HONGKONG & SHANGHAI BANKING CORPORATION, PLAINTIFF-APPELLEE, VS. RALPH PAULI, DEFENDANT-APPELLANT.

This is an appeal from a decision of the Court of First Instance of
Manila, Hon. E. Soriano, presiding, in Civil Case No. 32799 of that
court, entitled “Hongkong & Shanghai Banking Corporation,
plaintiff, versus Ralph Pauli, defendant,” ordering the defendant to
pay the plaintiff the sum of P219,236.20, with legal interest thereon.
from June 14, 1957, until fully paid, and costs.

On June 14, 1957, plaintiff filed a complaint against defendant,
alleging that it is a banking corporation organized and operating under
the laws of the Philippines and that the defendant is of legal age and
a resident of Pasay City; that by virtue of an overdraft agreement in
writing entered into between them, defendant obtained from plaintiff
bank a credit! line in the amount of P520,000.00, repayable on demand
with interest; that as of January 20, 1948, defendant was still
indebted to plaintiff under said overdraft agreement in the amount of
P258,964.15, exclusive of interest due from December 31, 1941, also
unpaid; that said indebtedness was acknowledged in writing by defendant
on March 24, 1955, as shown by Exhibit “A”, which is attached to the
complaint; that the debt is now overdue and inspite of repeated demands
for its payment, defendant refused and still refuses to pay the same;
and’ that plaintiff will incur by virtue hereof expenses of litigation.
Plaintiff, therefore, prays for judgment ordering the payment by
defendant to it of the sum of P258,964.15, plus interest thereon from
December 31, 1941, and the expenses of litigation.

On August 10, 1957, defendant filed his answer, wherein he denies
all the allegations of the complaint, except as to the personal
circumstances of the parties. As a special defense, defendant alleges
that any cause of action which plaintiff may have against him is
already barred by the Statute of Limitations. Consequently, he prays
for the dismissal of the action.

In the course of the proceedings, and more specifically on August 7,
1958, defendant filed a motion to dismiss the complaint, reiterating
the special defense in his answer, j Pursuant to orders of the court,
plaintiff filed its opposition thereto, but after a consideration of
the pleadings submitted, the lower court denied the motion.

Consequently, the trial court proceeded with the trial of the case,
and on June 2, 1959, it rendered the decision appealed from. In its
decision, the court found that the documentary evidence. Exhibits “A”
and “B” conclusively show the indebtedness of defendant to plaintiff;
that the testimony of witness Atty. Nicolas Orosa, dovetails with the
contents of said exhibits; that, except the testimony of defendant
himself, no evidence was submitted to prove defendant’s alleged stock
trading transactions with plaintiff bank, and that if such stock
trading transactions did even exist, the same,culminated in the
agreement Exhibit “A”; that plaintiff’s cause of action has not
prescribed because, considering the operation of the Moratorium Law
only 7 years, 11 months and 28 days have elapsed when the action was
filed; that plaintiff has not overreached defendant, there being no
evidence to prove it.

Defendant has appealed from the decision of the lower court.

Before this Court, defendant-appellant claims that the trial court
failed to resolve the real issue tendered by the pleadings and the
evidence; that there is material variance between the principal
allegations of the complaint and plaintiff’s proofs; that said court
erred in not giving credence to the testimony of defendant; that it
failed to perform its obligation under Exhibit “A” and to grant
defendant relief therefrom; that the trial court erred in not finding
that plaintiff’s cause of action has prescribed.

We have examined the records of this case, and we agree with the
trial court that the issue in this case is whether or not defendant is
liable to pay plaintiff the indebtedness amounting to P219,236.20. In
his brief, defendant-appellant impugns the correctness of the findings
of the trial court, so it has been necessary for us to review the
testimonial and documentary evidence presented. The result of our
review is to the effect that the findings of fact of the lower court
are justified.

During the hearing, plaintiff bank presented one witness, Atty.
Nicolas Orosa, who identified the documentary evidence, while the
defendant appeared as witness on his own behalf.

The evidence discloses the following facts: Exhibit “A” recites that
on or about June 17, 1937, plaintiff granted to defendant a credit line
by way of overdraft in an amount not exceeding P520,000.22, and to
secure payment of the above obligation defendant mortgaged several
properties belonging to him in favor of plaintiff bank; defendant was
then engaged in buying and selling stocks and he secured money to
finance his deals from plaintiff bank under said overdraft line
executing a general letter of hypothecation dated June 17, 1937;
defendant failed to pay his indebtedness to the plaintiff bank, which
on November 10, 1937, had reached P504,389.14, so a written demand was
made by the bank upon him on November 16, 1937; the properties thus
mortgaged were sold at public auction to satisfy the debt and the
proceeds of the sale amount to P286,418.13; that after deducting the
proceeds of said sale from the total obligation of defendant to
plaintiff bank, the former was still indebted to the latter in the
amount of P220,865.47, as of January 3, 1938; that to collect the
unpaid balance, plaintiff bank instituted on January 8, 1938 Civil Case
No. 52342 in the Court of First Instance of Manila, which case is
entitled “Hongkong & Shanghai Banking Corporation vs. Pauli”; by
virtue of said action, a writ of attachment was issued against several
other properties of defendant; on January 26, 1938, however, plaintiff
and defendant executed the agreement (Exh. “A”), whereby defendant
acknowledged indebtedness to plaintiff in the amount of P220,865.47 and
undertook to pay the expenses of litigation in said Civil Case No.
52342, pledged some shares of stocks and mortgaged several other
properties and leasehold rights, etc., in consideration for the
dismissal of said Civil Case No. 52342, instituted by plaintiff.

Thereafter, defendant continued using the overdraft line and making
withdrawals thereunder, so that as of December 31, 1941, defendant was
indebted to the bank in the amount of P259,125.96 (Exh. “C”). The said
use is proved by the following: The increase of defendant’s
indebtedness (P220,865.47 in 1938 to P259.125.96 in 1941) ; the
withdrawals and payments on said overdraft line from 1945 to 1948, as
appearing from Exhibit “C”; the acknowledgment made by defendant on
March 24, 1955, to the effect that as of December 31, 1954, he was
still indebted to the plaintiff bank in the amount of P219,236.20.

Further explaining the subsequent dealings between plaintiffs and
defendant, we find the following: On March 24, 1955, defendant
acknowledged in writing that as of December 31, 1954, he was still
indebted to the plaintiff bank in the amount of P219,236.20 (Exh. “B”).
According to the statement of accounts prepared by the Credit
Department of the plaintiff bank, defendant was still indebted to it in
the amount of P219,236.20, as of December 2, 1957 (Exh. “C”). It
appears from said statement that plaintiff bank is holding 52,000
shares of stock of different mining companies pledged as securities by
defendant, but Atty. Nicolas Orosa, witness for the plaintiff bank,
declared that these securities are worthless.

On January 24, 1957, counsel for plaintiff bank demanded in writing
payment of the debt of P219,236.20 from defendant, whose counsel, on
September 23, 1957, answered also in writing that he will pay said debt
provided the bank accepts in payment thie assignment of the first P100,000 of the receipts .due his son-in-law, Mr. Mateo Garganera,
from his (Garganera) contract with the Luzon Stevedoring Company for
the operation of mining claims.

Defendant claims that Exhibit “A” does not represent the true
transaction between him and the bank; that the transaction giving rise
to said Exhibit “A” was a stock trading transaction, wherein defendant
buys and sells stocks of companies, using his own as well as the bank’s
money; that he sold and bought stocks with commission for himself and
for the plaintiff bank; that he put up securities in said transaction
because he was using the bank’s money in his transactions; that this
stock trading transaction was in writing, but he lost his copy of the
agreement during the war; that Exhibit “A” was a “standstill agreement”
but that plaintiff bank violated the same; that plaintiff bank did not
account for the proceeds of the sale of defendant’s properties located
at Mandaluyong, Rizal. It is significant to note, however, that
defendant did not deny being indebted to the plaintiff bank, but he
claimed that such indebtedness arose out of stock trading transactions.

No other evidence was presented by defendant, and while it may have
been true that there was a stock trading agreement between the parties,
we find that the documentary evidence submitted by plaintiff bank,
especially Exhibits “A”, “B” and “C” represent the true result of said
transactions between plaintiff bank and defendant and the exact amount
of defendant’s debt. The trial court, therefore, correctly disregarded
defendant’s testimony.

The appellant claims that the trial court failed to resolve the real
issue in this case, that is, whether or not the defendant-appellant is
liable under the written agreement Exhibit “A”. The defendant denied
that Exhibit “A” represents the true agreement between the plaintiff
and himself. To find out if this claim of the defendant is supported by
the evidence, we have taken pains to examine his own testimony and we
find the following: that the business relations between the plaintiff
and the defendant started around the year 1932, when defendant made a
deposit of :37,000 and was given an overdraft account of P20,000. From
that time on, according to the defendant, their relationship ran as
follows: that when the mining boom began in 1932 the plaintiff and the
defendant entered into a stock trading agreement whereby the defendant
was to make purchase of stocks in the stock market with funds belonging
in part to the bank; that one-half of the funds was furnished by the
bank and the other half, which was chargeable to the defendant, was
also furnished by the bank upon an overdraft account extended by it to
the plaintiff, the defendant ” pledging the shares of stock that
belonged to him to secure or guarantee the overdraft that from small
beginnings in 1932 the purchases of shares of stock by defendant
reached considerable proportions such that around the year 1936, when
the stock market began to lag he had obtained a loan of about half a
million pesos in the overdraft account, and pledged shares amounting to
one million pesos in value, but which were reduced considerably in
value thereafter. Upon examination of Exhibit “A” we find that the
origin of the debt as outline in the recitals therein, as we have
already set forth in our findings of fact, tallies with the allegation
of the defendant in his testimony that the transactions between them
originated from stock trading wherein shares were purchased, the
plaintiff giving him an overdraft and the defendant pledging his shares
of stock to guarantee the payment of said indebtedness. It is not true,
therefore, as claimed that Exhibit “A” does not represent the final
agreement between the plaintiff and the defendant originating in the
stock trading agreement and finally resulting in the sale of securities
and shares of stock pledged and the reduction of the indebtedness of
the defendant from around P520,000 in 1937 to around P220,000 on
January 26, 1938. By his testimony, therefore, plaintiff has
practically affirmed the transactions that led to the execution of the
contract Exhibit “A”. We find, therefore, that by his testimony the
defendant has practically acknowledged his indebtedness as it appears
in the contract Exhibit “A”.

We also dismiss as untenable defendant’s claim that there is
variance between the evidence and the allegations of the complaint. In
the complaint, plaintiff states that defendant is indebted to it and
prays for payment of said debt. The fact of debt and its non-payment
are adequately and completely borne out by plaintiff’s evidence,
Exhibits “A”, “B”, “C”, “D” and “E” and by the testimony of plaintiff’s
witness. Besides, this fact of indebtedness was not denied by defendant
himself during the trial.

Appellant also claims that the lower court should have ordered
plaintiff bank to account for his securities and collaterals given to
the bank and sold by it to satisfy defendant’s debts. This contention
is without merit. In paragraphs 4 and 5 of Exhibit “A” it is declared
that said shares and securities were sold for P286,418.93; as a. result
of which his indebtedness was reduced to P220,865.47. The contract
Exhibit “A” reads thus:

“WHEREAS, on the 20th day of December, 1937, the
BANK through the Sheriff of the City of Manila, duly proceeded with s
the foreclosure of the general letter of hypothecation executed by
Pauli to said Sheriff to sell all the shares of stock and other
securities pledged and hypothecated thereby, at public auction, upon
proper prsvious notice as required by law, on the 3rd day of January,
1938, said Sheriff having realized from such sale the net sum Of TWO
HUNDRED AND EIGHTY-SIX THOUSAND, FOUR HUNDRED EIGHTEEN PESOS AND
NINETY-THREE CENTAVOS (P286,418.93) ; and

“WHEREAS, after
deducting the said sum of F286,418.93 from paulj’s indebtedness to the
BANK on that date, January 3, 1938, then amounting to five hundred and
seven thousand, two hundred AND EIGHTY-FOUR PESOS AND FORTY CENTAVOS
(P507,284.40), as adjusted for interest, there remained as of the dose
of business on the 3rd day of January, 1938, two hundred and twenty
thousand, EIGHT HUNDRED AND SIXTY-FIVE PESOS AND FORTY-SEVEN CENTAVOS
(P220,865.47) still due from and owing by said PAULI to said BANK;
and.” (Exhibit “A”, p. 3)

Furthermore it was proved that some securities still in the possession of plaintiff are useless.

It is finally assigned as error of the trial court that plaintiff’s
cause of action has prescribed. It is contended that the trial court
incorrectly tolled from the period of prescription of ten years the
period from July 26, 1948, when Republic Act No. 342 took effect, to
May 18, 1953, when the Moratorium Law was declared null and void by
this Court in our decision in the case of Rutter vs. Esteban, 93 Phil.,
68; 49 Off. Gaz. 1807. It is further argued that as defendant was not a
war damage claimant, the period of prescription should commence to run
again from July 26, 1948, to continue up to March 24, 1955, when
defendant acknowledged the debt, but as this acknowledgment is not
effective because it was made when the action had already prescribed,
such acknowledgment is to no avail.

The above reasoning of the defendant-appellant would be correct if
no payment on the overdraft line was made in the intervening period by
the defendant-appellant. But the evidence for the plaintiff-appellee
shows without contraction, according to the ledger of the said
plaintiff, a copy of which is reproduced as Exhibit “C”, that payment
was made by the defendant-appellant on October 23, 1945 in the amount
of P6,000.00. On March 13, 1946, payment was again made by the
defendant-appellant on the overdraft line in the amount of P10,000.
These payments made on the overdraft line had the effect of renewing
the right of action which the plaintiff had, in accordance with the
provisions of Section 50 of Act 190, which reads as follows:

“Sec. 50.—What Shall Renew Right of Action.—When
payment has been made upon any demand founded upon contract, or a
written acknowledgment thereof or a promise to pay the same has been
made and signed by the party sought to be charged, an action may be
brought thereon within the time herein limited1, after such payment,
acknowledgment, or promise.”

It must be added that the period of prescription of the obligation
subject of the action is governed by the law in force prior to the
approval of the Civil Code of the Philippines, which is the Code of
Civil Procedure, pursuant to Article 1116 of said Code, which reads as
follows:

“Art. 1116.—Prescription already running before the effectivity of this Code shall be governed by laws previously in force.”

In accordance with Sec. 50 of the Code of Civil Procedure, the
prescriptive period began to run from March 13, 1946, the date of the
last payment. But inasmuch as the Moratorium Law was in force until
July 26, 1948, when Republic Act No. 342 became effective, no action
could then be instituted, so the period of prescription of the action
actually started from July 26, 1948 when the moratorium ended. As the
action was filed on June 14, 1957, the action has clearly, not
prescribed.

But we will now view the case from another angle, that is, from the
fact that on March 24, 1955, the defendant made a written
acknowledgment of the debt (by Instrument marked Exhibit “B”). As we
have already pointed out, the prescriptive period having commenced to
run on July 26, 1948, before the effectivity of the present Civil Code,
the law that governed the limitation of the action is the Code of Civil
Procedure, in accordance with Article 1161 of the Code. Pursuant to
Section 50 of the Code of Civil Procedure, the prescriptive period
which commenced to run on July 26, 1948 was again renewed when the debt
was acknowledged on March 24, 1955. As the action was brought in 1957,
the action had not yet prescribed.

The judgment appealed from is therefore affirmed, with costs. So ordered.

Bengzon, C.J., Padilla, Bautista Angelo, Concepcion, Barrera, Paredes, Dizon, and De Leon, JJ., concur.