G.R. No. 160892 - Spouses Tan vs. Villapaz

On February 6, 1992, respondent Carmelito Villapaz issued a Philippine Bank of Communications (PBCom) crossed check amounting to ₱250,000.00, payable to petitioner Antonio “Tony” Tan.
The check was deposited on the same day at the PBCom Davao City branch, credited to the account of petitioner Antonio Tan.
No contemporaneous written agreement or memorandum was executed concerning a loan or cash exchange, though the check itself is an evidentiary document in writing.

Respondent claimed that petitioners, spouses Antonio and Lolita Tan, visited his place of business in Malita, Davao del Sur on February 6, 1992 to obtain an interest‐free loan of ₱250,000.00, payable within six months.
Respondent further alleged that when petitioners failed to settle that amount on the maturity date (or on August 6, 1992), he, through his counsel, sought recovery of the loan amount, and additionally, moral damages and attorney’s fees were accrued due to their “willful refusal” to honor the obligation.
In his testimony during cross-examination, respondent explained that, being godfather to petitioner Antonio Tan’s son and owing to their close relationship, he did not require a written document or cash voucher as proof of the transaction, relying instead on the issuance of the crossed check.

On June 22, 1994, the Malita, Davao del Sur Police issued an invitation-request to petitioner Antonio Tan to appear before a Deputy Chief of Police concerning “conference of vital importance” at the request of respondent.
Petitioner Antonio Tan received the invitation but did not appear, acting on the advice of his lawyer.
Subsequently, on November 7, 1994, respondent filed a complaint before the Regional Trial Court (RTC) of Digos, Davao del Sur for sum of money based on the alleged unpaid loan, along with claims of moral damages.

In the RTC decision rendered on July 24, 1996, the court dismissed respondent’s complaint on the basis that the defendants (petitioners) argued that:

They did not go to Malita or obtain a loan from respondent, but merely exchanged the check for cash.
There was no formal or written demand for payment of the alleged loan.
The absence of a written memorandum (which, according to their version and reference to Article 1358 of the Civil Code, was necessary for enforceability) nullified the existence of a valid loan.

The trial court, giving credit to petitioners’ version, disposed of the complaint and granted petitioners’ compulsory counterclaim for damages, awarding them ₱100,000.00 as moral damages, ₱50,000.00 as exemplary damages, and ₱30,000.00 for attorney’s fees, with respondent ordered to shoulder the costs.

Respondent Carmelito Villapaz appealed to the Court of Appeals, seeking to reverse the RTC decision.
The Court of Appeals delivered a decision on January 25, 2001, reversing and setting aside the trial court’s ruling.
In its decision, the appellate court credited respondent’s version and held that the transaction was in fact a contract of loan evidenced by the crossed check, despite the absence of a written memorandum.
The appellate decision noted inconsistencies and unconvincing aspects of petitioners’ version, including:

The improbability of petitioners’ claim that they had no need for a loan given their ample bank deposits.
The credibility of respondent’s testimony and his established relationship with petitioner Antonio Tan.

The Court of Appeals further criticized the trial court’s reliance on the financial capability argument and misplaced the emphasis on the absence of a written contract, noting that contracts perfected by mere consent are binding regardless of whether documentary compliance is complete.

Whether the crossed check issued on February 6, 1992 constituted evidence of a contract of loan or merely a transaction involving check encashment for cash exchange.
Whether the absence of a written memorandum or cash voucher invalidated or precluded the existence and enforceability of an oral loan agreement.

Whether the check, together with the entries in the bank passbook and the parties’ testimonies—particularly given the established relationship (compadrazgo) between petitioner Antonio Tan and respondent—sufficiently proved the existence of a contract of loan.
Whether the evidences presented negated the petioners’ contention that the transaction was merely an encashment exercise.

Whether petitioners’ substantial bank deposits at the time and their alleged financial stability could be used to refute the claim of needing a loan.
Whether petitioners’ conduct regarding the handling of the check and the subsequent bank deposit was consistent with that of a genuine borrowing transaction or simply a business transaction devoid of a loan contract.

Whether the reliance on Article 1358 of the Civil Code, requiring that contracts involving sums exceeding ₱500.00 appear in writing, is applicable as a substantive requirement for the validity of a loan contract.
Whether the requirement should be seen as one of convenience rather than a strict prerequisite for enforceability of an oral contract.