Topic: Form of Contract

Doctrine: Art 1358. Contracts where the amount involved exceeds P500 must appear in writing. However, this
requirement is only for the convenience of the parties and will not affect the validity of the contract.

Title: Sps ANTONIO and LOLITA TAN vs. CARMELITO VILLAPAZ

FACTS:

Note: RTC dismissed the complaint of respondent Villapaz. Then the CA overturned the RTC’s
decision. Thus, this petition for review on certiorari at the SC.

On February 06, 1992, respondent Villapaz alleged that spouses Tan visited him in his store
(Golden Harvest) located at Malita, Davao City to borrow P250,000. Villapaz issued a PBCom crossed
cheque in that amount payable to the order of Antonio Tan. On the same date, the cheque was deposited
at the drawee bank, PBCom Monteverde Branch, Davao City to the account of Tan, also at same bank.
According to Villapaz, the agreement was for Tan to settle the loan interest- free in 6 months
which was on August 06, 1992. The spouses failed to settle the loan on the maturity date and despite
repeated demands from Villapaz. Thus, the latter was prompted to file on November 07, 1994 before
Digos, Davao del Sur RTC a Complaint for sum of money against the spouses.
In the RTC, the spouses denied having gone to Villapaz’es Golden Harvest Store in Malita to obtain
a loan from him. The RTC in dismissing respondent’s claim gave 4 reasons for ruling out a loan: 1) the
defense of spouses that they did not go to Villapaz’es Golden Harvest Store on February 06, 1992 (it was
also the opening of the store in Davao City and Tan who was also the treasurer was in charge of the
bodega), the day the check was given to them; 2) the spouses could not have borrowed money on that
date because they are financially capable as evidenced by the entries on their passbook with PBCom; 3)
the alleged loan was not reduced in writing and 4) the cheque could not be a competent evidence
of loan (the spouses insist that they just exchanged the cheque for cash because Villapaz needed the
money urgently).

Respondent Villapaz appealed to the CA which credited his version, thus reversing the RTC’s
decision. The CA found RTC’s reasonings 1 and 2 are more of alibi and speculation. As for reasonings 3
and 4, the RTC missed on the proper application of the provisions of law.

ISSUE:
Whether the alleged loan can be denied merely because it is not reduced in writing.

HELD:
NO.

As a rule, contracts are obligatory, in whatever form they have been entered into, provided all
the essential requisites for their validity are present. (Art 1356). Following this rule, there is no required
form for a mutuum. Since mutuum is a real contract, delivery of the thing perfects the contract.

The CA and the SC found the reliance of the RTC misplaced on Art 1358 providing that to be
enforceable, contracts where the amount involved exceeds P500 must appear in writing. Such
requirement, it has been held, is only for convenience, not for validity.

That, apart from the cheque, no written proof of the grant of loan was executed was credibly
explained by respondent Villapaz when he declared that the spouses’ son was his godson and so out of
trust and respect, the crossed cheque sufficed for him to prove of their transaction.
 At all events, the crossed cheque, the entries of which are no doubt in writing, proved a loan
transaction between Tan and Villapaz. Respondent’s claim that the proceeds of the cheque, which were
admittedly received by the petitioner spouses, represented a loan. It is worth noting that PBCom
Monteverde Branch was located near the Golden Harvest Store of Villapaz and if he just needed cash
that day, he could just have easily gone to the bank to encash the cheque since the bank was still open,
instead of asking Tan to exchange the cheque for cash.

Wherefore, the petition is DENIED.

THIRD DIVISION

G.R. No. 160892 November 22, 2005

SPOUSES ANTONIO and LOLITA TAN, Petitioners,

DECISION

CARPIO MORALES, J.:

From the January 25, 2001 decision1 of the Court of Appeals reversing that of the Regional Trial Court (RTC) of
Digos, Davao del Sur2 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 Certiorari3 was
lodged.

On February 6, 1992, respondent issued a Philippine Bank of Communications (PBCom) crossed check4 in the
amount of ₱250,000.00, 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, 19946 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 ₱250,000.00, 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 ₱1,000.00 per appearance fee; and on account of the willful
refusal of petitioners to honor their obligation, he suffered moral damages in the amount of ₱50,000.00, 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 ₱250,000.00.

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 Decision11 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:

a. ₱100,000.00 as moral damages;

b. ₱50,000.00 as exemplary damages;

c. ₱30,000.00 as attorney’s fees; and

3. Plaintiff Carmelito Villapaz to pay the costs.

SO ORDERED. (Underscoring in the original)12

Respondent appealed to the Court of Appeals which, by Decision13 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 ₱700,000 and on February 6, 1992, they had ₱1,211,400.64 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):

A: 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.

Q: You said that the spouses Tan were in need of money on February 6, 1992. Why did you have to issue a
cross-check?

A: 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 ₱250,000.00 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):

Q: x x x you have noticed Carmelito Villapaz to have trusted and have full confidence in you during your business
relationship, correct?

A: All people have trust and confidence but whenever there is a transaction, it should be covered a (sic) proof.

Q: You mean you are a fellow who adheres that every transaction should be recorded?

A: Yes, if the transaction involves a big amount,

Q: But in this case of Carmelito Villapaz you noticed personally that he has trust and confidence in your person,
correct?

A: The truth is, if ever we have a transaction which involves ₱1,000.00 or ₱2,000.00, 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 ₱250,000.00 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:

I.

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.

II.

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.

III.

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] ₱500.00 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 morning18 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 ₱250,000.00 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 ₱250,000.00 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 ₱250,000.00 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 ₱250,000.00 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 ₱250,000.00 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 ₱250,000.00, 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. 135822 of the Civil Code, the same is misplaced for the requirement that
contracts where the amount involved exceeds ₱500.00 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 ₱950,000.00 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 loan25 extended to petitioner Antonio Tan is credible, the preponderance
of evidence inclines on respondent.

WHEREFORE, the present petition is DENIED.

Costs against petitioners.

SO ORDERED.

CONCHITA CARPIO MORALES