit:

Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable.

Hence, we reduce the stipulated attorneys fees from 25% to 10%.50

Respondents Counterclaim and Supplemental Counterclaim

The RTC, affirmed by the CA, granted respondents counterclaims as it applied the doctrine of
piercing the veil of corporate fiction. It is undisputed that the parties to the contract of sale of the
subject properties are Pentacapital Realty as the buyer, CRDI as the seller, and respondent as the
agent of CRDI. Respondent insisted, and the RTC and the CA agreed, that petitioner, as the
parent company of Pentacapital Realty, was aware of the sale transaction, and that it was the
former who paid the consideration of the sale. Hence, they concluded that the two corporations
should be treated as one entity.

Petitioner assails the CA Decision sustaining the grant of respondents counterclaim and
supplemental counterclaim on the following grounds: first, respondents claims are barred by res
judicata, the same having been adjudicated with finality by the RTC-Cebu in Civil Case No.
CEB-25032; second, piercing the veil of corporate fiction is without basis; third, the case is
dismissible for failure to implead Pentacapital Realty as indispensable party; and last,
respondents supplemental counterclaim is actually a third party complaint against Pentacapital
Realty, the filing thereof requires the payment of the necessary docket fees.

Petitioners contentions are meritorious.

Res judicata means "a matter adjudged; a thing judicially acted upon or decided; a thing or
matter settled by judgment." It lays the rule that an existing final judgment or decree rendered on
the merits, without fraud or collusion, by a court of competent jurisdiction, upon any matter
within its jurisdiction, is conclusive of the rights of the parties or their privies, in all other actions
or suits in the same or any other judicial tribunal of concurrent jurisdiction on the points and
matters in issue in the first suit.51

The requisites of res judicata are:

(1) The former judgment or order must be final;

(2) It must be a judgment on the merits;

(3) It must have been rendered by a court having jurisdiction over the subject matter and the
parties; and

(4) There must be between the first and second actions, identity of parties, subject matter, and
cause of action.52

These requisites are present in the instant case. It is undisputed that respondent instituted an
action for Preliminary Mandatory Injunction against Pentacapital Realty, before the RTC of Cebu
City, docketed as Civil Case No. CEB-25032. On motion of Pentacapital Realty, in an Order
dated August 15, 2001, the court dismissed the complaint on two grounds: 1) non-payment of the
correct filing fee considering that the complaint was actually a collection of sum of money
although denominated as Preliminary Mandatory Injunction; and 2) lack of cause of action. The
court treated the complaint as a collection suit because respondent was seeking the payment of
his unpaid commission or share in the proceeds of the sale of the Molino Properties.
Additionally, the RTC found that respondent had no cause of action against Pentacapital Realty,
there being no privity of contract between them. Lastly, the court held that it was CRDI which
agreed that 20% of the total consideration of the sale be paid and delivered to respondent.53
Instead of assailing the said Order, respondent filed his supplemental compulsory counterclaim,
demanding again the payment of his commission, this time, against petitioner in the instant case.
The Order, therefore, became final and executory.
Respondents supplemental counterclaim against petitioner is anchored on the doctrine of
piercing the veil of corporate fiction. Obviously, after the dismissal of his complaint before the
RTC-Cebu, he now proceeds

against petitioner, through a counterclaim, on the basis of the same cause of action. Thus, if we
follow respondents contention that petitioner and Pentacapital Realty are one and the same
entity, the latter being a subsidiary of the former, respondent is barred from instituting the present
case based on the principle of bar by prior judgment. The RTC-Cebu already made a definitive
conclusion that Pentacapital Realty is not a privy to the contract between respondent and CRDI.
It also categorically stated that it was CRDI which agreed to pay respondents commission
equivalent to 20% of the proceeds of the sale. With these findings, and considering that
petitioners alleged liability stems from its supposed relation with Pentacapital Realty, logic
dictates that the findings of the RTC-Cebu, which had become final and executory, should bind
petitioner.

It is well-settled that when material facts or questions in issue in a former action were
conclusively settled by a judgment rendered therein, such facts or questions constitute res
judicata and may not again be litigated in a subsequent action between the same parties or their
privies regardless of the form of the latter.54 Absolute identity of parties is not required, and
where a shared identity of interest is shown by the identity of the relief sought by one person in a
prior case and the second person in a subsequent case, such was deemed sufficient.55 There is
identity of parties not only when the parties in the cases are the same, but also between those in
privity with them.

No other procedural law principle is indeed more settled than that once a judgment becomes
final, it is no longer subject to change, revision, amendment, or reversal, except only for
correction of clerical errors, or the making of nunc pro tunc entries which cause no prejudice to
any party, or where the judgment itself is void. The underlying reason for the rule is two-fold: (1)
to avoid delay in the administration of justice and thus make orderly the discharge of judicial
business; and (2) to put judicial controversies to an end, at the risk of occasional errors, inasmuch
as controversies cannot be allowed to drag on indefinitely and the rights and obligations of every
litigant must not hang in suspense for an indefinite period of time.56

In view of the foregoing disquisitions, we find no necessity to discuss the other issues raised by
petitioner.

Forum Shopping

For his part, respondent adopts the conclusions made by the RTC and the CA in granting his
counterclaims. He adds that the petition should be dismissed on the ground of forum-shopping.
He argues that petitioner is guilty of forum-shopping by filing the petition for review (G.R. No.
181482), assailing the CA Decision dated October 4, 2007, despite the pendency of G.R. No.
171736 assailing the CA Decision dated December 20, 2005.

We do not agree with respondent.

Forum-shopping is the act of a litigant who repetitively availed of several judicial remedies in
different courts, simultaneously or successively, all substantially founded on the same
transactions and the same essential facts and circumstances, and all raising substantially the same
issues, either pending in or already resolved adversely by some other court, to increase his
chances of obtaining a favorable decision if not in one court, then in another.57

What is important in determining whether forum-shopping exists is the vexation caused the
courts and parties-litigants by a party who asks different courts and/or administrative agencies to
rule on the same or related causes and/or grant the same or substantially the same reliefs, in the
process creating the possibility of conflicting decisions being rendered by the different fora upon
the same issues.58

Forum-shopping can be committed in three ways: (1) by filing multiple cases based on the same
cause of action and with the same prayer, the previous case not having been resolved yet (where
the ground for dismissal is litis pendentia); (2) by filing multiple cases based on the same cause
of action and with the same prayer, the previous case having been finally resolved (where the
ground for dismissal is res judicata); and (3) by filing multiple cases based on the same cause of
action but with different prayers (splitting of causes of action, where the ground for dismissal is
also either litis pendentia or res judicata).591avvphi1

More particularly, the elements of forum-shopping are: (a) identity of parties or at least such
parties that represent the same interests in both actions; (b) identity of rights asserted and reliefs
prayed for, the relief being founded on the same facts; (c) identity of the two preceding
particulars, such that any judgment rendered in the other action will, regardless of which party is
successful, amount to res judicata in the action under consideration.60

These elements are not present in this case. In G.R. No. 171736, petitioner assails the propriety
of the admission of respondents supplemental compulsory counterclaim; while in G.R. No.
181482, petitioner assails the grant of respondents supplemental compulsory counterclaim. In
other words, the first case originated from an interlocutory order of the RTC, while the second
case is an appeal from the decision of the court on the merits of the case. There is, therefore, no
forum-shopping for the simple reason that the petition and the appeal involve two different and
distinct issues.

WHEREFORE, premises considered, the petitions are hereby GRANTED. The Decisions and
Resolutions of the Court of Appeals dated December 20, 2005 and March 1, 2006, in CA-G.R.
SP No. 74851, and October 4, 2007 and January 21, 2008, in CA-G.R. CV No. 86939, are
REVERSED and SET ASIDE.

Respondent Makilito B. Mahinay is ordered to pay petitioner Pentacapital Investment

Corporation P1,936,800.00 plus 12% interest per annum, and 12% per annum penalty charge,
starting February 17, 1997. He

is likewise ordered to pay 10% of his outstanding obligation as attorneys fees. No

pronouncement as to costs.
Metropollitan Bank and Trust Company vs. Rural Bank of Gerona, Inc., 623 SCRA 69 ,
G.R. No. 159097, July 05, 2010

G.R. No. 159097 July 5, 2010

METROPOLITAN BANK AND TRUST COMPANY, Petitioner,
vs.
RURAL BANK OF GERONA, INC. Respondent.
DECISION
BRION, J.:
Petitioner Metropolitan Bank and Trust Company (Metrobank) filed this
Petition for Review on Certiorari1 under Rule 45 of the Rules of Court to
challenge the Court of Appeals (CA) decision dated December 17, 20022 and
the resolution dated July 14, 20033 in CA-G.R. CV No. 46777. The CA decision
set aside the July 7, 1994 decision4 of the Regional Trial Court (RTC) of Tarlac,
Branch 65, in Civil Case No. 6028 (a collection case filed by Metrobank
against respondent Rural Bank of Gerona, Inc. [RBG]), and ordered the
remand of the case to include the Central Bank of the Philippines5 (Central
Bank) as a necessary party.
THE FACTUAL ANTECEDENTS
RBG is a rural banking corporation organized under Philippine laws and
located in Gerona, Tarlac. In the 1970s, the Central Bank and the RBG
entered into an agreement providing that RBG shall facilitate the loan
applications of farmers-borrowers under the Central Bank-International Bank
for Reconstruction and Developments (IBRDs) 4th Rural Credit Project. The
agreement required RBG to open a separate bank account where the IBRD
loan proceeds shall be deposited. The RBG accordingly opened a special
savings account with Metrobanks Tarlac Branch. As the depository bank of
RBG, Metrobank was designated to receive the credit advice released by the
Central Bank representing the proceeds of the IBRD loan of the farmers-
borrowers; Metrobank, in turn, credited the proceeds to RBGs special
savings account for the latters release to the farmers-borrowers.
On September 27, 1978, the Central Bank released a credit advice in
Metrobanks favor and accordingly credited Metrobanks demand deposit
account in the amount of P178,652.00, for the account of RBG. The amount,
which was credited to RBGs special savings account represented the
approved loan application of farmer-borrower Dominador de Jesus. RBG
withdrew the P178,652.00 from its account.
On the same date, the Central Bank approved the loan application of another
farmer-borrower, Basilio Panopio, for P189,052.00, and credited the amount
to Metrobanks demand deposit account. Metrobank, in turn, credited RBGs
special savings account. Metrobank claims that the RBG also withdrew the
entire credited amount from its account.
On October 3, 1978, the Central Bank approved Ponciano Lagmans loan
application for P220,000.00. As with the two other IBRD loans, the amount
was credited to Metrobanks demand deposit account, which amount
Metrobank later credited in favor of RBGs special savings account. Of the
P220,000.00, RBG only withdrew P75,375.00.
On November 3, 1978, more than a month after RBG had made the above
withdrawals from its account with Metrobank, the Central Bank issued debit
advices, reversing all the approved IBRD loans.6 The Central Bank
implemented the reversal by debiting from Metrobanks demand deposit
account the amount corresponding to all three IBRD loans.
Upon receipt of the November 3, 1978 debit advices, Metrobank, in turn,
debited the following amounts from RBGs special savings account:
P189,052.00, P115,000.00, and P8,000.41. Metrobank, however, claimed
that these amounts were insufficient to cover all the credit advices that were
reversed by the Central Bank. It demanded payment from RBG which could
make partial payments. As of October 17, 1979, Metrobank claimed that RBG
had an outstanding balance of P334,220.00. To collect this amount, it filed a
complaint for collection of sum of money against RBG before the RTC,
docketed as Civil Case No. 6028.7
In its July 7, 1994 decision,8 the RTC ruled for Metrobank, finding that legal
subrogation had ensued:
[Metrobank] had allowed releases of the amounts in the credit advices it
credited in favor of [RBGs special savings account] which credit advices and
deposits were under its supervision. Being faulted in these acts or omissions,
the Central Bank [sic] debited these amounts against [Metrobanks] demand
[deposit] reserve; thus[, Metrobanks] demand deposit reserves diminished
correspondingly, [Metrobank as of this time,] suffers prejudice in which case
legal subrogation has ensued.9
It thus ordered RBG to pay Metrobank the sum of P334,200.00, plus interest
at 14% per annum until the amount is fully paid.
On appeal, the CA noted that this was not a case of legal subrogation under
Article 1302 of the Civil Code. Nevertheless, the CA recognized that
Metrobank had a right to be reimbursed of the amount it had paid and failed
to recover, as it suffered loss in an agreement that involved only the Central
Bank and the RBG. It clarified, however, that a determination still had to be
made on who should reimburse Metrobank. Noting that no evidence exists
why the Central Bank reversed the credit advices it had previously
confirmed, the CA declared that the Central Bank should be impleaded as a
necessary party so it could shed light on the IBRD loan reversals. Thus, the
CA set aside the RTC decision, and remanded the case to the trial court for
further proceedings after the Central Bank is impleaded as a necessary
party.10 After the CA denied its motion for reconsideration, Metrobank filed
the present petition for review on certiorari.
THE PETITION FOR REVIEW ON CERTIORARI
Metrobank disagrees with the CAs ruling to implead the Central Bank as a
necessary party and to remand the case to the RTC for further proceedings.
It argues that the inclusion of the Central Bank as party to the case is
unnecessary since RBG has already admitted its liability for the amount
Metrobank failed to recover. In two letters,11 RBGs President/Manager made
proposals to Metrobank for the repayment of the amounts involved. Even
assuming that no legal subrogation took place, Metrobank claims that RBGs
letters more than sufficiently proved its liability.
Metrobank additionally contends that a remand of the case would unduly
delay the proceedings. The transactions involved in this case took place in
1978, and the case was commenced before the RTC more than 20 years ago.
The RTC resolved the complaint for collection in 1994, while the CA decided
the appeal in 2002. To implead Central Bank, as a necessary party in the
case, means a return to square one and the restart of the entire proceedings.
THE COURTS RULING
The petition is impressed with merit.
A basic first step in resolving this case is to determine who the liable parties
are on the IBRD loans that the Central Bank extended. The Terms and
Conditions of the IBRD 4th Rural Credit Project12 (Project Terms and
Conditions) executed by the Central Bank and the RBG shows that the
farmers-borrowers to whom credits have been extended, are primarily liable
for the payment of the borrowed amounts. The loans were extended through
the RBG which also took care of the collection and of the remittance of the
collection to the Central Bank. RBG, however, was not a mere conduit and
collector.1avvphil While the farmers-borrowers were the principal debtors,
RBG assumed liability under the Project Terms and Conditions by solidarily
binding itself with the principal debtors to fulfill the obligation.1awphi1
How RBG profited from the transaction is not clear from the records and is
not part of the issues before us, but if it delays in remitting the amounts due,
the Central Bank imposed a 14% per annum penalty rate on RBG until the
amount is actually remitted. The Central Bank was further authorized to
deduct the amount due from RBGs demand deposit reserve should the latter
become delinquent in payment. On these points, paragraphs 5 and 6 of the
Project Terms and Conditions read:
5. Collection received representing repayments of borrowers shall be
immediately remitted to the Central Bank, otherwise[,] the Rural Bank/SLA
shall be charged a penalty of fourteen [percent] (14%) p.a. until date of
remittance.
6. In case the rural bank becomes delinquent in the payment of
amortizations due[,] the Central Bank is authorized to deduct the
corresponding amount from the rural banks demand deposit reserve 13 at any
time to cover any delinquency. [Emphasis supplied.]
Based on these arrangements, the Central Banks immediate recourse,
therefore should have been against the farmers-borrowers and the RBG;
thus, it erred when it deducted the amounts covered by the debit advices
from Metrobanks demand deposit account. Under the Project Terms and
Conditions, Metrobank had no responsibility over the proceeds of the IBRD
loans other than serving as a conduit for their transfer from the Central Bank
to the RBG once credit advice has been issued. Thus, we agree with the CAs
conclusion that the agreement governed only the parties involved the
Central Bank and the RBG. Metrobank was simply an outsider to the
agreement. Our disagreement with the appellate court is in its conclusion
that no legal subrogation took place; the present case, in fact, exemplifies
the circumstance contemplated under paragraph 2, of Article 1302 of the
Civil Code which provides:
Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without the
debtors knowledge;
(2) When a third person, not interested in the obligation, pays with the
express or tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a person interested in
the fulfillment of the obligation pays, without prejudice to the effects of
confusion as to the latters share. [Emphasis supplied.]
As discussed, Metrobank was a third party to the Central Bank-RBG
agreement, had no interest except as a conduit, and was not legally
answerable for the IBRD loans. Despite this, it was Metrobanks demand
deposit account, instead of RBGs, which the Central Bank proceeded
against, on the assumption perhaps that this was the most convenient
means of recovering the cancelled loans. That Metrobanks payment was
involuntarily made does not change the reality that it was Metrobank which
effectively answered for RBGs obligations.
Was there express or tacit approval by RBG of the payment enforced against
Metrobank? After Metrobank received the Central Banks debit advices in
November 1978, it (Metrobank) accordingly debited the amounts it could
from RBGs special savings account without any objection from RBG. 14 RBGs
President and Manager, Dr. Aquiles Abellar, even wrote Metrobank, on August
14, 1979, with proposals regarding possible means of settling the amounts
debited by Central Bank from Metrobanks demand deposit account.15 These
instances are all indicative of RBGs approval of Metrobanks payment of the
IBRD loans. That RBGs tacit approval came after payment had been made
does not completely negate the legal subrogation that had taken place.
Article 1303 of the Civil Code states that subrogation transfers to the person
subrogated the credit with all the rights thereto appertaining, either against
the debtor or against third persons. As the entity against which the collection
was enforced, Metrobank was subrogated to the rights of Central Bank and
has a cause of action to recover from RBG the amounts it paid to the Central
Bank, plus 14% per annum interest.
Under this situation, impleading the Central Bank as a party is completely
unnecessary. We note that the CA erroneously believed that the Central
Banks presence is necessary "in order x x x to shed light on the matter of
reversals made by it concerning the loan applications of the end users and to
have a complete determination or settlement of the claim."16 In so far as
Metrobank is concerned, however, the Central Banks presence and the
reasons for its reversals of the IBRD loans are immaterial after subrogation
has taken place; Metrobanks interest is simply to collect the amounts it paid
the Central Bank. Whatever cause of action RBG may have against the
Central Bank for the unexplained reversals and any undue deductions is for
RBG to ventilate as a third-party claim; if it has not done so at this point,
then the matter should be dealt with in a separate case that should not in
any way further delay the disposition of the present case that had been
pending before the courts since 1980.
While we would like to fully and finally resolve this case, certain factual
matters prevent us from doing so. Metrobank contends in its petition that it
credited RBGs special savings account with three amounts corresponding to
the three credit advices issued by the Central Bank: the P178,652.00 for
Dominador de Jesus; the P189,052.00 for Basilio Panopio; and the
P220,000.00 for Ponciano Lagman. Metrobank claims that all of the three
credit advices were subsequently reversed by the Central Bank, evidenced
by three debit advices. The records, however, contained only the credit and
debit advices for the amounts set aside for de Jesus and Lagman;17 nothing in
the findings of fact by the RTC and the CA referred to the amount set aside
for Panopio.
Thus, what were sufficiently proven as credited and later on debited from
Metrobanks demand deposit account were only the amounts of P178,652.00
and P189,052.00. With these amounts combined, RBGs liability would
amount to P398,652.00 the same amount RBG acknowledged as due to
Metrobank in its August 14, 1979 letter.18 Significantly, Metrobank likewise
quoted this amount in its July 11, 197919 and July 26, 197920 demand letters
to RBG and its Statement of Account dated December 23, 1982.21
RBG asserts that it made partial payments amounting to P145,197.40,22 but
neither the RTC nor the CA made a conclusive finding as to the accuracy of
this claim. Although Metrobank admitted that RBG indeed made partial
payments, it never mentioned the actual amount paid; neither did it state
that the P145,197.40 was part of the P312,052.41 that, it admitted, it
debited from RBGs special savings account.
Deducting P312,052.41 (representing the amounts debited from RBGs
special savings account, as admitted by Metrobank) from P398,652.00
amount due to Metrobank from RBG, the difference would only be
P86,599.59. We are, therefore, at a loss on how Metrobank computed the
amount of P334,220.00 it claims as the balance of RBGs loan. As this Court
is not a trier of facts, we deem it proper to remand this factual issue to the
RTC for determination and computation of the actual amount RBG owes to
Metrobank, plus the corresponding interest and penalties.
WHEREFORE, we GRANT the petition for review on certiorari, and REVERSE
the decision and the resolution of the Court of Appeals, in CA-G.R. CV No.
46777, promulgated on December 17, 2002 and July 14, 2003, respectively.
We AFFIRM the decision of the Regional Trial Court, Branch 65, Tarlac,
promulgated on July 7, 1994, insofar as it found respondent liable to the
petitioner Metropolitan Bank and Trust Company, but order the REMAND of
the case to the trial court to determine the actual amounts due to the
petitioner. Costs against respondent Rural Bank of Gerona, Inc.
SO ORDERED.
 ANSELMO TAGHOY AND THE LATE VICENTA T. APA, SUBSTITUTED BY HER
HEIRS, NAMELY, MANUEL T. APA, NICASIO T. APA, DELFIN T. APA, ALMA A.
JACALAN, ARLENE A. SUMALINOG, AIDA A. ARONG, ELENA A. COSEP, ALFREDO
T. APA, ISABELO T. APA, JR., ISABELO T. APA III, SHERWIN T. APA, AND FLORITO
T. APA, PETITIONERS, VS. SPS. FELIXBERTO TIGOL, JR. AND ROSITA TIGOL,
RESPONDENTS.

DECISION

BRION, J.:

We resolve the present petition for review on certiorari[1] filed by petitioners Anselmo Taghoy
and the heirs of Vicenta T. Apa (petitioners) to challenge the decision[2] and the resolution[3] of
the Court of Appeals (CA) in CA-G.R. CV No. 54385.[4] The CA decision set aside the
decision[5] of the Regional Trial Court (RTC), Branch 27, Lapu-lapu City in Civil Case No.
2247. The CA resolution denied the petitioners' subsequent motion for reconsideration.

FACTUAL BACKGROUND

The facts of the case, gathered from the records, are briefly summarized below.

Spouses Filomeno Taghoy and Margarita Amit[6] owned an 11,067 square meter parcel of land,
known as Lot 3635-B of subdivision plan (LRC) Psd-212881 (subject property), located in
Barrio Agus, Lapu-Lapu City, Cebu under Transfer Certificate of Title (TCT) No. 6466 of the
Lapu-Lapu City Registry of Deeds.[7]

On August 6, 1975, Filomeno and Margarita[8] executed a special power of attorney, appointing
Felixberto Tigol, Jr. as their attorney-in-fact.[9] On August 21, 1975, Felixberto, as attorney-in-
fact, executed a real estate mortgage over the subject property to secure a loan of P22,000.00
with the Philippine National Bank (PNB).[10] Filomeno and Margarita obtained the loan to
finance the shellcraft business of their children.[11]

Filomeno died intestate on February 12, 1976. On July 27, 1979, his widow, Margarita, and their
seven children, namely, Vicenta, Felisa, Pantaleon, Gaudencio, Anselmo, Anastacia and Rosita,
as heirs of the deceased, executed a Deed of Extrajudicial Settlement and Sale, adjudicating to
themselves the subject property and selling the same to Rosita and her husband Felixberto
(respondents) for P1,000.00.[12]

Subsequently, on September 7, 1981 and August 10, 1982, Filomeno's heirs executed two (2)
Deeds of Confirmation of Sale, confirming the supposed sale of the subject property by
Filomeno and Margarita in favor of the respondents for P1,000.00.[13] Simultaneous with the
execution of the deeds, however, the respondents executed explanatory Joint Affidavits attesting
that the sale was without any consideration, and was only executed to secure a loan.[14]

On March 9, 1983, TCT No. 13250 was issued in the respondents' names.[15] On July 1, 1983, the
respondents obtained a P70,000.00 loan with the Philippine Banking Corporation, secured by a
real estate mortgage on the subject property.[16]

Seven (7) years later, on April 17, 1990, Anselmo and Vicenta, together with Margarita, Felisa,
Gaudencio, and Pantaleon's surviving heir, Annabel, filed a complaint against the respondents
and Anastacia for declaration of nullity of the respondents' TCT and for judicial partition.[17] They
alleged that the deeds of confirmation of sale became the bases for the transfer of the title in the
respondents' names, but the sale was fictitious or simulated, as evidenced by the respondents'
own explanatory joint affidavits attesting that the transfer was for the purpose only of
convenience in securing a loan, not for absolute conveyance or sale.

The respondents admitted that they executed the joint affidavits but countered that they acquired
a valid title to the subject property through the Extrajudicial Settlement of Heirs and Sale. They
claimed that when Filomeno died without the PNB loan being paid, the heirs agreed that the
respondents will advance payment of the loan, subject to reimbursement, to save the foreclosure
of the subject property; the heirs then executed the Extrajudicial Settlement and Sale in the
respondents' favor as their way of reimbursing the amount the latter paid; the respondents
executed the joint affidavits out of generosity, expressing their willingness to be reimbursed, but
when the heirs failed to reimburse the amounts advanced by them, then they caused the
registration of the title in their names.[18]

Margarita, Felisa, Gaudencio and Annabel failed to appear at the initial hearing, prompting the
petitioners' counsel to manifest that, except for Anselmo and Vicenta, they were abandoning the
complaint.[19] The petitioners subsequently amended the complaint to implead Margarita,
Felisa, Gaudencio and Annabel as party defendants or unwilling plaintiffs.[20]

THE RTC RULING

In its decision, the RTC found that the sale of the subject property was absolutely simulated since
the deeds of confirmation of sale were executed only to accommodate the respondents' loan
application using the subject property as collateral. The lower court thus ordered the
nullification of the respondents' title. It likewise ordered the partition of the subject property
after reimbursement of the amount the respondents paid for the loan.[21]

Subsequently, the respondents filed a motion for new trial, anchored on newly discovered
evidence allegedly proving that the subject property is Margarita's paraphernal property.[22]
When the RTC denied[23] the motion for new trial, the respondents filed an appeal with the CA,
under Rule 41 of the Rules of Court.

THE CA RULING

The CA decided the appeal on August 26, 2002, reversing the RTC decision. Relying upon
Margarita's testimony that the respondents paid the loan, the CA found that the contract between
the parties was relatively simulated; the respondents' payment of the PNB loan was the real
consideration for the transfer of title.

After the CA denied[24] the motion for reconsideration[25] that followed, the petitioners filed the
present petition.

THE PETITION

The petitioners argue that the heirs, in executing the extrajudicial settlement, did not intend to
divest themselves of their respective rightful shares, interests and participation in the subject
property because it lacked a consideration, as affirmed by the respondents' own joint affidavits;
the payment of the PNB loan could not be a valid consideration for the transfer since the loan
was still unpaid and outstanding at the time of the execution of the extrajudicial settlement.[26]

THE CASE FOR THE RESPONDENTS

The respondents, on the other hand, maintain that the Extrajudicial Settlement and Sale was the
basis of their registration of title, and their payment of the PNB loan was the real consideration
for the transfer; the joint affidavits were executed only out of generosity and kindness, subject to
the heirs' reimbursement of the amounts they paid for the loan, such that when the heirs did not
reimburse the amounts paid, they then caused the registration of title in their names.[27]

THE ISSUE

The core issue boils down to whether the sale of the subject property between the parties was
absolutely or relatively simulated.

OUR RULING

We find the petition meritorious.

This Court is not a trier of facts. However, if the inference drawn by the appellate court from the
facts is manifestly mistaken, as in the present case, we can review the evidence to allow us to
arrive at the correct factual conclusions based on the record.[28]

In the interpretation of contracts, the intention of the parties is accorded primordial

consideration;[29] such intention is determined from the express terms of their agreement,[30] as
well as their contemporaneous and subsequent acts.[31] When the parties do not intend to be
bound at all, the contract is absolutely simulated; if the parties conceal their true agreement, then
the contract is relatively simulated.[32] An absolutely simulated contract is void, and the parties
may recover from each other what they may have given under the simulated contract, while a
relatively simulated contract is valid and enforceable as the parties' real agreement binds them.
[23]
Characteristic of simulation is that the apparent contract is not really desired or intended to
produce legal effects, or in any way, alter the juridical situation of the parties.[34]

In the present case, the parties never intended to be bound by their agreement as revealed by the
two (2) joint affidavits executed by the respondents simultaneous with the execution of the deeds
of confirmation of sale. The September 7, 1981 Joint Affidavit stated:
2. That the truth of the matter is that the deed of sale and the confirmation of said sale by the
legal heirs are executed for the purpose of securing a loan in our name but which amount of
said loan shall be divided equally among the legal heirs, and that every heir shall pay his
corresponding share in the amortization payment of said loan;

3. That said sale was without any consideration, and that we executed this affidavit to
establish the aforestated facts for purposes of loan only but not for conveyance and transfer in
our name absolutely and forever but during the duration of the terms of the loan;

4. That we executed this affidavit voluntarily and freely in order to establish this facts (sic)
above-mentioned and to undertake to return the said land to the legal heirs of the late spouse,
Filomeno Taghoy, survived by his widow, Rita Amit-Taghoy, upon full payment of our
intended loan.

The August 10, 1982 Joint Affidavit, on the other hand, averred:

3. That the truth of the matter is that said Lot No. 3635-B was sold without any purchase price
or consideration paid to said Filomeno Taghoy, but for the purpose of securing a loan in our
name but which amount of said loan shall be divided equally among us, the legal heirs of
Filomeno Taghoy;

4. That in case the loan will be fully paid, we shall obligate ourselves to resell, reconvey the said
Lot No. 3635-B in favor of the Heirs of Filomeno Taghoy and Rita Amit, and in case, the said
loan will not be post (sic) through.

5. That we executed this affidavit voluntarily and freely in order to establish the aforestated facts
and to attest the fact that said deed of confirmation of sale is only for purposes of convenience in
securing the loan and not for absolute conveyance or sale.[36]

The joint affidavits are very solid pieces of evidence in the petitioners' favor. They constitute
admissions against interest made by the respondents under oath. An admission against interest is
the best evidence that affords the greatest certainty of the facts in dispute,[37] based on the
presumption that no man would declare anything against himself unless such declaration is true.
[38]
It is fair to presume that the declaration corresponds with the truth, and it is his fault if it does
not.[39]

Thus, by the respondents' own admissions, they never intended to be bound by the sale; they
merely executed the documents for convenience in securing a bank loan, and they agreed to
reconvey the subject property upon payment of the loan. The sale was absolutely simulated and,
therefore, void.

We find that the CA misappreciated Margarita's testimony that the respondents are entitled to the
entire property because they redeemed or paid the bank loan.[40] The failure of the other heirs to
reimburse the amounts advanced by the respondents in payment of the loan did not entitle the
latter to claim full ownership of the co-owned property.[41] It only gave them the right to claim
reimbursement for the amounts they advanced in behalf of the co-ownership. The respondents'
advance payments are in the nature of necessary expenses for the preservation of the co-
ownership. Article 488 of the Civil Code provides that necessary expenses may be incurred by
one co-owner, subject to his right to collect reimbursement from the remaining co-owners.[42]
Until reimbursed, the respondents hold a lien upon the subject property for the amount they
advanced.

Based on the foregoing, we find that the CA erred in setting aside the decision of the RTC and in
dismissing the petitioners' complaint against the respondents.

WHEREFORE, we hereby REVERSE and SET ASIDE the decision dated August 26, 2002
and the resolution dated July 22, 2003 of the Court of Appeals in CA-G.R. CV No. 54385. The
decision dated February 23, 1994 of the Regional Trial Court, Branch 27, Lapu-Lapu City in
Civil Case No. 2247 is REINSTATED. No pronouncement as to costs.

SO ORDERED.

Leonor Valenzuela-Rosales inherited two parcels of land situated in Palanan,

Sta. Cruz, Laguna (the properties), registered as Original Certificates of Title Nos.
RO-527 and RO-528. After she passed away, her heirs executed on June 14, 1993
a Special Power of Attorney (SPA) in favor of Liwayway Abasolo (respondent)
empowering her to sell the properties.

Sometime in 1995, Corazon Marasigan (Corazon) wanted to buy the

properties which were being sold for P2,448,960, but as she had no available cash,
she broached the idea of first mortgaging the properties to petitioner Prudential
Bank and Trust Company (PBTC), the proceeds of which would be paid directly to
respondent. Respondent agreed to the proposal.

On Corazon and respondents consultation with PBTCs Head Office, its

employee, Norberto Mendiola (Mendiola), allegedly advised respondent to issue an
authorization for Corazon to mortgage the properties, and for her (respondent) to
act as one of the co-makers so that the proceeds could be released to both of them.

To guarantee the payment of the property, Corazon executed on August 25,

1995 a Promissory Note for P2,448,960 in favor of respondent.

By respondents claim, in October 1995, Mendiola advised her to transfer

the properties first to Corazon for the immediate processing of Corazons loan
application with assurance that the proceeds thereof would be paid directly to her
(respondent), and the obligation would be reflected in a bank guarantee.

Heeding Mendiolas advice, respondent executed a Deed of Absolute Sale

over the properties in favor of Corazon following which or on December 4, 1995,
Transfer Certificates of Title Nos. 164159 and 164160 were issued in the name of
Corazon.

Corazons application for a loan with PBTCs Tondo Branch was approved
on December 1995. She thereupon executed a real estate mortgage covering the
properties to secure the payment of the loan. In the absence of a written request for
a bank guarantee, the PBTC released the proceeds of the loan to Corazon.
 Respondent later got wind of the approval of Corazons loan application and
the release of its proceeds to Corazon who, despite repeated demands, failed to pay
the purchase price of the properties.

Respondent eventually accepted from Corazon partial payment in kind

consisting of one owner type jeepney and four passenger jeepneys, plus installment
payments, which, by the trial courts computation, totaled P665,000.

In view of Corazons failure to fully pay the purchase price, respondent filed
a complaint for collection of sum of money and annulment of sale and mortgage
with damages, against Corazon and PBTC (hereafter petitioner), before the
Regional Trial Court (RTC) of Sta. Cruz, Laguna.

In her Answer, Corazon denied that there was an agreement that the proceeds
of the loan would be paid directly to respondent. And she claimed that the vehicles
represented full payment of the properties, and had in fact overpaid P76,040.

Petitioner also denied that there was any arrangement between it and
respondent that the proceeds of the loan would be released to her. It claimed that it
may process a loan application of the registered owner of the real property who
requests that proceeds of the loan or part thereof be payable directly to a third party
[but] the applicant must submit a letter request to the Bank.
 On pre-trial, the parties stipulated that petitioner was not a party to the
contract of sale between respondent and Corazon; that there was no written
request that the proceeds of the loan should be paid to respondent; and that
respondent received five vehicles as partial payment of the properties.

Despite notice, Corazon failed to appear during the trial to substantiate her
claims.

By Decision of March 12, 2004, Branch 91 of the Sta. Cruz, Laguna RTC
rendered judgment in favor of respondent and against Corazon who was made
directly liable to respondent, and against petitioner who was made subsidiarily
liable in the event that Corazon fails to pay. Thus the trial court disposed:

WHEREFORE, premises considered, finding the plaintiff has established

her claim against the defendants, Corazon Marasigan and Prudential Bank and
Trust Company, judgment is hereby rendered in favor of the plaintiff ordering:

Defendant Corazon Marasigan to pay the plaintiff the amount of

P1,783,960.00 plus three percent (3%) monthly interest per month from August
25, 1995 until fully paid. Further, to pay the plaintiff the sum equivalent to twenty
percent five [sic] (25%) of P1,783,960.00 as attorneys fees.

Defendant Prudential Bank and Trust Company to pay the plaintiff the
amount of P1,783,960.00 or a portion thereof plus the legal rate of interest per
annum until fully paid in the event that Defendant Corazon Marasigan fails to
pay the said amount or a portion thereof.

Other damages claimed not duly proved are hereby dismissed.

 So Ordered. (emphasis in the original; underscoring partly in the
original, partly supplied)

In finding petitioner subsidiarily liable, the trial court held that petitioner
breached its understanding to release the proceeds of the loan to respondent:

Liwayway claims that the bank should also be held responsible for breach
of its obligation to directly release to her the proceeds of the loan or part thereof
as payment for the subject lots. The evidence shows that her claim is valid. The
Bank had such an obligation as proven by evidence. It failed to rebut the credible
testimony of Liwayway which was given in a frank, spontaneous, and
straightforward manner and withstood the test of rigorous cross-examination
conducted by the counsel of the Bank. Her credibility is further strengthened by
the corroborative testimony of Miguela delos Reyes who testified that she went
with Liwayway to the bank for several times. In her presence, Norberto Mendiola,
the head of the loan department, instructed Liwayway to transfer the title over the
subject lots to Corazon to facilitate the release of the loan with the guarantee that
Liwayway will be paid upon the release of the proceeds.

Further, Liwayway would not have executed the deed of sale in favor of
Corazon had Norberto Mendiola did not promise and guarantee that the proceeds
of the loan would be directly paid to her. Based on ordinary human experience,
she would not have readily transferred the title over the subject lots had there been
no strong and reliable guarantee. In this case, what caused her to transfer title is
the promise and guarantee made by Norberto Mendiola that the proceeds of the
loan would be directly paid to her. (emphasis underscoring supplied)

On appeal, the Court of Appeals by Decision of January 14, 2008, affirmed

the trial courts decision with modification on the amount of the balance of the
purchase price which was reduced from P1,783,960 to P1,753,960. It disposed:
 WHEREFORE, premises considered, the assailed Decision dated March
12, 2004 of the Regional Trial Court of Sta. Cruz, Laguna, Branch 91, is
AFFIRMED WITH MODIFICATION as to the amount to be paid which is
P1,753,960.00.

SO ORDERED. (emphasis in the original; underscoring supplied)

Petitioners motion for reconsideration having been denied by the appellate

court by Resolution of February 23, 2009, the present petition for review was filed.

The only issue petitioner raises is whether it is subsidiarily liable.

The petition is meritorious.

In the absence of a lender-borrower relationship between petitioner and

Liwayway, there is no inherent obligation of petitioner to release the proceeds of
the loan to her.

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

practices are essential to perform its lending function effectively and minimize the
risk inherent in any extension of credit.
 Thus, Section X302 of the Manual of Regulations for Banks provides:

X-302. To ensure that timely and adequate management action is taken to

maintain the quality of the loan portfolio and other risk assets and that adequate
loss reserves are set up and maintained at a level sufficient to absorb the loss
inherent in the loan portfolio and other risk assets, each bank shall establish a
system of identifying and monitoring existing or potential problem loans and
other risk assets and of evaluating credit policies vis--vis prevailing
circumstances and emerging portfolio trends. Management must also recognize
that loss reserve is a stabilizing factor and that failure to account appropriately for
losses or make adequate provisions for estimated future losses may result in
misrepresentation of the banks financial condition.

In order to identify and monitor loans that a bank has extended, a system of
documentation is necessary. Under this fold falls the issuance by a bank of a
guarantee which is essentially a promise to repay the liabilities of a debtor, in this
case Corazon. It would be contrary to established banking practice if Mendiola
issued a bank guarantee, even if no request to that effect was made.

The principle of relativity of contracts in Article 1311 of the Civil Code

supports petitioners cause:

Art. 1311. Contracts take effect only between the parties, their assigns and
heirs, except in case where the rights and obligations arising from the contract are
not transmissible by their nature, or by stipulation or by provision of law. The heir
is not liable beyond the value of the property he received from the decedent.

If a contract should contain some stipulation in favor of a third person, he

may demand its fulfillment provided he communicated his acceptance to the
obligor before its revocation. A mere incidental benefit or interest of a person is
 not sufficient. The contracting parties must have clearly and deliberately
conferred a favor upon a third person. (underscoring supplied)

For Liwayway to prove her claim against petitioner, a clear and deliberate
act of conferring a favor upon her must be present. A written request would have
sufficed to prove this, given the nature of a banking business, not to mention the
amount involved.

Since it has not been established that petitioner had an obligation to

Liwayway, there is no breach to speak of. Liwayways claim should only be
directed against Corazon. Petitioner cannot thus be held subisidiarily liable.

To the Court, Liwayway did not rely on Mendiolas representations, even if

he indeed made them. The contract for Liwayway to sell to Corazon was perfected
from the moment there was a meeting of minds upon the properties-object of the
contract and upon the price. Only the source of the funds to pay the purchase price
was yet to be resolved at the time the two inquired from Mendiola. Consider
Liwayways testimony:

Q: We are referring to the promissory note which you aforementioned a while

ago, why did this promissory note come about?

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

That it was on Corazons execution of a promissory note that prompted Liwayway

to finally execute the Deed of Sale is thus clear.

The trial Courts reliance on the doctrine of apparent authority that the
principal, in this case petitioner, is liable for the obligations contracted by its agent,
in this case Mendiola, does not lie. Prudential Bank v. Court of Appeals
instructs:

[A] banking corporation is liable to innocent third persons where the

representation is made in the course of its business by an agent acting within the
general scope of his authority even though, in the particular case, the agent is
secretly abusing his authority and attempting to perpetuate fraud upon his
principal or some person, for his own ultimate benefit. (underscoring supplied)

The onus probandi that attempt to commit fraud attended petitioners

employee Mendiolas acts and that he abused his authority lies on Liwayway. She,
however, failed to discharge the onus. It bears noting that Mendiola was not privy
to the approval or disallowance of Corazons application for a loan nor that he
would benefit by the approval thereof.
 Aside from Liwayways bare allegations, evidence is wanting to show that
there was collusion between Corazon and Mendiola to defraud her. Even in
Liwayways Complaint, the allegation of fraud is specifically directed against
Corazon.

IN FINE, Liwayways cause of action lies against only Corazon.

WHEREFORE, the Decision of January 14, 2008 of the Court of Appeals,

in so far as it holds petitioner, Prudential Bank and Trust Company (now Bank of
the Philippine Islands), subsidiary liable in case its co-defendant Corazon
Marasigan, who did not appeal the trial courts decision, fails to pay the judgment
debt, is REVERSED and SET ASIDE. The complaint against petitioner is
accordingly DISMISSED.

MAXWELL HEAVY G.R. No. 179395

EQUIPMENT CORPORATION,

Petitioner, Present:

CARPIO, J., Chairperson,

VELASCO, JR.,*

- versus - NACHURA,

ABAD, and
 MENDOZA, JJ.

ERIC UYCHIAOCO YU, Promulgated:

Respondent. December 15, 2010

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

DECISION

CARPIO, J.:

The Case

This petition for review1 assails the 21 June 2007 Decision2 of the Court of Appeals in
CA-G.R. CV No. 84522. The Court of Appeals affirmed with modification the 11
January 2005 Decision3 of the Regional Trial Court, National Capital Judicial Region,
Branch 167, Pasig City. The trial court ordered, among others, the reimbursement by
petitioner Maxwell Heavy Equipment Corporation (Maxwell) of the amount of
P8,888,932.33 to respondent Eric Uychiaoco Yu (Yu) for the latters payment of
Maxwells loan obligation with the Bank of Philippine Islands (BPI).

The Facts
On 3 April 2001 and 2 May 2001, Maxwell obtained loans from BPI, G. Araneta
Avenue Branch, in the total sum of P8,800,000.00 covered by two Promissory Notes
and secured by a real estate mortgage over two lots registered in Yus name.
Promissory Note No. 1-6743742-001 for P800,000.00 was due on 26 March 20024
while Promissory Note No. 1-6743742-002 for P8,000,000.00 was due on 24 April
2002.5 Yu signed as Maxwells co-maker in the Promissory Note covering the
P8,000,000 loan. It appears that Yu did not sign as co-maker in the Promissory Note
for P800,000.

Maxwell defaulted in the payment of the loans, forcing Yu to pay BPI P8,888,932.33
representing the principal loan amounts with interest, through funds borrowed from
his mother, Mina Yu, to prevent the foreclosure of his real properties.

Thereafter, Yu demanded reimbursement from Maxwell of the entire amount paid to

BPI. However, Maxwell failed to reimburse Yu. Consequently, Yu filed with the trial
court a complaint for sum of money and damages.

Maxwell denied liability for Yus claimed amount. Maxwell countered that the
transactions with BPI were merely accommodation loans purely for Yus benefit.
Maxwell likewise pointed out that Yu, having signed as co-maker, is solidarily liable
for the loans. Maxwell also insisted that Yus mother is the real payor of the loans and
thus, is the real party-in-interest to institute the complaint.

The trial court ruled in favor of Yu, disposing of the case as follows:
 WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant Maxwell Heavy Equipment Corporation ordering the latter to pay the former
the following sums of money:

a) The sum of Php 8,888,932.33/00, representing the principal obligation, with legal
interest thereon computed at the legal rate from the time of default on 2 April 2002 until
full payment thereof;

b) The sum of Php 200,000.00, for and as reasonable attorneys fees and;

c. Costs of suit.

Bereft of evidence, the claim for moral as well as exemplary damages is hereby
DENIED.

Also, for lack of sufficient factual and legal basis, the counterclaim is similarly
DISMISSED.

SO ORDERED.6

On appeal, the Court of Appeals affirmed with modification the ruling of the trial
court, by deleting the award of attorneys fees and specifying the rate of interest on the
allegedly reimbursable amount from Maxwell.

Hence, this petition.

 The Ruling of the Court of Appeals

In affirming the trial courts ruling, the Court of Appeals rejected Maxwells
contention that the transactions with BPI were accommodation loans solely for Yus
benefit since (1) Maxwell was paying for the loans interest and (2) various demand
letters from BPI were addressed to Maxwell as the borrower.

The Court of Appeals gave credence to the testimonies of Yu and his mother on the
liability of Maxwell for the claimed amount. On the other hand, it disbelieved the
testimony of Caroline Yu, then president of Maxwell, denying Yus entitlement to
reimbursement for the payment he made to BPI since it was uncorroborated by any
documentary evidence.

The dispositive portion of the decision of the Court of Appeals reads:

WHEREFORE, the appealed Decision dated January 11, 2005 is affirmed, subject to the
modification that:

1. the award of attorneys fees is deleted; and

2. the legal rate of interest on the principal amount of P8,800,000.00 is

twelve per cent (12%) per annum from the filing of the complaint on
August 19, 2003 until the finality of this Decision. After this Decision
becomes final and executory, the applicable rate shall also be twelve per
cent (12%) per annum until its full satisfaction.

SO ORDERED.7
 The Issue

The main issue in this case is whether Yu is entitled to reimbursement from Maxwell
for the loan payment made to BPI. This issue in turn depends on whether the
transactions with BPI were accommodation loans solely for Yus benefit.

The Ruling of the Court

The petition lacks merit.

This Court is not a trier of facts.8 It is not the Courts function to analyze or weigh the
evidence all over again, its jurisdiction being limited to reviewing errors of law that
might have been committed by the lower court. 9

In this case, the question of whether Maxwells transactions with BPI were
accommodation loans for Yus benefit is clearly factual, and thus, beyond the Courts
review.

Moreover, factual findings of the trial court, when affirmed by the Court of Appeals,
will not be disturbed by this Court.10 As a rule, such findings by the lower courts are
entitled to great weight and respect, and are deemed final and conclusive on this Court
when supported by the evidence on record. 11 The foregoing principle applies to the
present controversy.
In this case, the Court of Appeals affirmed the trial courts finding that it was Yu who
accommodated Maxwell by allowing the use of his real properties as collateral [for
Maxwells loans]. The appellate court concurred with the trial court that Maxwell is
the principal borrower since it was Maxwell which paid interest on the loans.
Additionally, various documents designated Maxwell as borrower and
communications demanding payment of the loans sent by BPI were addressed to
Maxwell as the borrower, with Yu indicated only as the owner of the real properties as
loan collateral.

Furthermore, we affirm the finding that Maxwell gravely failed to substantiate its
claim that the loans were purely for Yus benefit. Maxwells evidence consisting of the
testimony of Caroline Yu, Yus spouse and then president of Maxwell, was
uncorroborated.

On the other hand, Yus and his mothers testimonies were supported by various
documents establishing the real nature of the loan, and belying Maxwells allegations.
Yu presented the following: (1) Corporate Resolution to Borrow, dated 21 August
2000, where Maxwell authorized Caroline Yu to loan from BPI on its behalf; (2) the
two Promissory Notes, dated 3 April 2001 and 2 May 2001, signed by Caroline Yu as
Maxwells representative; and (3) two disclosure statements, dated 3 April 2001 and 2
May 2001, on loan/credit transaction signed by Caroline Yu, designating Maxwell
as the borrower. Based on the foregoing, it is clear that Maxwell is the principal
borrower solely liable for the payment of the loans.

While Maxwell is the real debtor, it was Yu who paid BPI the entire amount of
Maxwells loans. Hence, contrary to Maxwells view, Article 1236 of the Civil Code
applies. This provision reads:
 The creditor is not bound to accept payment or performance by a third person who has no
interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid, except that if
he paid without the knowledge or against the will of the debtor, he can recover only
insofar as the payment has been beneficial to the debtor.

The above provision grants the plaintiff (Yu) the right to recovery and creates an
obligation on the part of the defendant (Maxwell) to reimburse the plaintiff. In this
case, Yu paid BPI P8,888,932.33, representing the amount of the principal loans with
interest, thereby extinguishing Maxwells loan obligation with BPI. Pursuant to
Article 1236 of the Civil Code, Maxwell, which was indisputably benefited by Yus
payment, must reimburse Yu the same amount of P8,888,932.33.12

WHEREFORE, the Court DENIES the petition and AFFIRMS the 21 June 2007
Decision of the Court of Appeals in CA-G.R. CV No. 84522.

SO ORDERED.