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512 Phil. 366


[ G.R. No. 160892, November 22, 2005 ]




From the January 25, 2001 decision[1] of the Court of Appeals reversing that of the Regional Trial Court (RTC) of Digos, Davao del Sur[2] which dismissed the complaint filed by herein respondent Carmelito Villapaz against herein petitioners-spouses Antonio "Tony" and Lolita Tan, the present Petition for Review on Certiorari[3] was lodged.

On February 6, 1992, respondent issued a Philippine Bank of Communications (PBCom) crossed check[4] in the amount of P250,000.00, payable to the order of petitioner Tony Tan.  On even date, the check was deposited at the drawee bank, PBCom Davao City branch at Monteverde Avenue, to the account of petitioner Antonio Tan also at said bank.

The Malita, Davao del Sur Police, by letter of June 22, 1994,[5] issued an invitation-request to petitioner Antonio Tan at his address at Malatibas Plaza, Lolita's Rendezvous, Bonifacio St., Davao City inviting him to appear before the Deputy Chief of Police Office on June 27, 1994 at 9:00 o'clock in the morning "in connection with the request of [herein respondent] Carmelito Villapaz, for conference of vital importance."

The invitation-request was received by petitioner Antonio Tan on June 22, 1994[6] but on the advice of his lawyer,[7] he did not show up at the Malita, Davao del Sur Police Office.

On November 7, 1994,[8] respondent filed before the Digos, Davao del Sur RTC a Complaint for sum of money against petitioners-spouses, alleging that, inter alia, on February 6, 1992, petitioners-spouses repaired to his place of business at Malita, Davao and obtained a loan of P250,000.00, hence, his issuance of the February 6, 1992 PBCom crossed check which loan was to be settled interest-free in six (6) months; on the maturity date of the loan or on August 6, 1992, petitioner Antonio Tan failed to settle the same, and despite repeated demands, petitioners never did,  drawing him to file the complaint thru his counsel to whom he agreed to pay 30% of the loan as attorney's fees on a contingent basis and P1,000.00 per appearance fee; and on account of the willful refusal of petitioners to honor their obligation, he suffered moral damages in the amount of P50,000.00, among other things.

By their Answer,[9] petitioners, denying having gone to Malita and having obtained a loan from respondent, alleged that the check was issued by respondent in Davao City on February 6, 1992 "in exchange for equivalent cash"; they never received from respondent any demand for payment, be it verbal or written, respecting the alleged loan; since the alleged loan was one with a period — payable in six months, it should have been expressly stipulated upon in writing by the parties but it was not, hence, the essential requisite for the validity and enforceability of a loan is wanting; and the check is inadmissible to prove the existence of a loan for P250,000.00.

By way of Compulsory Counterclaim, petitioners prayed for the award of damages and litigation expenses and attorney's fees.[10]

Crediting defendants-petitioners' version, Branch 19 of the RTC, Digos, Davao del Sur, by Decision[11] of July 24, 1996, dismissed the Complaint and granted the Counterclaim, disposing as follows:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
  1. Ordering the dismissal of the complaint;

  2. On the counterclaim ordering the plaintiff Carmelito Villapaz to pay to defendants   spouses Antonio and Lolita Tan:
  3. a. P100,000.00 as moral damages;
    b. P50,000.00 as exemplary damages;
    c. P30,000.00 as attorney's fees; and
  4. Plaintiff Carmelito Villapaz to pay the costs.
SO ORDERED.  (Underscoring in the original)[12]
Respondent appealed to the Court of Appeals which, by Decision[13] of January 25, 2001, credited his version and accordingly reversed the trial court's decision in this wise:
Briefly stated, the lower Court gave four reasons for ruling out a loan, namely:  (a) the defense of defendants-appellees that they did not go to plaintiff-appellant's place on February 6, 1992, date the check was given to them; (b) defendants-appellees could not have borrowed money on that date because from January to March, 1992, they had an average daily deposit of P700,000 and on February 6, 1992, they had P1,211,400.64 in the bank, hence, they had "surely no reason nor logic" to borrow money from plaintiff-appellant; (c) the alleged loan was not reduced in writing and (d) the check could not be a competent evidence of loan.

The four-fold reasoning cannot be sustained.  They are faulty and do not accord either with law or ordinary conduct of men.  For one thing, the first two given reasons partake more of alibi and speculation, hence, deserve scant consideration.  For another, the last two miss the applicable provisions of law.

The existence of a contract of loan cannot be denied merely because it is not reduced in writing.  Surely, there can be a verbal loan.  Contracts are binding between the parties, whether oral or written.  The law is explicit that contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present. A loan (simple loan or mutuum) exists when a person receives a loan of money or any other fungible thing and acquires the ownership thereof.  He is bound to pay to the creditor the equal amount of the same kind and quality.

Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, maybe in keeping with good faith, usage and law.

The lower Court misplaced its reliance on Article 1358 of the Civil Code providing that to be enforceable, contracts where the amount involved exceed five hundred pesos, must appear in writing.  Such requirement, it has been held, is only for convenience, not for validity.  It bears emphasis that at the time plaintiff-appellant delivered the crossed-check to defendants-appellees, plaintiff-appellant had no account whatsoever with them.  Defendants-appellees' contention that they did not obtain any loan but merely exchanged the latter's check for cash is not borne by any evidence.

Notably, plaintiff-appellant and defendant-appellee Antonio Tan are compadres, one of them being a godfather to the other's son.  There is no established enmity between them such that plaintiff-appellant would be motivated to institute an unfounded action in court.  Plaintiff-appellant's sole purpose was to be paid back the loan he extended to defendants-appellees.  Thus, a pertinent portion of his testimony on cross-examination discloses:
ATTY. TAN (On Cross Examination):

Now, aside from this check that you issued, did you let the defendant sign a cash voucher?
I did not require him any cash voucher or any written document because as I said we are close friends and I trusted him so I issued a check in his name Tony Tan.
You said that the spouses Tan were in need of money on February 6, 1992.  Why did you have to issue a cross-check?
I issued a cross-check in order to be sure that he received the money from me so that he could not deny that he did not receive.  (TSN of Villapaz dtd 7/25/95, p. 21)
Apart from their self-serving testimonies, there is no evidence or proof that defendants-appellees actually delivered to plaintiff-appellant the cash amount of P250,000.00 in exchange for the check.  Defendant-appellee Tan testified that he records his transactions if it involves a huge cash amount.  But surprisingly in this case, he did not follow his usual practice.
ATTY. CARPENTERO (On Cross-Examination):

x x x  you have noticed Carmelito Villapaz to have trusted and have full confidence in you during your business relationship, correct?
All people have trust and confidence but whenever there is a transaction, it should be covered a (sic) proof.
You mean you are a fellow who adheres that every transaction should be recorded?
Yes, if the transaction involves a big amount,
But in this case of Carmelito Villapaz you noticed personally that he has trust and confidence in your person, correct?
The truth is, if ever we have a transaction which involves P1,000.00 or P2,000.00, we need no document at all as proof, but because it is a big amount, it needs documents.  (TSN of Tan dtd 5/9/96, pp. 12-13.
Plaintiff-appellant has a checking account with PBCom Bank.  This is located within walking distance (300 meters) from defendants-appellees' store.  If plaintiff-appellant was in dire need of money, he could have personally withdrawn said money from his own account, since it was sufficiently funded.  Defendant-appellee Antonio Tan himself testified that plaintiff-appellant's check was sufficiently funded.

It is well-nigh unlikely that the wife who was supposed to have delivered the money on such a short notice, produced, prepared and counted the money at home from Obrero, Davao City, then delivered it to plaintiff-appellant who was in the Golden Harvest Store at Sta Ana Avenue, Davao City.  In contrast, PBCom Bank where plaintiff-appellant has his account is in the same vicinity of the store of Golden Harvest.

Certainly, by way of exception to the general rule, the erroneous inferences in the factual finding of the trial Court cannot bind the appellate courts.

The trial Court placed much emphasis on the daily and time deposit accounts of defendants-appellees.  It is immaterial whether or not one is financially capable.  A pauper may borrow money for survival; a prince may incur a loan for expansion.[14]  (Emphasis supplied; underscoring in the original)
Thus, the Court of Appeals disposed:
WHEREFORE, the appealed judgment is hereby REVERSED and SET ASIDE.  Defendants-appellees are ordered to pay plaintiff-appellant the sum of P250,000.00 with 12% interest per annum from judicial demand or filing of the complaint in Court until fully paid.[15]
Hence, the present appeal by petitioners anchored on the following grounds:

The Honorable Court of Appeals erred in concluding that the transaction in dispute was a contract of loan and not a mere matter of check encashment as found by the trial court.


The Honorable Court likewise erred in reasoning that the trial court placed much emphasis on the daily and time deposits of herein petitioners to determine their financial capability.


The Honorable Court failed to consider the wanton, reckless manner of respondent in attempting to enforce an obligation that does not even exist, thus justifying the award for moral and exemplary damages, as well as attorney's fees and costs of suit.[16]  (Underscoring supplied)
Petitioners maintain that they did not secure a loan from respondent, insisting that they encashed in Davao City respondent's February 6, 1992 crossed check; in the ordinary course of business, prudence dictates that a contract of loan must be in writing as in fact the New Civil Code provides that to be enforceable "contracts where the amount involved exceed[s] P500.00 must appear in writing even a private one,"  hence, respondent's "self-serving" claim does not suffice to prove the existence of a loan; respondent's allegation that no memorandum in writing of the transaction was executed because he and they are "kumpadres" does not inspire belief for respondent, being a businessman himself, was with more reason expected to be more prudent; and the mere encashment of the check is not a contractual transaction such as a sale or a loan which ordinarily requires a receipt and that explains why they did not issue a receipt when they encashed the check of respondent.

Petitioners add that they could not have gone to Malita on February 6, 1992, as claimed by respondent, to obtain the alleged loan represented by the check because February 6, 1992 was the opening for business in Davao City of Golden Harvest of which petitioner Antonio Tan is treasurer and in-charge of the bodega, during which opening guests and well-wishers including respondent were entertained.

Petitioners furthermore maintain that they were financially stable on February 6, 1992 as shown by the entries of their bank passbook,[17] hence, there was no reason for them to go to a distant place like Malita to borrow money.

The petition fails.

By petitioner Antonio Tan's account, respondent arrived at the Golden Harvest place of business at Davao City on February 6, 1992 at about 10:30 in the morning[18] and left before noon of the same day;  respondent, however, returned to Golden Harvest shortly before 3:00 o'clock in the afternoon of the same day upon which he informed him (petitioner Antonio Tan) that he needed to bring cash to Malita in the amount of P250,000.00 but "time was running out and . . . he was so busy that was why he requested [him] to accommodate (sic) the said amount at 3:00 p.m."[19]

Still by petitioner Antonio Tan's account, he thereupon inquire by telephone from his wife who was at their house whether she had P250,000.00 cash and as his wife replied she had, he asked her to bring the cash, as she did, to the Golden Harvest where she gave the amount of P250,000.00 to him (petitioner Antonio Tan); in the meantime, as respondent had left for a while but not before leaving the check, he (petitioner Antonio Tan) kept the P250,000.00 cash and gave the check to his wife who had it deposited on the same afternoon to his account at PBCom Monteverde branch after he received clearance from the bank manager, who knows him (petitioner Antonio Tan) very well, that respondent's account at same branch of the bank was funded and the check could be deposited and credited to his (petitioner Antonio Tan's) account that same afternoon; and when later that same afternoon respondent returned to the Golden Harvest, he turned over to him the P250,000.00 cash.

Petitioner Antonio Tan's foregoing tale hardly inspires credence.  For it is contrary to common experience. If indeed respondent, who came all the way from Malita to Davao City, arriving at petitioner Antonio Tan's workplace at Golden Harvest at 10:30 in the morning, needed cash of  P250,000.00, and the drawee bank PBCom Davao City, Monteverde branch where respondent maintained a current account could even be reached by foot from the Golden Harvest in just a few minutes (albeit by petitioner Antonio Tan's own information respondent brought his truck with him),[20] it being about 300 meters away,[21] respondent could just have gone there and drew cash from his current account via over the counter transaction.  After all, his account had sufficient funds. In other words, he did not have to encash his check from petitioners.

Even assuming that, as claimed by petitioner Antonio Tan,  at the time respondent needed to have his check encashed, it was already close to 3:00 o�clock in the afternoon, why could not have PBCom Monteverde branch also accommodated him and allow him to encash his check that same time when he, like petitioners, was also a client-depositor and the bank was still open for business?

Petitioners' version was thus correctly denied credit by the appellate court.

That apart from the check no written proof of the grant of the loan was executed was credibly explained by respondent when he declared that petitioners' son being his godson, he, out of trust and respect, believed that the crossed check sufficed to prove their transaction.

As for petitioners' reliance on Art. 1358[22] of the Civil Code, the same is misplaced for the requirement that contracts where the amount involved exceeds P500.00 must appear in writing is only for convenience.[23]

At all events, a check, the entries of which are no doubt in writing, could prove a loan transaction.[24]

That petitioner Antonio Tan had, on February 6, 1992, an outstanding balance of more than P950,000.00 in his account at PBCom Monteverde branch where he was later to deposit respondent's check did not rule out petitioners' securing a loan.  It is pure naivete to believe that if a businessman has such an outstanding balance in his bank account, he would have no need to borrow a lesser amount.

In fine, as petitioners' side of the case is incredible as it is inconsistent with the principles by which men similarly situated are governed, whereas respondent's claim that the proceeds of the check, which were admittedly received by petitioners, represented a loan[25] extended to petitioner Antonio Tan is credible, the preponderance of evidence inclines on respondent.

WHEREFORE, the present petition is DENIED.

Costs against petitioners.


Panganiban, (Chairman), Corona, and Garcia, JJ., concur.
Sandoval-Gutierrez, J., on leave.

[1] CA Rollo at 85-99.

[2] Records at 70-73.

[3] Rollo at 5-18.

[4] Records at 6.

[5] Exhibit "B", Id. at 48.

[6] Exhibits "B-3" and "B-4", Ibid.

[7] TSN, May  9, 1996 at 11.

[8] Records at 1-5.

[9] Id. at 9-13.

[10] Id. at 11-12.

[11] Id. at 70-73.

[12] Id. at 73.

[13] CA Rollo at 85-99.

[14] Id. at 92-98.

[15] Id. at 98.

[16] Rollo at 9.

[17] Exh. "C-1", Records at 60.

[18] TSN, May 9, 1996 at 8.

[19]   Id. at 31.

[20] Ibid.

[21] Id. at 27.

[22] Art 1358.  The following must appear in a public document:

Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein are governed by Articles 1403, No. 2 and 1405;
The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains;
The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person;
The cession of actions or rights proceeding from an act appearing in a public document.
All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one.  But sales of goods, chattels or things in action are governed by Articles 1403, No. 2 and 1405.  (Underscoring supplied)

[23] Shaffer v. Palma, 131 Phil. 22  (1968).

[24] Vide Pacheco v. Court of Appeals, 319 SCRA 595, 603 (1999).

[25] Vide Carlos v. Abelardo, 380 SCRA 361, 366 (2002).

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