Nego Assignment Part I

8/12/2019 Nego Assignment Part I

1/63

[G.R. No. 141278. March 23, 2004]

MICHAEL A. OSMEA, pet i t ioner, vs.CITIBANK, N.A., ASSOCIATEDBANK and FRANK TAN, respondents.

D E C I S I O N

CALLEJO, SR., J.:

This is a petition for review on certiorari under Rule 45 of the Rules ofCourt, as amended, of the Decision[1]of the Court of Appeals in CA-G.R. CVNo. 49529 which affirmed in totothe Decision[2]of the Regional Trial Court of

Makati City, Branch 38, in Civil Case No. 91-538.

As culled from the records, the appeal at bench stemmed from thefollowing factual backdrop:

On February 22, 1991, the petitioner filed with the Regional Trial Court ofMakati an action for damages against the respondents Citibank, N.A. and

Associated Bank.[3]The case was docketed as Civil Case No. 91-538. Thecomplaint materially alleged that, on or about August 25, 1989, the petitionerpurchased from the Citibank Managers Check No. 20-015301 (the check forbrevity) in the amount of P1,545,000 payable to respondent Frank Tan; thepetitioner later received information that the aforesaid managers check wasdeposited with the respondent Associated Bank, Rosario Branch, to theaccount of a certain Julius Dizon under Savings Account No. 19877; theclearing and/or payment by the respondents of the check to an improper partyand the absence of any indorsement by the payee thereof, respondent FrankTan, is a clear violation of the respondents obligations under the NegotiableInstruments Law and standard banking practice; considering that thepetitioners intended payee for the check, the respondent Frank Tan, did notreceive the value thereof, the petitioner demanded from the respondents

Citibank and the Associated Bank the payment or reimbursement of the valueof the check; the respondents, however, obstinately refused to heed hisrepeated demands for payment and/or reimbursement of the amount of thecheck; hence, the petitioner was compelled to file this complaint praying forthe restitution of the amount of the check, and for moral damages andattorneys fees.

8/12/2019 Nego Assignment Part I

2/63

On June 17, 1991, the petitioner, with leave of court, filed an AmendedComplaint[4]impleading Frank Tan as an additional defendant. The petitioneraverred therein that the check was purchased by him as a demand loan torespondent Frank Tan. Since apparently respondent Frank Tan did notreceive the proceeds of the check, the petitioner might have no right to collect

from respondent Frank Tan and is consequently left with no recourse but toseek payment or reimbursement from either or both respondents Citibankand/or Associated Bank.

In its answer to the amended complaint,[5]the respondent Associated Bankalleged that the petitioner was not the real party-in-interest but respondentFrank Tan who was the payee of the check. The respondent also maintainedthat the check was deposited to the account of respondent Frank Tan, a.k.a.Julius Dizon, through its Ayala Head Office and was credited to the savingsaccount of Julius Dizon; the Ayala office confirmed with the Rosario Branch

that the account of Julius Dizon is also in reality that of respondent Frank Tan;it never committed any violation of its duties and responsibilities as theproceeds of the check went and was credited to respondent Frank Tan, a.k.a.Julius Dizon; the petitioners affirmative allegation of non-payment to thepayee is self-serving; as such, the petitioners claim for damages is baseless,unfounded and without legal basis.

On the other hand, the respondent Citibank, in answer to the amendedcomplaint,[6]alleged that the payment of the check was made by it in duecourse and in the exercise of its regular banking function. Since a managers

check is normally purchased in favor of a third party, the identity of whom inmost cases is unknown to the issuing bank, its only responsibility when payingthe check was to examine the genuineness of the check. It had no way ofascertaining the genuineness of the signature of the payee respondent FrankTan who was a total stranger to it. If at all, the petitioner had a cause of actiononly against the respondent Associated Bank which, as depository orcollecting bank, was obliged to make sure that the check in question wasproperly endorsed by the payee. It is not expected of the respondent Citibankto ascertain the genuineness of the indorsement of the payee or even the lackof indorsement by him, most especially when the check was presented for

payment with the respondent Associated Banks guaranteeing all priorindorsements or lack thereof.

On March 16, 1992, the trial court declared Frank Tan in default for failureto file his answer.[7]On June 10, 1992, the pre-trial conference was concludedwithout the parties reaching an amicable settlement.[8]Hence, trial on themerits ensued.

8/12/2019 Nego Assignment Part I

3/63

After evaluating the evidence adduced by the parties, the trial courtresolved that the preponderance of evidence supports the claim of thepetitioner as against respondent Frank Tan only but not against respondentsBanks. Hence, on February 21, 1995, the trial court rendered judgment infavor of the petitioner and against respondent Frank Tan. The complaints

against the respondents Banks were dismissed. The dispositive portion of thedecision reads:

WHEREFORE, judgment is hereby rendered as follows :

1. Ordering defendant Frank Tan to pay plaintiff Michael Osmea the amount of One

Million Five Hundred Forty-Five Thousand (P1,545,000.00) Pesos, Philippine

Currency, with interest thereon at 12% per annum from January 1990, date of extra-

judicial demand until the full amount is paid;

2. Dismissing the complaint against defendants Citibank and Associated Bank;

3. Dismissing the counter-claims and the cross-claim of Citibank against Associated

Bank for lack of merit.

With costs against defendant Frank Tan.[9]

The petitioner appealed the decision,[10]while respondent Frank Tan didnot. On November 26, 1999, the appellate court rendered judgmentaffirming in totothe decision of the trial court. Aggrieved, the petitioner

assailed the decision in his petition at bar.

The petitioner contends that:

I. RESPONDENT COURT ERRED IN NOT HOLDING CITIBANK AND ASSOCIATEDBANK LIABLE TO PETITIONER FOR THE ENCASHMENT OF CITIBANKMANAGERS CHECK NO. 20015301 BY JULIUS DIZON.

II. RESPONDENT COURT ERRED IN HOLDING THAT FRANK TAN AND JULIUSDIZON ARE ONE AND THE SAME PERSON.

III. THE IDENTITY OF FRANK TAN AS JULIUS DIZON WAS KNOWN ONLY TOASSOCIATED BANK AND WAS NOT BINDING ON PETITIONER.[11]

The petition is denied.

The petitioner asserts that the check was payable to the order ofrespondent Tan. However, the respondent Associated Bank ordered thecheck to be deposited to the account of one Julius Dizon, although the checkwas not endorsed by respondent Tan. As Julius Dizon was not a holder of thecheck in due course, he could not validly negotiate the check. The latter was

8/12/2019 Nego Assignment Part I

4/63

not even a transferee in due course because respondent Tan, the payee, didnot endorse the said check. The position of the respondent Bank is akin tothat of a bank accepting a check for deposit wherein the signature of thepayee or endorsee has been forged.

The contention of the petitioner does not hold water.The fact of the matter is that the check was endorsed by Julius Dizon

and was deposited and credited to Savings Account No. 19877 with therespondent Associated Bank. But the evidence on record shows that the saidaccount was in the name of Frank Tan Guan Leng, which is the Chinesename of the respondent Frank Tan, who also uses the alias Julius Dizon. Ascorrectly ruled by the Court of Appeals:

On the other hand, Associated satisfactorily proved that Tan is using and is also

known by his alias of Julius Dizon. He signed theAgreement On Bills

Purchased(Exh. 1) andContinuing Suretyship Agreement(Exh. 2) bothacknowledged on January 16, 1989, where his full name is stated to be FRANK Tan

Guan Leng (aka JULIUS DIZON). Exh. 1 also refers to his Account No.

SA#19877, the very same account to which theP1,545,000.00 from the managers

check was deposited. Osmea countered that such use of an alias is illegal. That is

but an irrelevant casuistry that does not detract from the fact that the payee Tan as

Julius Dizon has encashed and deposited the P1,545,000.00.[12]

The respondent Associated Bank presented preponderant evidence tosupport its assertion that respondent Tan, the payee of the check, did receivethe proceeds of the check. It adduced evidence that Julius Dizon and FrankTan are one and the same person. Respondent Tan was a regular andtrusted client or depositor of the respondent Associated Bank in its branch atRosario, Binondo, Manila. As such, respondent Tan was allowed to maintaintwo (2) savings accounts therein.[13]The first is Savings Account No. 20161-3under his name Frank Tan.[14]The other is Savings Account No. 19877 underhis assumed Filipino name Julius Dizon,[15]to which account the check wasdeposited in the instant case. Both witnesses for the respondent AssociatedBank, Oscar Luna (signature verifier) and Luz Lagrimas (new accounts clerk),testified that respondent Tan was using the alias Julius Dizon, and that bothnames referred to one and the same person, as Frank Tan himself regularlytransacted business at the bank under both names.[16]This is also evidencedby the Agreement on Bills Purchased[17]and the Continuing Suretyship

Agreement[18]executed between Frank Tan and the respondent AssociatedBank on January 16, 1989. Frank Tans name appears in said document asFRANK TAN GUAN LENG (a.k.a. JULIUS DIZON).[19]The same documentaryevidence also made reference to Savings Account No. 19877,[20]the very same

8/12/2019 Nego Assignment Part I

5/63

account to which the check was deposited and the entire P1,545,000 wascredited. Additionally, Citibank Check No. 075713[21]which was presented bythe petitioner to prove one of the loans previously extended to respondent Tanshowed that the endorsement of respondent Tan at the dorsal side thereof[22]isstrikingly similar to the signatures of Frank Tan appearing in said

agreements.

By seeking to recover the loan from respondent Tan, the petitioneradmitted that respondent Tan received the amount of the check. Thisapprehension was not without any basis at all, for after the petitionerattempted to communicate with respondent Tan on January or February 1990,demanding payment for the loan, respondent Tan became elusive of thepetitioner.[23]As a matter of fact, respondent Tan did not file his answer to theamended complaint and was never seen or heard of by thepetitioner.[24] Besides, if it were really a fact that respondent Tan did not

receive the proceeds of the check, he could himself have initiated the instantcomplaint against respondents Banks, or in the remotest possibility, joined thepetitioner in pursuing the instant claim.

The petitioner initially sought to recover from the respondents Banks theamount of P1,545,000 corresponding to the loan obtained by respondent Tanfrom him, obviously because respondent Tan had no intent to pay theamount. The petitioner alleges that the respondents Banks were negligent inpaying the amount to a certain Julius Dizon, in relation to the pertinentprovisions of the Negotiable Instruments Law, without the proper indorsement

of the payee, Frank Tan. The petitioner cites the ruling of the CourtinAssociated Bank v. Court of Appeals,[25]in which we outlined the respectiveresponsibilities and liabilities of a drawee bank, such as the respondentCitibank, and a collecting bank, such as the defendant Associated Bank, inthe event that payment of a check to a person not designated as the payee, orwho is not a holder in due course, had been made. However, the ruling of theCourt therein does not apply to the present case for, as has been amplydemonstrated, the petitioner failed to establish that the proceeds of the checkwas indeed wrongfully paid by the respondents Banks to a person other thanthe intended payee. In addition, the Negotiable Instruments Law was enacted

for the purpose of facilitating, not hindering or hampering transactions incommercial paper. Thus, the said statute should not be tampered withhaphazardly or lightly. Nor should it be brushed aside in order to meet thenecessities in a single case.[26]

Moreover, the chain of events following the purported delivery of the checkto respondent Tan renders even more dubious the petitioners claim thatrespondent Tan had not received the proceeds of the check. Thus, the

8/12/2019 Nego Assignment Part I

6/63

petitioner never bothered to find out from the said respondent whether thelatter received the check from his messenger. And if it were to be supposedthat respondent Tan did not receive the check, given that his need for themoney was urgent, it strains credulity that respondent Tan never even madean effort to get in touch with the petitioner to inform the latter that he did not

receive the check as agreed upon, and to inquire why the check had not beendelivered to him. The petitioner and respondent Tan saw each other duringsocial gatherings but they never took the chance to discuss details on the loanor the check.[27]Their actuations are not those to be usually expected of friendsof 15 years who, as the petitioner would want to impress upon this Court,were transacting business on the basis of confidence.[28]In fact, the first timethat the petitioner attempted to communicate with respondent Tan was onJanuary or February 1990, almost five or six months after the expecteddelivery of the check, for the purpose of demanding payment for theloan. And it was only on that occasion that respondent Tan, as the petitionerinsinuates, informed him that he (Frank Tan) had not received the proceeds ofthe check and refused to pay his loan.[29]All told, the petitioners allegation thatrespondent Tan did not receive the proceeds of the check[30]is belied by theevidence on record and attendant circumstances.

Conversely, the records would disclose that even the petitioner himselfhad misgivings about the truthfulness of his allegation that respondent Tan didnot receive the amount of the check. This is made implicit by respondentTans being made a party-defendant to the case when the petitioner filed hisamended complaint. In his memorandum in the case below, the petitioner

averred inter aliathat:

The amount of P1,545,000.00 is sought to be recovered from:

1. Frank Tan for his failure to pay the loan extended by plaintiff; and

2. Associated Bank and Citibank for having accepted for deposit and/or paid the

Citibank managers check despite the absence of any signature/endorsement by the

named payee, Frank Tan.

The claim of the petitioner that respondent Tans use of an alias is illegaldoes not detract a whit from the fact that respondent Tan had been creditedby the respondent Associated Bank for the amount of the check. RespondentTan did not appeal the decision of the RTC.

IN LIGHT OF ALL THE FOREGOING,the petition is DENIED. TheDecision dated November 26, 1999 of the Court of Appeals in CA-G.R. CVNo. 49529 is hereby AFFIRMED. Costs against the petitioner.

8/12/2019 Nego Assignment Part I

7/63

SO ORDERED.

[G.R. No. 120639. September 25, 1998]

BPI EXPRESS CARD CORPORATION, petitioner, vs. COURT OF

APPEALS and RICARDO J. MARASIGAN, respondents.

D E C I S I O N

KAPUNAN, J.:

The question before this Court is whether private respondent can recover moral damagesarising from the cancellation of his credit card by petitioner credit card corporation.

The facts of the case are as stated in the decision of the respondent court,[1]to wit:

The case arose from the dishonor of the credit card of the plaintiff Atty.

Ricardo J. Marasigan by Cafe Adriatico, a business establishment accredited

with the defendant-appellant BPI Express Card Corporation (BECC for

brevity) on December 8, 1989 when the plaintiff entertained some guests

thereat.

The records of this case show that plaintiff, who is a lawyer by profession was

a complimentary member of BECC from February 1988 to February 1989 and

was issued Credit Card No. 100-012-5534 with a credit limit of P3,000.00 and

with a monthly billing every 27th of the month (Exh. N), subject to the terms

and conditions stipulated in the contract (Exh. 1-b). His membership was

renewed for another year or until February 1990 and the credit limit was

increased to P5,000.00 (Exh. A). The plaintiff oftentimes exceeded his credit

limits (Exhs. I, I-1 to I-12) but this was never taken against him by the

defendant and even his mode of paying his monthly bills in check was

tolerated. Their contractual relations went on smoothly until his statement ofaccount for October, 1989 amounting to P8,987.84 was not paid in due

time. The plaintiff admitted having inadvertently failed to pay his account for

the said month because he was in Quezon province attending to some

professional and personal commitments. He was informed by his secretary

that defendant was demanding immediate payment of his outstanding account,

was requiring him to issue a check forP15,000.00 which would include his

8/12/2019 Nego Assignment Part I

8/63

future bills, and was threatening to suspend his credit card. Plaintiff issued Far

East Bank and Trust Co. Check No. 494675 in the amount of P15,000.00,

postdated December 15, 1989 which was received on November 23, 1989 by

Tess Lorenzo, an employee of the defendant (Exhs. J and J-1), who in turn

gave the said check to Jeng Angeles, a co-employee who handles the account

of the plaintiff. The check remained in the custody of Jeng Angeles. Mr.Roberto Maniquiz, head of the collection department of defendant was

formally informed of the postdated check about a week later. On November

28, 1989, defendant served plaintiff a letter by ordinary mail informing him of

the temporary suspension of the privileges of his credit card and the inclusion

of his account number in their Caution List. He was also told to refrain from

further use of his credit card to avoid any inconvenience/embarrassment and

that unless he settles his outstanding account with the defendant within 5 days

from receipt of the letter, his membership will be permanently cancelled (Exh.

3). There is no showing that the plaintiff received this letter before December

8, 1989. Confident that he had settled his account with the issuance of the

postdated check, plaintiff invited some guests on December 8, 1989 and

entertained them at Caf Adriatico. When he presented his credit card to Caf

Adriatico for the bill amounting to P735.32, said card was dishonored. One of

his guests, Mary Ellen Ringler, paid the bill by using her own credit card, a

Unibankard (Exhs. M, M-1 and M-2).

In a letter addressed to the defendant dated December 12, 1989, plaintiff

requested that he be sent the exact billing due him as of December 15, 1989, to

withhold the deposit of his postdated check and that said check be returned to

him because he had already instructed his bank to stop the payment thereof asthe defendant violated their agreement that the plaintiff issue the check to the

defendant to cover his account amounting to only P8,987.84 on the condition

that the defendant will not suspend the effectivity of the card (Exh. D). A

letter dated December 16, 1989 was sent by the plaintiff to the manager of

FEBTC, Ramada Branch, Manila requesting the bank to stop the payment of

the check (Exhs. E, E-1). No reply was received by plaintiff from the

defendant to his letter dated December 12, 1989. Plaintiff sent defendant

another letter dated March 12, 1990 reminding the latter that he had long

rescinded and cancelled whatever arrangement he entered into with defendant

and requesting for his correct billing, less the improper charges and penalties,and for an explanation within five (5) days from receipt thereof why his card

was dishonored on December 8, 1989 despite assurance to the contrary by

defendant's personnel-in-charge, otherwise the necessary court action shall be

filed to hold defendant responsible for the humiliation and embarrassment

suffered by him (Exh. F). Plaintiff alleged further that after a few days, a

certain Atty. Albano, representing himself to be working with office of Atty.

8/12/2019 Nego Assignment Part I

9/63

Lopez, called him inquiring as to how the matter can be threshed out

extrajudicially but the latter said that such is a serious matter which cannot be

discussed over the phone. The defendant served its final demand to the

plaintiff dated March 21, 1990 requiring him to pay in full his overdue

account, including stipulated fees and charges, within 5 days from receipt

thereof or face court action also to replace the postdated check with cashwithin the same period or face criminal suit for violation of the Bouncing

Check Law (Exh. G/Exh. 13). The plaintiff, in a reply letter dated April 5,

1990 (Exh. H), demanded defendant's compliance with his request in his first

letter dated March 12, 1990 within three (3) days from receipt, otherwise the

plaintiff will file a case against them, x x x.[2]

Thus, on May 7, 1990 private respondent filed a complaint for damages against petitioner

before the Regional Trial Court of Makati, Branch 150, docketed as Civil Case No. 90-1174.

After trial, the trial court ruled for private respondent, finding that herein petitioner abused

its right in contravention of Article 19 of the Civil Code.[3]The dispositive portion of the decisionreads:

Wherefore, judgment is hereby rendered ordering the defendant to pay plaintiff

the following:

1. P100,000.00 as moral damages;

2. P50,000.00 as exemplary damages; and

3. P20,000.00 by way of attorney's fees.

On the other hand, plaintiff is ordered to pay defendant its outstanding

obligation in the amount of P14,439.41, amount due as of December 15,1989.[4]

The trial court's ruling was based on its findings and conclusions, to wit:

There is no question that plaintiff had been in default in the payment of his

billings for more than two months, prompting defendant to call him and

reminded him of his obligation. Unable to personally talk with him, this Court

is convinced that somehow one or another employee of defendant called him

up more than once.

However, while it is true that, as indicated in the terms and conditions of theapplication for BPI credit card, upon failure of the cardholder to pay his

outstanding obligation for more than thirty (30) days, the defendant can

automatically suspend or cancel the credit card, that reserved right should not

have been abused, as it was in fact abused, in plaintiff's case. What is more

peculiar here is that there have been admitted communications between

plaintiff and defendant prior to the suspension or cancellation of plaintiff's

8/12/2019 Nego Assignment Part I

10/63

credit card and his inclusion in the caution list. However, nowhere in any of

these communications was there ever a hint given to plaintiff that his card had

already been suspended or cancelled. In fact, the Court observed that while

defendant was trying its best to persuade plaintiff to update its account and pay

its obligation, it had already taken steps to suspend/cancel plaintiff's card and

include him in the caution list. While the Court admires defendant'sdiplomacy in dealing with its clients, it cannot help but frown upon the

backhanded way defendant dealt with plaintiff's case. For despite Tess

Lorenzo's denial, there is reason to believe that plaintiff was indeed assured by

defendant of the continued honoring of his credit card so long as he pays his

obligation of P15,000.00. Worst, upon receipt of the postdated check,

defendant kept the same until a few days before it became due and said check

was presented to the head of the collection department, Mr. Maniquiz, to take

steps thereon, resulting to the embarrassing situation plaintiff found himself in

on December 8, 1989. Moreover, Mr. Maniquiz himself admitted that his

request for plaintiff to replace the check with cash was not because it was a

postdated check but merely to tally the payment with the account due.

Likewise, the Court is not persuaded by the sweeping denials made by Tess

Lorenzo and her claim that her only participation was to receive the subject

check. Her immediate superior, Mr. Maniquiz testified that he had instructed

Lorenzo to communicate with plaintiff once or twice to request the latter to

replace the questioned check with cash, thus giving support to the testimony of

plaintiff's witness, Dolores Quizon, that it was one Tess Lorenzo who she had

talked over the phone regarding plaintiff's account and plaintiff's own

statement that it was this woman who assured him that his card has not yetbeen and will not be cancelled/suspended if he would pay defendant the sum

of P15,000.00.

Now, on the issue of whether or not upon receipt of the subject check,

defendant had agreed that the card shall remain effective, the Court takes note

of the following:

1. An employee of defendant corporation unconditionally accepted the subject check

upon its delivery, despite its being a postdated one; and the amount did not tally with

plaintiff's obligation;

2. Defendant did not deny nor controvert plaintiff's claim that all his payments were

made in checks;

3. Defendant's main witness, Mr. Maniquiz, categorically stated that the request for

plaintiff to replace his postdated check with cash was merely for the purpose of

8/12/2019 Nego Assignment Part I

11/63

tallying plaintiff's outstanding obligation with his payment and not to question the

postdated check;

4. That the card was suspended almost a week after receipt of the postdated check;

5. That despite the many instances that defendant could have informed plaintiff overthe phone of the cancellation or suspension of his credit card, it did not do so, which

could have prevented the incident of December 8, 1989, the notice allegedly sent thru

ordinary mail is not only unreliable but takes a long time. Such action as suspension

of credit card must be immediately relayed to the person affected so as to avoid

embarrassing situations.

6. And that the postdated check was deposited on December 20, 1989.

In view of the foregoing observations, it is needless to say that there was

indeed an arrangement between plaintiff and the defendant, as can be inferredfrom the acts of the defendant's employees, that the subject credit card is still

good and could still be used by the plaintiff as it would be honored by the duly

accredited establishment of defendant.[5]

Not satisfied with the Regional Trial Court's decision, petitioner appealed to the Court of

Appeals, which, in a decision promulgated on March 9, 1995 ruled in its dispositive portion:

WHEREFORE, premises considered, the decision appealed from is hereby

AFFIRMED with the MODIFICATION that the defendant-appellant shall pay

the plaintiff-appellee the following: P50,000.00 as moral damages; P25,000.00

as exemplary damages; and P10,000.00 by way of attorney's fees.

SO ORDERED.[6]

Hence, the present petition on the following assignment of errors:

I

THE LOWER COURT ERRED IN DECLARING THAT THERE WAS

INDEED AN AGREEMENT OR ARRANGEMENT ENTERED INTO

BETWEEN THE PARTIES WHEREIN THE DEFENDANT REQUIRED

THE PLAINTIFF TO ISSUE A POSTDATED CHECK IN ITS FAVOR IN

THE AMOUNT OF P15,000.00 AS PAYMENT FOR HIS OVERDUEACCOUNTS, WITH THE CONDITION THAT THE PLAINTIFF'S CREDIT

CARD WILL NOT BE SUSPENDED OR CANCELLED.

II

THE LOWER COURT ERRED IN HOLDING DEFENDANT LIABLE FOR

DAMAGES AND ATTORNEY'S FEES ARISING OUT FROM THE

DISHONOR OF THE PLAINTIFF'S CREDIT CARD.[7]

8/12/2019 Nego Assignment Part I

12/63

We find the petition meritorious.

The first issue to be resolved is whether petitioner had the right to suspend the credit card of

the private respondent.

Under the terms and conditions of the credit card, signed by the private respondent, any card

with outstanding balances after thirty (30) days from original billing/statement shallautomatically be suspended, thus:

PAYMENT OF CHARGES - BECC shall furnish the Cardholder a monthly

statement of account made through the use of the CARD and the Cardholder

agrees that all charges made through the use of the CARD shall be paid by the

Cardholder on or before the last day for payments, which is twenty (20) days

from the date of the said statement of account, and such payment due date

may be changed to an earlier date if the Cardholder's account is considered

overdue and/or with balances in excess of the approved credit limit; or to such

other date as may be deemed proper by the CARD issuer with notice to the

Cardholder on the same monthly statement of account. If the last day forpayment falls on a Saturday, Sunday or Holiday, the last day for payment

automatically becomes the last working day prior to said payment

date. However, notwithstanding the absence or lack of proof of service of the

statement of charges to the Cardholder, the latter shall pay any or all charges

made through the use of the CARD within thirty (30) days from the date or

dates thereof. Failure of Cardholder to pay any and all charges made through

the CARD within the payment period as stated in the statement of charges or

within thirty (30) days from actual date or dates whichever occur earlier, shall

render him in default without the necessity of demand from BECC, which the

Cardholder expressly waives. These charges or balance thereof remaining

unpaid after the payment due date indicated on the monthly statement of

account shall bear interest at the rate of 3% per month and an additional

penalty fee equivalent to another 3% of the amount due for every month or a

fraction of a month's delay. PROVIDED, that if there occurs any change on

the prevailing market rates. BECC shall have the option to adjust the rate of

interest and/or penalty fee due on the outstanding obligation with prior notice

to the Cardholder.

xxx xxx xxx

Any CARD with outstanding balances unpaid after thirty (30) days from

original billing/statement date shall automatically be suspended, and those

with accounts unpaid after sixty (60) days from said original billing/statement

date shall automatically be cancelled, without prejudice to BECC's right to

suspend or cancel any CARD any time and for whatever reason. In case of

default in his obligation as provided for in the preceding paragraph,

Cardholder shall surrender his CARD to BECC and shall in addition to the

8/12/2019 Nego Assignment Part I

13/63

interest and penalty charges aforementioned, pay the following liquidated

damages and/or fees (a) a collection fee of 25% of the amount due if the

account is referred to a collection agency or attorney; (b) a service fee of P100

for every dishonored check issued by the Cardholder in payment of his

account, with prejudice, however, to BECC's right of considering Cardholder's

obligation unpaid, cable cost for demanding payment or advising cancellationof membership shall also be for Cardholder's account; and (c) a final fee

equivalent to 25% of the unpaid balance, exclusive of litigation expenses and

judicial costs, if the payment of the account is enforced through court action.[8]

The aforequoted provision of the credit card cannot be any clearer. By his own admission,private respondent made no payment within thirty days for his original billing/statement dated 27

September 1989. Neither did he make payment for his original billing/statement dated 27

October 1989. Consequently, as early as 28 October 1989, thirty days from the non-payment of

his billing dated 27 September 1989, petitioner corporation could automatically suspend hiscredit card.

The next issue is whether prior to the suspension of private respondent's credit card on 28

November 1989, the parties entered into an agreement whereby the card could still be used and

would be duly honored by duly accredited establisments.

We agree with the findings of the respondent court, that there was an arrangement between

the parties, wherein the petitioner required the private respondent to issue a check worth P15,000

as payment for the latter's billings. However, we find that the private respondent was not able tocomply with his obligation.

As the testimony of private respondent himself bears out, the agreement was for the

immediate payment of the outstanding account:

Q In said statement of account that you are supposed to pay the P8,974.84 the charge of interest andpenalties, did you note that?

A Yes, sir. I noted the date.

Q When?

A When I returned from the Quezon province, sir.

Q When?

A I think November 22, sir.

Q So that before you used again the credit card you were not able to pay immediately this P8,987.84

in cash?A I paid P15,000.00, sir.

Q My question Mr. Witness is, did you pay this P8,987.84 in charge of interest and penalties

immediately in cash?

A In cash no, but in check, sir.

Q You said that you noted the word "immediately" in bold letters in your statement of account, why

did you not pay immediately?

8/12/2019 Nego Assignment Part I

14/63

A Because I received that late, sir.

Q Yes, on November 22 when you received from the secretary of the defendant telling you to pay

the principal amount of P8,987.84, why did you not pay?

A There was a communication between me and the defendant, I was required to pay P8,000.00 but Ipaid in check for P15,000.00, sir.

Q Do you have any evidence to show that the defendant required you to pay in checkfor P15,000.00?

A Yes, sir.

Q Where is it?

A It was by telecommunication, sir.

Q So there is no written communication between you and the defendant?

A There was none, sir.

Q There is no written agreement which says that P8,987.84 should be paid for P15,000.00 in check,

there is none?

A Yes, no written agreement, sir.

Q And you as a lawyer you know that a check is not considered as cash specially when it is

postdated sent to the defendant?

A That is correct, sir.

Clearly, the purpose of the arrangement between the parties on November 22, 1989, was for

the immediate payment of the private respondent's outstanding account, in order that his creditcard would not be suspended.

As agreed upon by the parties, on the following day, private respondent did issue a check

for P15,000. However, the check was postdated 15 December 1989. Settled is the doctrine thata check is only a substitute for money and not money, the delivery of such an instrument doesnot, by itself operate as payment.[9]This is especially true in the case of a postdated check.

Thus, the issuance by the private respondent of the postdated check was not effective

payment. It did not comply with his obligation under the arrangement with MissLorenzo. Petitioner corporation was therefore justified in suspending his credit card.

Finally, we find no legal and factual basis for private respondent's assertion that in canceling

the credit card of the private respondent, petitioner abused its right under the terms and

conditions of the contract.

To find the existence of an abuse of right under Article 19 the following elements must bepresent: (1) There is a legal right or duty; (2) which is exercised in bad faith; (3) for the sole

intent of prejudicing or injuring another.[10]

Time and again this Court has held that good faith is presumed and the burden of provingbad faith is on the party alleging it.[11]This private respondent failed to do. In fact, the action of

the petitioner belies the existence of bad faith. As early as 28 October 1989, petitioner could

have suspended private respondent's card outright. Instead, petitioner allowed private respondentto use his card for several weeks. Petitioner had even notified private respondent of the

8/12/2019 Nego Assignment Part I

15/63

impending suspension of his credit card and made special accommodations for him for settling

his outstanding account. As such, petitioner cannot be said to have capriciously and arbitrarily

canceled the private respondent's credit card.

We do not dispute the findings of the lower court that private respondent suffered damagesas a result of the cancellation of his credit card. However, there is a material distinction between

damages and injury. Injury is the illegal invasion of a legal right; damage is the loss, hurt, orharm which results from the injury; and damages are the recompense or compensation awardedfor the damage suffered. Thus, there can be damage without injury in those instances in which

the loss or harm was not the result of a violation of a legal duty. In such cases, the consequences

must be borne by the injured person alone, the law affords no remedy for damages resulting froman act which does not amount to a legal injury or wrong. These situations are often

called damnum absque injuria.[12]

In other words, in order that a plaintiff may maintain an action for the injuries of which he

complains, he must establish that such injuries resulted from a breach of duty which thedefendant owed to the plaintiff - a concurrence of injury to the plaintiff and legal responsibility

by the person causing it. The underlying basis for the award of tort damages is the premise thatan individual was injured in contemplation of law. Thus, there must first be a breach of some

duty and the imposition of liability for that breach before damages may be awarded;[13]and thebreach of such duty should be the proximate cause of the injury.

We therefore disagree with the ruling of the respondent court that the dishonor of the credit

card of the private respondent by Caf Adriatico is attributable to petitioner for its willful orgross neglect to inform the private respondent of the suspension of his credit card, the

unfortunate consequence of which brought social humiliation and embarrassment to the private

respondent.[14]

It was petitioner's failure to settle his obligation which caused the suspension of his credit

card and subsequent dishonor at Caf Adriatico. He can not now pass the blame to the petitionerfor not notifying him of the suspension of his card. As quoted earlier, the application contained

the stipulation that the petitioner could automatically suspend a card whose billing has not beenpaid for more than thirty days. Nowhere is it stated in the terms and conditions of the application

that there is a need of notice before suspension may be effected as private respondent claims.[15]

This notwithstanding, on November 28, 1989, the day of the suspension of private

respondent's card, petitioner sent a letter by ordinary mail notifying private respondent that hiscard had been temporarily suspended. Under the Rules on Evidence, there is a disputable

presumption that letters duly directed and mailed were received on the regular course of

mail.[16]Aside from the private respondent's bare denial, he failed to present evidence to rebut the

presumption that he received said notice. In fact upon cross examination, private respondent

admitted that he did received the letter notifying him of the cancellation:

Q Now you were saying that there was a first letter sent to you by the defendant?

A Your letter, sir.

Q Was that the first letter that you received?

A Yes, sir.

Q Is it that there was a communication first between you and the defendant?

8/12/2019 Nego Assignment Part I

16/63

A There was none, sir. I received a cancellation notice but that was after November 27.[17]

As it was private respondent's own negligence which was the proximate cause of his

embarrassing and humiliating experience, we find the award of damages by the respondent court

clearly unjustified. We take note of the fact that private respondent has not yet paid hisoutstanding account with petitioner.

IN VIEW OF THE FOREGOING, the decision of the Court of Appeals ordering

petitioner to pay private respondent P100,000.00 as moral damages, P50,000.00 as exemplary

damages andP20,000.00 as attorney's fees, is SET ASIDE. Private respondent is DIRECTED topay his outstanding obligation with the petitioner in the amount of P14,439.41.

SO ORDERED.

Narvasa, C.J., (Chairman), andRomero, J., concur.

Purisima, J.,no part, being signatory to CA decision.

G.R. No. 72110. November 16, 1990.*

ROMAN CATHOLIC BISHOP OF MALOLOS, INC., petitioner, vs. INTERMEDIATE APPELLATE COURT, and ROBES-FRANCISCO REALTY AND DEVELOPMENT

CORPORATION, respondents.

PETITION for certiorari to review the decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Rodrigo Law Office for petitioner.

Antonio P. Barredo and Napoleon M. Malinas for private respondent.

SARMIENTO, J.:

This is a petition for review on certiorari which seeks the reversal and setting aside of the decision1 of the Court of Appeals,2 the dispositive portion of

which reads:

WHEREFORE, the decision appealed from is hereby reversed

2 AC-G.R. CV No. 69626, Robes-Francisco Realty & Development Corporation vs. Roman Catholic Bishop of Malolos, Inc. and set aside and another one

entered for the plaintiff ordering the defendant-appellee Roman Catholic Bishop of Malolos, Inc. to accept the balance of P124,000.00 being paid by

plaintiff-appellant and thereafter to execute in favor of Robes-Francisco Realty Corporation a registerable Deed of Absolute Sale over 20,655 square

meters portion of that parcel of land situated in San Jose del Monte, Bulacan described in OCT No. 575 (now Transfer Certificates of Title Nos. T-169493,

169494, 169495 and 169496) of the Register of Deeds of Bulacan. In case of refusal of the defendant to execute the Deed of Final Sale, the clerk of court

is directed to execute the said document. Without pronouncement as to damages and attorneys fees. Costs against the defendan t-appellee.3

The case at bar arose from a complaint filed by the private respondent, then plaintiff, against the petitioner, then defendant, in the Court of First

Instance (now Regional Trial Court) of Bulacan, at Sta. Maria, Bulacan,4 for specific performance with damages, based on a contract5 executed on July 7,

1971.

The property subject matter of the contract consists of a 20,655 sq.m.-portion, out of the 30,655 sq.m. total area, of a parcel of land covered by Original

Certificate of Title No. 575 of the Province of Bulacan, issued and registered in the name of the petitioner which it sold to the private respondent for and

in consideration of P123,930.00.

8/12/2019 Nego Assignment Part I

17/63

The crux of the instant controversy lies in the compliance or non-compliance by the private respondent with the provision for payment to the petitioner

of the principal balance of P100,000.00 and the accrued interest of P24,000.00 within the grace period.

A chronological narration of the antecedent facts is as follows:

On July 7, 1971, the subject contract over the land in question was executed between the petitioner as vendor and the private respondent through its

then president, Mr. Carlos F. Robes, as vendee, stipulating for a downpayment of P23,930.00 and the balance of P100,000.00 plus 12% interest per

annum to be paid within four (4) years from execution of the contract, that is, on or before July 7, 1975. The contract likewise provides for cancellation,

forfeiture of previous payments, and reconveyance of the land in question in case the private respondent would fail to complete payment within the saidperiod.

On March 12, 1973, the private respondent, through its new president, Atty. Adalia Francisco, addressed a letter6 to Father Vasquez, parish priest of San

Jose Del Monte, Bulacan, requesting to be furnished with a copy of the subject contract and the supporting documents.

On July 17, 1975, admittedly after the expiration of the stipulated period for payment, the same Atty. Francisco wrote the petitioner a formal request7

that her company be allowed to pay the principal amount of P100,000.00 in three (3) equal installments of six (6) months each with the first installment

and the accrued interest of P24,000.00 to be paid immediately upon approval of the said request.

On July 29, 1975, the petitioner, through its counsel, Atty. Carmelo Fernandez, formally denied the said request of the private respondent, but granted

the latter a grace period of five (5) days from the receipt of the denial8 to pay the total balance of P124,000.00, otherwise, the provisions of the contract

regarding cancellation, forfeiture, and reconveyance would be implemented.

On August 4, 1975, the private respondent, through its president, Atty. Francisco, wrote9 the counsel of the petitioner requesting an extension of 30

days from said date to fully settle its account. The counsel for the petitioner, Atty. Fernandez, received the said letter on the same day. Upon

consultation with the petitioner in Malolos, Bulacan, Atty. Fernandez, as instructed, wrote the private respondent a letter10 dated August.

Consequently, Atty. Francisco, the private respondents president, wrote a letter11 dated August 22, 1975, directly addressed to the petitioner,

protesting the alleged refusal of the latter to accept tender of payment purportedly made by the former on August 5, 1975, the last day of the grace

period. In the same letter of August 22, 1975, received on the following day by the petitioner, the private respondent demanded the execution of a deed

of absolute sale over the land in question and after which it would pay its account in full, otherwise, judicial action would be resorted to.

On August 27, 1975, the petitioners counsel, Atty. Fernandez, wrote a reply12 to the private respondent stating the refusal of his client to execute the

deed of absolute sale due to its (private respondents) failure to pay its full obligation. Moreover, the petitioner denied that the private respondent had

made any tender of payment whatsoever within the grace period. In view of this alleged breach of contract, the petitioner cancelled the contract and

considered all previous payments forfeited and the land as ipso facto reconveyed.

From a perusal of the foregoing facts, we find that both the contending parties have conflicting versions on the main question of tender of payment.

The trial court, in its ratiocination, preferred not to give credence to the evidence presented by the private respondent. According to the trial court:

x x x What made Atty. Francisco suddenly decide to pay plaintiffs obligation on August 5, 1975, go to defendants office at Malolos, and there tender her

payment, when her request of August 4, 1975 had not yet been acted upon until August 7, 1975? If Atty. Francisco had decided to pay the obligation and

had available funds for the purpose on August 5, 1975, then there would have been no need for her to write defendant on August 4, 1975 to request an

extension of time. Indeed, Atty. Franciscos claim that she made a tender of payment on August 5, 1975such alleged act, considered in relation to the

circumstances both antecedent and subsequent thereto, being not in accord with the normal pattern of human conduct is not worthy of credence.13

The trial court likewise noted the inconsistency in the testimony of Atty. Francisco, president of the private respondent, who earlier testified that a

certain Mila Policarpio accompanied her on August 5, 1975 to the office of the petitioner. Another person, however, named Aurora Oracion, was

presented to testify as the secretary-companion of Atty. Francisco on that same occasion.

Furthermore, the trial court considered as fatal the failure of Atty. Francisco to present in court the certified personal check allegedly tendered as

payment or, at least, its xerox copy, or even bank records thereof. Finally, the trial court found that the private respondent had insufficient funds

8/12/2019 Nego Assignment Part I

18/63

available to fulfill the entire obligation considering that the latter, through its president, Atty. Francisco, only had a savings account deposit of

P64,840.00, and although the latter had a money-market placement of P300,000.00. the same was to mature only after the expiration of the 5-day grace

period.

Based on the above considerations, the trial court rendered a decision in favor of the petitioner, the dispositive portion of which reads:

WHEREFORE, finding plaintiff to have failed to make out its case, the court hereby declares the subject contract cancelled and plaintiffs down payment

of P23,930.00 forfeited in favor of defendant, and hereby dismisses the complaint; and on the counterclaim, the Court orders plaintiff to pay defendant.

(1) Attorneys fees of P10,000.00;

(2) Litigation expenses of P2,000.00; and

(3) Judicial costs.

SO ORDERED.14

Not satisfied with the said decision, the private respondent appealed to the respondent Intermediate Appellate Court (now Court of Appeals) assigning as

reversible errors, among others, the findings of the trial court that the available funds of the private respondent were insufficient and that the latter did

not effect a valid tender of payment and consignation.

The respondent court, in reversing the decision of the trial court, essentially relies on the following findings:

x x x We are convinced from the testimony of Atty. Adalia Francisco and her witnesses that in behalf of the plaintiff-appellant they have a total available

sum of P364,840.00 at her and at the plaintiffs disposal on or before August 4, 1975 to answer for the obligation of the plaintiff-appellant. It was not

correct for the trial court to conclude that the plaintiff-appellant had only about P64,840.00 in savings deposit on or before August 5, 1975, a sum not

enough to pay the outstanding account of P124,000.00. The plaintiff-appellant, through Atty. Francisco proved and the trial court even acknowledged

that Atty. Adalia Francisco had about P300,000.00 in money market placement. The error of the trial court lies in concluding that the money market

placement of P300,000.00 was out of reach of Atty. Francisco. But as testified to by Mr. Catalino Estrella, a representative of the Insular Bank of Asia andAmerica, Atty. Francisco could withdraw anytime her money market placement and place it at her disposal, thus proving her financial capability of

meeting more than the whole of P124,000.00 then due per contract. This situation, We believe, proves the truth that Atty. Francisco apprehensive that

her request for a 30-day grace period would be denied, she tendered payment on August 4, 1975 which offer defendant through its representative and

counsel refused to receive. x x x15 (Italics supplied)

In other words, the respondent court, finding that the private respondent had sufficient available funds, ipso facto concluded that the latter had

tendered payment. Is such conclusion warranted by the facts proven? The petitioner submits that it is not.

Hence, this petition.16

The petitioner presents the following issues for resolution:

A. Is a finding that private respondent had sufficient available funds on or before the grace period for the payment of its obligation proof that it

(private respondent) did tender of (sic) payment for its said obligation within said period?

x x x x x x x x x

B. Is it the legal obligation of the petitioner (as vendor) to execute a deed of absolute sale in favor of the private respondent (as vendee) before the

latter has actually paid the complete consideration of the salewhere the contract between and executed by the parties stipulates

That upon complete payment of the agreed consideration by the herein VENDEE, the VENDOR shall cause the execution of a Deed of Absolute Sale in

favor of the VENDEE.

8/12/2019 Nego Assignment Part I

19/63

x x x x x x x x x

C. Is an offer of a check a valid tender of payment of an obligation under a contract which stipulates that the consideration of the sale is in Philippine

Currency?17

We find the petition impressed with merit.

With respect to the first issue, we agree with the petitioner that a finding that the private respondent had sufficient available funds on or before the

grace period for the payment of its obligation does not constitute proof of tender of payment by the latter for its obligation within the said period.

Tender of payment involves a positive and unconditional act by the obligor of offering legal tender currency as payment to th e obligee for the formers

obligation and demanding that the latter accept the same. Thus, tender of payment cannot be presumed by a mere inference from surrounding

circumstances. At most, sufficiency of available funds is only affirmative of the capacity or ability of the obligor to fulfill his part of the bargain. But

whether or not the obligor avails himself of such funds to settle his outstanding account remains to be proven by independent and credible evidence.

Tender of payment presupposes not only that the obligor is able, ready, and willing, but more so, in the act of performing his obligation. Ab posse ad actu

non vale illatio. A proof that an act could have been done is no proof that it was actually done.

The respondent court was therefore in error to have concluded from the sheer proof of sufficient available funds on the part of the private respondent tomeet more than the total obligation within the grace period, the alleged truth of tender of payment. The same is a classic case of non-sequitur.

On the contrary, the respondent court finds itself remiss in overlooking or taking lightly the more important findings of fact made by the trial court which

we have earlier mentioned and which as a rule, are entitled to great weight on appeal and should be accorded full consideration and respect and should

not be disturbed unless for strong and cogent reasons.18

While the Court is not a trier of facts, yet, when the findings of fact of the Court of Appeals are at variance with those of the trial court,19 or when the

inference of the Court of Appeals from its findings of fact is manifestly mistaken,20 the Court has to review the evidence in order to arrive at the correct

findings based on the record.

Apropos the second issue raised, although admittedly the documents for the deed of absolute sale had not been prepared, the subject contract clearly

provides that the full payment by the private respondent is an a priori condition for the execution of the said documents by the petitioner.

That upon complete payment of the agreed consideration by the herein VENDEE, the VENDOR shall cause the execution of a Deed of Absolute Sale in

favor of the VENDEE.21

The private respondent is therefore in estoppel to claim otherwise as the latter did in the testimony in cross-examination of its president, Atty. Francisco,

which reads:

Q Now, you mentioned, Atty. Francisco, that you wanted the defendant to execute the final deed of sale before you would given (sic) the personal

certified check in payment of your balance, is that correct?

A Yes, sir.22

x x x x x x x x x

Art. 1159 of the Civil Code of the Philippines provides that obligations arising from contracts have the force of law between the contracting parties and

should be complied with in good faith. And unless the stipulations in said contract are contrary to law, morals, good custom s, public order, or public

policy, the same are binding as between the parties.23

What the private respondent should have done if it was indeed desirous of complying with its obligations would have been to pay the petitioner within

the grace period and obtain a receipt of such payment duly issued by the latter. Thereafter, or, allowing a reasonable time, the private respondent could

have demanded from the petitioner the execution of the necessary documents. In case the petitioner refused, the private respondent could have had

always resorted to judicial action for the legitimate enforcement of its right. For the failure of the private respondent to undertake this more judicious

course of action, it alone shall suffer the consequences.

8/12/2019 Nego Assignment Part I

20/63

With regard to the third issue, granting arguendo that we would rule affirmatively on the two preceding issues, the case of the private respondent still

can not succeed in view of the fact that the latter used a certified personal check which is not legal tender nor the currency stipulated, and therefore, can

not constitute valid tender of payment. The first paragraph of Art. 1249 of the Civil Code provides that the payment of debts in money shall be made in

the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines.

The Court en banc in the recent case of Philippine Airlines v. Court of Appeals,24 G.R. No. L-49188, stated thus:

Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment

(citing Sec. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan London Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L.60, 61). A check, whether a managers check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tend er of

payment and may be refused receipt by the obligee or creditor.

Hence, where the tender of payment by the private respondent was not valid for failure to comply with the requisite payment in legal tender or currency

stipulated within the grace period and as such, was validly refused receipt by the petitioner, the subsequent consignation did not operate to discharge

the former from its obligation to the latter.

In view of the foregoing, the petitioner in the legitimate exercise of its rights pursuant to the subject contract, did validly order therefore the cancellation

of the said contract, the forfeiture of the previous payment, and the reconveyance ipso facto of the land in question.

WHEREFORE, the petition for review on certiorari is GRANTED and the DECISION of the respondent court promulgated on April 25, 1985 is hereby SET

ASIDE and ANNULLED and the DECISION of the trial court dated May 25, 1981 is hereby REINSTATED. Costs against the private respondent.

SO ORDERED.

Melencio-Herrera (Chairman), Paras and Regalado, JJ., concur.

Padilla, J., No part, former counsel of petitioner.

Petition granted. Decision set aside and annulled.

[G.R. No. 154127. December 8, 2003]

ROMEO C. GARCIA, pet i t ioner, vs.DIONISIO V. LLAMAS, respondent.

D E C I S I O N

PANGANIBAN, J.:

Novation cannot be presumed. It must be clearly shown either by theexpress assent of the parties or by the complete incompatibility between theold and the new agreements. Petitioner herein fails to show either requirementconvincingly; hence, the summary judgment holding him liable as a jointand solidary debtor stands.

8/12/2019 Nego Assignment Part I

21/63

The Case

Before us is a Petition for Review[1]under Rule 45 of the Rules of Court,seeking to nullify the November 26, 2001 Decision[2]and the June 26,

2002 Resolution[3]

of the Court of Appeals (CA) in CA-GR CV No. 60521. Theappellate court disposed as follows:

UPONTHE VIEW WE TAKE OF THIS CASE, THUS, the judgment appealed

from, insofar as it pertains to [Petitioner] Romeo Garcia, must be, as it hereby

is, AFFIRMED, subject to the modification that the award for attorneys fees and

cost of suit is DELETED. The portion of the judgment that pertains to x x x Eduardo

de Jesus is SET ASIDEand VACATED. Accordingly, the case against

x x x Eduardo de Jesus is REMANDEDto the court of origin for purposes of

receiving ex parte[Respondent] Dionisio Llamas evidence againstx x x Eduardo de

Jesus.[4]

The challenged Resolution, on the other hand, denied petitioners Motionfor Reconsideration.

The Antecedents

The antecedents of the case are narrated by the CA as follows:

This case started out as a complaint for sum of money and damagesby x x x [Respondent] Dionisio Llamas against x x x [Petitioner] Romeo Garcia and

Eduardo de Jesus. Docketed as Civil Case No. Q97-32-873, the complaint alleged

that on 23 December 1996[,] [petitioner and de Jesus] borrowed P400,000.00 from

[respondent]; that, on the same day, [they] executed a promissory note wherein they

bound themselves jointly and severally to pay the loan on or before 23 January 1997

with a 5% interest per month; that the loan has long been overdue and, despite

repeated demands, [petitioner and de Jesus] have failed and refused to pay it; and that,

by reason of the[ir] unjustified refusal, [respondent] was compelled to engage the

services of counsel to whom he agreed to pay 25% of the sum to be recovered from

[petitioner and de Jesus], plus P2,000.00 for every appearance in court. Annexed tothe complaint were the promissory note above-mentioned and a demand letter,

dated 02 May 1997, by [respondent] addressed to [petitioner and de Jesus].

Resisting the complaint, [Petitioner Garcia,] in his [Answer,] averred that he

assumed no liability under the promissory note because he signed it merely as an

accommodation party for x x x de Jesus; and, alternatively, that he is relieved from

8/12/2019 Nego Assignment Part I

22/63

any liability arising from the note inasmuch as the loan had been paid by x x x de

Jesus by means of a check dated 17 April 1997; and that, in any event, the issuance of

the check and [respondents] acceptance thereof novated or superseded the note.

[Respondent] tendered a reply to [Petitioner] Garcias answer, thereunder asserting

that the loan remained unpaid for the reason that the check issued by x x x de Jesusbounced, and that [Petitioner] Garcias answer was not even accompanied by a

certificate of non-forum shopping. Annexed to the reply were the face of the check

and the reverse side thereof.

For his part, xx x de Jesus asserted in his [A]nswer with [C]ounterclaim that out of

the supposed P400,000.00 loan, he received only P360,000.00, the P40,000.00 having

been advance interest thereon for two months, that is, for January and February 1997;

that[,] in fact[,] he paid the sum of P120,000.00 by way of interests; that this was

made when [respondents] daughter, one Nits Llamas-Quijencio, received from the

Central Police District Command at Bicutan, Taguig, Metro Manila (where x x x deJesus worked), the sum of P40,000.00, representing the peso equivalent of his

accumulated leave credits, another P40,000.00 as advance interest, and still

another P40,000.00 as interest for the months of March and April 1997; that he had

difficulty in paying the loan and had asked [respondent] for an extension of time; that

[respondent] acted in bad faith in instituting the case, [respondent] having agreed to

accept the benefits he (de Jesus) would receive for his retirement, but [respondent]

nonetheless filed the instant case while his retirement was being processed; and that,

in defense of his rights, he agreed to pay his counsel P20,000.00 [as] attorneys fees,

plus P1,000.00 for every court appearance.

During the pre-trial conference, x x x de Jesus and his lawyer did not appear, nor did

they file any pre-trial brief. Neither did [Petitioner] Garcia file a pre-trial brief, and

his counsel even manifested that he would no [longer] present evidence. Given this

development, the trial court gave [respondent] permission to present his

evidence ex parteagainst x x x de Jesus; and, as regards [Petitioner] Garcia, the trial

court directed [respondent] to file a motion for judgment on the pleadings, and for

[Petitioner] Garcia to file his comment or opposition thereto.

Instead, [respondent] filed a [M]otion to declare [Petitioner] Garcia in default and to

allow him to present his evidence ex parte. Meanwhile, [Petitioner] Garcia filed a

[M]anifestation submitting his defense to a judgment on the pleadings. Subsequently,

[respondent] filed a [M]anifestation/[M]otion to submit the case for judgement on the

pleadings, withdrawing in the process his previous motion. Thereunder, he asserted

that [petitioners and de Jesus]solidary liability under the promissory note cannot be

any clearer, and that the check issued by de Jesus did not discharge the loan since the

checkbounced.[5]

8/12/2019 Nego Assignment Part I

23/63

On July 7, 1998, the Regional Trial Court (RTC) of Quezon City (Branch222) disposed of the case as follows:

WHEREFORE, premises considered, judgment on the pleadings is hereby rendered

in favor of [respondent] and against [petitioner and De Jesus], who are hereby ordered

to pay, jointly and severally, the [respondent] the following sums, to wit:

1) P400,000.00 representing the principal amount plus 5% interest thereon per

month from January 23, 1997 until the same shall have been fully paid, less the

amount of P120,000.00 representing interests already paid by x x x de Jesus;

2) P100,000.00 as attorneys fees plus appearance fee ofP2,000.00 for each

day of [c]ourt appearance, and;

3) Cost of this suit.[6]

Ruling of the Court of Appeals

The CA ruled that the trial court had erred when it rendered a judgment onthe pleadings against De Jesus. According to the appellate court, his Answerraised genuinely contentious issues. Moreover, he was still required topresent his evidence ex parte. Thus, respondent was not ipso factoentitled tothe RTC judgment, even though De Jesus had been declared in default. Thecase against the latter was therefore remanded by the CA to the trial court forthe ex partereception of the formersevidence.

As to petitioner, the CA treated his case as a summary judgment, becausehis Answer had failed to raise even a single genuine issue regarding anymaterial fact.

The appellate court ruled that no novation -- express or implied -- hadtaken place when respondent accepted the check from De Jesus. Accordingto the CA, the check was issued precisely to pay for the loan that was coveredby the promissory note jointly and severally undertaken by petitioner and De

Jesus. Respondents acceptance of the check did not serve to make De Jesusthe sole debtor because, first, the obligation incurred by him and petitionerwas joint and several; and, second, the check -- which had been intended toextinguish the obligation -- bounced upon its presentment.

Hence, this Petition.[7]

8/12/2019 Nego Assignment Part I

24/63

Issues

Petitioner submits the following issues for our consideration:

I

Whether or not the Honorable Court of Appeals gravely erred in not holding

that novation applies in the instant case as x x x Eduardo de Jesus had expressly

assumed sole and exclusive liability for the loan obligation he obtained from

x x x Respondent Dionisio Llamas, as clearly evidenced by:

a) Issuance by x x x de Jesus of a check in payment of the full

amount of the loan of P400,000.00 in favor of Respondent

Llamas, although the check subsequently bounced[;]

b) Acceptance of the check by the x x x respondent x x x whichresulted in [the] substitution by x x x de Jesus or [the superseding

of] the promissory note;

c) x x x de Jesus having paid interests on the loan in the total

amount of P120,000.00;

d) The fact that Respondent Llamas agreed to the proposal

of x x x de Jesus that due to financial difficulties, he be given an

extension of time to pay his loan obligation and that his retirement

benefits from the Philippine National Police will answer for saidobligation.

II

Whether or not the Honorable Court of Appeals seriously erred in not holding that the

defense of petitioner that he was merely an accommodation party, despite the fact that

the promissory note provided for a joint and solidary liability, should have been given

weight and credence considering that subsequent events showed that the principal

obligor was in truth and in fact x x x de Jesus, as evidenced by the foregoing

circumstances showing his assumption of sole liability over the loan obligation.

III

Whether or not judgment on the pleadings or summary judgment was properly availed

of by Respondent Llamas, despite the fact that there are genuine issues of fact, which

the Honorable Court of Appeals itself admitted in its Decision, which call for the

presentation of evidence in a full-blown trial.[8]

8/12/2019 Nego Assignment Part I

25/63

Simply put, the issues are the following: 1) whether there was novation ofthe obligation; 2) whether the defense that petitioner was only anaccommodation party had any basis; and 3) whether the judgment againsthim -- be it a judgment on the pleadings or a summary judgment -- wasproper.

The Courts Ruling

The Petition has no merit.

First Issue:Novat ion

Petitioner seeks to extricate himself from his obligation as jointand solidary debtor by insisting that novation took place, either through thesubstitution of De Jesus as sole debtor or the replacement of the promissorynote by the check. Alternatively, the former argues that the original obligationwas extinguished when the latter, who was his co-obligor, paid the loan withthe check.

The fallacy of the second (alternative) argument is all too apparent. Thecheck could not have extinguished the obligation, because it bounced upon

presentment. By law,[9]

the delivery of a check produces the effect of paymentonly when it is encashed.

We now come to the main issue of whether novation took place.

Novation is a mode of extinguishing an obligation by changing its objectsor principal obligations, by substituting a new debtor in place of the old one, orby subrogating a third person to the rights of the creditor.[10]Article 1293 of theCivil Code defines novation as follows:

Art. 1293. Novation which consists in substituting a new debtor in the place of the

original one, may be made even without the knowledge or against the will of thelatter, but not without the consent of the creditor. Payment by the new debtor gives

him rights mentioned in articles 1236 and 1237.

In general, there are two modes of substituting the person of the debtor:(1) expromision and (2) delegacion. In expromision, the initiative for thechange does not come from -- and may even be made without the knowledgeof -- the debtor, since it consists of a third persons assumption of the

8/12/2019 Nego Assignment Part I

26/63

obligation. As such, it logically requires the consent of the third person andthe creditor. In delegaci