Geneva accounts to petitioner Citibank in Manila, and the application of the

CITIBANK, N.A. (FORMERLY FIRST NATIONAL same against respondent's outstanding loans with the latter,
CITY BANK) AND INVESTORS' FINANCE is DECLARED illegal, null and void. Petitioner Citibank is ORDERED to refund to
respondent the said amount, or its equivalent in Philippine currency using the
CORPORATION, DOING BUSINESS UNDER THE exchange rate at the time of payment, plus the stipulated interest for each of
the fiduciary placements and current accounts involved, beginning 26 October
NAME AND STYLE OF FNCB FINANCE, 1979;

PETITIONERS, VS. MODESTA R. SABENIANO, 3. Petitioner Citibank is ORDERED to pay respondent moral damages in the
amount of Three Hundred Thousand Pesos (P300,000.00); exemplary damages
RESPONDENT. in the amount of Two Hundred Fifty Thousand Pesos (P250,000.00); and
attorney's fees in the amount of Two Hundred Thousand Pesos (P200,000.00);
543 Phil. 406 and

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

CHICO-NAZARIO, J.: outstanding loans, which, from the respective dates of their maturity to 5
September 1979, was computed to be in the sum of One Million Sixty-Nine
On 16 October 2006, this Court promulgated its Decision[1] in the above-entitled case,
Thousand Eight Hundred Forty-Seven Pesos and Forty Centavos
the dispositive portion of which reads -
(P1,069,847.40), inclusive of interest. These outstanding loans shall continue to
earn interest, at the rates stipulated in the corresponding PNs, from 5
IN VIEW OF THE FOREGOING, the instant Petition is PARTLY GRANTED. The assailed
September 1979 until payment thereof.
Decision of the Court of Appeals in CA-G.R. No. 51930, dated 26 March 2002, as already
modified by its Resolution, dated 20 November 2002, is hereby AFFIRMED WITH
Subsequent thereto, respondent Modesta R. Sabeniano filed an Urgent Motion to
MODIFICATION, as follows -
Clarify and/or Confirm Decision with Notice of Judgment on 20 October 2006; while,
petitioners Citibank, N.A. and FNCB Finance[2] filed their Motion for Partial
Reconsideration of the foregoing Decision on 6 November 2006.
1. PNs No. 23356 and 23357 are DECLARED subsisting and outstanding. Petitioner
Citibank is ORDERED to return to respondent the principal amounts of the said
The facts of the case, as determined by this Court in its Decision, may be summarized as
PNs, amounting to Three Hundred Eighteen Thousand Eight Hundred Ninety-
follows.
Seven Pesos and Thirty-Four Centavos (P318,897.34) and Two Hundred Three
Thousand One Hundred Fifty Pesos (P203,150.00), respectively, plus the
Respondent was a client of petitioners. She had several deposits and market
stipulated interest of Fourteen and a half percent (14.5%) per annum,
placements with petitioners, among which were her savings account with the local
beginning 17 March 1977;
branch of petitioner Citibank (Citibank-Manila[3]); money market placements with
petitioner FNCB Finance; and dollar accounts with the Geneva branch of petitioner
2. The remittance of One Hundred Forty-Nine Thousand Six Hundred Thirty Two
Citibank (Citibank-Geneva). At the same time, respondent had outstanding loans with
US Dollars and Ninety-Nine Cents (US$149,632.99) from respondent's Citibank-
petitioner Citibank, incurred at Citibank-Manila, the principal amounts aggregating to
P1,920,000.00, all of which had become due and demandable by May 1979. Despite until fully paid, or its peso equivalent at the time of payment;
repeated demands by petitioner Citibank, respondent failed to pay her outstanding
loans. Thus, petitioner Citibank used respondent's deposits and money market (2) Declaring the plaintiff [respondent Sabeniano] indebted to the defendant Bank
placements to off-set and liquidate her outstanding obligations, as follows - [petitioner Citibank] in the amount of P1,069,847.40 as of 5 September 1979 and
ordering the plaintiff [respondent Sabeniano] to pay said amount, however, there shall
Respondent's outstanding obligation (principal be no interest and penalty charges from the time the illegal setoff was effected on 31
P 2,156,940.58
and interest as of 26 October 1979) October 1979;
Less:
Proceeds from respondent's money market (3) Dismissing all other claims and counterclaims interposed by the parties against each
(1,022,916.66)
placements with petitioner FNCB Finance other.
(principal and interest as of 5 September 1979)
Deposits in respondent's bank accounts with Costs against the defendant Bank.
(31,079.14)
petitioner Citibank All the parties appealed the afore-mentioned RTC Decision to the Court of Appeals,
Proceeds of respondent's money market docketed as CA-G.R. CV No. 51930. On 26 March 2002, the appellate court
placements and dollar accounts with Citibank-(1,102,944.78) promulgated its Decision,[5] ruling entirely in favor of respondent, to wit -
Geneva (peso equivalent as of 26 October 1979)
Balance of respondent's obligation P 0.00 Wherefore, premises considered, the assailed 24 August 1995 Decision of the court a
quo is hereby AFFIRMED with MODIFICATION, as follows:
Respondent, however, denied having any outstanding loans with petitioner
Citibank. She likewise denied that she was duly informed of the off-setting or
compensation thereof made by petitioner Citibank using her deposits and money 1. Declaring as illegal, null and void the set-off effected by the defendant-
market placements with petitioners. Hence, respondent sought to recover her deposits appellant Bank of the plaintiff-appellant's dollar deposit with Citibank,
and money market placements. Switzerland, in the amount of US$149,632.99, and ordering defendant-
appellant Citibank to refund the said amount to the plaintiff-appellant with
Respondent instituted a complaint for "Accounting, Sum of Money and Damages" legal interest at the rate of twelve percent (12%) per annum, compounded
against petitioners, docketed as Civil Case No. 11336, before the Regional Trial Court yearly, from 31 October 1979 until fully paid, or its peso equivalent at the time
(RTC) of Makati City. After trial proper, which lasted for a decade, the RTC rendered a of payment;
Decision[4] on 24 August 1995, the dispositive portion of which reads -
2. As defendant-appellant Citibank failed to establish by competent evidence the
WHEREFORE, in view of all the foregoing, decision is hereby rendered as follows: alleged indebtedness of plaintiff-appellant, the set-off of P1,069,847.40 in the
account of Ms. Sabeniano is hereby declared as without legal and factual basis;
(1) Declaring as illegal, null and void the setoff effected by the defendant Bank
[petitioner Citibank] of plaintiff's [respondent Sabeniano] dollar deposit with Citibank, 3. As defendants-appellants failed to account the following plaintiff-appellant's
Switzerland, in the amount of US$149,632.99, and ordering the said defendant money market placements, savings account and current accounts, the former is
[petitioner Citibank] to refund the said amount to the plaintiff with legal interest at the hereby ordered to return the same, in accordance with the terms and
rate of twelve percent (12%) per annum, compounded yearly, from 31 October 1979 conditions agreed upon by the contending parties as evidenced by the
 certificates of investments, to wit: Since the Court of Appeals Decision, dated 26 March 2002, as modified by the
Resolution of the same court, dated 20 November 2002, was still principally in favor of
respondent, petitioners filed the instant Petition for Review on Certiorari under Rule 45
(i) Citibank NNPN Serial No. 023356 (Cancels and Supersedes NNPN No. of the Revised Rules of Court. After giving due course to the instant Petition, this Court
22526) issued on 17 March 1977, P318,897.34 with 14.50% interest p.a.; promulgated on 16 October 2006 its Decision, now subject of petitioners' Motion for
Partial Reconsideration.
(ii) Citibank NNPN Serial No. 23357 (Cancels and Supersedes NNPN No. 22528)
issued on 17 March 1977, P203,150.00 with 14.50 interest p.a.; Among the numerous grounds raised by petitioners in their Motion for Partial
Reconsideration, this Court shall address and discuss herein only particular points that
(iii) FNCB NNPN Serial No. 05757 (Cancels and Supersedes NNPN No. 04952), had not been considered or discussed in its Decision. Even in consideration of these
issued on 02 June 1977, P500,000.00 with 17% interest p.a.; points though, this Court remains unconvinced that it should modify or reverse in any
way its disposition of the case in its earlier Decision.
(iv) FNCB NNPN Serial No. 05758 (Cancels and Supersedes NNPN No. 04962),
issued on 02 June 1977, P500,000.00 with 17% interest per annum; As to the off-setting or compensation
of respondent's outstanding loan
(v) The Two Million (P2,000,000.00) money market placements of Ms. balance with her dollar deposits in
Sabeniano with the Ayala Investment & Development Corporation (AIDC) with Citibank-Geneva
legal interest at the rate of twelve percent (12%) per annum compounded
yearly, from 30 September 1976 until fully paid; Petitioners' take exception to the following findings made by this Court in its Decision,
dated 16 October 2006, disallowing the off-setting or compensation of the balance of
4. Ordering defendants-appellants to jointly and severally pay the plaintiff- respondent's outstanding loans using her dollar deposits in Citibank-Geneva -
appellant the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00) by way
of moral damages, FIVE HUNDRED THOUSAND PESOS (P500,000.00) as Without the Declaration of Pledge, petitioner Citibank had no authority to demand the
exemplary damages, and ONE HUNDRED THOUSAND PESOS (P100,000.00) as remittance of respondent's dollar accounts with Citibank-Geneva and to apply them to
attorney's fees. her outstanding loans. It cannot effect legal compensation under Article 1278 of the
Civil Code since, petitioner Citibank itself admitted that Citibank-Geneva is a distinct
Acting on petitioners' Motion for Partial Reconsideration, the Court of Appeals issued a and separate entity. As for the dollar accounts, respondent was the creditor and
Resolution,[6] dated 20 November 2002, modifying its earlier Decision, thus - Citibank-Geneva is the debtor; and as for the outstanding loans, petitioner Citibank was
the creditor and respondent was the debtor. The parties in these transactions were
WHEREFORE, premises considered, the instant Motion for Reconsideration is PARTIALLY evidently not the principal creditor of each other.
GRANTED as Sub-paragraph (V) paragraph 3 of the assailed Decision's dispositive Petitioners maintain that respondent's Declaration of Pledge, by virtue of which she
portion is hereby ordered DELETED. supposedly assigned her dollar accounts with Citibank-Geneva as security for her loans
with petitioner Citibank, is authentic and, thus, valid and binding upon
The challenged 26 March 2002 Decision of the Court is AFFIRMED with MODIFICATION. respondent. Alternatively, petitioners aver that even without said Declaration of
Pledge, the off-setting or compensation made by petitioner Citibank using respondent's
dollar accounts with Citibank-Geneva to liquidate the balance of her outstanding loans
with Citibank-Manila was expressly authorized by respondent herself in the promissory SEC. 20. Bank Branches. - Universal or commercial banks may open branches or other
notes (PNs) she signed for her loans, as well as sanctioned by Articles 1278 to 1290 of offices within or outside the Philippines upon prior approval of the Bangko Sentral.
the Civil Code. This alternative argument is anchored on the premise that all branches Branching by all other banks shall be governed by pertinent laws.
of petitioner Citibank in the Philippines and abroad are part of a single worldwide A bank may, subject to prior approval of the Monetary Board, use any or all of its
corporate entity and share the same juridical personality. In connection therewith, branches as outlets for the presentation and/or sale of the financial products of its
petitioners deny that they ever admitted that Citibank-Manila and Citibank-Geneva are allied undertaking or its investment house units.
distinct and separate entities. A bank authorized to establish branches or other offices shall be responsible for all
business conducted in such branches and offices to the same extent and in the same
Petitioners call the attention of this Court to the following provision found in all of the manner as though such business had all been conducted in the head office. A bank and
PNs[7] executed by respondent for her loans - its branches and offices shall be treated as one unit.

At or after the maturity of this note, or when same becomes due under any of the x x x x
provisions hereof, any money, stocks, bonds, or other property of any kind whatsoever,
on deposit or otherwise, to the credit of the undersigned on the books of CITIBANK, SEC. 72. Transacting Business in the Philippines. - The entry of foreign banks in the
N.A. in transit or in their possession, may without notice be applied at the discretion of Philippines through the establishment of branches shall be governed by the provisions
the said bank to the full or partial payment of this note. of the Foreign Banks Liberalization Act.
It is the petitioners' contention that the term "Citibank, N.A." used therein should be
deemed to refer to all branches of petitioner Citibank in the Philippines and abroad; The conduct of offshore banking business in the Philippines shall be governed by the
thus, giving petitioner Citibank the authority to apply as payment for the PNs even provisions of Presidential Decree No. 1034, otherwise known as the "Offshore Banking
respondent's dollar accounts with Citibank-Geneva. Still proceeding from the premise System Decree."
that all branches of petitioner Citibank should be considered as a single entity, then it
should not matter that the respondent obtained the loans from Citibank-Manila and x x x x
her deposits were with Citibank-Geneva. Respondent should be considered the debtor
(for the loans) and creditor (for her deposits) of the same entity, petitioner SEC. 74. Local Branches of Foreign Banks. - In case of a foreign bank which has more
Citibank. Since petitioner Citibank and respondent were principal creditors of each than one (1) branch in the Philippines, all such branches shall be treated as one (1) unit
other, in compliance with the requirements under Article 1279 of the Civil Code,[8] then for the purpose of this Act, and all references to the Philippine branches of foreign
the former could have very well used off-setting or compensation to extinguish the banks shall be held to refer to such units.
parties' obligations to one another. And even without the PNs, off-setting or
compensation was still authorized because according to Article 1286 of the Civil Code, SEC. 75. Head Office Guarantee. - In order to provide effective protection of the
"Compensation takes place by operation of law, even though the debts may be payable interests of the depositors and other creditors of Philippine branches of a foreign bank,
at different places, but there shall be an indemnity for expenses of exchange or the head office of such branches shall fully guarantee the prompt payment of all
transportation to the place of payment." liabilities of its Philippine branch.

Pertinent provisions of Republic Act No. 8791, otherwise known as the General Banking Residents and citizens of the Philippines who are creditors of a branch in the Philippines
Law of 2000, governing bank branches are reproduced below - of a foreign bank shall have preferential rights to the assets of such branch in
accordance with existing laws.
Republic Act No. 7721, otherwise known as the Foreign Banks Liberalization Law, lays
down the policies and regulations specifically concerning the establishment and
operation of local branches of foreign banks. Relevant provisions of the said statute
read - guarantee is necessary so as to bring the head office within Philippine jurisdiction, and
Sec. 2. Modes of Entry. - The Monetary Board may authorize foreign banks to operate in
the Philippine banking system through any of the following modes of entry: (i) by
acquiring, purchasing or owning up to sixty percent (60%) of the voting stock of an
existing bank; (ii) by investing in up to sixty percent (60%) of the voting stock of a new
banking subsidiary incorporated under the laws of the Philippines; or (iii) by establishing
branches with full banking authority: Provided, That a foreign bank may avail itself of
only one (1) mode of entry: Provided, further, That a foreign bank or a Philippine
corporation may own up to a sixty percent (60%) of the voting stock of only one (1)
domestic bank or new banking subsidiary.
Sec. 5. Head Office Guarantee. - The head office of foreign bank branches shall
guarantee prompt payment of all liabilities of its Philippine branches.
It is true that the afore-quoted Section 20 of the General Banking Law of 2000 expressly
states that the bank and its branches shall be treated as one unit. It should be pointed
out, however, that the said provision applies to a universal[9] or commercial
bank,[10] duly established and organized as a Philippine corporation in accordance with
Section 8 of the same statute,[11] and authorized to establish branches within or outside
the Philippines.
The General Banking Law of 2000, however, does not make the same categorical
statement as regards to foreign banks and their branches in the Philippines. What
Section 74 of the said law provides is that in case of a foreign bank with several
branches in the country, all such branches shall be treated as one unit. As to the
relations between the local branches of a foreign bank and its head office, Section 75 of
the General Banking Law of 2000 and Section 5 of the Foreign Banks Liberalization Law
provide for a "Home Office Guarantee," in which the head office of the foreign bank
shall guarantee prompt payment of all liabilities of its Philippine branches. While the
Home Office Guarantee is in accord with the principle that these local branches,
together with its head office, constitute but one legal entity, it does not necessarily
support the view that said principle is true and applicable in all circumstances.
The Home Office Guarantee is included in Philippine statutes clearly for the protection
of the interests of the depositors and other creditors of the local branches of a foreign
bank.[12] Since the head office of the bank is located in another country or state, such a
to hold the same answerable for the liabilities of its Philippine branches. Hence, the
principle of the singular identity of that the local branches and the head office of a
foreign bank are more often invoked by the clients in order to establish the
accountability of the head office for the liabilities of its local branches. It is under such
attendant circumstances in which the American authorities and jurisprudence
presented by petitioners in their Motion for Partial Reconsideration were rendered.
Now the question that remains to be answered is whether the foreign bank can use the
principle for a reverse purpose, in order to extend the liability of a client to the foreign
bank's Philippine branch to its head office, as well as to its branches in other
countries. Thus, if a client obtains a loan from the foreign bank's Philippine branch,
does it absolutely and automatically make the client a debtor, not just of the Philippine
branch, but also of the head office and all other branches of the foreign bank around
the world? This Court rules in the negative.
There being a dearth of Philippine authorities and jurisprudence on the matter, this
Court, just as what petitioners have done, turns to American authorities and
jurisprudence. American authorities and jurisprudence are significant herein
considering that the head office of petitioner Citibank is located in New York, United
States of America (U.S.A.).
Unlike Philippine statutes, the American legislation explicitly defines the relations
among foreign branches of an American bank. Section 25 of the United States Federal
Reserve Act[13] states that -
Every national banking association operating foreign branches shall conduct the
accounts of each foreign branch independently of the accounts of other foreign
branches established by it and of its home office, and shall at the end of each fiscal
period transfer to its general ledger the profit or loss accrued at each branch as a
separate item.
Contrary to petitioners' assertion that the accounts of Citibank-Manila and Citibank-
Geneva should be deemed as a single account under its head office, the foregoing
provision mandates that the accounts of foreign branches of an American bank shall be
conducted independently of each other. Since the head office of petitioner Citibank is
in the U.S.A., then it is bound to treat its foreign branches in accordance with the said
provision. It is only at the end of its fiscal period that the bank is required to transfer to
its general ledger the profit or loss accrued at each branch, but still reporting it as a
separate item. It is by virtue of this provision that the Circuit Court of Appeals of New
York declared in Pan-American Bank and Trust Co. v. National City Bank of New
York[14] that a branch is not merely a teller's window; it is a separate business entity.
The circumstances in the case of McGrath v. Agency of Chartered Bank of India,
Australia & China[15] are closest to the one at bar. In said case, the Chartered Bank had
branches in several countries, including one in Hamburg, Germany and another in New
York, U.S.A., and yet another in London, United Kingdom. The New York branch
entered in its books credit in favor of four German firms. Said credit represents
collections made from bills of exchange delivered by the four German firms. The same
four German firms subsequently became indebted to the Hamburg branch. The London
branch then requested for the transfer of the credit in the name of the German firms
from the New York branch so as to be applied or setoff against the indebtedness of the
same firms to the Hamburg branch. One of the question brought before the U.S.
District Court of New York was "whether or not the debts and the alleged setoffs
thereto are mutual," which could be answered by determining first whether the New
York and Hamburg branches of Chartered Bank are individual business entities or are
one and the same entity. In denying the right of the Hamburg branch to setoff, the U.S.
District Court ratiocinated that - Going back to the instant Petition, although this Court concedes that all the Philippine
The structure of international banking houses such as Chartered bank defies one
rigorous description. Suffice it to say for present analysis, branches or agencies of an
international bank have been held to be independent entities for a variety of
purposes (a) deposits payable only at branch where made; Mutaugh v. Yokohama
Specie Bank, Ltd., 1933, 149 Misc. 693, 269 N.Y.S. 65; Bluebird Undergarment Corp. v.
Gomez, 1931, 139 Misc. 742, 249 N.Y.S. 319; (b) checks need be honored only when
drawn on branch where deposited; Chrzanowska v. Corn Exchange Bank, 1916, 173
App. Div. 285, 159 N.Y.S. 385, affirmed 1919, 225 N.Y. 728, 122 N.E. 877;
subpoena duces tecum on foreign bank's record barred; In re Harris, D.C.S.D.N.Y. 1939,
27 F. Supp. 480; (d) a foreign branch separate for collection of forwarded paper; Pan-
American Bank and Trust Company v. National City Bank of New York, 2 Cir., 1925, 6 F.
2d 762, certiorari denied 1925, 269 U.S. 554, 46 S. Ct. 18, 70 L. Ed. 408. Thus in law
there is nothing innately unitary about the organization of international banking
institutions.
Defendant, upon its oral argument and in its brief, relies heavily on Sokoloff v. National
City Bank of New York, 1928, 250 N.Y. 69, 164 N.E. 745, as authority for the proposition
that Chartered Bank, not the Hamburg or New York Agency, is ultimately responsible
for the amounts owing its German customers and, conversely, it is to Chartered Bank
that the German firms owe their obligations. The Sokoloff case, aside from its violently
different fact situation, is centered on the legal problem of default of payment and
consequent breach of contract by a branch bank. It does not stand for the principle
that in every instance an international bank with branches is but one legal entity for all
purposes. The defendant concedes in its brief (p. 15) that there are purposes for which
the various agencies and branches of Chartered Bank may be treated in law as separate
entities. I fail to see the applicability of Sokoloff either as a guide to or authority for the
resolution of this problem. The facts before me and the cases catalogued supra lend
weight to the view that we are dealing here with Agencies independent of one another.
x x x x
I hold that for instant purposes the Hamburg Agency and defendant were independent
business entities, and the attempted setoff may not be utilized by defendant against its
debt to the German firms obligated to the Hamburg Agency.
branches of petitioner Citibank should be treated as one unit with its head office, it
cannot be persuaded to declare that these Philippine branches are likewise a single unit
with the Geneva branch. It would be stretching the principle way beyond its intended
purpose.
Therefore, this Court maintains its original position in the Decision that the off-setting
or compensation of respondent's loans with Citibank-Manila using her dollar accounts
with Citibank-Geneva cannot be effected. The parties cannot be considered principal
creditor of the other. As for the dollar accounts, respondent was the creditor and
Citibank-Geneva was the debtor; and as for the outstanding loans, petitioner Citibank,
particularly Citibank-Manila, was the creditor and respondent was the debtor. Since
legal compensation was not possible, petitioner Citibank could only use respondent's
dollar accounts with Citibank-Geneva to liquidate her loans if she had expressly
authorized it to do so by contract.
Respondent cannot be deemed to have authorized the use of her dollar deposits with
Citibank-Geneva to liquidate her loans with petitioner Citibank when she signed the
PNs[16] for her loans which all contained the provision that -
At or after the maturity of this note, or when same becomes due under any of the
provisions hereof, any money, stocks, bonds, or other property of any kind whatsoever,
on deposit or otherwise, to the credit of the undersigned on the books of CITIBANK,
N.A. in transit or in their possession, may without notice be applied at the discretion of
the said bank to the full or partial payment of this note.
As has been established in the preceding discussion, "Citibank, N.A." can only refer to
the local branches of petitioner Citibank together with its head office. Unless there is
any showing that respondent understood and expressly agreed to a more far-reaching
interpretation, the reference to Citibank, N.A. cannot be extended to all other branches
of petitioner Citibank all over the world. Although theoretically, books of the branches
form part of the books of the head office, operationally and practically, each branch
maintains its own books which shall only be later integrated and balanced with the
books of the head office. Thus, it is very possible to identify and segregate the books of
the Philippine branches of petitioner Citibank from those of Citibank-Geneva, and to
limit the authority granted for application as payment of the PNs to respondent's
deposits in the books of the former.
Moreover, the PNs can be considered a contract of adhesion, the PNs being in standard
printed form prepared by petitioner Citibank. Generally, stipulations in a contract come
about after deliberate drafting by the parties thereto, there are certain contracts
almost all the provisions of which have been drafted only by one party, usually a
corporation. Such contracts are called contracts of adhesion, because the only
participation of the party is the affixing of his signature or his "adhesion" thereto. This
being the case, the terms of such contract are to be construed strictly against the party
which prepared it.[17]
As for the supposed Declaration of Pledge of respondent's dollar accounts with
Citibank-Geneva as security for the loans, this Court stands firm on its ruling that the
non-production thereof is fatal to petitioners' cause in light of respondent's claim that
her signature on such document was a forgery. It bears to note that the original of the
Declaration of Pledge is with Citibank-Geneva, a branch of petitioner Citibank. As
between respondent and petitioner Citibank, the latter has better access to the
document. The constant excuse forwarded by petitioner Citibank that Citibank-Geneva
refused to return possession of the original Declaration of Pledge to Citibank-Manila
only supports this Court's finding in the preceding paragraphs that the two branches
are actually operating separately and independently of each other.
Further, petitioners keep playing up the fact that respondent, at the beginning of the
trial, refused to give her specimen signatures to help establish whether her signature on
the Declaration of Pledge was indeed forged. Petitioners seem to forget that
subsequently, respondent, on advice of her new counsel, already offered to cooperate
in whatever manner so as to bring the original Declaration of Pledge before the RTC for
inspection. The exchange of the counsels for the opposing sides during the hearing on
24 July 1991 before the RTC reveals the apparent willingness of respondent's counsel to
undertake whatever course of action necessary for the production of the contested
document, and the evasive, non-committal, and uncooperative attitude of petitioners'
counsel.[18]
Lastly, this Court's ruling striking down the Declaration of Pledge is not entirely based
on respondent's allegation of forgery. In its Decision, this Court already extensively
discussed why it found the said Declaration of Pledge highly suspicious and irregular, to
wit -
First of all, it escapes this Court why petitioner Citibank took care to have the Deeds of
Assignment of the PNs notarized, yet left the D eclaration of Pledge unnotarized. This
Court would think that petitioner Citibank would take greater cautionary measures with
the preparation and execution of the Declaration of Pledge because it involved
respondent's "all present and future fiduciary placements" with a Citibank branch in
another country, specifically, in Geneva, Switzerland. While there is no express legal
requirement that the Declaration of Pledge had to be notarized to be effective, even so,
it could not enjoy the same prima faciepresumption of due execution that is extended
to notarized documents, and petitioner Citibank must discharge the burden of proving
due execution and authenticity of the Declaration of Pledge.
Second, petitioner Citibank was unable to establish the date when the Declaration of
Pledge was actually executed. The photocopy of the Declaration of Pledge submitted
by petitioner Citibank before the RTC was undated. It presented only a photocopy of
the pledge because it already forwarded the original copy thereof to Citibank-Geneva
when it requested for the remittance of respondent's dollar accounts pursuant
thereto. Respondent, on the other hand, was able to secure a copy of the Declaration
of Pledge, certified by an officer of Citibank-Geneva, which bore the date 24 September
1979. Respondent, however, presented her passport and plane tickets to prove that
she was out of the country on the said date and could not have signed the
pledge. Petitioner Citibank insisted that the pledge was signed before 24 September
1979, but could not provide an explanation as to how and why the said date was
written on the pledge. Although Mr. Tan testified that the Declaration of Pledge was
signed by respondent personally before him, he could not give the exact date when the
said signing took place. It is important to note that the copy of the Declaration of
Pledge submitted by the respondent to the RTC was certified by an officer of Citibank-
Geneva, which had possession of the original copy of the pledge. It is dated 24
September 1979, and this Court shall abide by the presumption that the written
document is truly dated. Since it is undeniable that respondent was out of the country
on 24 September 1979, then she could not have executed the pledge on the said date.
Third, the Declaration of Pledge was irregularly filled-out. The pledge was in a standard
printed form. It was constituted in favor of Citibank, N.A., otherwise referred to therein
as the Bank. It should be noted, however, that in the space which should have named
the pledgor, the name of petitioner Citibank was typewritten, to wit -
The pledge right herewith constituted shall secure all claims which the Bank now has or
in the future acquires against Citibank, N.A., Manila (full name and address of the
Debtor), regardless of the legal cause or the transaction (for example current account,
securities transactions, collections, credits, payments, documentary credits and
collections) which gives rise thereto, and including principal, all contractual and penalty
interest, commissions, charges, and costs.
The pledge, therefore, made no sense, the pledgor and pledgee being the same
entity. Was a mistake made by whoever filled-out the form? Yes, it could be a
possibility. Nonetheless, considering the value of such a document, the mistake as to a
significant detail in the pledge could only be committed with gross carelessness on the
part of petitioner Citibank, and raised serious doubts as to the authenticity and due
execution of the same. The Declaration of Pledge had passed through the hands of
several bank officers in the country and abroad, yet, surprisingly and implausibly, no
one noticed such a glaring mistake.
Lastly, respondent denied that it was her signature on the Declaration of Pledge. She
claimed that the signature was a forgery. When a document is assailed on the basis of
forgery, the best evidence rule applies -
Basic is the rule of evidence that when the subject of inquiry is the contents of a
document, no evidence is admissible other than the original document itself except in
the instances mentioned in Section 3, Rule 130 of the Revised Rules of Court. Mere
photocopies of documents are inadmissible pursuant to the best evidence rule. This is
especially true when the issue is that of forgery.
As a rule, forgery cannot be presumed and must be proved by clear, positive and
convincing evidence and the burden of proof lies on the party alleging forgery. The best
evidence of a forged signature in an instrument is the instrument itself reflecting the
alleged forged signature. The fact of forgery can only be established by a comparison
between the alleged forged signature and the authentic and genuine signature of the
person whose signature is theorized upon to have been forged. Without the original
document containing the alleged forged signature, one cannot make a definitive
comparison which would establish forgery. A comparison based on a mere xerox copy
or reproduction of the document under controversy cannot produce reliable results.
Respondent made several attempts to have the original copy of the pledge produced
before the RTC so as to have it examined by experts. Yet, despite several Orders by the
RTC, petitioner Citibank failed to comply with the production of the original Declaration
of Pledge. It is admitted that Citibank-Geneva had possession of the original copy of
the pledge. While petitioner Citibank in Manila and its branch in Geneva may be
separate and distinct entities, they are still incontestably related, and between
petitioner Citibank and respondent, the former had more influence and resources to
convince Citibank-Geneva to return, albeit temporarily, the original Declaration of
Pledge. Petitioner Citibank did not present any evidence to convince this Court that it
had exerted diligent efforts to secure the original copy of the pledge, nor did it proffer
the reason why Citibank-Geneva obstinately refused to give it back, when such
document would have been very vital to the case of petitioner Citibank. There is thus
no justification to allow the presentation of a mere photocopy of the Declaration of
Pledge in lieu of the original, and the photocopy of the pledge presented by petitioner
Citibank has nil probative value. In addition, even if this Court cannot make a
categorical finding that respondents signature on the original copy of the pledge
was forged, it is persuaded that petitioner Citibank willfully suppressed the
presentation of the original document, and takes into consideration the presumption
that the evidence willfully suppressed would be adverse to petitioner Citibank if
produced.
As far as the Declaration of Pledge is concerned, petitioners failed to submit any new
evidence or argument that was not already considered by this Court when it rendered
its Decision.
As to the value of the dollar deposits
in Citibank-Geneva ordered
refunded to respondent
In case petitioners are still ordered to refund to respondent the amount of her dollar
accounts with Citibank-Geneva, petitioners beseech this Court to adjust the nominal
values of respondent's dollar accounts and/or her overdue peso loans by using the
values of the currencies stipulated at the time the obligations were established in 1979,
to address the alleged inequitable consequences resulting from the extreme and
extraordinary devaluation of the Philippine currency that occurred in the course of the
Asian crisis of 1997. Petitioners base their request on Article 1250 of the Civil Code
which reads, "In case an extraordinary inflation or deflation of the currency stipulated
should supervene, the value of the currency at the time of the establishment of the
obligation shall be the basis of payment, unless there is an agreement to the contrary."
It is well-settled that Article 1250 of the Civil Code becomes applicable only when there
is extraordinary inflation or deflation of the currency. Inflation has been defined as the
sharp increase of money or credit or both without a corresponding increase in business
transaction. There is inflation when there is an increase in the volume of money and
credit relative to available goods resulting in a substantial and continuing rise in the
general price level.[19] In Singson v. Caltex (Philippines), Inc.,[20] this Court already
provided a discourse as to what constitutes as extraordinary inflation or deflation of
currency, thus - 1984. In Serra vs. Court of Appeals, the Court again did not consider the decline in the
We have held extraordinary inflation to exist when there is a decrease or increase in the
purchasing power of the Philippine currency which is unusual or beyond the common
fluctuation in the value of said currency, and such increase or decrease could not have
been reasonably foreseen or was manifestly beyond the contemplation of the parties at
the time of the establishment of the obligation.
An example of extraordinary inflation, as cited by the Court in Filipino Pipe and Foundry
Corporation vs. NAWASA, supra, is that which happened to the deutschmark in
1920. Thus:
"More recently, in the 1920s, Germany experienced a case of hyperinflation. In early
1921, the value of the German mark was 4.2 to the U.S. dollar. By May of the same
year, it had stumbled to 62 to the U.S. dollar. And as prices went up rapidly, so that by
October 1923, it had reached 4.2 trillion to the U.S. dollar!" (Bernardo M. Villegas &
Victor R. Abola, Economics, An Introduction [Third Edition]).
As reported, "prices were going up every week, then every day, then every
hour. Women were paid several times a day so that they could rush out and exchange
their money for something of value before what little purchasing power was left
dissolved in their hands. Some workers tried to beat the constantly rising prices by
throwing their money out of the windows to their waiting wives, who would rush to
unload the nearly worthless paper. A postage stamp cost millions of marks and a loaf of
bread, billions." (Sidney Rutberg, "The Money Balloon", New York: Simon and Schuster,
1975, p. 19, cited in "Economics, An Introduction" by Villegas & Abola, 3rd ed.)
The supervening of extraordinary inflation is never assumed. The party alleging it must
lay down the factual basis for the application of Article 1250.
Thus, in the Filipino Pipe case, the Court acknowledged that the voluminous records
and statistics submitted by plaintiff-appellant proved that there has been a decline in
the purchasing power of the Philippine peso, but this downward fall cannot be
considered "extraordinary" but was simply a universal trend that has not spared our
country. Similarly, in Huibonhoa vs. Court of Appeals, the Court dismissed plaintiff-
appellant's unsubstantiated allegation that the Aquino assassination in 1983 caused
building and construction costs to double during the period July 1983 to February
peso's purchasing power from 1983 to 1985 to be so great as to result in an
extraordinary inflation.
Like the Serra and Huibonhoa cases, the instant case also raises as basis for the
application of Article 1250 the Philippine economic crisis in the early 1980s --- when,
based on petitioner's evidence, the inflation rate rose to 50.34% in 1984. We hold that
there is no legal or factual basis to support petitioner's allegation of the existence of
extraordinary inflation during this period, or, for that matter, the entire time frame of
1968 to 1983, to merit the adjustment of the rentals in the lease contract dated July 16,
1968. Although by petitioner's evidence there was a decided decline in the purchasing
power of the Philippine peso throughout this period, we are hard put to treat this as an
"extraordinary inflation" within the meaning and intent of Article 1250.
Rather, we adopt with approval the following observations of the Court of Appeals on
petitioner's evidence, especially the NEDA certification of inflation rates based on
consumer price index:
xxx (a) from the period 1966 to 1986, the official inflation rate never exceeded 100% in
any single year; (b) the highest official inflation rate recorded was in 1984 which
reached only 50.34%; (c) over a twenty one (21) year period, the Philippines
experienced a single-digit inflation in ten (10) years (i.e., 1966, 1967, 1968, 1969, 1975,
1976, 1977, 1978, 1983 and 1986); (d) in other years (i.e., 1970, 1971, 1972, 1973,
1974, 1979, 1980, 1981, 1982, 1984 and 1989) when the Philippines experienced
double-digit inflation rates, the average of those rates was only 20.88%; (e) while there
was a decline in the purchasing power of the Philippine currency from the period 1966
to 1986, such cannot be considered as extraordinary; rather, it is a normal erosion of
the value of the Philippine peso which is a characteristic of most currencies.
"Erosion" is indeed an accurate description of the trend of decline in the value of the
peso in the past three to four decades. Unfortunate as this trend may be, it is certainly
distinct from the phenomenon contemplated by Article 1250.
Moreover, this Court has held that the effects of extraordinary inflation are not to be
applied without an official declaration thereof by competent authorities.
The burden of proving that there had been extraordinary inflation or deflation of the
currency is upon the party that alleges it. Such circumstance must be proven by
competent evidence, and it cannot be merely assumed. In this case, petitioners
presented no proof as to how much, for instance, the price index of goods and services
had risen during the intervening period.[21] All the information petitioners provided was
the drop of the U.S. dollar-Philippine peso exchange rate by 17 points from June 1997
to January 1998. While the said figure was based on the statistics of the Bangko Sentral
ng Pilipinas (BSP), it is also significant to note that the BSP did not categorically declare
that the same constitute as an extraordinary inflation. The existence of extraordinary
inflation must be officially proclaimed by competent authorities, and the only
competent authority so far recognized by this Court to make such an official
proclamation is the BSP.[22]
Neither can this Court, by merely taking judicial notice of the Asian currency crisis in
1997, already declare that there had been extraordinary inflation. It should be recalled
that the Philippines likewise experienced economic crisis in the 1980s, yet this Court did
not find that extraordinary inflation took place during the said period so as to warrant
the application of Article 1250 of the Civil Code.
Furthermore, it is incontrovertible that Article 1250 of the Civil Code is based on
equitable considerations. Among the maxims of equity are (1) he who seeks equity
must do equity, and (2) he who comes into equity must come with clean hands. The
latter is a frequently stated maxim which is also expressed in the principle that he who
has done inequity shall not have equity.[23] Petitioner Citibank, hence, cannot invoke
Article 1250 of the Civil Code because it does not come to court with clean hands. The
delay in the recovery[24] by respondent of her dollar accounts with Citibank-Geneva was
due to the unlawful act of petitioner Citibank in using the same to liquidate
respondent's loans. Petitioner Citibank even attempted to justify the off-setting or
compensation of respondent's loans using her dollar accounts with Citibank-Geneva by
the presentation of a highly suspicious and irregular, and even possibly forged,
Declaration of Pledge.
The damage caused to respondent of the deprivation of her dollar accounts for more
than two decades is unquestionably relatively more extensive and devastating, as
compared to whatever damage petitioner Citibank, an international banking
corporation with undoubtedly substantial capital, may have suffered for responden's
non-payment of her loans. It must also be remembered that petitioner Citibank had
already considered respondent's loans paid or liquidated by 26 October 1979 after it
had fully effected compensation thereof using respondents deposits and money market
placements. All this time, respondent's dollar accounts are unlawfully in the possession
of and are being used by petitioner Citibank for its business transactions. In the
meantime, respondent's businesses failed and her properties were foreclosed because
she was denied access to her funds when she needed them most. Taking these into other parties to due process.
consideration, respondent's dollar accounts with Citibank-Geneva must be deemed to
be subsisting and continuously deposited with petitioner Citibank all this while, and will IN VIEW OF THE FOREGOING, petitioners' Motion for Partial Reconsideration of this
only be presently withdrawn by respondent. Therefore, petitioner Citibank should Court's Decision, dated 16 October 2006, and respondent's Motion for this Court to
refund to respondent the U.S. $149,632.99 taken from her Citibank-Geneva accounts, declare the same Decision already final and executory, are both DENIED for lack of
or its equivalent in Philippine currency using the exchange rate at the time of merit.
payment, plus the stipulated interest for each of the fiduciary placements and current
accounts involved, beginning 26 October 1979. SO ORDERED.

As to respondent's Motion to Clarify

and/or Confirm Decision with Notice
of Judgment

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

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

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

As the last point, there is no merit in respondent's Motion for this Court to already
declare its Decision, dated 16 October 2006, final and executory. A judgment becomes
final and executory by operation of law and, accordingly, the finality of the judgment
becomes a fact upon the lapse of the reglementary period without an appeal or a
motion for new trial or reconsideration being filed.[25] This Court cannot arbitrarily
disregard the reglementary period and declare a judgment final and executory upon the
mere motion of one party, for to do so will be a culpable violation of the right of the
Case of the Day: Sabeniano v. Citibank Citibanks motion did not rest on the lack of credibility of the plaintiffs evidence, and
rightly so. It would have been improper, I think, for the court to decide, on summary
Ted Folkman judgment, that the judgment proffered by Sabeniano was inauthentic. Instead, Citibank
Posted on March 29, 2013 argued that the 2006 judgment, which came years after the supposed 2002 judgment,
should be recognized, and that once recognized, it was res judicata.
The case of the day is Sabeniano v. Citibank N.A. New York (S.D.N.Y. 2013). Modesta The judge found that the 2006 judgment was entitled to recognition under the UFMJRA.
Sabeniano, a Philippine national, had had several accounts with Citibank branches in Not only did Sabeniano fail to make any arguments against recognition; she herself was
Switzerland, New York, and the Philippines in the 1970s. In 1985, she sued Citibank in seeking recognition for a Philippine judgment and thus could hardly argue, for example,
the a Philippine court, alleging that Citibank refused to pay her amounts it held in her that the Philippine courts were not impartial, etc. Once he recognized the judgment,
account. Citibanks answer asserted that it had made loans to Sabeniano and that it had the judge held, again apparently correctly, that the 2006 judgment was res judicata.
offset the balance of the loans against the amounts on account after Sabeniano failed
to make required payments. In 1995, the Philippine trial court entered a judgment in
favor of Sabeniano, and the case was appealed ultimately to the Philippine Supreme
Court. After appeals, Supreme Court issued a judgment in 2006, which became final in
2007. 1 Citibank deposited a check for approximately $400,000 with the court to satisfy
the judgment, and the Philippine Supreme Court entered an order establishing that
Citibank had satisfied the judgment.
In 2012, Sabeniano sued Citibank in New York. She alleged that in 2002, the Philippine
Supreme Court had entered a judgment awarding her more than $13 million, and she
sought recognition and enforcement. She claimed that she became aware of the
judgment in March 2011before the judgment was supposedly issuedand that she
asked the Supreme Court to authenticate it. She submitted a certificate authenticating
the judgment, but it was issued by the Philippine court of appeals, not the Supreme
Court. Citibank asserted that the judgment was inauthentic and a forgery. It asked the
Philippine Supreme Court to verify the judgment. The court issued a notice stating that
it had not entered a decision on the date of the supposed 2002 judgment and ordered
Sabeniano to show cause why she should not be cited for contempt of court.
The parties cross-moved for summary judgment. The key issue was the authenticity of
the 2002 judgment. The judge properly denied Sabenianos motion for summary
judgment on the grounds that her evidence was not credible. This requires a little
explanation. You cant grant a summary judgment that relies on making determinations
about which sides evidence is more credible, since questions of fact are to be
determined at trial. But its proper to deny a motion for summary judgment if the
movants evidence seems incredible, a point I made in a discussion of one of Judge
Kaplans decisions in the Lago Agrio case.
 allotted aggregates at Lucia's permitted area in Toledo City13 at P240.00 per truckload.14
SPOUSES BONIFACIO AND LUCIA
PARAS, Petitioners, v. KIMWA CONSTRUCTION The entirety of this Agreement reads:chanroblesvirtuallawlibrary

AND DEVELOPMENT AGREEMENT FOR SUPPLY OF AGGREGATES

CORPORATION, Respondent. KNOW ALL MEN BY THESE PRESENTS:

DECISION This Agreement made and entered into by and between:

LEONEN, J.: LUCIA PARAS, of legal age, Filipino, married and resident of Poblacion, Toledo City,
Province of Cebu, hereinafter referred to as the SUPPLIER:
This resolves the Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules of
-and-
Civil Procedure praying that the assailed Decision2 dated July 4, 2005 and
Resolution3 dated February 9, 2006 of the Court of Appeals Special 20th Division in CA-
KIMWA CONSTRUCTION AND DEVELOPMENT CORP., a corporation duly organized and
G.R. CV No. 74682 be reversed and set aside, and that the Decision4 of Branch 55 of the
existing under the laws of the Philippines with office address at Subangdaku, Mandaue
Regional Trial Court, Mandaue City dated May 16, 2001 in Civil Case No. MAN-2412 be
City, hereinafter represented by its President MRS. CORAZON Y. LUA, of legal age,
reinstated.5
Filipino and a resident of Subangdaku, Mandaue City[,] hereinafter referred to as the
CONTRACTOR;
The trial court's May 16, 2001 Decision ruled in favor of petitioners Spouses Bonifacio
and Lucia Paras (plaintiffs before the Regional Trial Court) in their action for breach of
WITNESSETH:
contract with damages against respondent Kimwa Construction and Development
Corporation (Kimwa).6
That the SUPPLIER is [sic] Special Permittee of (Rechanelling Block # VI of Sapang Daco
River along Barangay Ilihan) located at Toledo City under the terms and
The assailed Decision of the Court of Appeals reversed and set aside the trial court's
conditions:chanroblesvirtuallawlibrary
May 16, 2001 Decision and dismissed Spouses Paras' Complaint.7 The Court of Appeals'
assailed Resolution denied Spouses Paras' Motion for Reconsideration.8
1. That the aggregates is [sic] to be picked-up by the CONTRACTOR at the
SUPPLIER [sic] permitted area at the rate of TWO HUNDRED FORTY
Lucia Paras (Lucia) was a "concessionaire of a sand and gravel permit at Kabulihan,
(P240.00) PESOS per truck load;
Toledo City[.]"9Kimwa is a "construction firm that sells concrete aggregates to
contractors and haulers in Cebu."10 2. That the volume allotted by the SUPPLIER to the CONTRACTOR is limited
to 40,000 cu.m.;
On December 6, 1994, Lucia and Kimwa entered into a contract denominated
"Agreement for Supply of Aggregates" (Agreement) where 40,000 cubic meters of 3. That the said Aggregates is [sic] for the exclusive use of the Contractor;
aggregates were "allotted"11 by Lucia as supplier to Kimwa.12 Kimwa was to pick up the
 4. That the terms of payment is Fifteen (15) days after the receipt of
billing;
5. That there is [sic] no modification, amendment, assignment or transfer
of this Agreement after acceptance shall be binding upon the SUPPLIER
unless agreed to in writing by and between the CONTRACTOR and
SUPPLIER.
IN WITNESS WHEREOF, we have hereunto affixed our signatures this 6th day of
December, 1994 at Mandaue City, Cebu, Philippines.
LUCIA PARAS (sgd.) CORAZON Y. LUA (sgd.)
Supplier Contractor15
(Emphasis supplied)
Pursuant to the Agreement, Kimwa hauled 10,000 cubic meters of aggregates.
Sometime after this, however, Kimwa stopped hauling aggregates.16
In its Answer,26 Kimwa alleged that it never committed to obtain 40,000 cubic meters of
aggregates from Lucia. It argued that the controversial quantity of 40,000 cubic meters
represented only an upper limit or the maximum quantity that it could haul.27 It
likewise claimed that it neither made any commitment to haul 40,000 cubic meters of
aggregates before May 15, 1995 nor represented that the hauling of this quantity could
be completed in two to three months.28 It denied that the hauling of 10,000 cubic
meters of aggregates was completed in a matter of days and countered that it took
weeks to do so. It also denied transferring to the concession area of a certain Mrs.
Remedios dela Torre.29
Kimwa asserted that the Agreement articulated the parties' true intent that 40,000
cubic meters was a maximum limit and that May 15, 1995 was never set as a deadline.
Invoking the Parol Evidence Rule, it insisted that Spouses Paras were barred from
introducing evidence which would show that the parties had agreed differently.30

Claiming that in so doing, Kimwa violated the Agreement, Lucia, oined by her husband, On May 16, 2001, the Regional Trial Court rendered the Decision in favor of Spouses
Bonifacio, filed the Complaint17 for breach of contract with damages that is now subject Paras. The trial court noted that the Agreement stipulated that the allotted aggregates
of this Petition. were set aside exclusively for Kimwa. It reasoned that it was contrary to human
experience for Kimwa to have entered into an Agreement with Lucia without verifying
In their Complaint, Spouses Paras alleged that sometime in December 1994, Lucia was the latter's authority as a concessionaire.31 Considering that the Special
approached by Kimwa expressing its interest to purchase gravel and sand from Permit32 granted to Lucia (petitioners' Exhibit "A" before the trial court) clearly
her.18 Kimwa allegedly asked that it be "assured"19 of 40,000 cubic meters worth of indicated that her authority was good for only six (6) months from November 14, 1994,
aggregates.20 Lucia countered that her concession area was due to be rechanneled on the trial court noted that Kimwa must have been aware that the 40,000 cubic meters of
May 15, 1995, when her Special Permit expires.21 Thus, she emphasized that she would aggregates allotted to it must necessarily be hauled by May 15, 1995. As it failed to do
be willing to enter into a contract with Kimwa "provided the forty thousand cubic so, it was liable to Spouses Paras for the total sum of P720,000.00, the value of the
meter[s] w[ould] be withdrawn or completely extracted and hauled before 15 May 30,000 cubic-meters of aggregates that Kimwa did not haul, in addition to attorney's
1995[.]"22 Kimwa then assured Lucia that it would take only two to three months for it fees and costs of suit.33
to completely haul the 40,000 cubic meters of aggregates.23 Convinced of Kimwa's
assurances, Lucia and Kimwa entered into the Agreement.24 On appeal, the Court of Appeals reversed the Regional Trial Court's Decision. It faulted
the trial court for basing its findings on evidence presented which were supposedly in
Spouses Paras added that within a few days, Kimwa was able to extract and haul 10,000 violation of the Parol Evidence Rule. It noted that the Agreement was clear that Kimwa
cubic meters of aggregates. However, after extracting and hauling this quantity, Kimwa was under no obligation to haul 40,000 cubic meters of aggregates by May 15, 1995.34
allegedly transferred to the concession area of a certain Mrs. Remedios dela Torre in
violation of their Agreement. They then addressed demand letters to Kimwa. As these In a subsequent Resolution, the Court of Appeals denied reconsideration to Spouses
went unheeded, Spouses Paras filed their Complaint.25 Paras.35
 were agreed upon by the parties, varying the purport of the written contract."37
Hence, this Petition was filed.
This rule is animated by a perceived wisdom in deferring to the contracting parties'
The issue for resolution is whether respondent Kimwa Construction and Development articulated intent. In choosing to reduce their agreement into writing, they are deemed
Corporation is liable to petitioners Spouses Paras for (admittedly) failing to haul 30,000 to have done so meticulously and carefully, employing specific frequently, even
cubic meters of aggregates from petitioner Lucia Paras' permitted area by May 15, technical language as are appropriate to their context. From an evidentiary
1995. standpoint, this is also because "oral testimony . . . coming' from a party who has an
interest in the outcome of the case, depending exclusively on human memory, is not as
To resolve this, it is necessary to determine whether petitioners Spouses Paras were reliable as written or documentary evidence. Spoken words could be notoriously
able to establish that respondent Kimwa was obliged to haul a total of 40,000 cubic unreliable unlike a written contract which speaks of a uniform language."38 As
meters of aggregates on or before May 15, 1995. illustrated in Abella v. Court of Appeals:39ChanRoblesVirtualawlibrary
Without any doubt, oral testimony as to a certain fact, depending as it does exclusively
We reverse the Decision of the Court of Appeals and reinstate that of the Regional Trial on human memory, is not as reliable as written or documentary evidence. "I would
Court. Respondent Kimwa is liable for failing to haul the remainder of the quantity sooner trust the smallest slip of paper for truth," said Judge Limpkin of Georgia, "than
which it was obliged to acquire from petitioner Lucia Paras. the strongest and most retentive memory ever bestowed on mortal man." This is
especially true in this case where such oral testimony is given by a party to the case
Rule 130, Section 9 of the Revised Rules on Evidence provides for the Parol Evidence who has an interest in its outcome, and by a witness who claimed to have received a
Rule, the rule on admissibility of documentary evidence when the terms of an commission from the petitioner.40cralawlawlibrary
agreement have been reduced into writing:chanroblesvirtuallawlibrary This, however, is merely a general rule. Provided that a party puts in issue in its
Section 9. Evidence of written agreements. When the terms of an agreement have pleading any of the four (4) items enumerated in the second paragraph of Rule 130,
been reduced to writing, it is considered as containing all the terms agreed upon and Section 9, "a party may present evidence to modify, explain or add to the terms of the
there can be, between the parties and their successors in interest, no evidence of such agreement[.]"41 Raising any of these items as an issue in a pleading such that it falls
terms other than the contents of the written agreement. under the exception is not limited to the party initiating an action. In Philippine National
Railways v. Court of First Instance of Albay,42 this court noted that "if the defendant set
However, a party may present evidence to modify, explain or add to the terms of up the affirmative defense that the contract mentioned in the complaint does not
written agreement if he puts in issue in his pleading:chanroblesvirtuallawlibrary express the true agreement of the parties, then parol evidence is admissible to prove
(a) An intrinsic ambiguity, mistake or imperfection in the written agreement; the true agreement of the parties[.]"43 Moreover, as with all possible objections to the
(b) The failure of the written agreement to express the true intent and agreement of admission of evidence, a party's failure to timely object is deemed a waiver, and parol
the parties thereto; evidence may then be entertained.
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their successors in interest Apart from pleading these exceptions, it is equally imperative that the parol evidence
after the execution of the written agreement. sought to be introduced points to the conclusion proposed by the party presenting it.
The term "agreement" includes wills. That is, it must be relevant, tending to "induce belief in [the] existence"44 of the flaw,
Per this rule, reduction to written form, regardless of the formalities true intent, or subsequent extraneous terms averred by the party seeking to introduce
observed,36 "forbids any addition to, or contradiction of, the terms of a written parol evidence.
agreement by testimony or other evidence purporting to show that different terms
In sum, two (2) things must be established for parol evidence to be admitted: first, that
the existence of any of the four (4) exceptions has been put in issue in a party's
pleading or has not been objected to by the adverse party; and second, that the parol
evidence sought to be presented serves to form the basis of the conclusion proposed by
the presenting party.cralawlawlibrary
II
7. Plaintiff countered that the area is scheduled to be rechanneled on 15 May
1995 and by that time she will be prohibited to sell the aggregates;
8. She further told the defendant that she would be willing to enter into a
contract provided the forty thousand cubic meter [sic] will be withdrawn or
completely extracted and hauled before 15 May 1995, the scheduled
rechanneling:

Here, the Court of Appeals found fault in the Regional Trial Court for basing its findings 9. Defendant assured her that it will take them only two to three months to haul
"on the basis of evidence presented in violation of the parol evidence rule."45 It completely the desired volume as defendant has all the trucks needed;
proceeded to fault petitioners Spouses Paras for showing "no proof of [respondent 10. Convinced of the assurances, plaintiff-wife and the defendant entered into a
Kimwa's] obligation."46 Then, it stated that "[t]he stipulations in the agreement contract for the supply of the aggregates sometime on 6 December 1994 or
between the parties leave no room for interpretation."47 thereabouts, at a cost of Two Hundred Forty (P240.00) Pesos per truckload[.]50

The Court of Appeals is in serious error. It is true that petitioners Spouses Paras' Complaint does not specifically state words and
phrases such as "mistake," "imperfection," or "failure to express the true intent of the
At the onset, two (2) flaws in the the Court of Appeals' reasoning must be emphasized. parties." Nevertheless, it is evident that the crux of petitioners Spouses Paras'
First, it is inconsistent to say, on one hand, that the trial court erred on the basis of Complaint is their assertion that the Agreement "entered into on 6 December 1994 or
"evidence presented"48 (albeit supposedly in violation of the Parol Evidence Rule), and, thereabouts"51 was founded on the parties' supposed understanding that the quantity
on the other, that petitioners Spouses Paras showed "no proof."49 Second, without of aggregates allotted in favor of respondent Kimwa must be hauled by May 15, 1995,
even accounting for the exceptions provided by Rule 130, Section 9, the Court of lest such hauling be rendered impossible by the rechanneling of petitioner Lucia Paras'
Appeals immediately concluded that whatever evidence petitioners Spouses Paras permitted area. This assertion is the very foundation of petitioners' having come to
presented was in violation of the Parol Evidence Rule. court for relief.

Contrary to the Court of Appeal's conclusion, petitioners Spouses Paras pleaded in the
Complaint they filed before the trial court a mistake or imperfection in the Agreement,
as well as the Agreement's failure to express the true intent of the parties. Further,
respondent Kimwa, through its Answer, also responded to petitioners Spouses Paras'
pleading of these issues. This is, thus, an exceptional case allowing admission of parol
evidence.
Paragraphs 6 to 10 of petitioners' Complaint read:chanroblesvirtuallawlibrary
6. Sensing that the buyers-contractqrs and haulers alike could easily consumed
[sic] the deposits defendant proposed to the plaintiff-wife that it be assured of
a forty thousand (40,000) cubic meter [sic];
Proof of how petitioners Spouses Paras successfully pleaded and put this in issue in
their Complaint is how respondent Kimwa felt it necessary to respond to it or address it
in its Answer. Paragraphs 2 to 5 of respondent Kimwa's Answer
read:chanroblesvirtuallawlibrary
2. The allegation in paragraph six of the complaint is admitted subject to the
qualification that when defendant offered to buy aggregates from the
concession of the plaintiffs, it simply asked the plaintiff-concessionaire if she
could sell a sufficient supply of aggregates to be used in defendant's
construction business and plaintiff-concessionaire agreed to sell to the
defendant aggregates from her concession up to a limit of 40,000 cubic meters
at the price of P240.00 per cubic meter.
 3. The allegations in paragraph seven and eight of the complaint are vehemently III
denied by the defendant. The contract which was entered into by the plaintiffs
and the defendant provides only that the former supply the latter the volume Of course, this admission and availability for consideration is no guarantee of how
of 40,000.00 cubic meters of aggregates. There is no truth to the allegation that exactly the parol evidence adduced shall be appreciated by a court. That is, they do not
the plaintiff wife entered into the contract under the condition that the guarantee the probative value, if any, that shall be attached to them. In any case, we
aggregates must be quarried and hauled by defendant completely before May find that petitioners have established that respondent Kimwa was obliged to haul
15, 1995, otherwise this would have been unequivocally stipulated in the 40,000 cubic meters of aggregates on or before May 15, 1995. Considering its
contract. admission that it did not haul 30,000 cubic meters of aggregates, respondent Kimwa is
liable to petitioners.
4. The allegation in paragraph nine of the complaint is hereby denied. The
defendant never made any assurance to the plaintiff wife that it will take only The Pre-Trial Order issued by the Regional Trial Court in Civil Case No. MAN-2412
two to three months to haul the aforesaid volume of aggregates. Likewise, the attests to respondent Kimwa's admission that:chanroblesvirtuallawlibrary
contract is silent on this aspect for in fact there is no definite time frame agreed 6) Prior to or during the execution of the contract[,] the Plaintiffs furnished the
upon by the parties within which defendant is to quarry and haul aggregates Defendant all the documents and requisite papers in connection with the contract,
from the concession of the plaintiffs. one of which was a copy of the Plaintiff's [sic] special permit indicating that the
Plaintiff's [sic] authority was only good for (6) months from November 14, 1994.53
5. The allegation in paragraph ten of the complaint is admitted insofar as the This Special Permit was, in turn, introduced by petitioners in evidence as their Exhibit
execution of the contract is concerned. However, the contract was executed, "A,"54 with its date of issuance and effectivity being specifically identified as their
not by reason of the alleged assurances of the defendant to the plaintiffs, as Exhibit "A-1."55 Relevant portions of this Special Permit read:
claimed by the latter, but because of the intent and willingness of the plaintiffs
to supply and sell aggregates to it. It was upon the instance of the plaintiff that To All Whom It May Concern:chanroblesvirtuallawlibrary
the defendant sign the subject contract to express in writing their agreement PERMISSION is hereby granted to:
that the latter would haul aggregates from plaintiffs' concession up to such Name Address
point in time that the maximum limit of 40,000 cubic meters would be quarried
and hauled without a definite deadline being set. Moreover, the contract does LUCIA PARAS Poblacion, Toledo City
not obligate the defendant to consume the allotted volume of 40,000 cubic to undertake the rechannelling of Block No. VI of Sapang Daco River along Barangay
meters.52 Ilihan, Toledo City, subject to following terms and
conditions:chanroblesvirtuallawlibrary
Considering how the Agreement's mistake, imperfection, or supposed failure to express 1. That the volume to be extracted from the area is approximately 40,000 cubic meters;
the parties' true intent was successfully put in issue in petitioners Spouses Paras' This permit which is valid for six (6) months from the date hereof is revocable anytime
Complaint (and even responded to by respondent Kimwa in its Answer), this case falls upon violation of any of the foregoing conditions or in the interest of public peace and
under the exceptions provided by Rule 130, Section 9 of the Revised Rules on Evidence. order.
Accordingly, the testimonial and documentary parol evidence sought to be introduced
by petitioners Spouses Paras, which attest to these supposed flaws and what they aver Cebu Capitol, Cebu City, November 14, 1994.56cralawlawlibrary
to have been the parties' true intent, may be admitted and considered.cralawlawlibrary Having been admittedly furnished a copy of this Special Permit, respondent Kimwa was
well aware that a total of only about 40,000 cubic meters of aggregates may be
extracted by petitioner Lucia from the permitted area, and that petitioner Lucia Paras' remaining 30,000 cubic meters.cralawred
operations cannot extend beyond May 15, 1995, when the Special Permit expires.
WHEREFORE, the Petition is GRANTED. The assailed Decision dated July 4, 2005 and
The Special Permit's condition that a total of only about 40,000 cubic meters of Resolution dated February 9, 2006 of the Court of Appeals Special 20th Division in CA-
aggregates may be extracted by petitioner Lucia Paras from the permitted area lends G.R. CV No. 74682 are REVERSEDand SET ASIDE. The Decision of Branch 55 of the
credence to the position that the aggregates "allotted" to respondent Kimwa was in Regional Trial Court, Mandaue City dated May 16, 2001 in Civil Case No. MAN-2412
consideration of its corresponding commitment to haul all 40,000 cubic meters. This is is REINSTATED.
so, especially in light of the Agreement's own statement that "the said Aggregates is for
the exclusive use of [respondent Kimwa.]"57 By allotting the entire 40,000 cubic meters, A legal interest of 6% per annum shall likewise be imposed on the total judgment award
petitioner Lucia Paras bound her entire business to respondent Kimwa. Rational human from the finality of this Decision until full satisfaction.
behavior dictates that she must have done so with the corresponding assurances from
it. It would have been irrational, if not ridiculous, of her to oblige herself to make this SO ORDERED.chanroblesvirtuallawlibrary
allotment without respondent Kimwa's concomitant undertaking that it would obtain
the entire amount allotted. Carpio, (Chairperson), Brion, Del Castillo, and Mendoza, JJ., concur.

Likewise, the condition that the Special Permit shall be valid for only six (6) months
from November 14, 1994 lends credence to petitioners Spouses Paras' assertion that, in
entering into the Agreement with respondent Kimwa, petitioner Lucia Paras did so
because of respondent Kimwa's promise that hauling can be completed by May 15,
1995. Bound as she was by the Special Permit, petitioner Lucia Paras needed to make it
eminently clear to any party she was transacting with that she could supply aggregates
only up to May 15, 1995 and that the other party's hauling must be completed by May
15, 1995. She was merely acting with due diligence, for otherwise, any contract she
would enter into would be negated; any commitment she would make beyond May 15,
1995 would make her guilty of misrepresentation, and any prospective income for her
would be rendered illusory.

Our evidentiary rules impel us to proceed from the position (unless convincingly shown
otherwise) that individuals act as rational human beings, i.e, "[t]hat a person takes
ordinary care of his concerns[.]"58This basic evidentiary stance, taken with the-
supporting evidence petitioners Spouses Paras adduced, respondent Kimwa's
awareness of the conditions under which petitioner Lucia Paras was bound, and the
Agreement's own text specifying exclusive allotment for respondent Kimwa, supports
petitioners Spouses Paras' position that respondent Kimwa was obliged to haul 40,000
cubic meters of aggregates on or before May 15, 1995. As it admittedly hauled only
10,000 cubic meters, respondent Kimwa is liable for breach of contract in respect of the