Philippine National Bank vs. Court of Appeals and Loreto Tan

No payment is deemed made unless the obligation is completely delivered to the creditor or to one authorized to receive it, and where such authority is embodied in a writing whose contents are in issue, only the original writing is the best evidence of that authority. The debtor bears the burden of proving payment, and failure to produce the alleged Special Power of Attorney defeats the defense of due payment.

Loreto Tan owned a parcel of land abutting the national highway in Mandalagan, Bacolod City, which became subject to expropriation proceedings instituted by the government before the then Court of First Instance of Negros Occidental, Branch IV, docketed as Civil Case No. 12924. The expropriation price of P32,480.00 was deposited with petitioner Philippine National Bank, Bacolod Branch, as the depository directed to release the amount upon court order.

Loreto Tan owned land in Mandalagan, Bacolod City abutting the national highway, included in expropriation proceedings in Civil Case No. 12924 before the then Court of First Instance of Negros Occidental. The government deposited the expropriation price of P32,480.00 with the Philippine National Bank, Bacolod Branch. On May 10, 1978, Tan filed a motion requesting issuance of an order for release to him of the P32,480.00, and on May 22, 1978, the trial court required PNB to release that amount to Tan.

On May 24, 1978, PNB, through Assistant Branch Manager Juan Tagamolila, issued a manager's check for P32,480.00 and delivered it to Sonia Gonzaga without Tan's knowledge, consent or authority. Gonzaga deposited the check in her account with Far East Bank and Trust Co. and later withdrew the amount. When Tan subsequently demanded payment from PNB, the Bank refused on the ground that it had already paid and delivered the amount to Gonzaga on the strength of a Special Power of Attorney allegedly executed by Tan in her favor.

According to Tan, he never executed any Special Power of Attorney in favor of Sonia S. Gonzaga and never authorized her to receive the sum. In an affidavit executed June 8, 1978 before PNB's lawyer Alejandro S. Somo, Tan stated he signed a motion for the court to issue an order to release the sum to him and gave it to Nilo Gonzaga, husband of Sonia, for filing, but after the order issued, Engineer Decena of the Highway Engineer's Office issued the authority to release the funds not to him but to Gonzaga. When Tan failed to recover from PNB, he moved in the expropriation court to require PNB to pay him. PNB opposed, contending Gonzaga presented a copy of the May 22, 1978 order and a special power of attorney by virtue of which the check was delivered to her. At the hearing set July 21, 1978, PNB was directed to produce the special power of attorney but failed to do so. The court found need for the matter to be ventilated in a separate civil action, leading Tan to file his complaint on May 2, 1979 against PNB and Tagamolila.

Petitioner maintained in its defense that Tan had duly authorized Gonzaga as agent, and on September 28, 1979 filed a third-party complaint against the spouses Nilo and Sonia Gonzaga praying they be ordered to pay Tan, which was dismissed for failure to have summons served despite opportunities given. Tagamolila, for his part, answered that Gonzaga presented a Special Power of Attorney to him but borrowed it later with promise to return it, claiming she needed it to encash the check. Neither the SPA nor the check issued by petitioner was ever presented in court, and petitioner's own witnesses conflicted on the payee, with Tagamolila testifying the check was issued to the order of Sonia Gonzaga as attorney-in-fact of Loreto Tan while assistant cashier Elvira Tibon stated it was issued to the order of Loreto Tan.

• Existence of SPA and Best Evidence Rule: Petitioner argued that the issue is whether or not the SPA ever existed and that its existence need not be proved under the best evidence rule because existence was already proved through testimonies of its witnesses and by certification issued by Far East Bank and Trust Company that it allowed Sonia Gonzaga to encash Tan's check on the basis of the SPA.
• Due Payment Through Agent: Petitioner maintained that it had already paid and delivered the P32,480.00 to Sonia Gonzaga by virtue of the SPA allegedly executed by Tan, and that Tan had duly authorized Gonzaga to act as his agent to receive payment.

• Payment: Whether delivery of the manager's check to Sonia Gonzaga constituted valid payment discharging petitioner's obligation to Loreto Tan.
• Best Evidence Rule: Whether the existence and authority under the alleged Special Power of Attorney could be established by testimonial evidence and bank certification without producing the original writing.
• Attorney's Fees: Whether private respondent is entitled to attorney's fees.
• Exemplary Damages: Whether exemplary damages may be awarded absent bad faith and compensatory damages.

• Payment: No. No payment to Tan was ever made, the check never having been delivered to him, and the debtor bears the burden of proving payment under Art. 1233 of the Civil Code.
• Best Evidence Rule: No. The contents of the SPA being in issue, only the original is the best evidence, and secondary evidence was inadmissible without proof of execution, loss, destruction or unavailability under Sec. 4, Rule 130.
• Attorney's Fees: Yes. Fees are recoverable under Art. 2208 of the Civil Code where the claimant was compelled to litigate to protect his interest by reason of the other's unjustified act or omission.
• Exemplary Damages: No. Exemplary damages require wanton, fraudulent, reckless, oppressive or malevolent conduct and presuppose compensatory damages, neither of which was established.

• Payment: A debt is not understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, pursuant to Art. 1233, with the burden of proof resting on the debtor. When the court ordered petitioner to pay Tan P32,480.00, the obligation to deliver to him arose, yet admittedly the check was delivered instead to Gonzaga without Tan's knowledge, consent or authority. Conflicting testimony on the payee and failure to produce either the SPA or the check left payment unproven, so the defense of due payment necessarily failed.
• Best Evidence Rule: Under Sec. 2, Rule 130, there can be no evidence of a writing the contents of which is the subject of inquiry other than the original itself, except in enumerated cases, while Sec. 4 permits secondary evidence only upon proof of execution and loss, destruction or unavailability. Contrary to petitioner's contention that only existence needed proof, the nature and extent of powers allegedly granted — specifically whether receipt of payment was authorized — were also in issue and required presentation of the document. No original was ever presented, no predicate for secondary evidence was laid, and the FEBTC certification and recollections could not substitute for the original.
• Attorney's Fees: Art. 2208 allows attorney's fees where the claimant is compelled to litigate with third persons or incur expenses to protect his interest by reason of an unjustified act or omission of the party from whom it is sought. Having been forced to file a separate civil action after refusal of payment and failure to produce the SPA, Tan was entitled to fees, consistent with the rule that a party forced to litigate to protect rights may recover attorney's fees.
• Exemplary Damages: Under Art. 2232, exemplary damages may be imposed only where the party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner, and they cannot be recovered as a matter of right under Art. 2233. Jurisprudence requires (a) imposition by way of example in addition to compensatory damages after the right thereto is established, (b) dependence on an award of compensatory damages, and (c) bad faith or wanton, fraudulent, oppressive or malevolent conduct. Although breach of the obligation to pay was clear, no fraudulent, wanton, reckless or oppressive manner was shown and no compensatory damages were awarded, rendering the trial court's P5,000.00 award baseless.

• Payment; delivery to creditor or authorized person — Under Art. 1233 of the Civil Code, a debt is not understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered. Applied here, delivery of the manager's check to Sonia Gonzaga, who lacked proven authority from Tan, did not discharge PNB's court-ordered obligation to deliver P32,480.00 to Tan.
• Burden of proof of payment — The burden of proving payment lies with the debtor. PNB, as debtor ordered to release the expropriation price, therefore had to establish due payment to Tan or his duly authorized agent, which it failed to do.
• Best evidence rule; original writing must be produced — Under Sec. 2, Rule 130 of the Rules of Court, there can be no evidence of a writing the contents of which is the subject of inquiry other than the original writing itself, except (a) loss, destruction or inability to produce, (b) possession by adverse party failing to produce after reasonable notice, (c) record in custody of public officer, (d) recorded original with certified copy made evidence by law, or (e) voluminous accounts where only general result is sought. Because the SPA's contents — existence and scope of authority to receive payment — were in issue, only the original could prove authorization.
• Secondary evidence when original is lost or destroyed — Under Sec. 4, Rule 130, contents of a lost, destroyed or unavailable original may be proved by copy, recital in an authentic document, or recollection of witnesses, but only upon proof of execution and loss, destruction or unavailability. No such predicate was shown for the SPA, so testimonies and the FEBTC certification could not substitute for the original.
• Attorney's fees; compelled litigation — Under Art. 2208 of the Civil Code, attorney's fees may be awarded when the claimant is compelled to litigate or incur expenses to protect his interest by reason of an unjustified act or omission of the party from whom it is sought. Tan, forced to sue separately after PNB's refusal to pay, was entitled to reinstatement of P5,000.00 attorney's fees.
• Exemplary damages; requisites — Under Arts. 2232-2233 of the Civil Code, exemplary damages may be awarded only by way of example, not as a matter of right, where the act was accompanied by bad faith or done in a wanton, fraudulent, oppressive or malevolent manner, and only after the claimant's right to them is established and dependent upon compensatory damages. Mere breach without such conduct and without compensatory damages precluded exemplary damages against PNB.

• "Under Art. 1233 of the Civil Code, a debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be." — States the controlling definition of payment applied to reject PNB's claim that delivery to Gonzaga discharged its obligation to Tan.
• "There can be no evidence of a writing the contents of which is the subject of inquiry, other than the original writing itself, except in the following cases:" — Recites the best evidence rule under Sec. 2, Rule 130, grounding the requirement to produce the original SPA rather than testimonial substitutes.
• "When the original writing has been lost or destroyed, or cannot be produced in court, upon proof of its execution and loss or destruction, or unavailability, its contents may be proved by a copy, or by a recital of its contents in some authentic document, or by the recollection of witnesses." — States the exclusive predicate for secondary evidence under Sec. 4, Rule 130, which PNB failed to satisfy.
• "they cannot be recovered as a matter of right; the court has yet to decide whether or not they should be adjudicated." — Defines the discretionary nature of exemplary damages supporting deletion of the award absent bad faith and compensatory damages.

• Pinon vs. Osorio, 30 Phil. 365 — Cited as authority that the burden of proof of payment lies with the debtor, applied to require PNB to prove delivery to Tan.
• Solid Homes, Inc. vs. CA, 235 SCRA 299 (1994) — Cited in support of Art. 2208 allowing attorney's fees where claimant is compelled to litigate by reason of unjustified act or omission.
• Rasonable vs. NLRC, et al., G.R. No. 117195, February 20, 1996 — Followed for the rule that a party forced to litigate to protect his rights is entitled to attorney's fees, supporting reinstatement of fees to Tan.
• Octol vs. Ybanez, 111 SCRA 79 (1982); De Leon vs. CA, 165 SCRA 166 (1988) — Cited as jurisprudence setting the requirements for exemplary damages, applied to delete the award for lack of bad faith and compensatory damages.

• Art. 1233, Civil Code — Provides payment requires complete delivery or rendition of the obligation; applied to hold undelivered payment to Tan did not extinguish PNB's obligation.
• Sec. 2, Rule 130, Rules of Court — Requires production of original writing when contents are subject of inquiry, subject to stated exceptions; applied to require original SPA to prove Gonzaga's authority.
• Sec. 4, Rule 130, Rules of Court — Allows secondary evidence only upon proof of execution and loss, destruction or unavailability; applied to reject testimonies and FEBTC certification as substitutes.
• Art. 2208, Civil Code — Allows attorney's fees when claimant is compelled to litigate to protect interest due to unjustified act or omission; applied to reinstate P5,000.00 fees to Tan.
• Art. 2232, Civil Code — Allows exemplary damages only for wanton, fraudulent, reckless, oppressive or malevolent conduct; applied to deny damages for mere breach without such conduct.
• Art. 2233, Civil Code — Provides exemplary damages cannot be recovered as a matter of right and courts decide their adjudication; applied with jurisprudence requiring prior compensatory damages.

Regalado, J., Puno, J., and Mendoza, J., concur. Torres, Jr., J., is on leave.