Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-19190 November 29, 1922
THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee,
vs.
VENANCIO CONCEPCION, defendant-appellant.
Recaredo Ma. Calvo for appellant.
Attorney-General Villa-Real for appellee.

MALCOLM, J.:
By telegrams and a letter of confirmation to the manager of the Aparri branch of the Philippine National
Bank, Venancio Concepcion, President of the Philippine National Bank, between April 10, 1919, and May
7, 1919, authorized an extension of credit in favor of "Puno y Concepcion, S. en C." in the amount of
P300,000. This special authorization was essential in view of the memorandum order of President
Concepcion dated May 17, 1918, limiting the discretional power of the local manager at Aparri, Cagayan,
to grant loans and discount negotiable documents to P5,000, which, in certain cases, could be increased
to P10,000. Pursuant to this authorization, credit aggregating P300,000, was granted the firm of "Puno y
Concepcion, S. en C.," the only security required consisting of six demand notes. The notes, together
with the interest, were taken up and paid by July 17, 1919.
"Puno y Concepcion, S. en C." was a copartnership capitalized at P100,000. Anacleto Concepcion
contributed P5,000; Clara Vda. de Concepcion, P5,000; Miguel S. Concepcion, P20,000; Clemente Puno,
P20,000; and Rosario San Agustin, "casada con Gral. Venancio Concepcion," P50,000. Member Miguel S.
Concepcion was the administrator of the company.
On the facts recounted, Venancio Concepcion, as President of the Philippine National Bank and as
member of the board of directors of this bank, was charged in the Court of First Instance of Cagayan
with a violation of section 35 of Act No. 2747. He was found guilty by the Honorable Enrique V. Filamor,
Judge of First Instance, and was sentenced to imprisonment for one year and six months, to pay a fine of
P3,000, with subsidiary imprisonment in case of insolvency, and the costs.
Section 35 of Act No. 2747, effective on February 20, 1918, just mentioned, to which reference must
hereafter repeatedly be made, reads as follows: "The National Bank shall not, directly or indirectly, grant
loans to any of the members of the board of directors of the bank nor to agents of the branch banks."
Section 49 of the same Act provides: "Any person who shall violate any of the provisions of this Act shall
be punished by a fine not to exceed ten thousand pesos, or by imprisonment not to exceed five years, or
by both such fine and imprisonment." These two sections were in effect in 1919 when the alleged
unlawful acts took place, but were repealed by Act No. 2938, approved on January 30, 1921.
Counsel for the defense assign ten errors as having been committed by the trial court. These errors they
have argued adroitly and exhaustively in their printed brief, and again in oral argument. Attorney-
General Villa-Real, in an exceptionally accurate and comprehensive brief, answers the proposition of
appellant one by one.
The question presented are reduced to their simplest elements in the opinion which follows:
I. Was the granting of a credit of P300,000 to the co-partnership "Puno y Concepcion, S. en C." by
Venancio Concepcion, President of the Philippine National Bank, a "loan" within the meaning of section
35 of Act No. 2747?
Counsel argue that the documents of record do not prove that authority to make a loan was given, but
only show the concession of a credit. In this statement of fact, counsel is correct, for the exhibits in
question speak of a "credito" (credit) and not of a " prestamo" (loan).
The "credit" of an individual means his ability to borrow money by virtue of the confidence or trust
reposed by a lender that he will pay what he may promise. (Donnell vs. Jones [1848], 13 Ala., 490;
Bouvier's Law Dictionary.) A "loan" means the delivery by one party and the receipt by the other party of
a given sum of money, upon an agreement, express or implied, to repay the sum loaned, with or without
interest. (Payne vs. Gardiner [1864], 29 N. Y., 146, 167.) The concession of a "credit" necessarily involves
the granting of "loans" up to the limit of the amount fixed in the "credit,"
II. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C.," by
Venancio Concepcion, President of the Philippine National Bank, a "loan" or a "discount"?
Counsel argue that while section 35 of Act No. 2747 prohibits the granting of a "loan," it does not
prohibit what is commonly known as a "discount."
In a letter dated August 7, 1916, H. Parker Willis, then President of the National Bank, inquired of the
Insular Auditor whether section 37 of Act No. 2612 was intended to apply to discounts as well as to
loans. The ruling of the Acting Insular Auditor, dated August 11, 1916, was to the effect that said section
referred to loans alone, and placed no restriction upon discount transactions. It becomes material,
therefore, to discover the distinction between a "loan" and a "discount," and to ascertain if the instant
transaction comes under the first or the latter denomination.
Discounts are favored by bankers because of their liquid nature, growing, as they do, out of an actual,
live, transaction. But in its last analysis, to discount a paper is only a mode of loaning money, with,
however, these distinctions: (1) In a discount, interest is deducted in advance, while in a loan, interest is
taken at the expiration of a credit; (2) a discount is always on double-name paper; a loan is generally on
single-name paper.
Conceding, without deciding, that, as ruled by the Insular Auditor, the law covers loans and not
discounts, yet the conclusion is inevitable that the demand notes signed by the firm "Puno y
Concepcion, S. en C." were not discount paper but were mere evidences of indebtedness, because (1)
interest was not deducted from the face of the notes, but was paid when the notes fell due; and (2) they
were single-name and not double-name paper.
The facts of the instant case having relation to this phase of the argument are not essentially different
from the facts in the Binalbagan Estate case. Just as there it was declared that the operations
constituted a loan and not a discount, so should we here lay down the same ruling.
III. Was the granting of a credit of P300,000 to the copartnership, "Puno y Concepcion, S. en C." by
Venancio Concepcion, President of the Philippine National Bank, an "indirect loan" within the meaning
of section 35 of Act No. 2747?
Counsel argue that a loan to the partnership "Puno y Concepcion, S. en C." was not an "indirect loan." In
this connection, it should be recalled that the wife of the defendant held one-half of the capital of this
partnership.
In the interpretation and construction of statutes, the primary rule is to ascertain and give effect to the
intention of the Legislature. In this instance, the purpose of the Legislature is plainly to erect a wall of
safety against temptation for a director of the bank. The prohibition against indirect loans is a
recognition of the familiar maxim that no man may serve two masters that where personal interest
clashes with fidelity to duty the latter almost always suffers. If, therefore, it is shown that the husband is
financially interested in the success or failure of his wife's business venture, a loan to partnership of
which the wife of a director is a member, falls within the prohibition.
Various provisions of the Civil serve to establish the familiar relationship called a conjugal partnership.
(Articles 1315, 1393, 1401, 1407, 1408, and 1412 can be specially noted.) A loan, therefore, to a
partnership of which the wife of a director of a bank is a member, is an indirect loan to such director.
That it was the intention of the Legislature to prohibit exactly such an occurrence is shown by the
acknowledged fact that in this instance the defendant was tempted to mingle his personal and family
affairs with his official duties, and to permit the loan P300,000 to a partnership of no established
reputation and without asking for collateral security.
In the case of Lester and Wife vs. Howard Bank ([1870], 33 Md., 558; 3 Am. Rep., 211), the Supreme
Court of Maryland said:
What then was the purpose of the law when it declared that no director or officer should borrow of the
bank, and "if any director," etc., "shall be convicted," etc., "of directly or indirectly violating this section
he shall be punished by fine and imprisonment?" We say to protect the stockholders, depositors and
creditors of the bank, against the temptation to which the directors and officers might be exposed, and
the power which as such they must necessarily possess in the control and management of the bank, and
the legislature unwilling to rely upon the implied understanding that in assuming this relation they
would not acquire any interest hostile or adverse to the most exact and faithful discharge of duty,
declared in express terms that they should not borrow, etc., of the bank.
In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied upon in the Binalbagan Estate decision, it
was said:
We are of opinion the statute forbade the loan to his copartnership firm as well as to himself directly.
The loan was made indirectly to him through his firm.
IV. Could Venancio Concepcion, President of the Philippine National Bank, be convicted of a violation of
section 35 of Act No. 2747 in relation with section 49 of the same Act, when these portions of Act No.
2747 were repealed by Act No. 2938, prior to the finding of the information and the rendition of the
judgment?
As noted along toward the beginning of this opinion, section 49 of Act No. 2747, in relation to section 35
of the same Act, provides a punishment for any person who shall violate any of the provisions of the Act.
It is contended, however, by the appellant, that the repeal of these sections of Act No. 2747 by Act No.
2938 has served to take away the basis for criminal prosecution.
This same question has been previously submitted and has received an answer adverse to such
contention in the cases of United Stated vs. Cuna ([1908], 12 Phil., 241); People vs. Concepcion([1922],
43 Phil., 653); and Ong Chang Wing and Kwong Fok vs. United States ([1910], 218 U. S., 272; 40 Phil.,
1046). In other words, it has been the holding, and it must again be the holding, that where an Act of the
Legislature which penalizes an offense, such repeals a former Act which penalized the same offense,
such repeal does not have the effect of thereafter depriving the courts of jurisdiction to try, convict, and
sentenced offenders charged with violations of the old law.
V. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by
Venancio Concepcion, President of the Philippine National Bank, in violation of section 35 of Act No.
2747, penalized by this law?
Counsel argue that since the prohibition contained in section 35 of Act No. 2747 is on the bank, and
since section 49 of said Act provides a punishment not on the bank when it violates any provisions of the
law, but on a person violating any provisions of the same, and imposing imprisonment as a part of the
penalty, the prohibition contained in said section 35 is without penal sanction.lawph!l.net
The answer is that when the corporation itself is forbidden to do an act, the prohibition extends to the
board of directors, and to each director separately and individually. (People vs. Concepcion, supra.)
VI. Does the alleged good faith of Venancio Concepcion, President of the Philippine National Bank, in
extending the credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." constitute a legal
defense?
Counsel argue that if defendant committed the acts of which he was convicted, it was because he was
misled by rulings coming from the Insular Auditor. It is furthermore stated that since the loans made to
the copartnership "Puno y Concepcion, S. en C." have been paid, no loss has been suffered by the
Philippine National Bank.
Neither argument, even if conceded to be true, is conclusive. Under the statute which the defendant has
violated, criminal intent is not necessarily material. The doing of the inhibited act, inhibited on account
of public policy and public interest, constitutes the crime. And, in this instance, as previously
demonstrated, the acts of the President of the Philippine National Bank do not fall within the purview of
the rulings of the Insular Auditor, even conceding that such rulings have controlling effect.
Morse, in his work, Banks and Banking, section 125, says:
It is fraud for directors to secure by means of their trust, and advantage not common to the other
stockholders. The law will not allow private profit from a trust, and will not listen to any proof of honest
intent.
JUDGMENT
On a review of the evidence of record, with reference to the decision of the trial court, and the errors
assigned by the appellant, and with reference to previous decisions of this court on the same subject,
we are irresistibly led to the conclusion that no reversible error was committed in the trial of this case,
and that the defendant has been proved guilty beyond a reasonable doubt of the crime charged in the
information. The penalty imposed by the trial judge falls within the limits of the punitive provisions of
the law.
Judgment is affirmed, with the costs of this instance against the appellant. So ordered.
Araullo, C. J., Johnson, Street, Avancea, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.









Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 154878 March 16, 2007
CAROLYN M. GARCIA, Petitioner,
vs.
RICA MARIE S. THIO, Respondent.
D E C I S I O N
CORONA, J.:
Assailed in this petition for review on certiorari
1
are the June 19, 2002 decision
2
and August 20, 2002
resolution
3
of the Court of Appeals (CA) in CA-G.R. CV No. 56577 which set aside the February 28, 1997
decision of the Regional Trial Court (RTC) of Makati City, Branch 58.
Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M. Garcia a
crossed check
4
dated February 24, 1995 in the amount of US$100,000 payable to the order of a certain
Marilou Santiago.
5
Thereafter, petitioner received from respondent every month (specifically, on March
24, April 26, June 26 and July 26, all in 1995) the amount of US$3,000
6
and P76,500
7
on July 26,
8
August
26, September 26 and October 26, 1995.
In June 1995, respondent received from petitioner another crossed check
9
dated June 29, 1995 in the
amount of P500,000, also payable to the order of Marilou Santiago.
10
Consequently, petitioner received
from respondent the amount of P20,000 every month on August 5, September 5, October 5 and
November 5, 1995.
11

According to petitioner, respondent failed to pay the principal amounts of the loans (US$100,000
andP500,000) when they fell due. Thus, on February 22, 1996, petitioner filed a complaint for sum of
money and damages in the RTC of Makati City, Branch 58 against respondent, seeking to collect the
sums of US$100,000, with interest thereon at 3% a month from October 26, 1995 and P500,000, with
interest thereon at 4% a month from November 5, 1995, plus attorneys fees and actual damages.
12

Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of US$100,000
with interest thereon at the rate of 3% per month, which loan would mature on October 26, 1995.
13
The
amount of this loan was covered by the first check. On June 29, 1995, respondent again borrowed the
amount of P500,000 at an agreed monthly interest of 4%, the maturity date of which was on November
5, 1995.
14
The amount of this loan was covered by the second check. For both loans, no promissory note
was executed since petitioner and respondent were close friends at the time.
15
Respondent paid the
stipulated monthly interest for both loans but on their maturity dates, she failed to pay the principal
amounts despite repeated demands.
Respondent denied that she contracted the two loans with petitioner and countered that it was Marilou
Santiago to whom petitioner lent the money. She claimed she was merely asked by petitioner to give
the crossed checks to Santiago.
17
She issued the checks for P76,000 and P20,000 not as payment of
interest but to accommodate petitioners request that respondent use her own checks instead of
Santiagos.
18

In a decision dated February 28, 1997, the RTC ruled in favor of petitioner.
19
It found that respondent
borrowed from petitioner the amounts of US$100,000 with monthly interest of 3% and P500,000 at a
monthly interest of 4%:
20

WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is hereby
rendered in favor of [petitioner], sentencing [respondent] to pay the former the amount of:
1. [US$100,000.00] or its peso equivalent with interest thereon at 3% per month from October 26, 1995
until fully paid;
2. P500,000.00 with interest thereon at 4% per month from November 5, 1995 until fully paid.
3. P100,000.00 as and for attorneys fees; and
4. P50,000.00 as and for actual damages.
For lack of merit, *respondents+ counterclaim is perforce dismissed.
With costs against [respondent].
IT IS SO ORDERED.
21

On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of loan
between the parties:
A perusal of the record of the case shows that [petitioner] failed to substantiate her claim that
[respondent] indeed borrowed money from her. There is nothing in the record that shows that
[respondent] received money from [petitioner]. What is evident is the fact that [respondent] received a
MetroBank [crossed] check dated February 24, 1995 in the sum of US$100,000.00, payable to the order
of Marilou Santiago and a CityTrust [crossed] check dated June 29, 1995 in the amount ofP500,000.00,
again payable to the order of Marilou Santiago, both of which were issued by [petitioner].The checks
received by [respondent], being crossed, may not be encashed but only deposited in the bank by the
payee thereof, that is, by Marilou Santiago herself.
It must be noted that crossing a check has the following effects: (a) the check may not be encashed but
only deposited in the bank; (b) the check may be negotiated only onceto one who has an account with
the bank; (c) and the act of crossing the check serves as warning to the holder that the check has been
issued for a definite purpose so that he must inquire if he has received the check pursuant to that
purpose, otherwise, he is not a holder in due course.
Consequently, the receipt of the [crossed] check by [respondent] is not the issuance and delivery to the
payee in contemplation of law since the latter is not the person who could take the checks as a holder,
i.e., as a payee or indorsee thereof, with intent to transfer title thereto. Neither could she be deemed as
an agent of Marilou Santiago with respect to the checks because she was merely facilitating the
transactions between the former and [petitioner].
With the foregoing circumstances, it may be fairly inferred that there were really no contracts of loan
that existed between the parties. x x x (emphasis supplied)
22

Hence this petition.
23

As a rule, only questions of law may be raised in a petition for review on certiorari under Rule 45 of the
Rules of Court. However, this case falls under one of the exceptions, i.e., when the factual findings of the
CA (which held that there were no contracts of loan between petitioner and respondent) and the RTC
(which held that there were contracts of loan) are contradictory.
24

The petition is impressed with merit.
A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object of
the contract.
25
This is evident in Art. 1934 of the Civil Code which provides:
An accepted promise to deliver something by way of commodatum or simple loan is binding upon the
parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the
object of the contract. (Emphasis supplied)
Upon delivery of the object of the contract of loan (in this case the money received by the debtor when
the checks were encashed) the debtor acquires ownership of such money or loan proceeds and is bound
to pay the creditor an equal amount.
26

It is undisputed that the checks were delivered to respondent. However, these checks were crossed and
payable not to the order of respondent but to the order of a certain Marilou Santiago. Thus the main
question to be answered is: who borrowed money from petitioner respondent or Santiago?
Petitioner insists that it was upon respondents instruction that both checks were made payable to
Santiago.
27
She maintains that it was also upon respondents instruction that both checks were delivered
to her (respondent) so that she could, in turn, deliver the same to Santiago.
28
Furthermore, she argues
that once respondent received the checks, the latter had possession and control of them such that she
had the choice to either forward them to Santiago (who was already her debtor), to retain them or to
return them to petitioner.
29

We agree with petitioner. Delivery is the act by which the res or substance thereof is placed within the
actual or constructive possession or control of another.
30
Although respondent did not physically receive
the proceeds of the checks, these instruments were placed in her control and possession under an
arrangement whereby she actually re-lent the amounts to Santiago.
Several factors support this conclusion.
First, respondent admitted that petitioner did not personally know Santiago.
31
It was highly improbable
that petitioner would grant two loans to a complete stranger without requiring as much as promissory
notes or any written acknowledgment of the debt considering that the amounts involved were quite big.
Respondent, on the other hand, already had transactions with Santiago at that time.
32

Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared in both
parties list of witnesses) testified that respondents plan was for petitioner to lend her money at a
monthly interest rate of 3%, after which respondent would lend the same amount to Santiago at a
higher rate of 5% and realize a profit of 2%.
33
This explained why respondent instructed petitioner to
make the checks payable to Santiago. Respondent has not shown any reason why Ruiz testimony should
not be believed.
Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount of P76,000
each (peso equivalent of US$3,000) for eight months to cover the monthly interest. For the P500,000
loan, she also issued her own checks in the amount of P20,000 each for four months.
34
According to
respondent, she merely accommodated petitioners request for her to issue her own checks to cover the
interest payments since petitioner was not personally acquainted with Santiago.
35
She claimed,
however, that Santiago would replace the checks with cash.
36
Her explanation is simply incredible. It is
difficult to believe that respondent would put herself in a position where she would be compelled to pay
interest, from her own funds, for loans she allegedly did not contract. We declared in one case that:
In the assessment of the testimonies of witnesses, this Court is guided by the rule that for evidence to
be believed, it must not only proceed from the mouth of a credible witness, but must be credible in
itself such as the common experience of mankind can approve as probable under the circumstances. We
have no test of the truth of human testimony except its conformity to our knowledge, observation, and
experience. Whatever is repugnant to these belongs to the miraculous, and is outside of juridical
cognizance.
37

Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent, not petitioner,
who was listed as one of her (Santiagos) creditors.
38

Last, respondent inexplicably never presented Santiago as a witness to corroborate her story.
39
The
presumption is that "evidence willfully suppressed would be adverse if produced."
40
Respondent was
not able to overturn this presumption.
We hold that the CA committed reversible error when it ruled that respondent did not borrow the
amounts of US$100,000 and P500,000 from petitioner. We instead agree with the ruling of the RTC
making respondent liable for the principal amounts of the loans.
We do not, however, agree that respondent is liable for the 3% and 4% monthly interest for the
US$100,000 and P500,000 loans respectively. There was no written proof of the interest payable except
for the verbal agreement that the loans would earn 3% and 4% interest per month. Article 1956 of the
Civil Code provides that "[n]o interest shall be due unless it has been expressly stipulated in writing."
Be that as it may, while there can be no stipulated interest, there can be legal interest pursuant to
Article 2209 of the Civil Code. It is well-settled that:
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default,
i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.
41

Hence, respondent is liable for the payment of legal interest per annum to be computed from November
21, 1995, the date when she received petitioners demand letter.
42
From the finality of the decision until
it is fully paid, the amount due shall earn interest at 12% per annum, the interim period being deemed
equivalent to a forbearance of credit.
43

The award of actual damages in the amount of P50,000 and P100,000 attorneys fees is deleted since
the RTC decision did not explain the factual bases for these damages.
WHEREFORE, the petition is hereby GRANTED and the June 19, 2002 decision and August 20, 2002
resolution of the Court of Appeals in CA-G.R. CV No. 56577 are REVERSED and SET ASIDE. The February
28, 1997 decision of the Regional Trial Court in Civil Case No. 96-266 is AFFIRMED with
theMODIFICATION that respondent is directed to pay petitioner the amounts of US$100,000
and P500,000 at 12% per annum interest from November 21, 1995 until the finality of the decision. The
total amount due as of the date of finality will earn interest of 12% per annum until fully paid. The award
of actual damages and attorneys fees is deleted.
SO ORDERED.
RENATO C. CORONA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
Chairperson
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
ADOLFO S. AZCUNA
Asscociate Justice
CANCIO C. GARCIA
Associate Justice
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
decision had been reached in consultation before the case was assigned to the writer of the opinion of
the Courts Division.
REYNATO S. PUNO
Chief Justice





Footnotes
1
Under Rule 45 of the Rules of Court.
2
Penned by former Associate Justice Eubulo G.
Verzola (deceased) and concurred in by
Associate Justices Bernardo P. Abesamis
(retired) and Josefina Guevara-Salonga of the
Third Division of the Court of Appeals; rollo, pp.
98-102.
3
Id., pp. 104-105.
4
This was Metrobank check no. 26910; id., pp.
70, 224 and 368.
5
Id., pp. 60, 100-101, 224.
6
Id., pp. 60-61. According to respondent, she
originally issued four postdated checks each in
the amount of P76,000 on the same dates
mentioned but these were not encashed and
instead each check was replaced by Santiago
with US$3,000 in cash given by respondent to
petitioner; id., p. 224.
7
This was the peso equivalent of US$3,000
computed at the exchange rate of P25.50 to
$1.00; id., pp. 17 and 88. These postdated
checks were deposited on their respective due
dates and honored by the drawee bank; id., p.
225.
8
According to respondent, this check was
replaced by Santiago with cash in the amount of
US$3,000.
9
This was City Trust check no. 467257; rollo, pp.
90 and 327.
10
Id., pp. 60, 101 and 225.
11
Id., p. 109.
12
Docketed as Civil Case No. 96-266; rollo, pp.
15, 60 and 364.
13
Id., p. 109.
14
Id., p. 110.
15
Id., p. 16.
16
Id., p. 110.
17
Id., p. 224.
18
Id.
19
Id., pp. 60-95.
20
Id., pp. 79 and 89.
21
Id., pp. 94-95.
22
Id., pp. 100-101, citation omitted.
23
The issues submitted for resolution are the
following:
(A) Is actual and physical delivery of the money
loaned directly from the lender to the borrower
the only way to perfect a contract of loan?
(B) Does the respondents admission that she
paid interests to the petitioner on the amounts
represented by the two checks given to her by
said petitioner render said respondent in
estoppel to question that there was no loan
transaction between her and the petitioner?
(C) Is respondents written manifestation in the
trial court, through counsel, that she interposes
no objection to the admission of petitioners
documentary exhibits for the multiple purposes
specified in the latters Formal Offer of
Documentary Exhibits a judicial admission
governed by Rule 129, Section 4, Rules of
Court?
(D) Is this Honorable Court bound by the
conclusions of fact relied upon by the [CA] in
issuing its disputed Decision?
(E) Have the *RTCs+ findings of fact on the lone
issue on which respondent litigated in the
[RTC], viz. existence of privity of contract
between petitioner and respondent, been
overturned or set aside by the [CA]?
(F) May the respondent validly change the
theory of her case from one of privity of
contract between her and the petitioner in the
[RTC], to one of not being a holder in due
course of the crossed checks payable to a third
party in the [CA] and before this Honorable
Court?
(G) Is the petitioners entitlement to interest,
despite absence of a written stipulation on the
payment thereof, justified?
(H) Is the deletion by the *CA+ of the *RTCs+
award of attorneys fees and actual damages in
favor pf the petitioner justified? Id., pp. 401-
402.
24
Philippine National Bank v. Andrada Electric &
Engineering Co., G.R. No. 142936, 17 April 2002,
381 SCRA 244, 253, citing Fuentes v. CA, 335
Phil. 1163, 1167-1169 (1997).
25
Naguiat v. Court of Appeals, G.R. No. 118375,
3 October 2003, 412 SCRA 591, 597.
26
Article 1953 of the Civil Code states:
A person who receives a loan of money or any
other fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an
equal amount of the same kind and quality.
27
Rollo, p. 39.
28
Id.
29
Id., pp. 39-40.
30
Buenaflor v. Court of Appeals, G.R. No.
142021, 29 November 2000, 346 SCRA 563, 569,
citing Black's Law Dictionary, 5th ed.
31
Rollo, p. 64.
32
Id., p. 70.
33
Id., pp. 76 and 85.
34
Id., pp. 16-17, 224-225, 411.
35
Id., p. 224.
36
Id., p. 70.
37
People v. Mala, G.R. No. 152351, 18
September 2003, 411 SCRA 327, 337,
citing People v. Dayag, 155 Phil. 421, 431
(1974).
38
Rollo, pp. 88 and 94.
39
Id., p. 93.
40
Sec. 3 (e), Rule 131, Rules of Court.
41
Eusebio-Calderon v. People, G.R. No. 158495,
21 October 2004, 441 SCRA 137, 148-149,
citing Eastern Shipping Lines, Inc. v. Court of
Appeals, G.R. No. 97412, 12 July 1994, 234 SCRA
78, 95; Cabrera v. People, G.R. No. 150618, 24
July 2003, 407 SCRA 247, 261.
42
Rollo, p. 65.
43
Cabrera v. People, supra.





Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-24968 April 27, 1972
SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.
Mabanag, Eliger and Associates and Saura, Magno and Associates for plaintiff-appellee.
Jesus A. Avancea and Hilario G. Orsolino for defendant-appellant.

MAKALINTAL, J.:p
In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on June 28, 1965
sentencing defendant Development Bank of the Philippines (DBP) to pay actual and consequential
damages to plaintiff Saura Import and Export Co., Inc. in the amount of P383,343.68, plus interest at the
legal rate from the date the complaint was filed and attorney's fees in the amount of P5,000.00. The
present appeal is from that judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation Finance
Corporation (RFC), before its conversion into DBP, for an industrial loan of P500,000.00, to be used as
follows: P250,000.00 for the construction of a factory building (for the manufacture of jute sacks);
P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment; and
P9,100.00 as additional working capital.
Parenthetically, it may be mentioned that the jute mill machinery had already been purchased by Saura
on the strength of a letter of credit extended by the Prudential Bank and Trust Co., and arrived in Davao
City in July 1953; and that to secure its release without first paying the draft, Saura, Inc. executed a trust
receipt in favor of the said bank.
On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for P500,000.00, to be
secured by a first mortgage on the factory building to be constructed, the land site thereof, and the
machinery and equipment to be installed. Among the other terms spelled out in the resolution were the
following:
1. That the proceeds of the loan shall be utilized exclusively for the following purposes:
For construction of factory building P250,000.00
For payment of the balance of purchase
price of machinery and equipment 240,900.00
For working capital 9,100.00
T O T A L P500,000.00
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo and
China Engineers, Ltd. shall sign the promissory notes jointly with the borrower-corporation;
5. That release shall be made at the discretion of the Rehabilitation Finance Corporation, subject to
availability of funds, and as the construction of the factory buildings progresses, to be certified to by an
appraiser of this Corporation;"
Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however,
evidently having otherwise been informed of its approval, Saura, Inc. wrote a letter to RFC, requesting a
modification of the terms laid down by it, namely: that in lieu of having China Engineers, Ltd. (which was
willing to assume liability only to the extent of its stock subscription with Saura, Inc.) sign as co-maker on
the corresponding promissory notes, Saura, Inc. would put up a bond for P123,500.00, an amount
equivalent to such subscription; and that Maria S. Roca would be substituted for Inocencia Arellano as
one of the other co-makers, having acquired the latter's shares in Saura, Inc.
In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating of the
members of its Board of Governors, for certain reasons stated in the resolution, "to reexamine all the
aspects of this approved loan ... with special reference as to the advisability of financing this particular
project based on present conditions obtaining in the operations of jute mills, and to submit his findings
thereon at the next meeting of the Board."
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as co-signer
for the loan, and asked that the necessary documents be prepared in accordance with the terms and
conditions specified in Resolution No. 145. In connection with the reexamination of the project to be
financed with the loan applied for, as stated in Resolution No. 736, the parties named their respective
committees of engineers and technical men to meet with each other and undertake the necessary
studies, although in appointing its own committee Saura, Inc. made the observation that the same
"should not be taken as an acquiescence on (its) part to novate, or accept new conditions to, the
agreement already) entered into," referring to its acceptance of the terms and conditions mentioned in
Resolution No. 145.
On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling,
representing China Engineers, Ltd., as one of the co-signers; and the corresponding deed of mortgage,
which was duly registered on the following April 17.
It appears, however, that despite the formal execution of the loan agreement the reexamination
contemplated in Resolution No. 736 proceeded. In a meeting of the RFC Board of Governors on June 10,
1954, at which Ramon Saura, President of Saura, Inc., was present, it was decided to reduce the loan
from P500,000.00 to P300,000.00. Resolution No. 3989 was approved as follows:
RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under Resolution No.
145, C.S., from P500,000.00 to P300,000.00. Pursuant to Bd. Res. No. 736, c.s., authorizing the re-
examination of all the various aspects of the loan granted the Saura Import & Export Co. under
Resolution No. 145, c.s., for the purpose of financing the manufacture of jute sacks in Davao, with
special reference as to the advisability of financing this particular project based on present conditions
obtaining in the operation of jute mills, and after having heard Ramon E. Saura and after extensive
discussion on the subject the Board, upon recommendation of the Chairman, RESOLVED that the loan
granted the Saura Import & Export Co. be REDUCED from P500,000 to P300,000 and that releases up to
P100,000 may be authorized as may be necessary from time to time to place the factory in actual
operation: PROVIDED that all terms and conditions of Resolution No. 145, c.s., not inconsistent
herewith, shall remain in full force and effect."
On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory note for China
Engineers Ltd. jointly and severally with the other RFC that his company no longer to of the loan and
therefore considered the same as cancelled as far as it was concerned. A follow-up letter dated July 2
requested RFC that the registration of the mortgage be withdrawn.
In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be granted. The
request was denied by RFC, which added in its letter-reply that it was "constrained to consider as
cancelled the loan of P300,000.00 ... in view of a notification ... from the China Engineers Ltd., expressing
their desire to consider the loan insofar as they are concerned."
On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC that China
Engineers, Ltd. "will at any time reinstate their signature as co-signer of the note if RFC releases to us
the P500,000.00 originally approved by you.".
On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original amount of
P500,000.00, "it appearing that China Engineers, Ltd. is now willing to sign the promissory notes jointly
with the borrower-corporation," but with the following proviso:
That in view of observations made of the shortage and high cost of imported raw materials, the
Department of Agriculture and Natural Resources shall certify to the following:
1. That the raw materials needed by the borrower-corporation to carry out its operation are available in
the immediate vicinity; and
2. That there is prospect of increased production thereof to provide adequately for the requirements of
the factory."
The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December 22, 1954,
wherein it was explained that the certification by the Department of Agriculture and Natural Resources
was required "as the intention of the original approval (of the loan) is to develop the manufacture of
sacks on the basis of locally available raw materials." This point is important, and sheds light on the
subsequent actuations of the parties. Saura, Inc. does not deny that the factory he was building in Davao
was for the manufacture of bags from local raw materials. The cover page of its brochure (Exh. M)
describes the project as a "Joint venture by and between the Mindanao Industry Corporation and the
Saura Import and Export Co., Inc. to finance, manage and operate a Kenaf mill plant, to manufacture
copra and corn bags, runners, floor mattings, carpets, draperies; out of 100% local raw materials,
principal kenaf." The explanatory note on page 1 of the same brochure states that, the venture "is the
first serious attempt in this country to use 100% locally grown raw materials notably kenaf which is
presently grown commercially in theIsland of Mindanao where the proposed jutemill is located ..."
This fact, according to defendant DBP, is what moved RFC to approve the loan application in the first
place, and to require, in its Resolution No. 9083, a certification from the Department of Agriculture and
Natural Resources as to the availability of local raw materials to provide adequately for the
requirements of the factory. Saura, Inc. itself confirmed the defendant's stand impliedly in its letter of
January 21, 1955: (1) stating that according to a special study made by the Bureau of Forestry "kenaf will
not be available in sufficient quantity this year or probably even next year;" (2) requesting "assurances
(from RFC) that my company and associates will be able to bring in sufficient jute materials as may be
necessary for the full operation of the jute mill;" and (3) asking that releases of the loan be made as
follows:
a) For the payment of the receipt for jute mill
machineries with the Prudential Bank &
Trust Company P250,000.00
(For immediate release)
b) For the purchase of materials and equip-
ment per attached list to enable the jute
mill to operate 182,413.91
c) For raw materials and labor 67,586.09
1) P25,000.00 to be released on the open-
ing of the letter of credit for raw jute
for $25,000.00.
2) P25,000.00 to be released upon arrival
of raw jute.
3) P17,586.09 to be released as soon as the
mill is ready to operate.
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
Dear Sirs:
This is with reference to your letter of January 21, 1955, regarding the release of your loan under
consideration of P500,000. As stated in our letter of December 22, 1954, the releases of the loan, if
revived, are proposed to be made from time to time, subject to availability of funds towards the end
that the sack factory shall be placed in actual operating status. We shall be able to act on your request
for revised purpose and manner of releases upon re-appraisal of the securities offered for the loan.
With respect to our requirement that the Department of Agriculture and Natural Resources certify that
the raw materials needed are available in the immediate vicinity and that there is prospect of increased
production thereof to provide adequately the requirements of the factory, we wish to reiterate that the
basis of the original approval is to develop the manufacture of sacks on the basis of the locally available
raw materials. Your statement that you will have to rely on the importation of jute and your request that
we give you assurance that your company will be able to bring in sufficient jute materials as may be
necessary for the operation of your factory, would not be in line with our principle in approving the loan.
With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the matter
further. Instead, it requested RFC to cancel the mortgage, and so, on June 17, 1955 RFC executed the
corresponding deed of cancellation and delivered it to Ramon F. Saura himself as president of Saura, Inc.
It appears that the cancellation was requested to make way for the registration of a mortgage contract,
executed on August 6, 1954, over the same property in favor of the Prudential Bank and Trust Co., under
which contract Saura, Inc. had up to December 31 of the same year within which to pay its obligation on
the trust receipt heretofore mentioned. It appears further that for failure to pay the said obligation the
Prudential Bank and Trust Co. sued Saura, Inc. on May 15, 1955.
On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at the request of
Saura, Inc., the latter commenced the present suit for damages, alleging failure of RFC (as predecessor
of the defendant DBP) to comply with its obligation to release the proceeds of the loan applied for and
approved, thereby preventing the plaintiff from completing or paying contractual commitments it had
entered into, in connection with its jute mill project.
The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract between
the parties and that the defendant was guilty of breach thereof. The defendant pleaded below, and
reiterates in this appeal: (1) that the plaintiff's cause of action had prescribed, or that its claim had been
waived or abandoned; (2) that there was no perfected contract; and (3) that assuming there was, the
plaintiff itself did not comply with the terms thereof.
We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 of the Civil
Code, which provides:
ART. 1954. An accepted promise to deliver something, by way of commodatum or simple loan is binding
upon the parties, but the commodatum or simple loan itself shall not be perferted until the delivery of
the object of the contract.
There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a loan of
P500,000.00 was approved by resolution of the defendant, and the corresponding mortgage was
executed and registered. But this fact alone falls short of resolving the basic claim that the defendant
failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages.
It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the
factory to be constructed would utilize locally grown raw materials, principally kenaf. There is no serious
dispute about this. It was in line with such assumption that when RFC, by Resolution No. 9083 approved
on December 17, 1954, restored the loan to the original amount of P500,000.00. it imposed two
conditions, to wit: "(1) that the raw materials needed by the borrower-corporation to carry out its
operation are available in the immediate vicinity; and (2) that there is prospect of increased production
thereof to provide adequately for the requirements of the factory." The imposition of those conditions
was by no means a deviation from the terms of the agreement, but rather a step in its implementation.
There was nothing in said conditions that contradicted the terms laid down in RFC Resolution No. 145,
passed on January 7, 1954, namely "that the proceeds of the loan shall be utilized exclusively for the
following purposes: for construction of factory building P250,000.00; for payment of the balance of
purchase price of machinery and equipment P240,900.00; for working capital P9,100.00." Evidently
Saura, Inc. realized that it could not meet the conditions required by RFC, and so wrote its letter of
January 21, 1955, stating that local jute "will not be able in sufficient quantity this year or probably next
year," and asking that out of the loan agreed upon the sum of P67,586.09 be released "for raw materials
and labor." This was a deviation from the terms laid down in Resolution No. 145 and embodied in the
mortgage contract, implying as it did a diversion of part of the proceeds of the loan to purposes other
than those agreed upon.
When RFC turned down the request in its letter of January 25, 1955 the negotiations which had been
going on for the implementation of the agreement reached an impasse. Saura, Inc. obviously was in no
position to comply with RFC's conditions. So instead of doing so and insisting that the loan be released
as agreed upon, Saura, Inc. asked that the mortgage be cancelled, which was done on June 15, 1955.
The action thus taken by both parties was in the nature cf mutual desistance what Manresa terms
"mutuo disenso"
1
which is a mode of extinguishing obligations. It is a concept that derives from the
principle that since mutual agreement can create a contract, mutual disagreement by the parties can
cause its extinguishment.
2

The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged
breach of contract by RFC, or even point out that the latter's stand was legally unjustified. Its request for
cancellation of the mortgage carried no reservation of whatever rights it believed it might have against
RFC for the latter's non-compliance. In 1962 it even applied with DBP for another loan to finance a rice
and corn project, which application was disapproved. It was only in 1964, nine years after the loan
agreement had been cancelled at its own request, that Saura, Inc. brought this action for damages.All
these circumstances demonstrate beyond doubt that the said agreement had been extinguished by
mutual desistance and that on the initiative of the plaintiff-appellee itself.
With this view we take of the case, we find it unnecessary to consider and resolve the other issues
raised in the respective briefs of the parties.
WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with costs against
the plaintiff-appellee.
Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo and Antonio, JJ., concur.
Makasiar, J., took no part.

Footnotes
1 8 Manresa, p. 294.
2 2 Castan, p. 560.








SECOND DIVISION
[G.R. No. 133632. February 15, 2002]
BPI INVESTMENT CORPORATION, petitioner, vs. HON. COURT OF APPEALS and ALS MANAGEMENT &
DEVELOPMENT CORPORATION, respondents.
D E C I S I O N
QUISUMBING, J.:
This petition for certiorari assails the decision dated February 28, 1997, of the Court of Appeals and its
resolution dated April 21, 1998, in CA-G.R. CV No. 38887. The appellate court affirmed the judgment of
the Regional Trial Court of Pasig City, Branch 151, in (a) Civil Case No. 11831, for foreclosure of mortgage
by petitioner BPI Investment Corporation (BPIIC for brevity) against private respondents ALS
Management and Development Corporation and Antonio K. Litonjua,
[1]
consolidated with (b) Civil Case
No. 52093, for damages with prayer for the issuance of a writ of preliminary injunction by the private
respondents against said petitioner.
The trial court had held that private respondents were not in default in the payment of their monthly
amortization, hence, the extrajudicial foreclosure conducted by BPIIC was premature and made in bad
faith. It awarded private respondents the amount of P300,000 for moral damages, P50,000 for
exemplary damages, and P50,000 for attorneys fees and expenses for litigation. It likewise dismissed
the foreclosure suit for being premature.
The facts are as follows:
Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala Investment and
Development Corporation (AIDC), the predecessor of petitioner BPIIC, for the construction of a house on
his lot in New Alabang Village, Muntinlupa. Said house and lot were mortgaged to AIDC to secure the
loan. Sometime in 1980, Roa sold the house and lot to private respondents ALS and Antonio Litonjua
for P850,000. They paid P350,000 in cash and assumed the P500,000 balance of Roas indebtedness with
AIDC. The latter, however, was not willing to extend the old interest rate to private respondents and
proposed to grant them a new loan of P500,000 to be applied to Roas debt and secured by the same
property, at an interest rate of 20% per annum and service fee of 1% per annum on the outstanding
principal balance payable within ten years in equal monthly amortization ofP9,996.58 and penalty
interest at the rate of 21% per annum per day from the date the amortization became due and payable.
Consequently, in March 1981, private respondents executed a mortgage deed containing the above
stipulations with the provision that payment of the monthly amortization shall commence on May 1,
1981.
On August 13, 1982, ALS and Litonjua updated Roas arrearages by paying BPIIC the sum of P190,601.35.
This reduced Roas principal balance to P457,204.90 which, in turn, was liquidated when BPIIC applied
thereto the proceeds of private respondents loan of P500,000.
On September 13, 1982, BPIIC released to private respondents P7,146.87, purporting to be what was
left of their loan after full payment of Roas loan.
In June 1984, BPIIC instituted foreclosure proceedings against private respondents on the ground that
they failed to pay the mortgage indebtedness which from May 1, 1981 toJune 30, 1984, amounted to
Four Hundred Seventy Five Thousand Five Hundred Eighty Five and 31/100 Pesos (P475,585.31). A
notice of sheriffs sale was published on August 13, 1984.
On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC. They alleged, among
others, that they were not in arrears in their payment, but in fact made an overpayment as of June 30,
1984. They maintained that they should not be made to pay amortization before the actual release of
the P500,000 loan in August and September 1982. Further, out of the P500,000 loan, only the total
amount of P464,351.77 was released to private respondents. Hence, applying the effects of legal
compensation, the balance ofP35,648.23 should be applied to the initial monthly amortization for the
loan.
On August 31, 1988, the trial court rendered its judgment in Civil Case Nos. 11831 and 52093, thus:
WHEREFORE, judgment is hereby rendered in favor of ALS Management and Development Corporation
and Antonio K. Litonjua and against BPI Investment Corporation, holding that the amount of loan
granted by BPI to ALS and Litonjua was only in the principal sum of P464,351.77, with interest at 20%
plus service charge of 1% per annum, payable on equal monthly and successive amortizations at
P9,283.83 for ten (10) years or one hundred twenty (120) months. The amortization schedule attached
as Annex A to the Deed of Mortgage is correspondingly reformed as aforestated.
The Court further finds that ALS and Litonjua suffered compensable damages when BPI caused their
publication in a newspaper of general circulation as defaulting debtors, and therefore orders BPI to pay
ALS and Litonjua the following sums:
a) P300,000.00 for and as moral damages;
b) P50,000.00 as and for exemplary damages;
c) P50,000.00 as and for attorneys fees and expenses of litigation.
The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being premature.
Costs against BPI.
SO ORDERED.
[2]

Both parties appealed to the Court of Appeals. However, private respondents appeal was dismissed for
non-payment of docket fees.
On February 28, 1997, the Court of Appeals promulgated its decision, the dispositive portion reads:
WHEREFORE, finding no error in the appealed decision the same is hereby AFFIRMED in toto.
SO ORDERED.
[3]

In its decision, the Court of Appeals reasoned that a simple loan is perfected only upon the delivery of
the object of the contract. The contract of loan between BPIIC and ALS & Litonjua was perfected only
on September 13, 1982, the date when BPIIC released the purported balance of the P500,000 loan after
deducting therefrom the value of Roas indebtedness. Thus, payment of the monthly amortization
should commence only a month after the said date, as can be inferred from the stipulations in the
contract. This, despite the express agreement of the parties that payment shall commence on May 1,
1981. From October 1982 to June 1984, the total amortization due was only P194,960.43. Evidence
showed that private respondents had an overpayment, because as of June 1984, they already paid a
total amount of P201,791.96. Therefore, there was no basis for BPIIC to extrajudicially foreclose the
mortgage and cause the publication in newspapers concerning private respondents delinquency in the
payment of their loan. This fact constituted sufficient ground for moral damages in favor of private
respondents.
The motion for reconsideration filed by petitioner BPIIC was likewise denied, hence this petition, where
BPIIC submits for resolution the following issues:
I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL CONTRACT IN THE LIGHT OF THE RULE
LAID DOWN IN BONNEVIE VS. COURT OF APPEALS, 125 SCRA 122.
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL AND EXEMPLARY DAMAGES AND
ATTORNEYS FEES IN THE FACE OF IRREGULAR PAYMENTS MADE BY ALS AND OPPOSED TO THE RULE
LAID DOWN IN SOCIAL SECURITY SYSTEM VS. COURT OF APPEALS, 120 SCRA 707.
On the first issue, petitioner contends that the Court of Appeals erred in ruling that because a simple
loan is perfected upon the delivery of the object of the contract, the loan contract in this case was
perfected only on September 13, 1982. Petitioner claims that a contract of loan is a consensual
contract, and a loan contract is perfected at the time the contract of mortgage is executed conformably
with our ruling in Bonnevie v. Court of Appeals, 125 SCRA 122. In the present case, the loan contract was
perfected on March 31, 1981, the date when the mortgage deed was executed, hence, the amortization
and interests on the loan should be computed from said date.
Petitioner also argues that while the documents showed that the loan was released only on August
1982, the loan was actually released on March 31, 1981, when BPIIC issued a cancellation of mortgage
of Frank Roas loan. This finds support in the registration on March 31, 1981 of the Deed of Absolute
Sale executed by Roa in favor of ALS, transferring the title of the property to ALS, and ALS executing the
Mortgage Deed in favor of BPIIC. Moreover, petitioner claims, the delay in the release of the loan
should be attributed to private respondents. As BPIIC only agreed to extend a P500,000 loan, private
respondents were required to reduce Frank Roas loan below said amount. According to petitioner,
private respondents were only able to do so in August 1982.
In their comment, private respondents assert that based on Article 1934 of the Civil Code,
[4]
a simple
loan is perfected upon the delivery of the object of the contract, hence a real contract. In this case, even
though the loan contract was signed on March 31, 1981, it was perfected only on September 13, 1982,
when the full loan was released to private respondents. They submit that petitioner
misread Bonnevie. To give meaning to Article 1934, according to private respondents, Bonnevie must be
construed to mean that the contract to extend the loan was perfected on March 31, 1981 but the
contract of loan itself was only perfected upon the delivery of the full loan to private respondents
on September 13, 1982.
Private respondents further maintain that even granting, arguendo, that the loan contract was perfected
on March 31, 1981, and their payment did not start a month thereafter, still no default took
place. According to private respondents, a perfected loan agreement imposes reciprocal obligations,
where the obligation or promise of each party is the consideration of the other party. In this case, the
consideration for BPIIC in entering into the loan contract is the promise of private respondents to pay
the monthly amortization. For the latter, it is the promise of BPIIC to deliver the money. In reciprocal
obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. Therefore, private respondents conclude, they did
not incur in delay when they did not commence paying the monthly amortization on May 1, 1981, as it
was only on September 13, 1982 when petitioner fully complied with its obligation under the loan
contract.
We agree with private respondents. A loan contract is not a consensual contract but a real contract. It is
perfected only upon the delivery of the object of the contract.
[5]
Petitioner misapplied Bonnevie. The
contract in Bonnevie declared by this Court as a perfected consensual contract falls under the first clause
of Article 1934, Civil Code. It is an accepted promise to deliver something by way of simple loan.
In Saura Import and Export Co. Inc. vs. Development Bank of the Philippines, 44 SCRA 445, petitioner
applied for a loan of P500,000 with respondent bank. The latter approved the application through a
board resolution. Thereafter, the corresponding mortgage was executed and registered. However,
because of acts attributable to petitioner, the loan was not released. Later, petitioner instituted an
action for damages. We recognized in this case, a perfected consensual contract which under normal
circumstances could have made the bank liable for not releasing the loan. However, since the fault was
attributable to petitioner therein, the court did not award it damages.
A perfected consensual contract, as shown above, can give rise to an action for damages. However, said
contract does not constitute the real contract of loan which requires the delivery of the object of the
contract for its perfection and which gives rise to obligations only on the part of the borrower.
[6]

In the present case, the loan contract between BPI, on the one hand, and ALS and Litonjua, on the other,
was perfected only on September 13, 1982, the date of the second release of the loan. Following the
intentions of the parties on the commencement of the monthly amortization, as found by the Court of
Appeals, private respondents obligation to pay commenced only on October 13, 1982, a month after
the perfection of the contract.
[7]

We also agree with private respondents that a contract of loan involves a reciprocal obligation, wherein
the obligation or promise of each party is the consideration for that of the other.
[8]
As averred by private
respondents, the promise of BPIIC to extend and deliver the loan is upon the consideration that ALS and
Litonjua shall pay the monthly amortization commencing on May 1, 1981, one month after the supposed
release of the loan. It is a basic principle in reciprocal obligations that neither party incurs in delay, if the
other does not comply or is not ready to comply in a proper manner with what is incumbent upon
him.
[9]
Only when a party has performed his part of the contract can he demand that the other party
also fulfills his own obligation and if the latter fails, default sets in. Consequently, petitioner could only
demand for the payment of the monthly amortization after September 13, 1982for it was only then
when it complied with its obligation under the loan contract. Therefore, in computing the amount due
as of the date when BPIIC extrajudicially caused the foreclosure of the mortgage, the starting date
is October 13, 1982 and not May 1, 1981.
Other points raised by petitioner in connection with the first issue, such as the date of actual release of
the loan and whether private respondents were the cause of the delay in the release of the loan, are
factual. Since petitioner has not shown that the instant case is one of the exceptions to the basic rule
that only questions of law can be raised in a petition for review under Rule 45 of the Rules of
Court,
[10]
factual matters need not tarry us now. On these points we are bound by the findings of the
appellate and trial courts.
On the second issue, petitioner claims that it should not be held liable for moral and exemplary damages
for it did not act maliciously when it initiated the foreclosure proceedings. It merely exercised its right
under the mortgage contract because private respondents were irregular in their monthly
amortization. It invoked our ruling in Social Security System vs. Court of Appeals, 120 SCRA 707, where
we said:
Nor can the SSS be held liable for moral and temperate damages. As concluded by the Court of Appeals
the negligence of the appellant is not so gross as to warrant moral and temperate damages, except
that, said Court reduced those damages by only P5,000.00 instead of eliminating them. Neither can we
agree with the findings of both the Trial Court and respondent Court that the SSS had acted maliciously
or in bad faith. The SSS was of the belief that it was acting in the legitimate exercise of its right under the
mortgage contract in the face of irregular payments made by private respondents and placed reliance
on the automatic acceleration clause in the contract. The filing alone of the foreclosure application
should not be a ground for an award of moral damages in the same way that a clearly unfounded civil
action is not among the grounds for moral damages.
Private respondents counter that BPIIC was guilty of bad faith and should be liable for said damages
because it insisted on the payment of amortization on the loan even before it was released. Further, it
did not make the corresponding deduction in the monthly amortization to conform to the actual amount
of loan released, and it immediately initiated foreclosure proceedings when private respondents failed
to make timely payment.
But as admitted by private respondents themselves, they were irregular in their payment of monthly
amortization. Conformably with our ruling in SSS, we can not properly declare BPIIC in bad faith.
Consequently, we should rule out the award of moral and exemplary damages.
[11]

However, in our view, BPIIC was negligent in relying merely on the entries found in the deed of
mortgage, without checking and correspondingly adjusting its records on the amount actually released
to private respondents and the date when it was released. Such negligence resulted in damage to
private respondents, for which an award of nominal damages should be given in recognition of their
rights which were violated by BPIIC.
[12]
For this purpose, the amount of P25,000 is sufficient.
Lastly, as in SSS where we awarded attorneys fees because private respondents were compelled to
litigate, we sustain the award of P50,000 in favor of private respondents as attorneys fees.
WHEREFORE, the decision dated February 28, 1997, of the Court of Appeals and its resolution
dated April 21, 1998, are AFFIRMED WITH MODIFICATION as to the award of damages. The award of
moral and exemplary damages in favor of private respondents is DELETED, but the award to them of
attorneys fees in the amount of P50,000 is UPHELD. Additionally, petitioner is ORDERED to pay private
respondents P25,000 as nominal damages. Costs against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.



[1]
While Antonio K. Litonjua was not included in the caption of the petition before this court, apparently,
the intention of petitioner was to include Litonjua as private respondent for he was a party in all stages
of the case both before the Regional Trial Court and the Court of Appeals and it was clearly indicated in
the petition that ALS collectively referred to as ALS Management and Development Corporation and
Antonio K. Litonjua.
[2]
RTC Records, p. 278.
[3]
Rollo, p. 32.
[4]
Art. 1934. An accepted promise to deliver something by way of commodatum or simple loan is
binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the
delivery of the object of the contract.
[5]
Art. 1934, Civil Code of the Philippines; Monte de Piedad vs. Javier, et al., 36 OG 2176; A. Padilla, Civil
Code of the Philippines Annotated, Vol. VI, pp. 474-475 (1987); E. Paras, Civil Code of the Philippines
Annotated, Vol. V, p. 885 (1995).
[6]
A. Tolentino, Civil Code of the Philippines, V. 5, p. 443 (1992).
[7]
Supra, note 3 at 30.
[8]
Rose Packing Co. Inc. vs. Court of Appeals, No. L-33084, 167 SCRA 309, 318-319 (1988).
[9]
Art. 1169, Civil Code:
x x x
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins.
[10]
American President Lines, Ltd. vs. Court of Appeals, G.R. No. 110853, 336 SCRA 582, 586 (2000).
[11]
Art. 2234, Civil Code: While the amount of the exemplary damages need not be proved, the plaintiff
must show that he is entitled to moral, temperate or compensatory damages before the court may
consider the question of whether or not exemplary damages should be awarded. In case liquidated
damages have been agreed upon, although no proof of loss is necessary in order that such liquidated
damages may be recovered, nevertheless, before the court may consider the question of granting
exemplary in addition to the liquidated damages, the plaintiff must show that he would be entitled to
moral, temperate or compensatory damages were it not for the stipulation for liquidated damages.
[12]
Art. 2221, Civil Code: Nominal damages are adjudicated in order that a right of the plaintiff, which
has been violated or invaded by the defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by him.



SECOND DIVISION

POLO S. PANTALEON, G.R. No. 174269
Petitioner,
Present:

CARPIO MORALES, J.,
*

Acting Chairperson,
- versus - TINGA,
VELASCO,
LEONARDO-DE CASTRO,
**
and
BRION, JJ.

AMERICAN EXPRESS
INTERNATIONAL, INC., Promulgated:
Respondent.
May 8, 2009

x---------------------------------------------------------------------------x


D E C I S I O N

TINGA, J.:


The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna Regina
and son Adrian Roberto, joined an escorted tour of Western Europe organized by
Trafalgar Tours of Europe, Ltd., in October of 1991. The tour group arrived
in Amsterdam in the afternoon of 25 October 1991, the second to the last day of the tour.
As the group had arrived late in the city, they failed to engage in any sight-seeing.
Instead, it was agreed upon that they would start early the next day to see the entire
city before ending the tour.

The following day, the last day of the tour, the group arrived at the Coster
Diamond House in Amsterdam around 10 minutes before 9:00 a.m. The group had
agreed that the visit to Coster should end by 9:30 a.m. to allow enough time to take in a
guided city tour of Amsterdam. The group was ushered into Coster shortly before 9:00
a.m., and listened to a lecture on the art of diamond polishing that lasted for around ten
minutes.
[1]
Afterwards, the group was led to the stores showroom to allow them to
select items for purchase. Mrs. Pantaleon had already planned to purchase even before
the tour began a 2.5 karat diamond brilliant cut, and she found a diamond close enough
in approximation that she decided to buy.
[2]
Mrs. Pantaleon also selected for purchase a
pendant and a chain,
[3]
all of which totaled U.S. $13,826.00.

To pay for these purchases, Pantaleon presented his American Express credit
card together with his passport to the Coster sales clerk. This occurred at around9:15
a.m., or 15 minutes before the tour group was slated to depart from the store. The sales
clerk took the cards imprint, and asked Pantaleon to sign the charge slip. The charge
purchase was then referred electronically to respondents Amsterdam office at 9:20 a.m.



Ten minutes later, the store clerk informed Pantaleon that his AmexCard had not
yet been approved. His son, who had already boarded the tour bus, soon returned to
Coster and informed the other members of the Pantaleon family that the entire tour
group was waiting for them. As it was already 9:40 a.m., and he was already worried
about further inconveniencing the tour group, Pantaleon asked the store clerk to cancel
the sale. The store manager though asked plaintiff to wait a few more minutes. After 15
minutes, the store manager informed Pantaleon that respondent had demanded bank
references. Pantaleon supplied the names of his depositary banks, then instructed his
daughter to return to the bus and apologize to the tour group for the delay.

At around 10:00 a.m, or around 45 minutes after Pantaleon had presented his
AmexCard, and 30 minutes after the tour group was supposed to have left the store,
Coster decided to release the items even without respondents approval of the purchase.
The spouses Pantaleon returned to the bus. It is alleged that their offers of apology were
met by their tourmates with stony silence.
[4]
The tour groups visible irritation was
aggravated when the tour guide announced that the city tour ofAmsterdam was to be
canceled due to lack of remaining time, as they had to catch a 3:00 p.m. ferry
at Calais, Belgium to London.
[5]
Mrs. Pantaleon ended up weeping, while her husband
had to take a tranquilizer to calm his nerves.




It later emerged that Pantaleons purchase was first transmitted for approval to
respondents Amsterdam office at 9:20 a.m., Amsterdam time, then referred to
respondents Manila office at 9:33 a.m, then finally approved at 10:19
a.m., Amsterdam time.
[6]
The Approval Code was transmitted to respondents
Amsterdam office at 10:38 a.m., several minutes after petitioner had already left Coster,
and 78 minutes from the time the purchases were electronically transmitted by the
jewelry store to respondents Amsterdam office.

After the star-crossed tour had ended, the Pantaleon family proceeded to
the United States before returning to Manila on 12 November 1992. While in the United
States, Pantaleon continued to use his AmEx card, several times without hassle or delay,
but with two other incidents similar to the Amsterdam brouhaha. On 30 October 1991,
Pantaleon purchased golf equipment amounting to US $1,475.00 using his AmEx card,
but he cancelled his credit card purchase and borrowed money instead from a friend,
after more than 30 minutes had transpired without the purchase having been approved.
On 3 November 1991, Pantaleon used the card to purchase childrens shoes worth
$87.00 at a store in Boston, and it took 20 minutes before this transaction was approved
by respondent.

On 4 March 1992, after coming back to Manila, Pantaleon sent a letter
[7]
through
counsel to the respondent, demanding an apology for the inconvenience, humiliation
and embarrassment he and his family thereby suffered for respondents refusal to
provide credit authorization for the aforementioned purchases.
[8]
In response,
respondent sent a letter dated 24 March 1992,
[9]
stating among others that the delay in
authorizing the purchase from Coster was attributable to the circumstance that the
charged purchase of US $13,826.00 was out of the usual charge purchase pattern
established.
[10]
Since respondent refused to accede to Pantaleons demand for an
apology, the aggrieved cardholder instituted an action for damages with the Regional
Trial Court (RTC) of Makati City, Branch 145.
[11]
Pantaleon prayed that he be
awarded P2,000,000.00, as moral damages; P500,000.00, as exemplary
damages; P100,000.00, as attorneys fees; and P50,000.00 as litigation expenses.
[12]


On 5 August 1996, the Makati City RTC rendered a decision
[13]
in favor of
Pantaleon, awarding him P500,000.00 as moral damages, P300,000.00 as exemplary
damages, P100,000.00 as attorneys fees, and P85,233.01 as expenses of litigation.
Respondent filed a Notice of Appeal, while Pantaleon moved for partial
reconsideration, praying that the trial court award the increased amount of moral and
exemplary damages he had prayed for.
[14]
The RTC denied Pantaleons motion for
partial reconsideration, and thereafter gave due course to respondents Notice of
Appeal.
[15]


On 18 August 2006, the Court of Appeals rendered a decision
[16]
reversing the
award of damages in favor of Pantaleon, holding that respondent had not breached its
obligations to petitioner. Hence, this petition.

The key question is whether respondent, in connection with the aforementioned
transactions, had committed a breach of its obligations to Pantaleon. In addition,
Pantaleon submits that even assuming that respondent had not been in breach of its
obligations, it still remained liable for damages under Article 21 of the Civil Code.

The RTC had concluded, based on the testimonial representations of Pantaleon
and respondents credit authorizer, Edgardo Jaurigue, that the normal approval time for
purchases was a matter of seconds. Based on that standard, respondent had been in
clear delay with respect to the three subject transactions. As it appears, the Court of
Appeals conceded that there had been delay on the part of respondent in approving the
purchases. However, it made two critical conclusions in favor of respondent. First, the
appellate court ruled that the delay was not attended by bad faith, malice, or gross
negligence. Second, it ruled that respondent had exercised diligent efforts to effect the
approval of the purchases, which were not in accordance with the charge pattern
petitioner had established for himself, as exemplified by the fact that at Coster, he was
making his very first single charge purchase of US$13,826, and the record of
[petitioner]s past spending with [respondent] at the time does not favorably support
his ability to pay for such purchase.
[17]


On the premise that there was an obligation on the part of respondent to approve
or disapprove with dispatch the charge purchase, petitioner argues that the failure to
timely approve or disapprove the purchase constituted mora solvendi on the part of
respondent in the performance of its obligation. For its part, respondent characterizes
the depiction by petitioner of its obligation to him as to approve purchases
instantaneously or in a matter of seconds.

Petitioner correctly cites that under mora solvendi, the three requisites for a
finding of default are that the obligation is demandable and liquidated; the debtor
delays performance; and the creditor judicially or extrajudicially requires the debtors
performance.
[18]
Petitioner asserts that the Court of Appeals had wrongly applied the
principle of mora accipiendi, which relates to delay on the part of the obligee in accepting
the performance of the obligation by the obligor. The requisites of mora accipiendi are: an
offer of performance by the debtor who has the required capacity; the offer must be to
comply with the prestation as it should be performed; and the creditor refuses the
performance without just cause.
[19]
The error of the appellate court, argues petitioner, is
in relying on the invocation by respondent of just cause for the delay, since while just
cause is determinative of mora accipiendi, it is not so with the case of mora solvendi.

We can see the possible source of confusion as to which type of mora to
appreciate. Generally, the relationship between a credit card provider and its card
holders is that of creditor-debtor,
[20]
with the card company as the creditor extending
loans and credit to the card holder, who as debtor is obliged to repay the creditor. This
relationship already takes exception to the general rule that as between a bank and its
depositors, the bank is deemed as the debtor while the depositor is considered as the
creditor.
[21]
Petitioner is asking us, not baselessly, to again shift perspectives and again
see the credit card company as the debtor/obligor, insofar as it has the obligation to the
customer as creditor/obligee to act promptly on its purchases on credit.

Ultimately, petitioners perspective appears more sensible than if we were to still
regard respondent as the creditor in the context of this cause of action. If there was
delay on the part of respondent in its normal role as creditor to the cardholder, such
delay would not have been in the acceptance of the performance of the debtors
obligation (i.e., the repayment of the debt), but it would be delay in the extension of the
credit in the first place. Such delay would not fall under mora accipiendi, which
contemplates that the obligation of the debtor, such as the actual purchases on credit,
has already been constituted. Herein, the establishment of the debt itself (purchases on
credit of the jewelry) had not yet been perfected, as it remained pending the approval or
consent of the respondent credit card company.

Still, in order for us to appreciate that respondent was in mora solvendi, we will
have to first recognize that there was indeed an obligation on the part of respondent to
act on petitioners purchases with timely dispatch, or for the purposes of this case,
within a period significantly less than the one hour it apparently took before the
purchase at Coster was finally approved.

The findings of the trial court, to our mind, amply established that the tardiness
on the part of respondent in acting on petitioners purchase at Coster did constitute
culpable delay on its part in complying with its obligation to act promptly on its
customers purchase request, whether such action be favorable or unfavorable. We
quote the trial court, thus:

As to the first issue, both parties have testified that normal
approval time for purchases was a matter of seconds.

Plaintiff testified that his personal experience with the use of the
card was that except for the three charge purchases subject of this case,
approvals of his charge purchases were always obtained in a matter of
seconds.

Defendants credit authorizer Edgardo Jaurique likewise testified:

Q. You also testified that on normal occasions, the
normal approval time for charges would be 3 to 4 seconds?

A. Yes, Maam.

Both parties likewise presented evidence that the processing and
approval of plaintiffs charge purchase at the Coster Diamond House was
way beyond the normal approval time of a matter of seconds.

Plaintiff testified that he presented his AmexCard to the sales clerk
at Coster, at 9:15 a.m. and by the time he had to leave the store at 10:05
a.m., no approval had yet been received. In fact, the Credit Authorization
System (CAS) record of defendant at Phoenix Amex shows that
defendants Amsterdam office received the request to approve plaintiffs
charge purchase at 9:20 a.m., Amsterdam time or 01:20, Phoenix time, and
that the defendant relayed its approval to Coster at 10:38 a.m., Amsterdam
time, or 2:38, Phoenix time, or a total time lapse of one hour and [18]
minutes. And even then, the approval was conditional as it directed in
computerese [sic] Positive Identification of Card holder necessary further
charges require bank information due to high exposure. By Jack Manila.

The delay in the processing is apparent to be undue as shown from
the frantic successive queries of Amexco Amsterdam which reads:
US$13,826. Cardmember buying jewels. ID seen. Advise how long will
this take? They were sent at 01:33, 01:37, 01:40, 01:45, 01:52 and 02:08, all
times Phoenix. Manila Amexco could be unaware of the need for speed in
resolving the charge purchase referred to it, yet it sat on its hand,
unconcerned.

x x x

To repeat, the Credit Authorization System (CAS) record on
the Amsterdam transaction shows how Amexco Netherlands viewed the
delay as unusually frustrating. In sequence expressed in Phoenix time
from 01:20 when the charge purchased was referred for authorization,
defendants own record shows:

01:22 the authorization is referred to Manila Amexco

01:32 Netherlands gives information that the
identification of the cardmember has been
presented and he is buying jewelries worth US
$13,826.

01:33 Netherlands asks How long will this take?

02:08 Netherlands is still asking How long will this
take?

The Court is convinced that defendants delay constitute[s] breach
of its contractual obligation to act on his use of the card abroad with
special handling.
[22]
(Citations omitted)

xxx


Notwithstanding the popular notion that credit card purchases are approved
within seconds, there really is no strict, legally determinative point of demarcation on
how long must it take for a credit card company to approve or disapprove a customers
purchase, much less one specifically contracted upon by the parties. Yet this is one of
those instances when youd know it when youd see it, and one hour appears to be an
awfully long, patently unreasonable length of time to approve or disapprove a credit
card purchase. It is long enough time for the customer to walk to a bank a kilometer
away, withdraw money over the counter, and return to the store.

Notably, petitioner frames the obligation of respondent as to approve or
disapprove the purchase in timely dispatch, and not to approve the purchase
instantaneously or within seconds. Certainly, had respondent disapproved
petitioners purchase within seconds or within a timely manner, this particular
action would have never seen the light of day. Petitioner and his family would have
returned to the bus without delay internally humiliated perhaps over the rejection
of his card yet spared the shame of being held accountable by newly-made
friends for making them miss the chance to tour the city of Amsterdam.

We do not wish do dispute that respondent has the right, if not the
obligation, to verify whether the credit it is extending upon on a particular
purchase was indeed contracted by the cardholder, and that the cardholder is within
his means to make such transaction. The culpable failure of respondent herein is
not the failure to timely approve petitioners purchase, but the more elemental
failure to timely act on the same, whether favorably or unfavorably. Even
assuming that respondents credit authorizers did not have sufficient basis on hand
to make a judgment, we see no reason why respondent could not have promptly
informed petitioner the reason for the delay, and duly advised him that resolving
the same could take some time. In that way, petitioner would have had informed
basis on whether or not to pursue the transaction at Coster, given the attending
circumstances. Instead, petitioner was left uncomfortably dangling in the chilly
autumn winds in a foreign land and soon forced to confront the wrath of foreign
folk.

Moral damages avail in cases of breach of contract where the defendant
acted fraudulently or in bad faith, and the court should find that under the
circumstances, such damages are due. The findings of the trial court are ample in
establishing the bad faith and unjustified neglect of respondent, attributable in
particular to the dilly-dallying of respondents Manila credit authorizer, Edgardo
Jaurique.
[23]
Wrote the trial court:

While it is true that the Cardmembership Agreement, which defendant
prepared, is silent as to the amount of time it should take defendant to grant
authorization for a charge purchase, defendant acknowledged that the normal time
for approval should only be three to four seconds. Specially so with cards used
abroad which requires special handling, meaning with priority. Otherwise, the
object of credit or charge cards would be lost; it would be so inconvenient to use
that buyers and consumers would be better off carrying bundles of currency or
travellers checks, which can be delivered and accepted quickly. Such right was
not accorded to plaintiff in the instances complained off for reasons known only
to defendant at that time. This, to the Courts mind, amounts to a wanton and
deliberate refusal to comply with its contractual obligations, or at least abuse of its
rights, under the contract.
[24]


x x x
The delay committed by defendant was clearly attended by unjustified
neglect and bad faith, since it alleges to have consumed more than one hour to
simply go over plaintiffs past credit history with defendant, his payment record
and his credit and bank references, when all such data are already stored and
readily available from its computer. This Court also takes note of the fact that
there is nothing in plaintiffs billing history that would warrant the imprudent
suspension of action by defendant in processing the purchase. Defendants
witness Jaurique admits:

Q. But did you discover that he did not have any outstanding
account?

A. Nothing in arrears at that time.

Q. You were well aware of this fact on this very date?

A. Yes, sir.

Mr. Jaurique further testified that there were no delinquencies in
plaintiffs account.
[25]



It should be emphasized that the reason why petitioner is entitled to damages
is not simply because respondent incurred delay, but because the delay, for which
culpability lies under Article 1170, led to the particular injuries under Article 2217
of the Civil Code for which moral damages are remunerative.
[26]
Moral damages do
not avail to soothe the plaints of the simply impatient, so this decision should not
be cause for relief for those who time the length of their credit card transactions
with a stopwatch. The somewhat unusual attending circumstances to the purchase
at Coster that there was a deadline for the completion of that purchase by
petitioner before any delay would redound to the injury of his several traveling
companions gave rise to the moral shock, mental anguish, serious anxiety,
wounded feelings and social humiliation sustained by the petitioner, as concluded
by the RTC.
[27]
Those circumstances are fairly unusual, and should not give rise to
a general entitlement for damages under a more mundane set of facts.



We sustain the amount of moral damages awarded to petitioner by the
RTC. There is no hard-and-fast rule in determining what would be a fair and
reasonable amount of moral damages, since each case must be governed by its own
peculiar facts, however, it must be commensurate to the loss or injury
suffered.
[28]
Petitioners original prayer for P5,000,000.00 for moral damages is
excessive under the circumstances, and the amount awarded by the trial court
of P500,000.00 in moral damages more seemly.

Likewise, we deem exemplary damages available under the circumstances,
and the amount of P300,000.00 appropriate. There is similarly no cause though to
disturb the determined award of P100,000.00 as attorneys fees, and P85,233.01 as
expenses of litigation.

WHEREFORE, the petition is GRANTED. The assailed Decision of the
Court of Appeals is REVERSED and SET ASIDE. The Decision of the Regional
Trial Court of Makati, Branch 145 in Civil Case No. 92-1665 is hereby
REINSTATED. Costs against respondent.

SO ORDERED.


DANTE O. TINGA
Associate Justice







WE CONCUR:




CONCHITA CARPIO MORALES
Associate Justice
Acting Chairperson






PRESBITERO J. VELASCO, JR. TERESITA LEONARDO DE CASTRO
Associate Justice Associate Justice




ARTURO D. BRION
Associate Justice



ATTESTATION

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Courts Division.



CONCHITA CARPIO MORALES
Associate Justice
Acting Chairperson, Second Division





CERTIFICATION


Pursuant to Section 13, Article VIII of the Constitution, and the Division
Acting Chairpersons Attestation, it is hereby certified that the conclusions in the
above Decision had been reached in consultation before the case was assigned to
the writer of the opinion of the Courts Division.



REYNATO S. PUNO
Chief Justice







*
Acting Chairperson.

**
Per Special Order No. 619, Justice Teresita J. Leonardo-De Castro is hereby designated as additional
member of the Second Division in lieu of Justice Leonardo A. Quisumbing, who is on official leave

[1]
Id. at 747.

[2]
Id. at 748-749.

[3]
Id. at 750.

[4]
Id. at 20.

[5]
Id. at 20-21.

[6]
Id. at 21-22; citing defendants Exhibit 9-G, 9-H and 9-I.

[7]
Id. at 330-331.

[8]
Id. at 331.

[9]
Id. at 332-333.

[10]
Id. at 332.

[11]
Docketed as Civil Case No. 92-1665. Id. at 335-340.

[12]
Id. at 339.

[13]
Penned by Judge Francisco Donato Villanueva; id. at 92-110.

[14]
Id. at 348-351.

[15]
Id. at 360-362.

[16]
Decision penned by Court of Appeals Associate Justice E.J. Asuncion, , concurred by Associate Justices
J. Mendoza and A. Tayag.

[17]
Rollo, p. 80.


[18]
See, e.g., Selegna Management v. UCPB, G.R. No. 165662, 3 May 2006.

[19]
A. TOLENTINO, IV CIVIL CODE OF THE PHILIPPINES (1991 ed.), at 108.

[20]
See, e.g., Pacific Banking Corp. v. IAC, G.R. No. 72275, 13 November 1991, 203 SCRA 496; Molino v.
Security Diners International Corp., G.R. No. 136780, 16 August 2001, 358 SCRA 363.

[21]
See, e.g., Citibank, N.A. v. Cabamongan, G.R. No. 146918, 2 May 2006, 488 SCRA 517.


[22]
Rollo, pp. 97-99.

[23]
Id. at 101.

[24]
Id. at 105-106.

[25]
Id. at 104.
[26]
Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shocks, social humiliation, and similar injury. Though incapable of pecuniary
computation, moral damages may be recovered if they are the proximate result of the defendant's wrongful act or
omission.
[27]
See rollo, p. 107.


[28]
Mercury Drug v. Baking, G.R. No. 156037, May 25, 2007, 523 SCRA 184, 191.



G.R. No. 115324 February 19, 2003
PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK), petitioner,
vs.
HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents.
D E C I S I O N
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision
1
of the Court of Appeals dated June 25, 1991 in
CA-G.R. CV No. 11791 and of its Resolution
2
dated May 5, 1994, denying the motion for reconsideration
of said decision filed by petitioner Producers Bank of the Philippines.
Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friend Angeles
Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporating his business, the
Sterela Marketing and Services ("Sterela" for brevity). Specifically, Sanchez asked private respondent to
deposit in a bank a certain amount of money in the bank account of Sterela for purposes of its
incorporation. She assured private respondent that he could withdraw his money from said account
within a months time. Private respondent asked Sanchez to bring Doronilla to their house so that they
could discuss Sanchezs request.
3

On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi, Doronillas
private secretary, met and discussed the matter. Thereafter, relying on the assurances and
representations of Sanchez and Doronilla, private respondent issued a check in the amount of Two
Hundred Thousand Pesos (P200,000.00) in favor of Sterela. Private respondent instructed his wife, Mrs.
Inocencia Vives, to accompany Doronilla and Sanchez in opening a savings account in the name of
Sterela in the Buendia, Makati branch of Producers Bank of the Philippines. However, only Sanchez, Mrs.
Vives and Dumagpi went to the bank to deposit the check. They had with them an authorization letter
from Doronilla authorizing Sanchez and her companions, "in coordination with Mr. Rufo Atienza," to
open an account for Sterela Marketing Services in the amount of P200,000.00. In opening the account,
the authorized signatories were Inocencia Vives and/or Angeles Sanchez. A passbook for Savings
Account No. 10-1567 was thereafter issued to Mrs. Vives.
4

Subsequently, private respondent learned that Sterela was no longer holding office in the address
previously given to him. Alarmed, he and his wife went to the Bank to verify if their money was still
intact. The bank manager referred them to Mr. Rufo Atienza, the assistant manager, who informed them
that part of the money in Savings Account No. 10-1567 had been withdrawn by Doronilla, and that
onlyP90,000.00 remained therein. He likewise told them that Mrs. Vives could not withdraw said
remaining amount because it had to answer for some postdated checks issued by Doronilla. According
to Atienza, after Mrs. Vives and Sanchez opened Savings Account No. 10-1567, Doronilla opened Current
Account No. 10-0320 for Sterela and authorized the Bank to debit Savings Account No. 10-1567 for the
amounts necessary to cover overdrawings in Current Account No. 10-0320. In opening said current
account, Sterela, through Doronilla, obtained a loan of P175,000.00 from the Bank. To cover payment
thereof, Doronilla issued three postdated checks, all of which were dishonored. Atienza also said that
Doronilla could assign or withdraw the money in Savings Account No. 10-1567 because he was the sole
proprietor of Sterela.
5

Private respondent tried to get in touch with Doronilla through Sanchez. On June 29, 1979, he received a
letter from Doronilla, assuring him that his money was intact and would be returned to him. On August
13, 1979, Doronilla issued a postdated check for Two Hundred Twelve Thousand Pesos (P212,000.00) in
favor of private respondent. However, upon presentment thereof by private respondent to the drawee
bank, the check was dishonored. Doronilla requested private respondent to present the same check on
September 15, 1979 but when the latter presented the check, it was again dishonored.
6

Private respondent referred the matter to a lawyer, who made a written demand upon Doronilla for the
return of his clients money. Doronilla issued another check for P212,000.00 in private respondents
favor but the check was again dishonored for insufficiency of funds.
7

Private respondent instituted an action for recovery of sum of money in the Regional Trial Court (RTC) in
Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and petitioner. The case was docketed as Civil
Case No. 44485. He also filed criminal actions against Doronilla, Sanchez and Dumagpi in the RTC.
However, Sanchez passed away on March 16, 1985 while the case was pending before the trial court. On
October 3, 1995, the RTC of Pasig, Branch 157, promulgated its Decision in Civil Case No. 44485, the
dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing defendants Arturo J. Doronila,
Estrella Dumagpi and Producers Bank of the Philippines to pay plaintiff Franklin Vives jointly and
severally
(a) the amount of P200,000.00, representing the money deposited, with interest at the legal rate from
the filing of the complaint until the same is fully paid;
(b) the sum of P50,000.00 for moral damages and a similar amount for exemplary damages;
(c) the amount of P40,000.00 for attorneys fees; and
(d) the costs of the suit.
SO ORDERED.
8

Petitioner appealed the trial courts decision to the Court of Appeals. In its Decision dated June 25, 1991,
the appellate court affirmed in toto the decision of the RTC.
9
It likewise denied with finality petitioners
motion for reconsideration in its Resolution dated May 5, 1994.
10

On June 30, 1994, petitioner filed the present petition, arguing that
I.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE TRANSACTION BETWEEN THE
DEFENDANT DORONILLA AND RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT
ACCOMMODATION;
II.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT PETITIONERS BANK MANAGER, MR.
RUFO ATIENZA, CONNIVED WITH THE OTHER DEFENDANTS IN DEFRAUDING PETITIONER (Sic. Should be
PRIVATE RESPONDENT) AND AS A CONSEQUENCE, THE PETITIONER SHOULD BE HELD LIABLE UNDER THE
PRINCIPLE OF NATURAL JUSTICE;
III.
THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE RECORDS OF THE REGIONAL
TRIAL COURT AND AFFIRMING THE JUDGMENT APPEALED FROM, AS THE FINDINGS OF THE REGIONAL
TRIAL COURT WERE BASED ON A MISAPPREHENSION OF FACTS;
IV.
THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITED DECISION IN SALUDARES
VS. MARTINEZ, 29 SCRA 745, UPHOLDING THE LIABILITY OF AN EMPLOYER FOR ACTS COMMITTED BY AN
EMPLOYEE IS APPLICABLE;
V.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION OF THE LOWER COURT THAT
HEREIN PETITIONER BANK IS JOINTLY AND SEVERALLY LIABLE WITH THE OTHER DEFENDANTS FOR THE
AMOUNT OF P200,000.00 REPRESENTING THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR MORAL
DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES, P40,000.00 FOR ATTORNEYS FEES AND THE COSTS
OF SUIT.
11

Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply thereto on
September 25, 1995. The Court then required private respondent to submit a rejoinder to the reply.
However, said rejoinder was filed only on April 21, 1997, due to petitioners delay in furnishing private
respondent with copy of the reply
12
and several substitutions of counsel on the part of private
respondent.
13
On January 17, 2001, the Court resolved to give due course to the petition and required
the parties to submit their respective memoranda.
14
Petitioner filed its memorandum on April 16, 2001
while private respondent submitted his memorandum on March 22, 2001.
Petitioner contends that the transaction between private respondent and Doronilla is a simple loan
(mutuum) since all the elements of a mutuum are present: first, what was delivered by private
respondent to Doronilla was money, a consumable thing; and second, the transaction was onerous as
Doronilla was obliged to pay interest, as evidenced by the check issued by Doronilla in the amount
of P212,000.00, orP12,000 more than what private respondent deposited in Sterelas bank
account.
15
Moreover, the fact that private respondent sued his good friend Sanchez for his failure to
recover his money from Doronilla shows that the transaction was not merely gratuitous but "had a
business angle" to it. Hence, petitioner argues that it cannot be held liable for the return of private
respondents P200,000.00 because it is not privy to the transaction between the latter and Doronilla.
16

It argues further that petitioners Assistant Manager, Mr. Rufo Atienza, could not be faulted for allowing
Doronilla to withdraw from the savings account of Sterela since the latter was the sole proprietor of said
company. Petitioner asserts that Doronillas May 8, 1979 letter addressed to the bank, authorizing Mrs.
Vives and Sanchez to open a savings account for Sterela, did not contain any authorization for these two
to withdraw from said account. Hence, the authority to withdraw therefrom remained exclusively with
Doronilla, who was the sole proprietor of Sterela, and who alone had legal title to the savings
account.
17
Petitioner points out that no evidence other than the testimonies of private respondent and
Mrs. Vives was presented during trial to prove that private respondent deposited his P200,000.00 in
Sterelas account for purposes of its incorporation.
18
Hence, petitioner should not be held liable for
allowing Doronilla to withdraw from Sterelas savings account.1a\^/phi1.net
Petitioner also asserts that the Court of Appeals erred in affirming the trial courts decision since the
findings of fact therein were not accord with the evidence presented by petitioner during trial to prove
that the transaction between private respondent and Doronilla was a mutuum, and that it committed no
wrong in allowing Doronilla to withdraw from Sterelas savings account.
19

Finally, petitioner claims that since there is no wrongful act or omission on its part, it is not liable for the
actual damages suffered by private respondent, and neither may it be held liable for moral and
exemplary damages as well as attorneys fees.
20

Private respondent, on the other hand, argues that the transaction between him and Doronilla is not a
mutuum but an accommodation,
21
since he did not actually part with the ownership of his P200,000.00
and in fact asked his wife to deposit said amount in the account of Sterela so that a certification can be
issued to the effect that Sterela had sufficient funds for purposes of its incorporation but at the same
time, he retained some degree of control over his money through his wife who was made a signatory to
the savings account and in whose possession the savings account passbook was given.
22

He likewise asserts that the trial court did not err in finding that petitioner, Atienzas employer, is liable
for the return of his money. He insists that Atienza, petitioners assistant manager, connived with
Doronilla in defrauding private respondent since it was Atienza who facilitated the opening of Sterelas
current account three days after Mrs. Vives and Sanchez opened a savings account with petitioner for
said company, as well as the approval of the authority to debit Sterelas savings account to cover any
overdrawings in its current account.
23

There is no merit in the petition.
At the outset, it must be emphasized that only questions of law may be raised in a petition for review
filed with this Court. The Court has repeatedly held that it is not its function to analyze and weigh all
over again the evidence presented by the parties during trial.
24
The Courts jurisdiction is in principle
limited to reviewing errors of law that might have been committed by the Court of Appeals.
25
Moreover,
factual findings of courts, when adopted and confirmed by the Court of Appeals, are final and conclusive
on this Court unless these findings are not supported by the evidence on record.
26
There is no showing
of any misapprehension of facts on the part of the Court of Appeals in the case at bar that would require
this Court to review and overturn the factual findings of that court, especially since the conclusions of
fact of the Court of Appeals and the trial court are not only consistent but are also amply supported by
the evidence on record.
No error was committed by the Court of Appeals when it ruled that the transaction between private
respondent and Doronilla was a commodatum and not a mutuum. A circumspect examination of the
records reveals that the transaction between them was a commodatum. Article 1933 of the Civil Code
distinguishes between the two kinds of loans in this wise:
By the contract of loan, one of the parties delivers to another, either something not consumable so that
the latter may use the same for a certain time and return it, in which case the contract is called a
commodatum; or money or other consumable thing, upon the condition that the same amount of the
same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing loaned, while in simple loan, ownership
passes to the borrower.
The foregoing provision seems to imply that if the subject of the contract is a consumable thing, such as
money, the contract would be a mutuum. However, there are some instances where a commodatum
may have for its object a consumable thing. Article 1936 of the Civil Code provides:
Consumable goods may be the subject of commodatum if the purpose of the contract is not the
consumption of the object, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of the
parties is to lend consumable goods and to have the very same goods returned at the end of the period
agreed upon, the loan is a commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial consideration in
determining the actual character of a contract.
27
In case of doubt, the contemporaneous and
subsequent acts of the parties shall be considered in such determination.
28

As correctly pointed out by both the Court of Appeals and the trial court, the evidence shows that
private respondent agreed to deposit his money in the savings account of Sterela specifically for the
purpose of making it appear "that said firm had sufficient capitalization for incorporation, with the
promise that the amount shall be returned within thirty (30) days."
29
Private respondent merely
"accommodated" Doronilla by lending his money without consideration, as a favor to his good friend
Sanchez. It was however clear to the parties to the transaction that the money would not be removed
from Sterelas savings account and would be returned to private respondent after thirty (30) days.
Doronillas attempts to return to private respondent the amount of P200,000.00 which the latter
deposited in Sterelas account together with an additional P12,000.00, allegedly representing interest on
the mutuum, did not convert the transaction from a commodatum into a mutuum because such was not
the intent of the parties and because the additional P12,000.00 corresponds to the fruits of the lending
of theP200,000.00. Article 1935 of the Civil Code expressly states that "[t]he bailee in commodatum
acquires the use of the thing loaned but not its fruits." Hence, it was only proper for Doronilla to remit
to private respondent the interest accruing to the latters money deposited with petitioner.
Neither does the Court agree with petitioners contention that it is not solidarily liable for the return of
private respondents money because it was not privy to the transaction between Doronilla and private
respondent. The nature of said transaction, that is, whether it is a mutuum or a commodatum, has no
bearing on the question of petitioners liability for the return of private respondents money because
the factual circumstances of the case clearly show that petitioner, through its employee Mr. Atienza,
was partly responsible for the loss of private respondents money and is liable for its restitution.
Petitioners rules for savings deposits written on the passbook it issued Mrs. Vives on behalf of Sterela
for Savings Account No. 10-1567 expressly states that
"2. Deposits and withdrawals must be made by the depositor personally or upon his written authority
duly authenticated, and neither a deposit nor a withdrawal will be permitted except upon the
production of the depositor savings bank book in which will be entered by the Bank the amount
deposited or withdrawn."
30

Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the Assistant Branch
Manager for the Buendia Branch of petitioner, to withdraw therefrom even without presenting the
passbook (which Atienza very well knew was in the possession of Mrs. Vives), not just once, but several
times. Both the Court of Appeals and the trial court found that Atienza allowed said withdrawals
because he was party to Doronillas "scheme" of defrauding private respondent:
X X X
But the scheme could not have been executed successfully without the knowledge, help and
cooperation of Rufo Atienza, assistant manager and cashier of the Makati (Buendia) branch of the
defendant bank. Indeed, the evidence indicates that Atienza had not only facilitated the commission of
the fraud but he likewise helped in devising the means by which it can be done in such manner as to
make it appear that the transaction was in accordance with banking procedure.
To begin with, the deposit was made in defendants Buendia branch precisely because Atienza was a key
officer therein. The records show that plaintiff had suggested that the P200,000.00 be deposited in his
bank, the Manila Banking Corporation, but Doronilla and Dumagpi insisted that it must be in defendants
branch in Makati for "it will be easier for them to get a certification". In fact before he was introduced to
plaintiff, Doronilla had already prepared a letter addressed to the Buendia branch manager authorizing
Angeles B. Sanchez and company to open a savings account for Sterela in the amount ofP200,000.00, as
"per coordination with Mr. Rufo Atienza, Assistant Manager of the Bank x x x" (Exh. 1). This is a clear
manifestation that the other defendants had been in consultation with Atienza from the inception of the
scheme. Significantly, there were testimonies and admission that Atienza is the brother-in-law of a
certain Romeo Mirasol, a friend and business associate of Doronilla.1awphi1.nt
Then there is the matter of the ownership of the fund. Because of the "coordination" between Doronilla
and Atienza, the latter knew before hand that the money deposited did not belong to Doronilla nor to
Sterela. Aside from such foreknowledge, he was explicitly told by Inocencia Vives that the money
belonged to her and her husband and the deposit was merely to accommodate Doronilla. Atienza even
declared that the money came from Mrs. Vives.
Although the savings account was in the name of Sterela, the bank records disclose that the only ones
empowered to withdraw the same were Inocencia Vives and Angeles B. Sanchez. In the signature card
pertaining to this account (Exh. J), the authorized signatories were Inocencia Vives &/or Angeles B.
Sanchez. Atienza stated that it is the usual banking procedure that withdrawals of savings deposits could
only be made by persons whose authorized signatures are in the signature cards on file with the bank.
He, however, said that this procedure was not followed here because Sterela was owned by Doronilla.
He explained that Doronilla had the full authority to withdraw by virtue of such ownership. The Court is
not inclined to agree with Atienza. In the first place, he was all the time aware that the money came
from Vives and did not belong to Sterela. He was also told by Mrs. Vives that they were only
accommodating Doronilla so that a certification can be issued to the effect that Sterela had a deposit of
so much amount to be sued in the incorporation of the firm. In the second place, the signature of
Doronilla was not authorized in so far as that account is concerned inasmuch as he had not signed the
signature card provided by the bank whenever a deposit is opened. In the third place, neither Mrs. Vives
nor Sanchez had given Doronilla the authority to withdraw.
Moreover, the transfer of fund was done without the passbook having been presented. It is an accepted
practice that whenever a withdrawal is made in a savings deposit, the bank requires the presentation of
the passbook. In this case, such recognized practice was dispensed with. The transfer from the savings
account to the current account was without the submission of the passbook which Atienza had given to
Mrs. Vives. Instead, it was made to appear in a certification signed by Estrella Dumagpi that a duplicate
passbook was issued to Sterela because the original passbook had been surrendered to the Makati
branch in view of a loan accommodation assigning the savings account (Exh. C). Atienza, who
undoubtedly had a hand in the execution of this certification, was aware that the contents of the same
are not true. He knew that the passbook was in the hands of Mrs. Vives for he was the one who gave it
to her. Besides, as assistant manager of the branch and the bank official servicing the savings and
current accounts in question, he also was aware that the original passbook was never surrendered. He
was also cognizant that Estrella Dumagpi was not among those authorized to withdraw so her
certification had no effect whatsoever.
The circumstance surrounding the opening of the current account also demonstrate that Atienzas active
participation in the perpetration of the fraud and deception that caused the loss. The records indicate
that this account was opened three days later after the P200,000.00 was deposited. In spite of his
disclaimer, the Court believes that Atienza was mindful and posted regarding the opening of the current
account considering that Doronilla was all the while in "coordination" with him. That it was he who
facilitated the approval of the authority to debit the savings account to cover any overdrawings in the
current account (Exh. 2) is not hard to comprehend.
Clearly Atienza had committed wrongful acts that had resulted to the loss subject of this case. x x x.
31

Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for damages
caused by their employees acting within the scope of their assigned tasks. To hold the employer liable
under this provision, it must be shown that an employer-employee relationship exists, and that the
employee was acting within the scope of his assigned task when the act complained of was
committed.
32
Case law in the United States of America has it that a corporation that entrusts a general
duty to its employee is responsible to the injured party for damages flowing from the employees
wrongful act done in the course of his general authority, even though in doing such act, the employee
may have failed in its duty to the employer and disobeyed the latters instructions.
33

There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner did not deny
that Atienza was acting within the scope of his authority as Assistant Branch Manager when he assisted
Doronilla in withdrawing funds from Sterelas Savings Account No. 10-1567, in which account private
respondents money was deposited, and in transferring the money withdrawn to Sterelas Current
Account with petitioner. Atienzas acts of helping Doronilla, a customer of the petitioner, were obviously
done in furtherance of petitioners interests
34
even though in the process, Atienza violated some of
petitioners rules such as those stipulated in its savings account passbook.
35
It was established that the
transfer of funds from Sterelas savings account to its current account could not have been
accomplished by Doronilla without the invaluable assistance of Atienza, and that it was their connivance
which was the cause of private respondents loss.
The foregoing shows that the Court of Appeals correctly held that under Article 2180 of the Civil Code,
petitioner is liable for private respondents loss and is solidarily liable with Doronilla and Dumagpi for
the return of the P200,000.00 since it is clear that petitioner failed to prove that it exercised due
diligence to prevent the unauthorized withdrawals from Sterelas savings account, and that it was not
negligent in the selection and supervision of Atienza. Accordingly, no error was committed by the
appellate court in the award of actual, moral and exemplary damages, attorneys fees and costs of suit
to private respondent.
WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the Court of
Appeals are AFFIRMED.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing and Austria-Martinez, JJ., concur.


Footnotes
1
Justice Asaali S. Isnani, Ponente, with Justices Rodolfo A. Nocon, Presiding Justice, and Antonio M.
Martinez, concurring.
2
Rollo, pp. 54-55.
3
Id. at 37.
4
Ibid.
5
Id. at 37-38.
6
Id. at 38.
7
Id.
8
Id. at 63.
9
Id. at 35-47.
10
Id. at 54-55.
11
Id. at 18-19.
12
Id. at 148, 181.
13
Id. at 176, 199.
14
Id. at 227.
15
Id. at 21.
16
Id. at 22.
17
Id. at 24-27.
18
Id. at 23.
19
Id. at 28.
20
Rollo, Petitioners Memorandum, pp. 13-14.
21
Id. at 11-12.
22
Rollo, p. 75; Private respondents Memorandum, pp. 8-9.
23
Id. at 75-77; Id. at 12-16.
24
Flores v. Uy, G.R. No. 121492, October 26, 2001; Lim v. People, G.R. No. 143231, October 26, 2001.
25
Section 1, Rule 45, Revised Rules of Civil Procedure.
26
Baas, Jr. v. Court of Appeals, 325 SCRA 259 (2000); Philippine National Construction Corporation v.
Mars Construction Enterprises, Inc., 325 SCRA 624 (2000).
27
Tanguilig v. Court of Appeals, 266 SCRA 78, 83-84 (1997), citing Kasilag v. Rodriguez, 69 Phil. 217; 17A
Am Jur 2d 27 Contracts, 5, citing Wallace Bank & Trust Co. v. First National Bank, 40 Idaho 712, 237 P
284, 50 ALR 316.
28
Tanguilig v. Court of Appeals, supra, p. 84.
29
Rollo, pp. 40-41, 60.
30
Exhibit "B," Folder of Exhibits, p. 3, emphasis supplied.
31
Rollo, pp. 43-47, citing the Decision of the Regional Trial Court, pp. 5-8.
32
Castilex Industrial Corporation v. Vasquez, Jr., 321 SCRA 393 (1999).
33
18B Am Jur 2d, p. 947, Corporations 2125, citing Pittsburgh, C.C. & S.L.R. Co. v. Sullivan, 40 NE 138.
34
See note 31.
35
Exhibit "B," Folder of Exhibits, p. 3.



Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 146364 June 3, 2004
COLITO T. PAJUYO, petitioner,
vs.
COURT OF APPEALS and EDDIE GUEVARRA, respondents.
D E C I S I O N
CARPIO, J.:
The Case
Before us is a petition for review
1
of the 21 June 2000 Decision
2
and 14 December 2000 Resolution of
the Court of Appeals in CA-G.R. SP No. 43129. The Court of Appeals set aside the 11 November 1996
decision
3
of the Regional Trial Court of Quezon City, Branch 81,
4
affirming the 15 December 1995
decision
5
of the Metropolitan Trial Court of Quezon City, Branch 31.
6

The Antecedents
In June 1979, petitioner Colito T. Pajuyo ("Pajuyo") paid P400 to a certain Pedro Perez for the rights over
a 250-square meter lot in Barrio Payatas, Quezon City. Pajuyo then constructed a house made of light
materials on the lot. Pajuyo and his family lived in the house from 1979 to 7 December 1985.
On 8 December 1985, Pajuyo and private respondent Eddie Guevarra ("Guevarra") executed
aKasunduan or agreement. Pajuyo, as owner of the house, allowed Guevarra to live in the house for free
provided Guevarra would maintain the cleanliness and orderliness of the house. Guevarra promised that
he would voluntarily vacate the premises on Pajuyos demand.
In September 1994, Pajuyo informed Guevarra of his need of the house and demanded that Guevarra
vacate the house. Guevarra refused.
Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of Quezon City,
Branch 31 ("MTC").
In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession over the lot where
the house stands because the lot is within the 150 hectares set aside by Proclamation No. 137 for
socialized housing. Guevarra pointed out that from December 1985 to September 1994, Pajuyo did not
show up or communicate with him. Guevarra insisted that neither he nor Pajuyo has valid title to the lot.
On 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The dispositive portion of the
MTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and against defendant,
ordering the latter to:
A) vacate the house and lot occupied by the defendant or any other person or persons claiming any right
under him;
B) pay unto plaintiff the sum of THREE HUNDRED PESOS (P300.00) monthly as reasonable compensation
for the use of the premises starting from the last demand;
C) pay plaintiff the sum of P3,000.00 as and by way of attorneys fees; and
D) pay the cost of suit.
SO ORDERED.
7

Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch 81 ("RTC").
On 11 November 1996, the RTC affirmed the MTC decision. The dispositive portion of the RTC decision
reads:
WHEREFORE, premises considered, the Court finds no reversible error in the decision appealed from,
being in accord with the law and evidence presented, and the same is hereby affirmed en toto.
SO ORDERED.
8

Guevarra received the RTC decision on 29 November 1996. Guevarra had only until 14 December 1996
to file his appeal with the Court of Appeals. Instead of filing his appeal with the Court of Appeals,
Guevarra filed with the Supreme Court a "Motion for Extension of Time to File Appeal by Certiorari
Based on Rule 42" ("motion for extension"). Guevarra theorized that his appeal raised pure questions of
law. The Receiving Clerk of the Supreme Court received the motion for extension on 13 December 1996
or one day before the right to appeal expired.
On 3 January 1997, Guevarra filed his petition for review with the Supreme Court.
On 8 January 1997, the First Division of the Supreme Court issued a Resolution
9
referring the motion for
extension to the Court of Appeals which has concurrent jurisdiction over the case. The case presented
no special and important matter for the Supreme Court to take cognizance of at the first instance.
On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a Resolution
10
granting the
motion for extension conditioned on the timeliness of the filing of the motion.
On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on Guevaras petition for
review. On 11 April 1997, Pajuyo filed his Comment.
On 21 June 2000, the Court of Appeals issued its decision reversing the RTC decision. The dispositive
portion of the decision reads:
WHEREFORE, premises considered, the assailed Decision of the court a quo in Civil Case No. Q-96-26943
is REVERSED and SET ASIDE; and it is hereby declared that the ejectment case filed against defendant-
appellant is without factual and legal basis.
SO ORDERED.
11

Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out that the Court of Appeals
should have dismissed outright Guevarras petition for review because it was filed out of time.
Moreover, it was Guevarras counsel and not Guevarra who signed the certification against forum-
shopping.
On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyos motion for
reconsideration. The dispositive portion of the resolution reads:
WHEREFORE, for lack of merit, the motion for reconsideration is hereby DENIED. No costs.
SO ORDERED.
12

The Ruling of the MTC
The MTC ruled that the subject of the agreement between Pajuyo and Guevarra is the house and not the
lot. Pajuyo is the owner of the house, and he allowed Guevarra to use the house only by tolerance. Thus,
Guevarras refusal to vacate the house on Pajuyos demand made Guevarras continued possession of
the house illegal.
The Ruling of the RTC
The RTC upheld the Kasunduan, which established the landlord and tenant relationship between Pajuyo
and Guevarra. The terms of the Kasunduan bound Guevarra to return possession of the house on
demand.
The RTC rejected Guevarras claim of a better right under Proclamation No. 137, the Revised National
Government Center Housing Project Code of Policies and other pertinent laws. In an ejectment suit, the
RTC has no power to decide Guevarras rights under these laws. The RTC declared that in an ejectment
case, the only issue for resolution is material or physical possession, not ownership.
The Ruling of the Court of Appeals
The Court of Appeals declared that Pajuyo and Guevarra are squatters. Pajuyo and Guevarra illegally
occupied the contested lot which the government owned.
Perez, the person from whom Pajuyo acquired his rights, was also a squatter. Perez had no right or title
over the lot because it is public land. The assignment of rights between Perez and Pajuyo, and
theKasunduan between Pajuyo and Guevarra, did not have any legal effect. Pajuyo and Guevarra are
in pari delicto or in equal fault. The court will leave them where they are.
The Court of Appeals reversed the MTC and RTC rulings, which held that the Kasunduan between Pajuyo
and Guevarra created a legal tie akin to that of a landlord and tenant relationship. The Court of Appeals
ruled that the Kasunduan is not a lease contract but a commodatum because the agreement is not for a
price certain.
Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the appellate court held
that Guevarra has a better right over the property under Proclamation No. 137. President Corazon C.
Aquino ("President Aquino") issued Proclamation No. 137 on 7 September 1987. At that time, Guevarra
was in physical possession of the property. Under Article VI of the Code of Policies Beneficiary Selection
and Disposition of Homelots and Structures in the National Housing Project ("the Code"), the actual
occupant or caretaker of the lot shall have first priority as beneficiary of the project. The Court of
Appeals concluded that Guevarra is first in the hierarchy of priority.
In denying Pajuyos motion for reconsideration, the appellate court debunked Pajuyos claim that
Guevarra filed his motion for extension beyond the period to appeal.
The Court of Appeals pointed out that Guevarras motion for extension filed before the Supreme Court
was stamped "13 December 1996 at 4:09 PM" by the Supreme Courts Receiving Clerk. The Court of
Appeals concluded that the motion for extension bore a date, contrary to Pajuyos claim that the motion
for extension was undated. Guevarra filed the motion for extension on time on 13 December 1996 since
he filed the motion one day before the expiration of the reglementary period on 14 December 1996.
Thus, the motion for extension properly complied with the condition imposed by the Court of Appeals in
its 28 January 1997 Resolution. The Court of Appeals explained that the thirty-day extension to file the
petition for review was deemed granted because of such compliance.
The Court of Appeals rejected Pajuyos argument that the appellate court should have dismissed the
petition for review because it was Guevarras counsel and not Guevarra who signed the certification
against forum-shopping. The Court of Appeals pointed out that Pajuyo did not raise this issue in his
Comment. The Court of Appeals held that Pajuyo could not now seek the dismissal of the case after he
had extensively argued on the merits of the case. This technicality, the appellate court opined, was
clearly an afterthought.
The Issues
Pajuyo raises the following issues for resolution:
WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY AND DISCRETION TANTAMOUNT
TO LACK OF JURISDICTION:
1) in GRANTING, instead of denying, Private Respondents Motion for an Extension of thirty days to file
petition for review at the time when there was no more period to extend as the decision of the Regional
Trial Court had already become final and executory.
2) in giving due course, instead of dismissing, private respondents Petition for Review even though the
certification against forum-shopping was signed only by counsel instead of by petitioner himself.
3) in ruling that the Kasunduan voluntarily entered into by the parties was in fact acommodatum,
instead of a Contract of Lease as found by the Metropolitan Trial Court and in holding that "the
ejectment case filed against defendant-appellant is without legal and factual basis".
4) in reversing and setting aside the Decision of the Regional Trial Court in Civil Case No. Q-96-26943 and
in holding that the parties are in pari delicto being both squatters, therefore, illegal occupants of the
contested parcel of land.
5) in deciding the unlawful detainer case based on the so-called Code of Policies of the National
Government Center Housing Project instead of deciding the same under theKasunduan voluntarily
executed by the parties, the terms and conditions of which are the laws between themselves.
13

The Ruling of the Court
The procedural issues Pajuyo is raising are baseless. However, we find merit in the substantive issues
Pajuyo is submitting for resolution.
Procedural Issues
Pajuyo insists that the Court of Appeals should have dismissed outright Guevarras petition for review
because the RTC decision had already become final and executory when the appellate court acted on
Guevarras motion for extension to file the petition. Pajuyo points out that Guevarra had only one day
before the expiry of his period to appeal the RTC decision. Instead of filing the petition for review with
the Court of Appeals, Guevarra filed with this Court an undated motion for extension of 30 days to file a
petition for review. This Court merely referred the motion to the Court of Appeals. Pajuyo believes that
the filing of the motion for extension with this Court did not toll the running of the period to perfect the
appeal. Hence, when the Court of Appeals received the motion, the period to appeal had already
expired.
We are not persuaded.
Decisions of the regional trial courts in the exercise of their appellate jurisdiction are appealable to the
Court of Appeals by petition for review in cases involving questions of fact or mixed questions of fact
and law.
14
Decisions of the regional trial courts involving pure questions of law are appealable directly to
this Court by petition for review.
15
These modes of appeal are now embodied in Section 2, Rule 41 of the
1997 Rules of Civil Procedure.
Guevarra believed that his appeal of the RTC decision involved only questions of law. Guevarra thus filed
his motion for extension to file petition for review before this Court on 14 December 1996. On 3 January
1997, Guevarra then filed his petition for review with this Court. A perusal of Guevarras petition for
review gives the impression that the issues he raised were pure questions of law. There is a question of
law when the doubt or difference is on what the law is on a certain state of facts.
16
There is a question of
fact when the doubt or difference is on the truth or falsity of the facts alleged.
17

In his petition for review before this Court, Guevarra no longer disputed the facts. Guevarras petition
for review raised these questions: (1) Do ejectment cases pertain only to possession of a structure, and
not the lot on which the structure stands? (2) Does a suit by a squatter against a fellow squatter
constitute a valid case for ejectment? (3) Should a Presidential Proclamation governing the lot on which
a squatters structure stands be considered in an ejectment suit filed by the owner of the structure?
These questions call for the evaluation of the rights of the parties under the law on ejectment and the
Presidential Proclamation. At first glance, the questions Guevarra raised appeared purely legal.
However, some factual questions still have to be resolved because they have a bearing on the legal
questions raised in the petition for review. These factual matters refer to the metes and bounds of the
disputed property and the application of Guevarra as beneficiary of Proclamation No. 137.
The Court of Appeals has the power to grant an extension of time to file a petition for review.
InLacsamana v. Second Special Cases Division of the Intermediate Appellate Court,
18
we declared that
the Court of Appeals could grant extension of time in appeals by petition for review. In Liboro v. Court of
Appeals,
19
we clarified that the prohibition against granting an extension of time applies only in a case
where ordinary appeal is perfected by a mere notice of appeal. The prohibition does not apply in a
petition for review where the pleading needs verification. A petition for review, unlike an ordinary
appeal, requires preparation and research to present a persuasive position.
20
The drafting of the petition
for review entails more time and effort than filing a notice of appeal.
21
Hence, the Court of Appeals may
allow an extension of time to file a petition for review.
In the more recent case of Commissioner of Internal Revenue v. Court of Appeals,
22
we held
thatLiboros clarification of Lacsamana is consistent with the Revised Internal Rules of the Court of
Appeals and Supreme Court Circular No. 1-91. They all allow an extension of time for filing petitions for
review with the Court of Appeals. The extension, however, should be limited to only fifteen days save in
exceptionally meritorious cases where the Court of Appeals may grant a longer period.
A judgment becomes "final and executory" by operation of law. Finality of judgment becomes a fact on
the lapse of the reglementary period to appeal if no appeal is perfected.
23
The RTC decision could not
have gained finality because the Court of Appeals granted the 30-day extension to Guevarra.
The Court of Appeals did not commit grave abuse of discretion when it approved Guevarras motion for
extension. The Court of Appeals gave due course to the motion for extension because it complied with
the condition set by the appellate court in its resolution dated 28 January 1997. The resolution stated
that the Court of Appeals would only give due course to the motion for extension if filed on time. The
motion for extension met this condition.
The material dates to consider in determining the timeliness of the filing of the motion for extension are
(1) the date of receipt of the judgment or final order or resolution subject of the petition, and (2) the
date of filing of the motion for extension.
24
It is the date of the filing of the motion or pleading, and not
the date of execution, that determines the timeliness of the filing of that motion or pleading. Thus, even
if the motion for extension bears no date, the date of filing stamped on it is the reckoning point for
determining the timeliness of its filing.
Guevarra had until 14 December 1996 to file an appeal from the RTC decision. Guevarra filed his motion
for extension before this Court on 13 December 1996, the date stamped by this Courts Receiving Clerk
on the motion for extension. Clearly, Guevarra filed the motion for extension exactly one day before the
lapse of the reglementary period to appeal.
Assuming that the Court of Appeals should have dismissed Guevarras appeal on technical grounds,
Pajuyo did not ask the appellate court to deny the motion for extension and dismiss the petition for
review at the earliest opportunity. Instead, Pajuyo vigorously discussed the merits of the case. It was
only when the Court of Appeals ruled in Guevarras favor that Pajuyo raised the procedural issues
against Guevarras petition for review.
A party who, after voluntarily submitting a dispute for resolution, receives an adverse decision on the
merits, is estopped from attacking the jurisdiction of the court.
25
Estoppel sets in not because the
judgment of the court is a valid and conclusive adjudication, but because the practice of attacking the
courts jurisdiction after voluntarily submitting to it is against public policy.
26

In his Comment before the Court of Appeals, Pajuyo also failed to discuss Guevarras failure to sign the
certification against forum shopping. Instead, Pajuyo harped on Guevarras counsel signing the
verification, claiming that the counsels verification is insufficient since it is based only on "mere
information."
A partys failure to sign the certification against forum shopping is different from the partys failure to
sign personally the verification. The certificate of non-forum shopping must be signed by the party, and
not by counsel.
27
The certification of counsel renders the petition defective.
28

On the other hand, the requirement on verification of a pleading is a formal and not a jurisdictional
requisite.
29
It is intended simply to secure an assurance that what are alleged in the pleading are true
and correct and not the product of the imagination or a matter of speculation, and that the pleading is
filed in good faith.
30
The party need not sign the verification. A partys representative, lawyer or any
person who personally knows the truth of the facts alleged in the pleading may sign the verification.
31

We agree with the Court of Appeals that the issue on the certificate against forum shopping was merely
an afterthought. Pajuyo did not call the Court of Appeals attention to this defect at the early stage of
the proceedings. Pajuyo raised this procedural issue too late in the proceedings.
Absence of Title over the Disputed Property will not Divest the Courts of Jurisdiction to Resolve the
Issue of Possession
Settled is the rule that the defendants claim of ownership of the disputed property will not divest the
inferior court of its jurisdiction over the ejectment case.
32
Even if the pleadings raise the issue of
ownership, the court may pass on such issue to determine only the question of possession, especially if
the ownership is inseparably linked with the possession.
33
The adjudication on the issue of ownership is
only provisional and will not bar an action between the same parties involving title to the land.
34
This
doctrine is a necessary consequence of the nature of the two summary actions of ejectment, forcible
entry and unlawful detainer, where the only issue for adjudication is the physical or material possession
over the real property.
35

In this case, what Guevarra raised before the courts was that he and Pajuyo are not the owners of the
contested property and that they are mere squatters. Will the defense that the parties to the ejectment
case are not the owners of the disputed lot allow the courts to renounce their jurisdiction over the case?
The Court of Appeals believed so and held that it would just leave the parties where they are since they
are in pari delicto.
We do not agree with the Court of Appeals.
Ownership or the right to possess arising from ownership is not at issue in an action for recovery of
possession. The parties cannot present evidence to prove ownership or right to legal possession except
to prove the nature of the possession when necessary to resolve the issue of physical possession.
36
The
same is true when the defendant asserts the absence of title over the property. The absence of title over
the contested lot is not a ground for the courts to withhold relief from the parties in an ejectment case.
The only question that the courts must resolve in ejectment proceedings is - who is entitled to the
physical possession of the premises, that is, to the possession de facto and not to the possession de
jure.
37
It does not even matter if a partys title to the property is questionable,
38
or when both parties
intruded into public land and their applications to own the land have yet to be approved by the proper
government agency.
39
Regardless of the actual condition of the title to the property, the party in
peaceable quiet possession shall not be thrown out by a strong hand, violence or terror.
40
Neither is the
unlawful withholding of property allowed. Courts will always uphold respect for prior possession.
Thus, a party who can prove prior possession can recover such possession even against the owner
himself.
41
Whatever may be the character of his possession, if he has in his favor prior possession in
time, he has the security that entitles him to remain on the property until a person with a better right
lawfully ejects him.
42
To repeat, the only issue that the court has to settle in an ejectment suit is the
right to physical possession.
In Pitargue v. Sorilla,
43
the government owned the land in dispute. The government did not authorize
either the plaintiff or the defendant in the case of forcible entry case to occupy the land. The plaintiff
had prior possession and had already introduced improvements on the public land. The plaintiff had a
pending application for the land with the Bureau of Lands when the defendant ousted him from
possession. The plaintiff filed the action of forcible entry against the defendant. The government was
not a party in the case of forcible entry.
The defendant questioned the jurisdiction of the courts to settle the issue of possession because while
the application of the plaintiff was still pending, title remained with the government, and the Bureau of
Public Lands had jurisdiction over the case. We disagreed with the defendant. We ruled that courts have
jurisdiction to entertain ejectment suits even before the resolution of the application. The plaintiff, by
priority of his application and of his entry, acquired prior physical possession over the public land
applied for as against other private claimants. That prior physical possession enjoys legal protection
against other private claimants because only a court can take away such physical possession in an
ejectment case.
While the Court did not brand the plaintiff and the defendant in Pitargue
44
as squatters, strictly
speaking, their entry into the disputed land was illegal. Both the plaintiff and defendant entered the
public land without the owners permission. Title to the land remained with the government because it
had not awarded to anyone ownership of the contested public land. Both the plaintiff and the defendant
were in effect squatting on government property. Yet, we upheld the courts jurisdiction to resolve the
issue of possession even if the plaintiff and the defendant in the ejectment case did not have any title
over the contested land.
Courts must not abdicate their jurisdiction to resolve the issue of physical possession because of the
public need to preserve the basic policy behind the summary actions of forcible entry and unlawful
detainer. The underlying philosophy behind ejectment suits is to prevent breach of the peace and
criminal disorder and to compel the party out of possession to respect and resort to the law alone to
obtain what he claims is his.
45
The party deprived of possession must not take the law into his own
hands.
46
Ejectment proceedings are summary in nature so the authorities can settle speedily actions to
recover possession because of the overriding need to quell social disturbances.
47

We further explained in Pitargue the greater interest that is at stake in actions for recovery of
possession. We made the following pronouncements in Pitargue:
The question that is before this Court is: Are courts without jurisdiction to take cognizance of possessory
actions involving these public lands before final award is made by the Lands Department, and before
title is given any of the conflicting claimants? It is one of utmost importance, as there are public lands
everywhere and there are thousands of settlers, especially in newly opened regions. It also involves a
matter of policy, as it requires the determination of the respective authorities and functions of two
coordinate branches of the Government in connection with public land conflicts.
Our problem is made simple by the fact that under the Civil Code, either in the old, which was in force in
this country before the American occupation, or in the new, we have a possessory action, the aim and
purpose of which is the recovery of the physical possession of real property, irrespective of the question
as to who has the title thereto. Under the Spanish Civil Code we had the accion interdictal, a summary
proceeding which could be brought within one year from dispossession (Roman Catholic Bishop of Cebu
vs. Mangaron, 6 Phil. 286, 291); and as early as October 1, 1901, upon the enactment of the Code of Civil
Procedure (Act No. 190 of the Philippine Commission) we implanted the common law action of forcible
entry (section 80 of Act No. 190), the object of which has been stated by this Court to be "to prevent
breaches of the peace and criminal disorder which would ensue from the withdrawal of the remedy,
and the reasonable hope such withdrawal would create that some advantage must accrue to those
persons who, believing themselves entitled to the possession of property, resort to force to gain
possession rather than to some appropriate action in the court to assert their claims." (Supia and
Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) So before the enactment of the first Public Land Act
(Act No. 926) the action of forcible entry was already available in the courts of the country. So the
question to be resolved is, Did the Legislature intend, when it vested the power and authority to
alienate and dispose of the public lands in the Lands Department, to exclude the courts from
entertaining the possessory action of forcible entry between rival claimants or occupants of any land
before award thereof to any of the parties? Did Congress intend that the lands applied for, or all public
lands for that matter, be removed from the jurisdiction of the judicial Branch of the Government, so that
any troubles arising therefrom, or any breaches of the peace or disorders caused by rival claimants,
could be inquired into only by the Lands Department to the exclusion of the courts? The answer to this
question seems to us evident. The Lands Department does not have the means to police public lands;
neither does it have the means to prevent disorders arising therefrom, or contain breaches of the peace
among settlers; or to pass promptly upon conflicts of possession. Then its power is clearly limited to
disposition and alienation, and while it may decide conflicts of possession in order to make proper
award, the settlement of conflicts of possession which is recognized in the court herein has another
ultimate purpose, i.e., the protection of actual possessors and occupants with a view to the prevention
of breaches of the peace. The power to dispose and alienate could not have been intended to include
the power to prevent or settle disorders or breaches of the peace among rival settlers or claimants
prior to the final award. As to this, therefore, the corresponding branches of the Government must
continue to exercise power and jurisdiction within the limits of their respective functions. The vesting of
the Lands Department with authority to administer, dispose, and alienate public lands, therefore,
must not be understood as depriving the other branches of the Government of the exercise of the
respective functions or powers thereon, such as the authority to stop disorders and quell breaches of
the peace by the police, the authority on the part of the courts to take jurisdiction over possessory
actions arising therefrom not involving, directly or indirectly, alienation and disposition.
Our attention has been called to a principle enunciated in American courts to the effect that courts have
no jurisdiction to determine the rights of claimants to public lands, and that until the disposition of the
land has passed from the control of the Federal Government, the courts will not interfere with the
administration of matters concerning the same. (50 C. J. 1093-1094.) We have no quarrel with this
principle. The determination of the respective rights of rival claimants to public lands is different from
the determination of who has the actual physical possession or occupation with a view to protecting the
same and preventing disorder and breaches of the peace. A judgment of the court ordering restitution
of the possession of a parcel of land to the actual occupant, who has been deprived thereof by another
through the use of force or in any other illegal manner, can never be "prejudicial interference" with the
disposition or alienation of public lands. On the other hand, if courts were deprived of jurisdiction of
cases involving conflicts of possession, that threat of judicial action against breaches of the peace
committed on public lands would be eliminated, and a state of lawlessness would probably be
produced between applicants, occupants or squatters, where force or might, not right or justice, would
rule.
It must be borne in mind that the action that would be used to solve conflicts of possession between
rivals or conflicting applicants or claimants would be no other than that of forcible entry. This action,
both in England and the United States and in our jurisdiction, is a summary and expeditious remedy
whereby one in peaceful and quiet possession may recover the possession of which he has been
deprived by a stronger hand, by violence or terror; its ultimate object being to prevent breach of the
peace and criminal disorder. (Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) The basis of
the remedy is mere possession as a fact, of physical possession, not a legal possession. (Mediran vs.
Villanueva, 37 Phil. 752.) The title or right to possession is never in issue in an action of forcible entry; as
a matter of fact, evidence thereof is expressly banned, except to prove the nature of the possession.
(Second 4, Rule 72, Rules of Court.) With this nature of the action in mind, by no stretch of the
imagination can conclusion be arrived at that the use of the remedy in the courts of justice would
constitute an interference with the alienation, disposition, and control of public lands. To limit ourselves
to the case at bar can it be pretended at all that its result would in any way interfere with the manner of
the alienation or disposition of the land contested? On the contrary, it would facilitate adjudication, for
the question of priority of possession having been decided in a final manner by the courts, said question
need no longer waste the time of the land officers making the adjudication or award. (Emphasis ours)
The Principle of Pari Delicto is not Applicable to Ejectment Cases
The Court of Appeals erroneously applied the principle of pari delicto to this case.
Articles 1411 and 1412 of the Civil Code
48
embody the principle of pari delicto. We explained the
principle of pari delicto in these words:
The rule of pari delicto is expressed in the maxims ex dolo malo non eritur actio and in pari delicto
potior est conditio defedentis. The law will not aid either party to an illegal agreement. It leaves the
parties where it finds them.
49

The application of the pari delicto principle is not absolute, as there are exceptions to its application.
One of these exceptions is where the application of the pari delicto rule would violate well-established
public policy.
50

In Drilon v. Gaurana,
51
we reiterated the basic policy behind the summary actions of forcible entry and
unlawful detainer. We held that:
It must be stated that the purpose of an action of forcible entry and detainer is that, regardless of the
actual condition of the title to the property, the party in peaceable quiet possession shall not be turned
out by strong hand, violence or terror. In affording this remedy of restitution the object of the statute is
to prevent breaches of the peace and criminal disorder which would ensue from the withdrawal of the
remedy, and the reasonable hope such withdrawal would create that some advantage must accrue to
those persons who, believing themselves entitled to the possession of property, resort to force to gain
possession rather than to some appropriate action in the courts to assert their claims. This is the
philosophy at the foundation of all these actions of forcible entry and detainer which are designed to
compel the party out of possession to respect and resort to the law alone to obtain what he claims is
his.
52

Clearly, the application of the principle of pari delicto to a case of ejectment between squatters is
fraught with danger. To shut out relief to squatters on the ground of pari delicto would openly invite
mayhem and lawlessness. A squatter would oust another squatter from possession of the lot that the
latter had illegally occupied, emboldened by the knowledge that the courts would leave them where
they are. Nothing would then stand in the way of the ousted squatter from re-claiming his prior
possession at all cost.
Petty warfare over possession of properties is precisely what ejectment cases or actions for recovery of
possession seek to prevent.
53
Even the owner who has title over the disputed property cannot take the
law into his own hands to regain possession of his property. The owner must go to court.
Courts must resolve the issue of possession even if the parties to the ejectment suit are squatters. The
determination of priority and superiority of possession is a serious and urgent matter that cannot be left
to the squatters to decide. To do so would make squatters receive better treatment under the law. The
law restrains property owners from taking the law into their own hands. However, the principle of pari
delicto as applied by the Court of Appeals would give squatters free rein to dispossess fellow squatters
or violently retake possession of properties usurped from them. Courts should not leave squatters to
their own devices in cases involving recovery of possession.
Possession is the only Issue for Resolution in an Ejectment Case
The case for review before the Court of Appeals was a simple case of ejectment. The Court of Appeals
refused to rule on the issue of physical possession. Nevertheless, the appellate court held that the
pivotal issue in this case is who between Pajuyo and Guevarra has the "priority right as beneficiary of
the contested land under Proclamation No. 137."
54
According to the Court of Appeals, Guevarra enjoys
preferential right under Proclamation No. 137 because Article VI of the Code declares that the actual
occupant or caretaker is the one qualified to apply for socialized housing.
The ruling of the Court of Appeals has no factual and legal basis.
First. Guevarra did not present evidence to show that the contested lot is part of a relocation site under
Proclamation No. 137. Proclamation No. 137 laid down the metes and bounds of the land that it
declared open for disposition to bona fide residents.
The records do not show that the contested lot is within the land specified by Proclamation No. 137.
Guevarra had the burden to prove that the disputed lot is within the coverage of Proclamation No. 137.
He failed to do so.
Second. The Court of Appeals should not have given credence to Guevarras unsubstantiated claim that
he is the beneficiary of Proclamation No. 137. Guevarra merely alleged that in the survey the project
administrator conducted, he and not Pajuyo appeared as the actual occupant of the lot.
There is no proof that Guevarra actually availed of the benefits of Proclamation No. 137. Pajuyo allowed
Guevarra to occupy the disputed property in 1985. President Aquino signed Proclamation No. 137 into
law on 11 March 1986. Pajuyo made his earliest demand for Guevarra to vacate the property in
September 1994.
During the time that Guevarra temporarily held the property up to the time that Proclamation No. 137
allegedly segregated the disputed lot, Guevarra never applied as beneficiary of Proclamation No. 137.
Even when Guevarra already knew that Pajuyo was reclaiming possession of the property, Guevarra did
not take any step to comply with the requirements of Proclamation No. 137.
Third. Even assuming that the disputed lot is within the coverage of Proclamation No. 137 and Guevarra
has a pending application over the lot, courts should still assume jurisdiction and resolve the issue of
possession. However, the jurisdiction of the courts would be limited to the issue of physical possession
only.
In Pitargue,
55
we ruled that courts have jurisdiction over possessory actions involving public land to
determine the issue of physical possession. The determination of the respective rights of rival claimants
to public land is, however, distinct from the determination of who has the actual physical possession or
who has a better right of physical possession.
56
The administrative disposition and alienation of public
lands should be threshed out in the proper government agency.
57

The Court of Appeals determination of Pajuyo and Guevarras rights under Proclamation No. 137 was
premature. Pajuyo and Guevarra were at most merely potential beneficiaries of the law. Courts should
not preempt the decision of the administrative agency mandated by law to determine the qualifications
of applicants for the acquisition of public lands. Instead, courts should expeditiously resolve the issue of
physical possession in ejectment cases to prevent disorder and breaches of peace.
58

Pajuyo is Entitled to Physical Possession of the Disputed Property
Guevarra does not dispute Pajuyos prior possession of the lot and ownership of the house built on it.
Guevarra expressly admitted the existence and due execution of the Kasunduan. The Kasunduan reads:
Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon City, ay nagbibigay pahintulot
kay G. Eddie Guevarra, na pansamantalang manirahan sa nasabing bahay at lote ng "walang bayad."
Kaugnay nito, kailangang panatilihin nila ang kalinisan at kaayusan ng bahay at lote.
Sa sandaling kailangan na namin ang bahay at lote, silay kusang aalis ng walang reklamo.
Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and lot free of rent, but
Guevarra was under obligation to maintain the premises in good condition. Guevarra promised to
vacate the premises on Pajuyos demand but Guevarra broke his promise and refused to heed Pajuyos
demand to vacate.
These facts make out a case for unlawful detainer. Unlawful detainer involves the withholding by a
person from another of the possession of real property to which the latter is entitled after the expiration
or termination of the formers right to hold possession under a contract, express or implied.
59

Where the plaintiff allows the defendant to use his property by tolerance without any contract, the
defendant is necessarily bound by an implied promise that he will vacate on demand, failing which, an
action for unlawful detainer will lie.
60
The defendants refusal to comply with the demand makes his
continued possession of the property unlawful.
61
The status of the defendant in such a case is similar to
that of a lessee or tenant whose term of lease has expired but whose occupancy continues by tolerance
of the owner.
62

This principle should apply with greater force in cases where a contract embodies the permission or
tolerance to use the property. The Kasunduan expressly articulated Pajuyos forbearance. Pajuyo did not
require Guevarra to pay any rent but only to maintain the house and lot in good condition. Guevarra
expressly vowed in the Kasunduan that he would vacate the property on demand. Guevarras refusal to
comply with Pajuyos demand to vacate made Guevarras continued possession of the property
unlawful.
We do not subscribe to the Court of Appeals theory that the Kasunduan is one of commodatum.
In a contract of commodatum, one of the parties delivers to another something not consumable so that
the latter may use the same for a certain time and return it.
63
An essential feature of commodatum is
that it is gratuitous. Another feature of commodatum is that the use of the thing belonging to another is
for a certain period.
64
Thus, the bailor cannot demand the return of the thing loaned until after
expiration of the period stipulated, or after accomplishment of the use for which the commodatum is
constituted.
65
If the bailor should have urgent need of the thing, he may demand its return for
temporary use.
66
If the use of the thing is merely tolerated by the bailor, he can demand the return of
the thing at will, in which case the contractual relation is called a precarium.
67
Under the Civil
Code, precarium is a kind of commodatum.
68

The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not essentially
gratuitous. While the Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the
property in good condition. The imposition of this obligation makes the Kasunduan a contract different
from a commodatum. The effects of the Kasunduan are also different from that of a commodatum. Case
law on ejectment has treated relationship based on tolerance as one that is akin to a landlord-tenant
relationship where the withdrawal of permission would result in the termination of the lease.
69
The
tenants withholding of the property would then be unlawful. This is settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum, Guevarra as
bailee would still have the duty to turn over possession of the property to Pajuyo, the bailor. The
obligation to deliver or to return the thing received attaches to contracts for safekeeping, or contracts of
commission, administration and commodatum.
70
These contracts certainly involve the obligation to
deliver or return the thing received.
71

Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also a squatter.
Squatters, Guevarra pointed out, cannot enter into a contract involving the land they illegally occupy.
Guevarra insists that the contract is void.
Guevarra should know that there must be honor even between squatters. Guevarra freely entered into
theKasunduan. Guevarra cannot now impugn the Kasunduan after he had benefited from it.
TheKasunduan binds Guevarra.
The Kasunduan is not void for purposes of determining who between Pajuyo and Guevarra has a right to
physical possession of the contested property. The Kasunduan is the undeniable evidence of Guevarras
recognition of Pajuyos better right of physical possession. Guevarra is clearly a possessor in bad faith.
The absence of a contract would not yield a different result, as there would still be an implied promise
to vacate.
Guevarra contends that there is "a pernicious evil that is sought to be avoided, and that is allowing an
absentee squatter who (sic) makes (sic) a profit out of his illegal act."
72
Guevarra bases his argument on
the preferential right given to the actual occupant or caretaker under Proclamation No. 137 on
socialized housing.
We are not convinced.
Pajuyo did not profit from his arrangement with Guevarra because Guevarra stayed in the property
without paying any rent. There is also no proof that Pajuyo is a professional squatter who rents out
usurped properties to other squatters. Moreover, it is for the proper government agency to decide who
between Pajuyo and Guevarra qualifies for socialized housing. The only issue that we are addressing is
physical possession.
Prior possession is not always a condition sine qua non in ejectment.
73
This is one of the distinctions
between forcible entry and unlawful detainer.
74
In forcible entry, the plaintiff is deprived of physical
possession of his land or building by means of force, intimidation, threat, strategy or stealth. Thus, he
must allege and prove prior possession.
75
But in unlawful detainer, the defendant unlawfully withholds
possession after the expiration or termination of his right to possess under any contract, express or
implied. In such a case, prior physical possession is not required.
76

Pajuyos withdrawal of his permission to Guevarra terminated the Kasunduan. Guevarras transient right
to possess the property ended as well. Moreover, it was Pajuyo who was in actual possession of the
property because Guevarra had to seek Pajuyos permission to temporarily hold the property and
Guevarra had to follow the conditions set by Pajuyo in the Kasunduan. Control over the property still
rested with Pajuyo and this is evidence of actual possession.
Pajuyos absence did not affect his actual possession of the disputed property. Possession in the eyes of
the law does not mean that a man has to have his feet on every square meter of the ground before he is
deemed in possession.
77
One may acquire possession not only by physical occupation, but also by the
fact that a thing is subject to the action of ones will.
78
Actual or physical occupation is not always
necessary.
79

Ruling on Possession Does not Bind Title to the Land in Dispute
We are aware of our pronouncement in cases where we declared that "squatters and intruders who
clandestinely enter into titled government property cannot, by such act, acquire any legal right to said
property."
80
We made this declaration because the person who had title or who had the right to legal
possession over the disputed property was a party in the ejectment suit and that party instituted the
case against squatters or usurpers.
In this case, the owner of the land, which is the government, is not a party to the ejectment case. This
case is between squatters. Had the government participated in this case, the courts could have evicted
the contending squatters, Pajuyo and Guevarra.
Since the party that has title or a better right over the property is not impleaded in this case, we cannot
evict on our own the parties. Such a ruling would discourage squatters from seeking the aid of the courts
in settling the issue of physical possession. Stripping both the plaintiff and the defendant of possession
just because they are squatters would have the same dangerous implications as the application of the
principle of pari delicto. Squatters would then rather settle the issue of physical possession among
themselves than seek relief from the courts if the plaintiff and defendant in the ejectment case would
both stand to lose possession of the disputed property. This would subvert the policy underlying actions
for recovery of possession.
Since Pajuyo has in his favor priority in time in holding the property, he is entitled to remain on the
property until a person who has title or a better right lawfully ejects him. Guevarra is certainly not that
person. The ruling in this case, however, does not preclude Pajuyo and Guevarra from introducing
evidence and presenting arguments before the proper administrative agency to establish any right to
which they may be entitled under the law.
81

In no way should our ruling in this case be interpreted to condone squatting. The ruling on the issue of
physical possession does not affect title to the property nor constitute a binding and conclusive
adjudication on the merits on the issue of ownership.
82
The owner can still go to court to recover
lawfully the property from the person who holds the property without legal title. Our ruling here does
not diminish the power of government agencies, including local governments, to condemn, abate,
remove or demolish illegal or unauthorized structures in accordance with existing laws.
Attorneys Fees and Rentals
The MTC and RTC failed to justify the award of P3,000 attorneys fees to Pajuyo. Attorneys fees as part
of damages are awarded only in the instances enumerated in Article 2208 of the Civil Code.
83
Thus, the
award of attorneys fees is the exception rather than the rule.
84
Attorneys fees are not awarded every
time a party prevails in a suit because of the policy that no premium should be placed on the right to
litigate.
85
We therefore delete the attorneys fees awarded to Pajuyo.
We sustain the P300 monthly rentals the MTC and RTC assessed against Guevarra. Guevarra did not
dispute this factual finding of the two courts. We find the amount reasonable compensation to Pajuyo.
The P300 monthly rental is counted from the last demand to vacate, which was on 16 February 1995.
WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000 and Resolution dated 14
December 2000 of the Court of Appeals in CA-G.R. SP No. 43129 are SET ASIDE. The Decision dated 11
November 1996 of the Regional Trial Court of Quezon City, Branch 81 in Civil Case No. Q-96-26943,
affirming the Decision dated 15 December 1995 of the Metropolitan Trial Court of Quezon City, Branch
31 in Civil Case No. 12432, is REINSTATED with MODIFICATION. The award of attorneys fees is deleted.
No costs.
SO ORDERED.
Davide, Jr., Panganiban, Ynares-Santiago, and Azcuna, JJ., concur.


Footnotes
1
Under Rule 45 of the 1997 Rules of Court.
2
Penned by Associate Justice Andres B. Reyes, Jr. with Associate Justices Quirino D. Abad Santos, Jr. and
Romeo A. Brawner, concurring.
3
Penned by Judge Wenceslao I. Agnir.
4
Docketed as Civil Case No. Q-96-26943.
5
Penned by Judge Mariano M. Singzon, Jr.
6
Docketed as Civil Case No. 12432.
7
Rollo, p. 41.
8
Ibid., p. 49.
9
Ibid., p. 221.
10
Ibid., p. 224.
11
Ibid., p. 60.
12
Ibid., p. 73.
13
Rollo, p. 134.
14
Macawiwili Gold Mining and Development Co., Inc. v. Court of Appeals, 358 Phil. 245 (1998).
15
Ibid.
16
Ibid.
17
Ibid.
18
227 Phil. 606 (1986).
19
G.R. No. 101132, 29 January 1993, 218 SCRA 193.
20
Ibid.
21
Ibid.
22
Commissioner of Internal Revenue v. Court of Appeals, G.R. No. 110003, 9 February 2001, 351 SCRA
436.
23
City of Manila v. Court of Appeals, G.R. No. 100626, 29 November 1991, 204 SCRA 362.
24
Castilex Industrial Corporation v. Vasquez, Jr., 378 Phil. 1009 (1999).
25
Refugia v. Court of Appeals, 327 Phil. 982 (1996).
26
Ibid.
27
Far Eastern Shipping Company v. Court of Appeals, 357 Phil. 703 (1998).
28
Ibid.
29
Buenaventura v. Uy, G.R. No. L-28156, 31 March 1987, 149 SCRA 220.
30
Ibid.
31
FLORENZ D. REGALADO, REMEDIAL LAW COMPENDIUM, VOL.I, SIXTH REV. ED.,143.
32
Dizon v. Court of Appeals, 332 Phil. 429 (1996).
33
Ibid.
34
De Luna v. Court of Appeals, G.R. No. 94490, 6 August 1992, 212 SCRA 276.
35
Ibid.
36
Pitargue v. Sorilla, 92 Phil. 5 (1952); Dizon v. Court of Appeals, supra note 32; Section 16, Rule 70 of
the 1997 Rules of Court.
37
Ibid.; Fige v. Court of Appeals, G.R. No. 107951, 30 June 1994, 233 SCRA 586; Oblea v. Court of
Appeals, 313 Phil. 804 (1995).
38
Dizon v. Court of Appeals, supra note 32.
39
Supra note 36.
40
Drilon v. Gaurana, G.R. No. L-35482, 30 April 1987, 149 SCRA 342.
41
Rubio v. The Hon. Municipal Trial Court in Cities, 322 Phil. 179 (1996).
42
Ibid.
43
92 Phil. 5 (1952).
44
Ibid.
45
Ibid.; Reynoso v. Court of Appeals, G.R. No. 49344, 23 February 1989, 170 SCRA 546; Aguilon v. Bohol,
G.R. No. L-27169, 20 October 1977, 79 SCRA 482.
46
Ibid.
47
Ibid.
48
Art. 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the
act constitutes a criminal offense, both parties being in pari delicto, they shall have no action against
each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code relative to the
disposal of effects or instruments of a crime shall be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what
he has given, and shall not be bound to comply with his promise.
Art.1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rule shall be observed:
(1) When the fault is on the part of both contracting parties, neither may recover what he has given by
virtue of the contract, or demand the performance of the others undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason
of the contract, or ask for the fulfillment of what has been promised to him. The other who is not at
fault, may demand the return of what he has given without any obligation to comply with his promise.
49
Top-Weld Manufacturing, Inc. v. ECED S.A., G.R. No. L-44944, 9 August 1985, 138 SCRA 118.
50
Silagan v. Intermediate Appellate Court, 274 Phil. 182 (1991).
51
Supra note 40.
52
Ibid.
53
Dizon v. Concina, 141 Phil. 589 (1969); Cine Ligaya v. Labrador, 66 Phil. 659 (1938).
54
Rollo, p. 54.
55
Supra note 43.
56
Ibid.; Aguilon v. Bohol, supra note 45; Reynoso v. Court of Appeals, supra note 45.
57
Reynoso v. Court of Appeals, supra note 45.
58
Aguilon v. Bohol, supra note 45.
59
Section 1, Rule 70 of the 1964 Rules of Court.
60
Arcal v. Court of Appeals, 348 Phil. 813 (1998).
61
Ibid.
62
Ibid.
63
Art. 1933. By the contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it, in which case the
contract is called a commodatum; or money or other consumable thing, upon the condition that the
same amount of the same kind and quality shall be paid, in which case the contract is simply called a
loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership
passes to the borrower.
64
Pascual v. Mina, 20 Phil. 202 (1911).
65
Art. 1946. The bailor cannot demand the return of the thing loaned till after the expiration of the
period stipulated, or after the accomplishment of the use for which the commodatum has been
constituted. However, if in the meantime, he should have urgent need of the thing, he may demand its
return or temporary use.
In case of temporary use by the bailor, the contract of commodatum is suspended while the thing is in
the possession of the bailor.
66
Ibid.
67
Art.1947. The bailor may demand the thing at will, and the contractual relation is called a precarium,
in the following cases:
(1) If neither the duration of the contract nor the use to which the thing loaned should be devoted, has
been stipulated; or
(2) If the use of the thing is merely tolerated by the owner.
68
ARTURO M. TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE
PHILIPPINES, Vol. V, 448.
69
Arcal v. Court of Appeals, supra note 60; Dakudao v. Consolacion, 207 Phil. 750 (1983); Calubayan v.
Pascual, 128 Phil. 160 (1967).
70
United States v. Camara, 28 Phil. 238 (1914).
71
Ibid.
72
Rollo, p. 87.
73
Benitez v. Court of Appeals, G.R. No. 104828, 16 January 1997, 266 SCRA 242.
74
Ibid.
75
Ibid.
76
Ibid.
77
Dela Rosa v. Carlos, G.R. No. 147549, 23 October 2003.
78
Benitez v. Court of Appeals, supra note 73.
79
Ibid.
80
Caballero v. Court of Appeals, G.R. No. 59888, 29 January 1993, 218 SCRA 56; Florendo, Jr. v. Coloma,
G.R. No. L-60544, 19 May 1984, 214 SCRA 268.
81
Florendo, Jr. v. Coloma, supra note 80.
82
Dizon v. Court of Appeals, supra note 32; Section 7, Rule 70 of the 1964 Rules of Court.
83
Padillo v. Court of Appeals, 442 Phil. 344 (2001).
84
Ibid.
85
Ibid.

G.R. No. L-17474 October 25, 1962
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
JOSE V. BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V. Bagtas,petitioner-
appellant.
D. T. Reyes, Liaison and Associates for petitioner-appellant.
Office of the Solicitor General for plaintiff-appellee.
PADILLA, J.:
The Court of Appeals certified this case to this Court because only questions of law are raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of
Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and a
Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to 7 May 1949 for breeding purposes
subject to a government charge of breeding fee of 10% of the book value of the bulls. Upon the
expiration on 7 May 1949 of the contract, the borrower asked for a renewal for another period of one
year. However, the Secretary of Agriculture and Natural Resources approved a renewal thereof of only
one bull for another year from 8 May 1949 to 7 May 1950 and requested the return of the other two. On
25 March 1950 Jose V. Bagtas wrote to the Director of Animal Industry that he would pay the value of
the three bulls. On 17 October 1950 he reiterated his desire to buy them at a value with a deduction of
yearly depreciation to be approved by the Auditor General. On 19 October 1950 the Director of Animal
Industry advised him that the book value of the three bulls could not be reduced and that they either be
returned or their book value paid not later than 31 October 1950. Jose V. Bagtas failed to pay the book
value of the three bulls or to return them. So, on 20 December 1950 in the Court of First Instance of
Manila the Republic of the Philippines commenced an action against him praying that he be ordered to
return the three bulls loaned to him or to pay their book value in the total sum of P3,241.45 and the
unpaid breeding fee in the sum of P199.62, both with interests, and costs; and that other just and
equitable relief be granted in (civil No. 12818).
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that because of
the bad peace and order situation in Cagayan Valley, particularly in the barrio of Baggao, and of the
pending appeal he had taken to the Secretary of Agriculture and Natural Resources and the President of
the Philippines from the refusal by the Director of Animal Industry to deduct from the book value of the
bulls corresponding yearly depreciation of 8% from the date of acquisition, to which depreciation the
Auditor General did not object, he could not return the animals nor pay their value and prayed for the
dismissal of the complaint.
After hearing, on 30 July 1956 the trial court render judgment
. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value of the three bulls plus
the breeding fees in the amount of P626.17 with interest on both sums of (at) the legal rate from the
filing of this complaint and costs.
On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court granted on 18
October and issued on 11 November 1958. On 2 December 1958 granted an ex-parte motion filed by the
plaintiff on November 1958 for the appointment of a special sheriff to serve the writ outside Manila. Of
this order appointing a special sheriff, on 6 December 1958, Felicidad M. Bagtas, the surviving spouse of
the defendant Jose Bagtas who died on 23 October 1951 and as administratrix of his estate, was
notified. On 7 January 1959 she file a motion alleging that on 26 June 1952 the two bull Sindhi and
Bhagnari were returned to the Bureau Animal of Industry and that sometime in November 1958 the
third bull, the Sahiniwal, died from gunshot wound inflicted during a Huk raid on Hacienda Felicidad
Intal, and praying that the writ of execution be quashed and that a writ of preliminary injunction be
issued. On 31 January 1959 the plaintiff objected to her motion. On 6 February 1959 she filed a reply
thereto. On the same day, 6 February, the Court denied her motion. Hence, this appeal certified by the
Court of Appeals to this Court as stated at the beginning of this opinion.
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late defendant, returned
the Sindhi and Bhagnari bulls to Roman Remorin, Superintendent of the NVB Station, Bureau of Animal
Industry, Bayombong, Nueva Vizcaya, as evidenced by a memorandum receipt signed by the latter
(Exhibit 2). That is why in its objection of 31 January 1959 to the appellant's motion to quash the writ of
execution the appellee prays "that another writ of execution in the sum of P859.53 be issued against the
estate of defendant deceased Jose V. Bagtas." She cannot be held liable for the two bulls which already
had been returned to and received by the appellee.
The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huk in
November 1953 upon the surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan, where the
animal was kept, and that as such death was due to force majeure she is relieved from the duty of
returning the bull or paying its value to the appellee. The contention is without merit. The loan by the
appellee to the late defendant Jose V. Bagtas of the three bulls for breeding purposes for a period of one
year from 8 May 1948 to 7 May 1949, later on renewed for another year as regards one bull, was subject
to the payment by the borrower of breeding fee of 10% of the book value of the bulls. The appellant
contends that the contract was commodatum and that, for that reason, as the appellee retained
ownership or title to the bull it should suffer its loss due to force majeure. A contract of commodatum is
essentially gratuitous.
1
If the breeding fee be considered a compensation, then the contract would be a
lease of the bull. Under article 1671 of the Civil Code the lessee would be subject to the responsibilities
of a possessor in bad faith, because she had continued possession of the bull after the expiry of the
contract. And even if the contract be commodatum, still the appellant is liable, because article 1942 of
the Civil Code provides that a bailee in a contract of commodatum
. . . is liable for loss of the things, even if it should be through a fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation
exempting the bailee from responsibility in case of a fortuitous event;
The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was renewed
for another period of one year to end on 8 May 1950. But the appellant kept and used the bull until
November 1953 when during a Huk raid it was killed by stray bullets. Furthermore, when lent and
delivered to the deceased husband of the appellant the bulls had each an appraised book value, to with:
the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not stipulated
that in case of loss of the bull due to fortuitous event the late husband of the appellant would be
exempt from liability.
The appellant's contention that the demand or prayer by the appellee for the return of the bull or the
payment of its value being a money claim should be presented or filed in the intestate proceedings of
the defendant who died on 23 October 1951, is not altogether without merit. However, the claim that
his civil personality having ceased to exist the trial court lost jurisdiction over the case against him, is
untenable, because section 17 of Rule 3 of the Rules of Court provides that
After a party dies and the claim is not thereby extinguished, the court shall order, upon proper notice,
the legal representative of the deceased to appear and to be substituted for the deceased, within a
period of thirty (30) days, or within such time as may be granted. . . .
and after the defendant's death on 23 October 1951 his counsel failed to comply with section 16 of Rule
3 which provides that
Whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform the court
promptly of such death . . . and to give the name and residence of the executory administrator,
guardian, or other legal representative of the deceased . . . .
The notice by the probate court and its publication in the Voz de Manila that Felicidad M. Bagtas had
been issue letters of administration of the estate of the late Jose Bagtas and that "all persons having
claims for monopoly against the deceased Jose V. Bagtas, arising from contract express or implied,
whether the same be due, not due, or contingent, for funeral expenses and expenses of the last sickness
of the said decedent, and judgment for monopoly against him, to file said claims with the Clerk of this
Court at the City Hall Bldg., Highway 54, Quezon City, within six (6) months from the date of the first
publication of this order, serving a copy thereof upon the aforementioned Felicidad M. Bagtas, the
appointed administratrix of the estate of the said deceased," is not a notice to the court and the
appellee who were to be notified of the defendant's death in accordance with the above-quoted rule,
and there was no reason for such failure to notify, because the attorney who appeared for the
defendant was the same who represented the administratrix in the special proceedings instituted for
the administration and settlement of his estate. The appellee or its attorney or representative could not
be expected to know of the death of the defendant or of the administration proceedings of his estate
instituted in another court that if the attorney for the deceased defendant did not notify the plaintiff or
its attorney of such death as required by the rule.
As the appellant already had returned the two bulls to the appellee, the estate of the late defendant is
only liable for the sum of P859.63, the value of the bull which has not been returned to the appellee,
because it was killed while in the custody of the administratrix of his estate. This is the amount prayed
for by the appellee in its objection on 31 January 1959 to the motion filed on 7 January 1959 by the
appellant for the quashing of the writ of execution.
Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas
having been instituted in the Court of First Instance of Rizal (Q-200), the money judgment rendered in
favor of the appellee cannot be enforced by means of a writ of execution but must be presented to the
probate court for payment by the appellant, the administratrix appointed by the court.
ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to costs.
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and
Makalintal, JJ., concur.
Barrera, J., concurs in the result.


Footnotes
1
Article 1933 of the Civil Code.

THIRD DIVISION


PEOPLE OF THE PHILIPPINES,
Petitioners,

G.R. No. 173654-765

Present:




- versus -





TERESITA PUIG and ROMEO PORRAS,
Respondent.

YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
REYES, and
DE CASTRO,
*
JJ.


Promulgated:


August 28, 2008
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x


D E C I S I O N


CHICO-NAZARIO, J.:


This is a Petition for Review under Rule 45 of the Revised Rules of Court with petitioner People of the
Philippines, represented by the Office of the Solicitor General, praying for the reversal of the Orders
dated 30 January 2006 and 9 June 2006 of the Regional Trial Court (RTC) of the 6
th
Judicial Region,
Branch 68, Dumangas, Iloilo, dismissing the 112 cases of Qualified Theft filed against respondents
Teresita Puig and Romeo Porras, and denying petitioners Motion for Reconsideration, in Criminal Cases
No. 05-3054 to 05-3165.

The following are the factual antecedents:

On 7 November 2005, the Iloilo Provincial Prosecutors Office filed before Branch 68 of the RTC in
Dumangas, Iloilo, 112 cases of Qualified Theft against respondents Teresita Puig (Puig) and Romeo
Porras (Porras) who were the Cashier and Bookkeeper, respectively, of private complainant Rural Bank
of Pototan, Inc. The cases were docketed as Criminal Cases No. 05-3054 to 05-3165.

The allegations in the Informations
[1]
filed before the RTC were uniform and pro-forma, except for the
amounts, date and time of commission, to wit:


INFORMATION

That on or about the 1
st
day of August, 2002, in the Municipality of Pototan, Province of Iloilo,
Philippines, and within the jurisdiction of this Honorable Court, above-named [respondents], conspiring,
confederating, and helping one another, with grave abuse of confidence, being
the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo, without the knowledge
and/or consent of the management of the Bank and with intent of gain, did then and there willfully,
unlawfully and feloniously take, steal and carry away the sum of FIFTEEN THOUSAND PESOS
(P15,000.00), Philippine Currency, to the damage and prejudice of the said bank in the aforesaid
amount.


After perusing the Informations in these cases, the trial court did not find the existence of
probable cause that would have necessitated the issuance of a warrant of arrest based on the following
grounds:

(1) the element of taking without the consent of the owners was missing on the ground that it is
the depositors-clients, and not the Bank, which filed the complaint in these cases, who are the owners
of the money allegedly taken by respondents and hence, are the real parties-in-interest; and

(2) the Informations are bereft of the phrase alleging dependence, guardianship or vigilance
between the respondents and the offended party that would have created a high degree of
confidence between them which the respondents could have abused.


It added that allowing the 112 cases for Qualified Theft filed against the respondents to push through
would be violative of the right of the respondents under Section 14(2), Article III of the 1987
Constitution which states that in all criminal prosecutions, the accused shall enjoy the right to be
informed of the nature and cause of the accusation against him. Following Section 6, Rule 112 of the
Revised Rules of Criminal Procedure, the RTC dismissed the cases on 30 January 2006 and refused to
issue a warrant of arrest against Puig and Porras.

A Motion for Reconsideration
[2]
was filed on 17 April 2006, by the petitioner.

On 9 June 2006, an Order
[3]
denying petitioners Motion for Reconsideration was issued by the
RTC, finding as follows:

Accordingly, the prosecutions Motion for Reconsideration should be, as it hereby, DENIED. The
Order dated January 30, 2006 STANDS in all respects.


Petitioner went directly to this Court via Petition for Review on Certiorari under Rule 45, raising
the sole legal issue of:

WHETHER OR NOT THE 112 INFORMATIONS FOR QUALIFIED THEFT SUFFICIENTLY ALLEGE THE ELEMENT
OF TAKING WITHOUT THE CONSENT OF THE OWNER, AND THE QUALIFYING CIRCUMSTANCE OF GRAVE
ABUSE OF CONFIDENCE.


Petitioner prays that judgment be rendered annulling and setting aside the Orders dated 30
January 2006 and 9 June 2006 issued by the trial court, and that it be directed to proceed with Criminal
Cases No. 05-3054 to 05-3165.

Petitioner explains that under Article 1980 of the New Civil Code, fixed, savings, and current
deposits of money in banks and similar institutions shall be governed by the provisions concerning
simple loans. Corollary thereto, Article 1953 of the same Code provides that a person who receives a
loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the
creditor an equal amount of the same kind and quality. Thus, it posits that the depositors who place
their money with the bank are considered creditors of the bank. The bank acquires ownership of the
money deposited by its clients, making the money taken by respondents as belonging to the bank.

Petitioner also insists that the Informations sufficiently allege all the elements of the crime of
qualified theft, citing that a perusal of the Informations will show that they specifically allege that the
respondents were the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., respectively, and that
they took various amounts of money with grave abuse of confidence, and without the knowledge and
consent of the bank, to the damage and prejudice of the bank.

Parenthetically, respondents raise procedural issues. They challenge the petition on the ground
that a Petition for Review on Certiorari via Rule 45 is the wrong mode of appeal because a finding of
probable cause for the issuance of a warrant of arrest presupposes evaluation of facts and
circumstances, which is not proper under said Rule.

Respondents further claim that the Department of Justice (DOJ), through the Secretary of Justice,
is the principal party to file a Petition for Review onCertiorari, considering that the incident was indorsed
by the DOJ.

We find merit in the petition.

The dismissal by the RTC of the criminal cases was allegedly due to insufficiency of the
Informations and, therefore, because of this defect, there is no basis for the existence of probable cause
which will justify the issuance of the warrant of arrest. Petitioner assails the dismissal contending that
the Informations for Qualified Theft sufficiently state facts which constitute (a) the qualifying
circumstance of grave abuse of confidence; and (b) the element of taking, with intent to gain and
without the consent of the owner, which is the Bank.

In determining the existence of probable cause to issue a warrant of arrest, the RTC judge found
the allegations in the Information inadequate. He ruled that the Information failed to state facts
constituting the qualifying circumstance of grave abuse of confidence and the element of taking without
the consent of the owner,since the owner of the money is not the Bank, but the depositors therein. He
also cites People v. Koc Song,
[4]
in which this Court held:

There must be allegation in the information and proof of a relation, by reason of dependence,
guardianship or vigilance, between the respondents and the offended party that has created a high
degree of confidence between them, which the respondents abused.


At this point, it needs stressing that the RTC Judge based his conclusion that there was no probable cause
simply on the insufficiency of the allegations in the Informations concerning the facts constitutive of the
elements of the offense charged. This, therefore, makes the issue of sufficiency of the allegations in the
Informations the focal point of discussion.

Qualified Theft, as defined and punished under Article 310 of the Revised Penal Code, is
committed as follows, viz:

ART. 310. Qualified Theft. The crime of theft shall be punished by the penalties next higher by
two degrees than those respectively specified in the next preceding article, if committed by a domestic
servant, or with grave abuse of confidence, or if the property stolen is motor vehicle, mail matter or
large cattle or consists of coconuts taken from the premises of a plantation, fish taken from a fishpond
or fishery or if property is taken on the occasion of fire, earthquake, typhoon, volcanic eruption, or any
other calamity, vehicular accident or civil disturbance. (Emphasis supplied.)


Theft, as defined in Article 308 of the Revised Penal Code, requires the physical taking of anothers
property without violence or intimidation against persons or force upon things. The elements of the
crime under this Article are:

1. Intent to gain;

2. Unlawful taking;

3. Personal property belonging to another;

4. Absence of violence or intimidation against persons or force upon things.


To fall under the crime of Qualified Theft, the following elements must concur:

1. Taking of personal property;

2. That the said property belongs to another;

3. That the said taking be done with intent to gain;

4. That it be done without the owners consent;

5. That it be accomplished without the use of violence or intimidation against persons, nor of force
upon things;

6. That it be done with grave abuse of confidence.


On the sufficiency of the Information, Section 6, Rule 110 of the Rules of Court requires, inter alia,
that the information must state the acts or omissions complained of as constitutive of the offense.

On the manner of how the Information should be worded, Section 9, Rule 110 of the Rules of
Court, is enlightening:

Section 9. Cause of the accusation. The acts or omissions complained of as constituting the
offense and the qualifying and aggravating circumstances must be stated in ordinary and concise
language and not necessarily in the language used in the statute but in terms sufficient to enable a
person of common understanding to know what offense is being charged as well as its qualifying and
aggravating circumstances and for the court to pronounce judgment.


It is evident that the Information need not use the exact language of the statute in alleging the acts
or omissions complained of as constituting the offense. The test is whether it enables a person of
common understanding to know the charge against him, and the court to render judgment properly.
[5]


The portion of the Information relevant to this discussion reads:

[A]bove-named [respondents], conspiring, confederating, and helping one another, with grave abuse of
confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo,
without the knowledge and/or consent of the management of the Bank x x x.


It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of a Bank who come
into possession of the monies deposited therein enjoy the confidence reposed in them by their
employer. Banks, on the other hand, where monies are deposited, are considered the owners
thereof. This is very clear not only from the express provisions of the law, but from established
jurisprudence. The relationship between banks and depositors has been held to be that of creditor and
debtor. Articles 1953 and 1980 of the New Civil Code, as appropriately pointed out by petitioner,
provide as follows:

Article 1953. A person who receives a loan of money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.

Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall
be governed by the provisions concerning loan.


In a long line of cases involving Qualified Theft, this Court has firmly established the nature of
possession by the Bank of the money deposits therein, and the duties being performed by its employees
who have custody of the money or have come into possession of it. The Court has consistently
considered the allegations in the Information that such employees acted with grave abuse of
confidence, to the damage and prejudice of the Bank, without particularly referring to it as owner of the
money deposits, as sufficient to make out a case of Qualified Theft. For a graphic illustration, we
cite Roque v. People,
[6]
where the accused teller was convicted for Qualified Theft based on this
Information:

That on or about the 16th day of November, 1989, in the municipality of Floridablanca, province
of Pampanga, Philippines and within the jurisdiction of his Honorable Court, the above-named accused
ASUNCION GALANG ROQUE, being then employed as teller of the Basa Air Base Savings and Loan
Association Inc. (BABSLA) with office address at Basa Air Base, Floridablanca, Pampanga, and as such
was authorized and reposed with the responsibility to receive and collect capital contributions from its
member/contributors of said corporation, and having collected and received in her capacity as teller of
the BABSLA the sum of TEN THOUSAND PESOS (P10,000.00), said accused, with intent of gain, with
grave abuse of confidence and without the knowledge and consent of said corporation, did then and
there willfully, unlawfully and feloniously take, steal and carry away the amount of P10,000.00,
Philippine currency, by making it appear that a certain depositor by the name of Antonio Salazar
withdrew from his Savings Account No. 1359, when in truth and in fact said Antonio Salazar did not
withdr[a]w the said amount of P10,000.00 to the damage and prejudice of BABSLA in the total amount
of P10,000.00, Philippine currency.


In convicting the therein appellant, the Court held that:

[S]ince the teller occupies a position of confidence, and the bank places money in the tellers possession
due to the confidence reposed on the teller, the felony of qualified theft would be committed.
[7]



Also in People v. Sison,
[8]
the Branch Operations Officer was convicted of the crime of Qualified
Theft based on the Information as herein cited:

That in or about and during the period compressed between January 24, 1992 and February 13,
1992, both dates inclusive, in the City of Manila, Philippines, the said accused did then and there wilfully,
unlawfully and feloniously, with intent of gain and without the knowledge and consent of the owner
thereof, take, steal and carry away the following, to wit:

Cash money amounting to P6,000,000.00 in different denominations belonging to the PHILIPPINE
COMMERCIAL INTERNATIONAL BANK (PCIBank for brevity), Luneta Branch, Manila represented by its
Branch Manager, HELEN U. FARGAS, to the damage and prejudice of the said owner in the aforesaid
amount of P6,000,000.00, Philippine Currency.

That in the commission of the said offense, herein accused acted with grave abuse of confidence
and unfaithfulness, he being the Branch Operation Officer of the said complainant and as such he had
free access to the place where the said amount of money was kept.


The judgment of conviction elaborated thus:

The crime perpetuated by appellant against his employer, the Philippine Commercial and
Industrial Bank (PCIB), is Qualified Theft. Appellant could not have committed the crime had he not
been holding the position of Luneta Branch Operation Officer which gave him not only sole access to the
bank vault xxx. The management of the PCIB reposed its trust and confidence in the appellant as its
Luneta Branch Operation Officer, and it was this trust and confidence which he exploited to enrich
himself to the damage and prejudice of PCIB x x x.
[9]



From another end, People v. Locson,
[10]
in addition to People v. Sison, described the nature of
possession by the Bank. The money in this case was in the possession of the defendant as receiving
teller of the bank, and the possession of the defendant was the possession of the Bank. The Court held
therein that when the defendant, with grave abuse of confidence, removed the money and
appropriated it to his own use without the consent of the Bank, there was taking as contemplated in the
crime of Qualified Theft.
[11]


Conspicuously, in all of the foregoing cases, where the Informations merely alleged the positions of
the respondents; that the crime was committed with grave abuse of confidence, with intent to gain and
without the knowledge and consent of the Bank, without necessarily stating the phrase being
assiduously insisted upon by respondents, of a relation by reason of dependence, guardianship or
vigilance, between the respondents and the offended party that has created a high degree of
confidence between them, which respondents abused,
[12]
and without employing the word owner in
lieu of the Bank were considered to have satisfied the test of sufficiency of allegations.

As regards the respondents who were employed as Cashier and Bookkeeper of the Bank in this
case, there is even no reason to quibble on the allegation in the Informations that they acted with grave
abuse of confidence. In fact, the Information which alleged grave abuse of confidence by accused
herein is even more precise, as this is exactly the requirement of the law in qualifying the crime of Theft.

In summary, the Bank acquires ownership of the money deposited by its clients; and the
employees of the Bank, who are entrusted with the possession of money of the Bank due to the
confidence reposed in them, occupy positions of confidence. The Informations, therefore, sufficiently
allege all the essential elements constituting the crime of Qualified Theft.

On the theory of the defense that the DOJ is the principal party who may file the instant petition,
the ruling in Mobilia Products, Inc. v. Hajime Umezawa
[13]
is instructive. The Court thus enunciated:

In a criminal case in which the offended party is the State, the interest of the private complainant
or the offended party is limited to the civil liability arising therefrom. Hence, if a criminal case is
dismissed by the trial court or if there is an acquittal, a reconsideration of the order of dismissal or
acquittal may be undertaken, whenever legally feasible, insofar as the criminal aspect thereof is
concerned and may be made only by the public prosecutor; or in the case of an appeal, by the State
only, through the OSG. x x x.


On the alleged wrong mode of appeal by petitioner, suffice it to state that the rule is well-settled
that in appeals by certiorari under Rule 45 of the Rules of Court, only errors of law may be raised,
[14]
and
herein petitioner certainly raised a question of law.

As an aside, even if we go beyond the allegations of the Informations in these cases, a closer look
at the records of the preliminary investigation conducted will show that, indeed, probable cause exists
for the indictment of herein respondents. Pursuant to Section 6, Rule 112 of the Rules of Court, the
judge shall issue a warrant of arrest only upon a finding of probable cause after personally evaluating
the resolution of the prosecutor and its supporting evidence. Soliven v. Makasiar,
[15]
as reiterated
in Allado v. Driokno,
[16]
explained that probable cause for the issuance of a warrant of arrest is the
existence of such facts and circumstances that would lead a reasonably discreet and prudent person to
believe that an offense has been committed by the person sought to be arrested.
[17]
The records
reasonably indicate that the respondents may have, indeed, committed the offense charged.

Before closing, let it be stated that while it is truly imperative upon the fiscal or the judge, as the
case may be, to relieve the respondents from the pain of going through a trial once it is ascertained that
no probable cause exists to form a sufficient belief as to the guilt of the respondents, conversely, it is
also equally imperative upon the judge to proceed with the case upon a showing that there is a prima
facie case against the respondents.

WHEREFORE, premises considered, the Petition for Review on Certiorari is hereby GRANTED. The
Orders dated 30 January 2006 and 9 June 2006 of the RTC dismissing Criminal Cases No. 05-3054 to 05-
3165 are REVERSED and SET ASIDE. Let the corresponding Warrants of Arrest issue against herein
respondents TERESITA PUIG and ROMEO PORRAS. The RTC Judge of Branch 68, in Dumangas, Iloilo, is
directed to proceed with the trial of Criminal Cases No. 05-3054 to 05-3165, inclusive, with reasonable
dispatch. No pronouncement as to costs.

SO ORDERED.



MINITA V. CHICO-NAZARIO
Associate Justice



WE CONCUR:



CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson



MA. ALICIA AUSTRIA-MARTINEZ RUBEN T. REYES
Associate Justice Associate Justice



TERESITA J. LEONARDO-DE CASTRO
Associate Justice





ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.



CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division



CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation,
it is hereby certified that the conclusions in the above Decision were reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.



REYNATO S. PUNO
Chief Justice




*
Justice Teresita J. Leonardo-De Castro was designated to sit as additional member replacing
Justice Antonio Eduardo B. Nachura per Raffle dated 16 January 2008.

[1]
Records, pp. 1, 170-391.
[2]
Records, pp. 490-495.
[3]
Id. at 469-470.
[4]
63 Phil. 369, 371 (1936).
[5]
People v. Lab-eo, 424 Phil. 482, 495 (2002).
[6]
G.R. No. 138954, 25 November 2004, 444 SCRA 98, 100-101.
[7]
Id. at 119.
[8]
379 Phil. 363, 366-367 (2000).
[9]
Id. at 385.
[10]
57 Phil. 325 (1932).
[11]
Id.
[12]
Rollo, p. 158.
[13]
G.R. No. 149357, 4 March 2005, 452 SCRA 736, 757.
[14]
Reas v. Bonife, G.R. Nos. 54348-49, 17 October 1990, 190 SCRA 493, 501.
[15]
G.R. No. L-82585, 14 November 1988, 167 SCRA 394.
[16]
G.R. No. 113630, 5 May 1994, 32 SCRA 192, 201.
[17]
Id.
THIRD DIVISION

BPI FAMILY BANK,
Petitioner,




- versus -




AMADO FRANCO and COURT OF APPEALS,
Respondents.

G.R. No. 123498

Present:

YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

Promulgated:

November 23, 2007

x------------------------------------------------------------------------------------x


DECISION

NACHURA, J.:





Banks are exhorted to treat the accounts of their depositors with meticulous care and utmost
fidelity. We reiterate this exhortation in the case at bench.

Before us is a Petition for Review on Certiorari seeking the reversal of the Court of Appeals (CA)
Decision
[1]
in CA-G.R. CV No. 43424 which affirmed with modification the judgment
[2]
of the Regional
Trial Court, Branch 55, Manila (Manila RTC), in Civil Case No. 90-53295.

This case has its genesis in an ostensible fraud perpetrated on the petitioner BPI Family Bank (BPI-
FB) allegedly by respondent Amado Franco (Franco) in conspiracy with other individuals,
[3]
some of
whom opened and maintained separate accounts with BPI-FB, San Francisco del Monte (SFDM) branch,
in a series of transactions.

On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco) opened a savings and
current account with BPI-FB. Soon thereafter, or on August 25, 1989, First Metro Investment
Corporation (FMIC) also opened a time deposit account with the same branch of BPI-FB with a deposit
of P100,000,000.00, to mature one year thence.

Subsequently, on August 31, 1989, Franco opened three accounts, namely, a
current,
[4]
savings,
[5]
and time deposit,
[6]
with BPI-FB. The current and savings accounts were
respectively funded with an initial deposit of P500,000.00 each, while the time deposit account
had P1,000,000.00 with a maturity date of August 31, 1990. The total amount of P2,000,000.00 used to
open these accounts is traceable to a check issued by Tevesteco allegedly in consideration of Francos
introduction of Eladio Teves,
[7]
who was looking for a conduit bank to facilitate Tevestecos business
transactions, to Jaime Sebastian, who was then BPI-FB SFDMs Branch Manager. In turn, the funding for
the P2,000,000.00 check was part of the P80,000,000.00 debited by BPI-FB from FMICs time deposit
account and credited to Tevestecos current account pursuant to an Authority to Debit purportedly
signed by FMICs officers.

It appears, however, that the signatures of FMICs officers on the Authority to Debit were
forged.
[8]
On September 4, 1989, Antonio Ong,
[9]
upon being shown the Authority to Debit, personally
declared his signature therein to be a forgery. Unfortunately, Tevesteco had already effected several
withdrawals from its current account (to which had been credited the P80,000,000.00 covered by the
forged Authority to Debit) amounting to P37,455,410.54, including the P2,000,000.00 paid to Franco.

On September 8, 1989, impelled by the need to protect its interests in light of FMICs forgery claim, BPI-
FB, thru its Senior Vice-President, Severino Coronacion, instructed Jesus Arangorin
[10]
to debit Francos
savings and current accounts for the amounts remaining therein.
[11]
However, Francos time deposit
account could not be debited due to the capacity limitations of BPI-FBs computer.
[12]


In the meantime, two checks
[13]
drawn by Franco against his BPI-FB current account were
dishonored upon presentment for payment, and stamped with a notation account under garnishment.
Apparently, Francos current account was garnished by virtue of an Order of Attachment issued by the
Regional Trial Court of Makati (Makati RTC) in Civil Case No. 89-4996 (Makati Case), which had been filed
by BPI-FB against Franco et al.,
[14]
to recover the P37,455,410.54 representing Tevestecos total
withdrawals from its account.

Notably, the dishonored checks were issued by Franco and presented for payment at BPI-FB prior to
Francos receipt of notice that his accounts were under garnishment.
[15]
In fact, at the time the Notice of
Garnishment dated September 27, 1989 was served on BPI-FB, Franco had yet to be impleaded in
the Makati case where the writ of attachment was issued.

It was only on May 15, 1990, through the service of a copy of the Second Amended Complaint in
Civil Case No. 89-4996, that Franco was impleaded in theMakati case.
[16]
Immediately, upon receipt of
such copy, Franco filed a Motion to Discharge Attachment which the Makati RTC granted on May 16,
1990. The Order Lifting the Order of Attachment was served on BPI-FB on even date, with Franco
demanding the release to him of the funds in his savings and current accounts. Jesus Arangorin, BPI-FBs
new manager, could not forthwith comply with the demand as the funds, as previously stated, had
already been debited because of FMICs forgery claim. As such, BPI-FBs computer at the SFDM Branch
indicated that the current account record was not on file.

With respect to Francos savings account, it appears that Franco agreed to an arrangement, as a
favor to Sebastian, whereby P400,000.00 from his savings account was temporarily transferred to
Domingo Quiaoits savings account, subject to its immediate return upon issuance of a certificate of
deposit which Quiaoit needed in connection with his visa application at the Taiwan Embassy. As part of
the arrangement, Sebastian retained custody of Quiaoits savings account passbook to ensure that no
withdrawal would be effected therefrom, and to preserve Francos deposits.

On May 17, 1990, Franco pre-terminated his time deposit account. BPI-FB deducted the amount
of P63,189.00 from the remaining balance of the time deposit account representing advance interest
paid to him.

These transactions spawned a number of cases, some of which we had already resolved.

FMIC filed a complaint against BPI-FB for the recovery of the amount of P80,000,000.00 debited
from its account.
[17]
The case eventually reached this Court, and in BPI Family Savings Bank, Inc. v. First
Metro Investment Corporation,
[18]
we upheld the finding of the courts below that BPI-FB failed to
exercise the degree of diligence required by the nature of its obligation to treat the accounts of its
depositors with meticulous care. Thus, BPI-FB was found liable to FMIC for the debited amount in its
time deposit. It was ordered to pay P65,332,321.99 plus interest at 17% per annum from August 29,
1989 until fully restored. In turn, the 17% shall itself earn interest at 12% from October 4, 1989 until
fully paid.

In a related case, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica (Buenaventura, et
al.),
[19]
recipients of a P500,000.00 check proceeding from theP80,000,000.00 mistakenly credited to
Tevesteco, likewise filed suit. Buenaventura et al., as in the case of Franco, were also prevented from
effecting withdrawals
[20]
from their current account with BPI-FB, Bonifacio Market, Edsa, Caloocan City
Branch. Likewise, when the case was elevated to this Court docketed as BPI Family Bank v.
Buenaventura,
[21]
we ruled that BPI-FB had no right to freeze Buenaventura, et al.s accounts and
adjudged BPI-FB liable therefor, in addition to damages.

Meanwhile, BPI-FB filed separate civil and criminal cases against those believed to be the
perpetrators of the multi-million peso scam.
[22]
In the criminal case, Franco, along with the other
accused, except for Manuel Bienvenida who was still at large, were acquitted of the crime of Estafa as
defined and penalized under Article 351, par. 2(a) of the Revised Penal Code.
[23]
However, the civil
case
[24]
remains under litigation and the respective rights and liabilities of the parties have yet to be
adjudicated.

Consequently, in light of BPI-FBs refusal to heed Francos demands to unfreeze his accounts and
release his deposits therein, the latter filed on June 4, 1990with the Manila RTC the subject suit. In his
complaint, Franco prayed for the following reliefs: (1) the interest on the remaining balance
[25]
of his
current account which was eventually released to him on October 31, 1991; (2) the balance
[26]
on his
savings account, plus interest thereon; (3) the advance interest
[27]
paid to him which had been deducted
when he pre-terminated his time deposit account; and (4) the payment of actual, moral and exemplary
damages, as well as attorneys fees.

BPI-FB traversed this complaint, insisting that it was correct in freezing the accounts of Franco and
refusing to release his deposits, claiming that it had a better right to the amounts which consisted of
part of the money allegedly fraudulently withdrawn from it by Tevesteco and ending up in Francos
accounts. BPI-FB asseverated that the claimed consideration of P2,000,000.00 for the introduction
facilitated by Franco between George Daantos and Eladio Teves, on the one hand, and Jaime Sebastian,
on the other, spoke volumes of Francos participation in the fraudulent transaction.

On August 4, 1993, the Manila RTC rendered judgment, the dispositive portion of which reads as
follows:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of [Franco] and
against [BPI-FB], ordering the latter to pay to the former the following sums:

1. P76,500.00 representing the legal rate of interest on the amount of P450,000.00 from May 18,
1990 to October 31, 1991;

2. P498,973.23 representing the balance on *Francos+ savings account as of May 18, 1990, together
with the interest thereon in accordance with the banks guidelines on the payment therefor;

3. P30,000.00 by way of attorneys fees; and

4. P10,000.00 as nominal damages.

The counterclaim of the defendant is DISMISSED for lack of factual and legal anchor.

Costs against [BPI-FB].

SO ORDERED.
[28]



Unsatisfied with the decision, both parties filed their respective appeals before the CA. Franco
confined his appeal to the Manila RTCs denial of his claim for moral and exemplary damages, and the
diminutive award of attorneys fees. In affirming with modification the lower courts decision, the
appellate court decreed, to wit:

WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with modification
ordering [BPI-FB] to pay [Franco] P63,189.00 representing the interest deducted from the time deposit
of plaintiff-appellant. P200,000.00 as moral damages and P100,000.00 as exemplary damages, deleting
the award of nominal damages (in view of the award of moral and exemplary damages) and increasing
the award of attorneys fees from P30,000.00 to P75,000.00.

Cost against [BPI-FB].

SO ORDERED.
[29]



In this recourse, BPI-FB ascribes error to the CA when it ruled that: (1) Franco had a better right to
the deposits in the subject accounts which are part of the proceeds of a forged Authority to Debit; (2)
Franco is entitled to interest on his current account; (3) Franco can recover the P400,000.00 deposit in
Quiaoits savings account; (4) the dishonor of Francos checks was not legally in order; (5) BPI-FB is liable
for interest on Francos time deposit, and for moral and exemplary damages; and (6) BPI-FBs counter-
claim has no factual and legal anchor.

The petition is partly meritorious.

We are in full accord with the common ruling of the lower courts that BPI-FB cannot unilaterally
freeze Francos accounts and preclude him from withdrawing his deposits. However, contrary to the
appellate courts ruling, we hold that Franco is not entitled to unearned interest on the time deposit as
well as to moral and exemplary damages.

First. On the issue of who has a better right to the deposits in Francos accounts, BPI-FB urges us
that the legal consequence of FMICs forgery claim is that the money transferred by BPI-FB to Tevesteco
is its own, and considering that it was able to recover possession of the same when the money was
redeposited by Franco, it had the right to set up its ownership thereon and freeze Francos accounts.

BPI-FB contends that its position is not unlike that of an owner of personal property who regains
possession after it is stolen, and to illustrate this point, BPI-FB gives the following example: where Xs
television set is stolen by Y who thereafter sells it to Z, and where Z unwittingly entrusts possession of
the TV set to X, the latter would have the right to keep possession of the property and preclude Z from
recovering possession thereof. To bolster its position, BPI-FB cites Article 559 of the Civil Code, which
provides:

Article 559. The possession of movable property acquired in good faith is equivalent to a title.
Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it
from the person in possession of the same.

If the possessor of a movable lost or of which the owner has been unlawfully deprived, has
acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the
price paid therefor.


BPI-FBs argument is unsound. To begin with, the movable property mentioned in Article 559 of
the Civil Code pertains to a specific or determinate thing.
[30]
A determinate or specific thing is one that is
individualized and can be identified or distinguished from others of the same kind.
[31]


In this case, the deposit in Francos accounts consists of money which, albeit characterized as a movable,
is generic and fungible.
[32]
The quality of being fungible depends upon the possibility of the property,
because of its nature or the will of the parties, being substituted by others of the same kind, not having
a distinct individuality.
[33]


Significantly, while Article 559 permits an owner who has lost or has been unlawfully deprived of a
movable to recover the exact same thing from the current possessor, BPI-FB simply claims ownership of
the equivalent amount of money, i.e., the value thereof, which it had mistakenly debited from FMICs
account and credited to Tevestecos, and subsequently traced to Francos account. In fact, this is what
BPI-FB did in filing the Makati Case against Franco, et al. It staked its claim on the money itself which
passed from one account to another, commencing with the forged Authority to Debit.

It bears emphasizing that money bears no earmarks of peculiar ownership,
[34]
and this characteristic is
all the more manifest in the instant case which involves money in a banking transaction gone awry. Its
primary function is to pass from hand to hand as a medium of exchange, without other evidence of its
title.
[35]
Money, which had passed through various transactions in the general course of banking
business, even if of traceable origin, is no exception.

Thus, inasmuch as what is involved is not a specific or determinate personal property, BPI-FBs
illustrative example, ostensibly based on Article 559, is inapplicable to the instant case.

There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but not as a legal
consequence of its unauthorized transfer of FMICs deposits to Tevestecos account. BPI-FB conveniently
forgets that the deposit of money in banks is governed by the Civil Code provisions on simple loan or
mutuum.
[36]
As there is a debtor-creditor relationship between a bank and its depositor, BPI-FB
ultimately acquired ownership of Francos deposits, but such ownership is coupled with a corresponding
obligation to pay him an equal amount on demand.
[37]
Although BPI-FB owns the deposits in Francos
accounts, it cannot prevent him from demanding payment of BPI-FBs obligation by drawing checks
against his current account, or asking for the release of the funds in his savings account. Thus, when
Franco issued checks drawn against his current account, he had every right as creditor to expect that
those checks would be honored by BPI-FB as debtor.

More importantly, BPI-FB does not have a unilateral right to freeze the accounts of Franco based on its
mere suspicion that the funds therein were proceeds of the multi-million peso scam Franco was
allegedly involved in. To grant BPI-FB, or any bank for that matter, the right to take whatever action it
pleases on deposits which it supposes are derived from shady transactions, would open the floodgates
of public distrust in the banking industry.

Our pronouncement in Simex International (Manila), Inc. v. Court of Appeals
[38]
continues to resonate,
thus:

The banking system is an indispensable institution in the modern world and plays a vital role in
the economic life of every civilized nation. Whether as mere passive entities for the safekeeping and
saving of money or as active instruments of business and commerce, banks have become an ubiquitous
presence among the people, who have come to regard them with respect and even gratitude and, most
of all, confidence. Thus, even the humble wage-earner has not hesitated to entrust his lifes savings to
the bank of his choice, knowing that they will be safe in its custody and will even earn some interest for
him. The ordinary person, with equal faith, usually maintains a modest checking account for security and
convenience in the settling of his monthly bills and the payment of ordinary expenses. x x x.

In every case, the depositor expects the bank to treat his account with the utmost fidelity,
whether such account consists only of a few hundred pesos or of millions. The bank must record every
single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done
if the account is to reflect at any given time the amount of money the depositor can dispose of as he
sees fit, confident that the bank will deliver it as and to whomever directs. A blunder on the part of the
bank, such as the dishonor of the check without good reason, can cause the depositor not a little
embarrassment if not also financial loss and perhaps even civil and criminal litigation.

The point is that as a business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their relationship. x x x.


Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know the
signatures of its customers. Having failed to detect the forgery in the Authority to Debit and in the
process inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB cannot now shift liability thereon to
Franco and the other payees of checks issued by Tevesteco, or prevent withdrawals from their
respective accounts without the appropriate court writ or a favorable final judgment.

Further, it boggles the mind why BPI-FB, even without delving into the authenticity of the signature in
the Authority to Debit, effected the transfer ofP80,000,000.00 from FMICs to Tevestecos account,
when FMICs account was a time deposit and it had already paid advance interest to FMIC. Considering
that there is as yet no indubitable evidence establishing Francos participation in the forgery, he remains
an innocent party. As between him and BPI-FB, the latter, which made possible the present
predicament, must bear the resulting loss or inconvenience.

Second. With respect to its liability for interest on Francos current account, BPI-FB argues that its non-
compliance with the Makati RTCs Order Lifting the Order of Attachment and the legal consequences
thereof, is a matter that ought to be taken up in that court.

The argument is tenuous. We agree with the succinct holding of the appellate court in this respect. The
Manila RTCs order to pay interests on Francos current account arose from BPI-FBs unjustified refusal
to comply with its obligation to pay Franco pursuant to their contract of mutuum. In other words, from
the time BPI-FB refused Francos demand for the release of the deposits in his current account,
specifically, from May 17, 1990, interest at the rate of 12% began to accrue thereon.
[39]


Undeniably, the Makati RTC is vested with the authority to determine the legal consequences of BPI-FBs
non-compliance with the Order Lifting the Order of Attachment. However, such authority does not
preclude the Manila RTC from ruling on BPI-FBs liability to Franco for payment of interest based on its
continued and unjustified refusal to perform a contractual obligation upon demand. After all, this was
the core issue raised by Franco in his complaint before the Manila RTC.

Third. As to the award to Franco of the deposits in Quiaoits account, we find no reason to depart from
the factual findings of both the Manila RTC and the CA.

Noteworthy is the fact that Quiaoit himself testified that the deposits in his account are actually owned
by Franco who simply accommodated Jaime Sebastians request to temporarily transfer P400,000.00
from Francos savings account to Quiaoits account.
[40]
His testimony cannot be characterized as hearsay
as the records reveal that he had personal knowledge of the arrangement made between Franco,
Sebastian and himself.
[41]


BPI-FB makes capital of Francos belated allegation relative to this particular arrangement. It insists that
the transaction with Quiaoit was not specifically alleged in Francos complaint before the Manila RTC.
However, it appears that BPI-FB had impliedly consented to the trial of this issue given its extensive
cross-examination of Quiaoit.

Section 5, Rule 10 of the Rules of Court provides:

Section 5. Amendment to conform to or authorize presentation of evidence. When issues
not raised by the pleadings are tried with the express or implied consent of the parties, they shall be
treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as
may be necessary to cause them to conform to the evidence and to raise these issues may be made
upon motion of any party at any time, even after judgment; but failure to amend does not affect the
result of the trial of these issues. If evidence is objected to at the trial on the ground that it is now
within the issues made by the pleadings, the court may allow the pleadings to be amended and shall do
so with liberality if the presentation of the merits of the action and the ends of substantial justice will be
subserved thereby. The court may grant a continuance to enable the amendment to be made.
(Emphasis supplied)


In all, BPI-FBs argument that this case is not the right forum for Franco to recover the P400,000.00
begs the issue. To reiterate, Quiaoit, testifying during the trial, unequivocally disclaimed ownership of
the funds in his account, and pointed to Franco as the actual owner thereof. Clearly, Francos action for
the recovery of his deposits appropriately covers the deposits in Quiaoits account.

Fourth. Notwithstanding all the foregoing, BPI-FB continues to insist that the dishonor of Francos
checks respectively dated September 11 and 18, 1989 was legally in order in view of the Makati RTCs
supplemental writ of attachment issued on September 14, 1989. It posits that as the party that applied
for the writ of attachment before the Makati RTC, it need not be served with the Notice of Garnishment
before it could place Francos accounts under garnishment.

The argument is specious. In this argument, we perceive BPI-FBs clever but transparent ploy to
circumvent Section 4,
[42]
Rule 13 of the Rules of Court. It should be noted that the strict requirement on
service of court papers upon the parties affected is designed to comply with the elementary requisites
of due process. Franco was entitled, as a matter of right, to notice, if the requirements of due process
are to be observed. Yet, he received a copy of the Notice of Garnishment only on September 27, 1989,
several days after the two checks he issued were dishonored by BPI-FB on September 20 and 21,
1989. Verily, it was premature for BPI-FB to freeze Francos accounts without even awaiting service of
the Makati RTCs Notice of Garnishment on Franco.

Additionally, it should be remembered that the enforcement of a writ of attachment cannot be
made without including in the main suit the owner of the property attached by virtue thereof. Section
5, Rule 13 of the Rules of Court specifically provides that no levy or attachment pursuant to the writ
issued x x x shall be enforced unless it is preceded, or contemporaneously accompanied, by service of
summons, together with a copy of the complaint, the application for attachment, on the defendant
within the Philippines.

Franco was impleaded as party-defendant only on May 15, 1990. The Makati RTC had yet to
acquire jurisdiction over the person of Franco when BPI-FB garnished his accounts.
[43]
Effectively,
therefore, the Makati RTC had no authority yet to bind the deposits of Franco through the writ of
attachment, and consequently, there was no legal basis for BPI-FB to dishonor the checks issued by
Franco.

Fifth. Anent the CAs finding that BPI-FB was in bad faith and as such liable for the advance interest
it deducted from Francos time deposit account, and for moral as well as exemplary damages, we find it
proper to reinstate the ruling of the trial court, and allow only the recovery of nominal damages in the
amount ofP10,000.00. However, we retain the CAs award of P75,000.00 as attorneys fees.

In granting Francos prayer for interest on his time deposit account and for moral and exemplary
damages, the CA attributed bad faith to BPI-FB because it (1) completely disregarded its obligation to
Franco; (2) misleadingly claimed that Francos deposits were under garnishment; (3) misrepresented
that Francos current account was not on file; and (4) refused to return the P400,000.00 despite the fact
that the ostensible owner, Quiaoit, wanted the amount returned to Franco.

In this regard, we are guided by Article 2201 of the Civil Code which provides:

Article 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in
good faith is liable shall be those that are the natural and probable consequences of the breach of the
obligation, and which the parties have foreseen or could have reasonable foreseen at the time the
obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all
damages which may be reasonably attributed to the non-performance of the obligation. (Emphasis
supplied.)


We find, as the trial court did, that BPI-FB acted out of the impetus of self-protection and not out
of malevolence or ill will. BPI-FB was not in the corrupt state of mind contemplated in Article 2201 and
should not be held liable for all damages now being imputed to it for its breach of obligation. For the
same reason, it is not liable for the unearned interest on the time deposit.

Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or
some moral obliquity and conscious doing of wrong; it partakes of the nature of fraud.
[44]
We have held
that it is a breach of a known duty through some motive of interest or ill will.
[45]
In the instant case, we
cannot attribute to BPI-FB fraud or even a motive of self-enrichment. As the trial court found, there was
no denial whatsoever by BPI-FB of the existence of the accounts. The computer-generated document
which indicated that the current account was not on file resulted from the prior debit by BPI-FB of the
deposits. The remedy of freezing the account, or the garnishment, or even the outright refusal to honor
any transaction thereon was resorted to solely for the purpose of holding on to the funds as a security
for its intended court action,
[46]
and with no other goal but to ensure the integrity of the accounts.

We have had occasion to hold that in the absence of fraud or bad faith,
[47]
moral damages cannot
be awarded; and that the adverse result of an action does not per se make the action wrongful, or the
party liable for it. One may err, but error alone is not a ground for granting such damages.
[48]


An award of moral damages contemplates the existence of the following requisites: (1) there must
be an injury clearly sustained by the claimant, whether physical, mental or psychological; (2) there must
be a culpable act or omission factually established; (3) the wrongful act or omission of the defendant is
the proximate cause of the injury sustained by the claimant; and (4) the award for damages is
predicated on any of the cases stated in Article 2219 of the Civil Code.
[49]


Franco could not point to, or identify any particular circumstance in Article 2219 of the Civil
Code,
[50]
upon which to base his claim for moral damages.

Thus, not having acted in bad faith, BPI-FB cannot be held liable for moral damages under Article
2220 of the Civil Code for breach of contract.
[51]


We also deny the claim for exemplary damages. Franco should show that he is entitled to moral,
temperate, or compensatory damages before the court may even consider the question of whether
exemplary damages should be awarded to him.
[52]
As there is no basis for the award of moral damages,
neither can exemplary damages be granted.

While it is a sound policy not to set a premium on the right to litigate,
[53]
we, however, find that
Franco is entitled to reasonable attorneys fees for having been compelled to go to court in order to
assert his right. Thus, we affirm the CAs grant of P75,000.00 as attorneys fees.

Attorneys fees may be awarded when a party is compelled to litigate or incur expenses to protect
his interest,
[54]
or when the court deems it just and equitable.
[55]
In the case at bench, BPI-FB refused to
unfreeze the deposits of Franco despite the Makati RTCs Order Lifting the Order of Attachment and
Quiaoits unwavering assertion that the P400,000.00 was part of Francos savings account. This refusal
constrained Franco to incur expenses and litigate for almost two (2) decades in order to protect his
interests and recover his deposits. Therefore, this Court deems it just and equitable to grant
Franco P75,000.00 as attorneys fees. The award is reasonable in view of the complexity of the issues
and the time it has taken for this case to be resolved.
[56]


Sixth. As for the dismissal of BPI-FBs counter-claim, we uphold the Manila RTCs ruling, as affirmed
by the CA, that BPI-FB is not entitled to recoverP3,800,000.00 as actual damages. BPI-FBs alleged loss of
profit as a result of Francos suit is, as already pointed out, of its own making. Accordingly, the denial of
its counter-claim is in order.

WHEREFORE, the petition is PARTIALLY GRANTED. The Court of Appeals Decision dated November
29, 1995 is AFFIRMED with theMODIFICATION that the award of unearned interest on the time deposit
and of moral and exemplary damages is DELETED.

No pronouncement as to costs.

SO ORDERED.


ANTONIO EDUARDO B. NACHURA
Associate Justice


WE CONCUR:



CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson



MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
MINITA V. CHICO-NAZARIO
Associate Justice



RUBEN T. REYES
Associate Justice


A T T E S T A T I O N

I attest that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.



CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division


C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.



REYNATO S. PUNO
Chief Justice





[1]
Penned by Associate Justice Eugenio S. Labitoria, with Associate Justices Cancio C. Garcia
(retired Associate Justice of the Supreme Court) and Portia Alino Hormachuelos, concurring; rollo, pp.
40-55.
[2]
CA rollo, pp. 70-79.
[3]
Antonio T. Ong, Manuel Bienvenida, Jr., Milagros Nayve, Jaime Sebastian, Ador de Asis, and
Eladio Teves. Rollo, pp. 160-207. RTC, Quezon City, Branch 85, Decision in Crim. Case No. Q91-22386.
[4]
Account No. 840-107483-7.
[5]
Account No. 1668238-1.
[6]
Account No. 08523412.
[7]
President of Tevesteco.

[8]
BPI-FBs Memorandum, rollo, pp. 104-105.
[9]
Executive Vice-President of FMIC.
[10]
The new BPI-FB SFDM branch manager who replaced Jaime Sebastian.
[11]
BPI-FBs Memorandum, rollo, p. 105.
[12]
Id.
[13]
Respectively dated September 11 and 18, 1989. The first check dated August 31, 1989 Franco
issued in the amount of P50,000.00 was honored by BPI-FB.
[14]
Supra note 3. The names of other defendants in Crim. Case No. Q91-22386.
[15]
Franco received the Notice of Garnishment on September 27, 1989, but the 2 checks he had
issued were presented for payment at BPI-FB on September 20 & 21, 1989, respectively.
[16]
Francos Memorandum, rollo, p. 137.
[17]
Docketed as Civil Case No. 89-5280 and entitled First Metro Investment Corporation v.
BPI Family Bank.
[18]
G.R. No. 132390, May 21, 2004, 429 SCRA 30.
[19]
Officers of the International Baptist Church and International Baptist Academy in Malabon,
Metro Manila.
[20]
The checks issued by Buenaventura et al. were dishonored upon presentment for payment.
[21]
G.R. No. 148196, September 30, 2005, 471 SCRA 431.
[22]
Supra note 3.
[23]
Rollo, pp. 160-208.
[24]
The Makati Case for recovery of the P37,455,410.54 representing Tevestecos total
withdrawals wherein Franco was belatedly impleaded, and a Writ of Garnishment was issued on
Francos accounts.
[25]
P450,000.00.
[26]
The reflected amount of P98,973.23 plus P400,000.00 representing what was transferred to
Quiaoits account under their arrangement
[27]
P63,189.00.

[28]
CA rollo, p. 79.
[29]
Rollo, p. 54.


[30]
See Article 1460, paragraph 1 of the Civil Code. A thing is determinate when it is particularly
designated or physically segregated from all others of the same class.
[31]
Tolentino, Civil Code of the Philippines Commentaries and Jurisprudence, Vol. IV, 1985, p. 90.
[32]
See Article 418 of the Civil Code, taken from Article 337 of the Old Civil Code which used the
words fungible or non-fungible.
[33]
Tolentino, Civil Code of the Philippines Commentaries and Jurisprudence, Vol. II, 1983, p. 26.
[34]
United States v. Sotelo, 28 Phil. 147, 158 (1914).
[35]
Id.
[36]
Article 1980 of the Civil Code: Fixed, savings, and current deposits of money in banks and
similar institutions shall be governed by the provisions concerning loan. See Article 1933 of the Civil
Code.
[37]
Article 1953 of the Civil Code: A person who receives a loan of money or any other fungible
thing acquires the ownership thereof, and is bound to pay the creditor an equal amount of the same
kind and quality.

[38]
G.R. No. 88013, March 19, 1990, 183 SCRA 360, 366-367.
[39]
See Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, July 12, 1994, 234 SCRA
78, 95.
[40]
TSN, July 30, 1991, p. 5.
[41]
Id. at 5-11.
[42]
SEC. 4. Papers required to be filed and served. Every judgment, resolution, order, pleading
subsequent to the complaint, written motion, notice, appearance, demand, offer of judgment or similar
papers shall be filed with the court, and served upon the parties affected.
[43]
See Sievert v. Court of Appeals, G.R. No. L-84034, December 22, 1988, 168 SCRA 692, 696.
[44]
Board of Liquidators v. Heirs of Maximo Kalaw, et al., 127 Phil. 399, 421 (1967).
[45]
Lopez, et al. v. Pan American World Airways, 123 Phil. 256, 264-265 (1966).
[46]
CA rollo, p. 74.
[47]
Suario v. Bank of the Philippine Islands, G.R. No. 50459, August 25, 1989, 176 SCRA 688, 696;
citing Guita v. Court of Appeals, 139 SCRA 576, 580 (1985).
[48]
Bank of the Philippine Islands v. Casa Montessori Internationale, G.R. No. 149454, May 28,
2004, 430 SCRA 261, 293-294.
[49]
United Coconut Planters Bank v. Ramos, 461 Phil. 277, 298 (2003); citing Cathay Pacific
Airways, Ltd. v. Spouses Vazquez, 447 Phil. 306 (2003).

[50]
Art. 2219. Moral damages may be recovered in the following and analogous cases:
(1) A criminal offense resulting in physical injuries;
(2) Quasi-delicts causing physical injuries;
(3) Seduction, abduction, rape, or other lascivious acts;
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
(6) Illegal search;
(7) Libel, slander or any other form of defamation;
(8) Malicious prosecution;
(9) Acts mentioned in Article 309;
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
The parents of the female seduced, abducted, raped, or abused, referred to in No. 3 of this
article, may also recover moral damages.
The spouse, descendants, ascendants, and brother and sisters may bring the action mentioned
in No. 9 of this article, in the order named.
[51]
Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are justly due. The same rule applies to
breaches of contract where the defendant acted fraudulently or in bad faith.
[52]
Article 2234 of the Civil Code.
Art. 2234. While the amount of the exemplary damages need not be proved, the plaintiff must
show that he is entitled to moral, temperate or compensatory damages before the court may consider
the question of whether or not exemplary damages should be awarded. In case liquidated damages
have been agreed upon, although no proof of loss is necessary in order that such liquidated damages
may be recovered, nevertheless, before the court may consider the question of granting exemplary in
addition to the liquidated damages, the plaintiff must show that he would be entitled to moral,
temperate or compensatory damages were it not for the stipulation for liquidated damages.
[53]
Bank of the Philippine Islands v. Casa Montessori Internationale, supra note 48, at 296.
[54]
CIVIL CODE, Art. 2208, par. (2).
[55]
CIVIL CODE, Art. 2208, par. (11).
[56]
Ching Sen Ben v. Court of Appeals, 373 Phil. 544, 555 (1999).
THIRD DIVISION
G.R. No. 155223 April 4, 2007
BOBIE ROSE V. FRIAS, represented by her Attorney-in-fact, MARIE F. FUJITA, Petitioner,
vs.
FLORA SAN DIEGO-SISON, Respondent.
D E C I S I O N
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by Bobie Rose V. Frias represented by her Attorney-
in-fact, Marie Regine F. Fujita (petitioner) seeking to annul the Decision
1
dated June 18, 2002 and the
Resolution
2
dated September 11, 2002 of the Court of Appeals (CA) in CA-G.R. CV No. 52839.
Petitioner is the owner of a house and lot located at No. 589 Batangas East, Ayala Alabang, Muntinlupa,
Metro Manila, which she acquired from Island Masters Realty and Development Corporation (IMRDC) by
virtue of a Deed of Sale dated Nov. 16, 1990.
3
The property is covered by TCT No. 168173 of the Register
of Deeds of Makati in the name of IMRDC.
4

On December 7, 1990, petitioner, as the FIRST PARTY, and Dra. Flora San Diego-Sison (respondent), as
the SECOND PARTY, entered into a Memorandum of Agreement
5
over the property with the following
terms:
NOW, THEREFORE, for and in consideration of the sum of THREE MILLION PESOS (P3,000,000.00) receipt
of which is hereby acknowledged by the FIRST PARTY from the SECOND PARTY, the parties have agreed
as follows:
1. That the SECOND PARTY has a period of Six (6) months from the date of the execution of this contract
within which to notify the FIRST PARTY of her intention to purchase the aforementioned parcel of land
together within (sic) the improvements thereon at the price of SIX MILLION FOUR HUNDRED THOUSAND
PESOS (P6,400,000.00). Upon notice to the FIRST PARTY of the SECOND PARTYs intention to purchase
the same, the latter has a period of another six months within which to pay the remaining balance
of P3.4 million.
2. That prior to the six months period given to the SECOND PARTY within which to decide whether or
not to purchase the above-mentioned property, the FIRST PARTY may still offer the said property to
other persons who may be interested to buy the same provided that the amount ofP3,000,000.00 given
to the FIRST PARTY BY THE SECOND PARTY shall be paid to the latter including interest based on
prevailing compounded bank interest plus the amount of the sale in excess of P7,000,000.00 should the
property be sold at a price more than P7 million.
3. That in case the FIRST PARTY has no other buyer within the first six months from the execution of this
contract, no interest shall be charged by the SECOND PARTY on the P3 million however, in the event that
on the sixth month the SECOND PARTY would decide not to purchase the aforementioned property, the
FIRST PARTY has a period of another six months within which to pay the sum of P3 million pesos
provided that the said amount shall earn compounded bank interest for the last six months only. Under
this circumstance, the amount of P3 million given by the SECOND PARTY shall be treated as [a] loan and
the property shall be considered as the security for the mortgage which can be enforced in accordance
with law.
x x x x.
6

Petitioner received from respondent two million pesos in cash and one million pesos in a post-dated
check dated February 28, 1990, instead of 1991, which rendered said check stale.
7
Petitioner then gave
respondent TCT No. 168173 in the name of IMRDC and the Deed of Absolute Sale over the property
between petitioner and IMRDC.
Respondent decided not to purchase the property and notified petitioner through a letter
8
dated March
20, 1991, which petitioner received only on June 11, 1991,
9
reminding petitioner of their agreement that
the amount of two million pesos which petitioner received from respondent should be considered as a
loan payable within six months. Petitioner subsequently failed to pay respondent the amount of two
million pesos.
On April 1, 1993, respondent filed with the Regional Trial Court (RTC) of Manila, a complaint
10
for sum of
money with preliminary attachment against petitioner. The case was docketed as Civil Case No. 93-
65367 and raffled to Branch 30. Respondent alleged the foregoing facts and in addition thereto averred
that petitioner tried to deprive her of the security for the loan by making a false report
11
of the loss of
her owners copy of TCT No. 168173 to the Tagig Police Station on June 3, 1991, executing an affidavit of
loss and by filing a petition
12
for the issuance of a new owners duplicate copy of said title with the RTC
of Makati, Branch 142; that the petition was granted in an Order
13
dated August 31, 1991; that said
Order was subsequently set aside in an Order dated April 10, 1992
14
where the RTC Makati granted
respondents petition for relief from judgment due to the fact that respondent is in possession of the
owners duplicate copy of TCT No. 168173, and ordered the provincial public prosecutor to conduct an
investigation of petitioner for perjury and false testimony. Respondent prayed for the ex-parte issuance
of a writ of preliminary attachment and payment of two million pesos with interest at 36% per annum
from December 7, 1991, P100,000.00 moral, corrective and exemplary damages and P200,000.00 for
attorneys fees.
In an Order dated April 6, 1993, the Executive Judge of the RTC of Manila issued a writ of preliminary
attachment upon the filing of a bond in the amount of two million pesos.
15

Petitioner filed an Amended Answer
16
alleging that the Memorandum of Agreement was conceived and
arranged by her lawyer, Atty. Carmelita Lozada, who is also respondents lawyer; that she was asked to
sign the agreement without being given the chance to read the same; that the title to the property and
the Deed of Sale between her and the IMRDC were entrusted to Atty. Lozada for safekeeping and were
never turned over to respondent as there was no consummated sale yet; that out of the two million
pesos cash paid, Atty. Lozada took the one million pesos which has not been returned, thus petitioner
had filed a civil case against her; that she was never informed of respondents decision not to purchase
the property within the six month period fixed in the agreement; that when she demanded the return of
TCT No. 168173 and the Deed of Sale between her and the IMRDC from Atty. Lozada, the latter gave her
these documents in a brown envelope on May 5, 1991 which her secretary placed in her attache case;
that the envelope together with her other personal things were lost when her car was forcibly opened
the following day; that she sought the help of Atty. Lozada who advised her to secure a police report, to
execute an affidavit of loss and to get the services of another lawyer to file a petition for the issuance of
an owners duplicate copy; that the petition for the issuance of a new owners duplicate copy was filed
on her behalf without her knowledge and neither did she sign the petition nor testify in court as falsely
claimed for she was abroad; that she was a victim of the manipulations of Atty. Lozada and respondent
as shown by the filing of criminal charges for perjury and false testimony against her; that no interest
could be due as there was no valid mortgage over the property as the principal obligation is vitiated with
fraud and deception. She prayed for the dismissal of the complaint, counter-claim for damages and
attorneys fees.
Trial on the merits ensued. On January 31, 1996, the RTC issued a decision,
17
the dispositive portion of
which reads:
WHEREFORE, judgment is hereby RENDERED:
1) Ordering defendant to pay plaintiff the sum of P2 Million plus interest thereon at the rate of thirty
two (32%) per cent per annum beginning December 7, 1991 until fully paid.
2) Ordering defendant to pay plaintiff the sum of P70,000.00 representing premiums paid by plaintiff on
the attachment bond with legal interest thereon counted from the date of this decision until fully paid.
3) Ordering defendant to pay plaintiff the sum of P100,000.00 by way of moral, corrective and
exemplary damages.
4) Ordering defendant to pay plaintiff attorneys fees of P100,000.00 plus cost of litigation.
18

The RTC found that petitioner was under obligation to pay respondent the amount of two million pesos
with compounded interest pursuant to their Memorandum of Agreement; that the fraudulent scheme
employed by petitioner to deprive respondent of her only security to her loaned money when petitioner
executed an affidavit of loss and instituted a petition for the issuance of an owners duplicate title
knowing the same was in respondents possession, entitled respondent to moral damages; and that
petitioners bare denial cannot be accorded credence because her testimony and that of her witness did
not appear to be credible.
The RTC further found that petitioner admitted that she received from respondent the two million pesos
in cash but the fact that petitioner gave the one million pesos to Atty. Lozada was without respondents
knowledge thus it is not binding on respondent; that respondent had also proven that in 1993, she
initially paid the sum of P30,000.00 as premium for the issuance of the attachment bond, P20,000.00 for
its renewal in 1994, and P20,000.00 for the renewal in 1995, thus plaintiff should be reimbursed
considering that she was compelled to go to court and ask for a writ of preliminary attachment to
protect her rights under the agreement.
Petitioner filed her appeal with the CA. In a Decision dated June 18, 2002, the CA affirmed the RTC
decision with modification, the dispositive portion of which reads:
WHEREFORE, premises considered, the decision appealed from is MODIFIED in the sense that the rate of
interest is reduced from 32% to 25% per annum, effective June 7, 1991 until fully paid.
19

The CA found that: petitioner gave the one million pesos to Atty. Lozada partly as her commission and
partly as a loan; respondent did not replace the mistakenly dated check of one million pesos because
she had decided not to buy the property and petitioner knew of her decision as early as April 1991; the
award of moral damages was warranted since even granting petitioner had no hand in the filing of the
petition for the issuance of an owners copy, she executed an affidavit of loss of TCT No. 168173 when
she knew all along that said title was in respondents possession; petitioners claim that she thought the
title was lost when the brown envelope given to her by Atty. Lozada was stolen from her car was hollow;
that such deceitful conduct caused respondent serious anxiety and emotional distress.
The CA concluded that there was no basis for petitioner to say that the interest should be charged for six
months only and no more; that a loan always bears interest otherwise it is not a loan; that interest
should commence on June 7, 1991
20
with compounded bank interest prevailing at the time the two
million was considered as a loan which was in June 1991; that the bank interest rate for loans secured by
a real estate mortgage in 1991 ranged from 25% to 32% per annum as certified to by Prudential
Bank,
21
that in fairness to petitioner, the rate to be charged should be 25% only.
Petitioners motion for reconsideration was denied by the CA in a Resolution dated September 11, 2002.
Hence the instant Petition for Review on Certiorari filed by petitioner raising the following issues:
(A) WHETHER OR NOT THE COMPOUNDED BANK INTEREST SHOULD BE LIMITED TO SIX (6) MONTHS AS
CONTAINED IN THE MEMORANDUM OF AGREEMENT.
(B) WHETHER OR NOT THE RESPONDENT IS ENTITLED TO MORAL DAMAGES.
(C) WHETHER OR NOT THE GRANT OF CORRECTIVE AND EXEMPLARY DAMAGES AND ATTORNEYS FEES
IS PROPER EVEN IF NOT MENTIONED IN THE TEXT OF THE DECISION.
22

Petitioner contends that the interest, whether at 32% per annum awarded by the trial court or at 25%
per annum as modified by the CA which should run from June 7, 1991 until fully paid, is contrary to the
parties Memorandum of Agreement; that the agreement provides that if respondent would decide not
to purchase the property, petitioner has the period of another six months to pay the loan with
compounded bank interest for the last six months only; that the CAs ruling that a loan always bears
interest otherwise it is not a loan is contrary to Art. 1956 of the New Civil Code which provides that no
interest shall be due unless it has been expressly stipulated in writing.
We are not persuaded.
While the CAs conclusion, that a loan always bears interest otherwise it is not a loan, is flawed since a
simple loan may be gratuitous or with a stipulation to pay interest,
23
we find no error committed by the
CA in awarding a 25% interest per annum on the two-million peso loan even beyond the second six
months stipulated period.
The Memorandum of Agreement executed between the petitioner and respondent on December 7,
1990 is the law between the parties. In resolving an issue based upon a contract, we must first examine
the contract itself, especially the provisions thereof which are relevant to the controversy.
24
The general
rule is that if the terms of an agreement are clear and leave no doubt as to the intention of the
contracting parties, the literal meaning of its stipulations shall prevail.
25
It is further required that the
various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken jointly.
26

In this case, the phrase "for the last six months only" should be taken in the context of the entire
agreement. We agree with and adopt the CAs interpretation of the phrase in this wise:
Their agreement speaks of two (2) periods of six months each. The first six-month period was given to
plaintiff-appellee (respondent) to make up her mind whether or not to purchase defendant-appellants
(petitioner's) property. The second six-month period was given to defendant-appellant to pay the P2
million loan in the event that plaintiff-appellee decided not to buy the subject property in which case
interest will be charged "for the last six months only", referring to the second six-month period. This
means that no interest will be charged for the first six-month period while appellee was making up her
mind whether to buy the property, but only for the second period of six months after appellee had
decided not to buy the property. This is the meaning of the phrase "for the last six months only".
Certainly, there is nothing in their agreement that suggests that interest will be charged for six months
only even if it takes defendant-appellant an eternity to pay the loan.
27

The agreement that the amount given shall bear compounded bank interest for the last six months
only,i.e., referring to the second six-month period, does not mean that interest will no longer be charged
after the second six-month period since such stipulation was made on the logical and reasonable
expectation that such amount would be paid within the date stipulated. Considering that petitioner
failed to pay the amount given which under the Memorandum of Agreement shall be considered as a
loan, the monetary interest for the last six months continued to accrue until actual payment of the
loaned amount.
The payment of regular interest constitutes the price or cost of the use of money and thus, until the
principal sum due is returned to the creditor, regular interest continues to accrue since the debtor
continues to use such principal amount.
28
It has been held that for a debtor to continue in possession of
the principal of the loan and to continue to use the same after maturity of the loan without payment of
the monetary interest, would constitute unjust enrichment on the part of the debtor at the expense of
the creditor.
29

Petitioner and respondent stipulated that the loaned amount shall earn compounded bank interests,
and per the certification issued by Prudential Bank, the interest rate for loans in 1991 ranged from 25%
to 32% per annum. The CA reduced the interest rate to 25% instead of the 32% awarded by the trial
court which petitioner no longer assailed.1awphi1.nt
In Bautista v. Pilar Development Corp.,
30
we upheld the validity of a 21% per annum interest on
aP142,326.43 loan. In Garcia v. Court of Appeals,
31
we sustained the agreement of the parties to a 24%
per annum interest on an P8,649,250.00 loan. Thus, the interest rate of 25% per annum awarded by the
CA to a P2 million loan is fair and reasonable.
Petitioner next claims that moral damages were awarded on the erroneous finding that she used a
fraudulent scheme to deprive respondent of her security for the loan; that such finding is baseless since
petitioner was acquitted in the case for perjury and false testimony filed by respondent against her.
We are not persuaded.
Article 31 of the Civil Code provides that when the civil action is based on an obligation not arising from
the act or omission complained of as a felony, such civil action may proceed independently of the
criminal proceedings and regardless of the result of the latter.
32

While petitioner was acquitted in the false testimony and perjury cases filed by respondent against her,
those actions are entirely distinct from the collection of sum of money with damages filed by
respondent against petitioner.
We agree with the findings of the trial court and the CA that petitioners act of trying to deprive
respondent of the security of her loan by executing an affidavit of loss of the title and instituting a
petition for the issuance of a new owners duplicate copy of TCT No. 168173 entitles respondent to
moral damages.1a\^/phi1.net Moral damages may be awarded in culpa contractual or breach of
contract cases when the defendant acted fraudulently or in bad faith. Bad faith does not simply connote
bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious
doing of wrong. It partakes of the nature of fraud.
33

The Memorandum of Agreement provides that in the event that respondent opts not to buy the
property, the money given by respondent to petitioner shall be treated as a loan and the property shall
be considered as the security for the mortgage. It was testified to by respondent that after they
executed the agreement on December 7, 1990, petitioner gave her the owners copy of the title to the
property, the Deed of Sale between petitioner and IMRDC, the certificate of occupancy, and the
certificate of the Secretary of the IMRDC who signed the Deed of Sale.
34
However, notwithstanding that
all those documents were in respondents possession, petitioner executed an affidavit of loss that the
owners copy of the title and the Deed of Sale were lost.
Although petitioner testified that her execution of the affidavit of loss was due to the fact that she was
of the belief that since she had demanded from Atty. Lozada the return of the title, she thought that the
brown envelope with markings which Atty. Lozada gave her on May 5, 1991 already contained the title
and the Deed of Sale as those documents were in the same brown envelope which she gave to Atty.
Lozada prior to the transaction with respondent.
35
Such statement remained a bare statement. It was
not proven at all since Atty. Lozada had not taken the stand to corroborate her claim. In fact, even
petitioners own witness, Benilda Ynfante (Ynfante), was not able to establish petitioner's claim that the
title was returned by Atty. Lozada in view of Ynfante's testimony that after the brown envelope was
given to petitioner, the latter passed it on to her and she placed it in petitioners attach case
36
and did
not bother to look at the envelope.
37

It is clear therefrom that petitioners execution of the affidavit of loss became the basis of the filing of
the petition with the RTC for the issuance of new owners duplicate copy of TCT No. 168173. Petitioners
actuation would have deprived respondent of the security for her loan were it not for respondents
timely filing of a petition for relief whereby the RTC set aside its previous order granting the issuance of
new title. Thus, the award of moral damages is in order.
The entitlement to moral damages having been established, the award of exemplary damages is
proper.
38
Exemplary damages may be imposed upon petitioner by way of example or correction for the
public good.
39
The RTC awarded the amount of P100,000.00 as moral and exemplary damages. While
the award of moral and exemplary damages in an aggregate amount may not be the usual way of
awarding said damages,
40
no error has been committed by CA. There is no question that respondent is
entitled to moral and exemplary damages.
Petitioner argues that the CA erred in awarding attorneys fees because the trial courts decision did not
explain the findings of facts and law to justify the award of attorneys fees as the same was mentioned
only in the dispositive portion of the RTC decision.
We agree.
Article 2208
41
of the New Civil Code enumerates the instances where such may be awarded and, in all
cases, it must be reasonable, just and equitable if the same were to be granted.
42
Attorney's fees as part
of damages are not meant to enrich the winning party at the expense of the losing litigant. They are not
awarded every time a party prevails in a suit because of the policy that no premium should be placed on
the right to litigate.
43
The award of attorney's fees is the exception rather than the general rule. As such,
it is necessary for the trial court to make findings of facts and law that would bring the case within the
exception and justify the grant of such award. The matter of attorney's fees cannot be mentioned only
in the dispositive portion of the decision.
44
They must be clearly explained and justified by the trial court
in the body of its decision. On appeal, the CA is precluded from supplementing the bases for awarding
attorneys fees when the trial court failed to discuss in its Decision the reasons for awarding the same.
Consequently, the award of attorney's fees should be deleted.
WHEREFORE, in view of all the foregoing, the Decision dated June 18, 2002 and the Resolution dated
September 11, 2002 of the Court of Appeals in CA-G.R. CV No. 52839 are AFFIRMED with
MODIFICATION that the award of attorneys fees is DELETED.
No pronouncement as to costs.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
ROMEO J. CALLEJO, SR.
Associate Justice
MINITA V. CHICO-NAZARIO
Asscociate Justice
ANTONIO EDUARDO B. NACHURA
Associate Justice
A T T E S T A T I O N
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it is
hereby certified that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice


Footnotes
1
CA rollo, pp. 134-144; Penned by Justice Wenceslao I. Agnir, Jr. (retired), concurred in by Justices B.A.
Adefuin-de la Cruz (retired) and Regalado E. Maambong.
2
Id. at 164-165.
3
Records, pp. 15-16. Exhibit "C".
4
Id. at 13-14; Exhibit "B".
5
Id. at 9-11; Exhibit "A".
6
Id. at 9-10.
7
Respondent did not correct or replace the post-dated check. Records also do not show that petitioner
demanded its correction or replacement.
8
Id. at 17, Annex "D".
9
Exhibit "D-1", folder of exhibits.
10
Records, pp. 3-8.
11
Id. at 18, Annex "E".
12
Id. at 20-22; Docketed as LRC Case No. M-2282; Annex "G".
13
Id. at 23-24; Penned by Judge Salvador P. de Guzman, Jr.; Annex "H".
14
Id. at 25-27; Annex "I".
15
Id. at 28. Per Judge Rosalio G. dela Rosa.
16
Id. at 130-141.
17
Id. at 286-292; Branch 30, Penned by Judge Senecio O. Ortile.
18
Id. at 292.
19
CA rollo, p. 165.
20
The date when the second six-month period commences under the Memorandum of Agreement
dated December 7, 1990.
21
Exhibit "L", folder of exhibits.
22
Rollo, p. 14.
23
Civil Code, Article 1933.
24
Milwaukee Industries Corporation v. Pampanga III Electric Cooperative, Inc., G.R. No. 152569, May 31,
2004, 430 SCRA 389, 396.
25
Civil Code, Article 1370.
26
Civil Code, Article 1374.
27
CA rollo, p. 164-165.
28
State Investment House, Inc. v. Court of Appeals, G.R. No. 90676, June 19, 1991, 198 SCRA 390, 398.
29
State Investment House, Inc. v. Court of Appeals, supra note 28, at 399.
30
371 Phil. 533, 544 (1999).
31
G.R. Nos. L-82282-83, November 24, 1988, 167 SCRA 815, 830.
32
Gorospe v. Nolasco, 114 Phil. 614, 618 (1962).
33
Abando v. Lozada, G.R. No. 82564, October 13, 1989, 178 SCRA 509, 516, citing Board ofLiquidators v.
Kalaw, G.R. No. L-18805, August 14, 1967, 20 SCRA 987, 1007.
34
TSN, July 17, 1995, p. 5.
35
TSN, August 21, 1995, pp. 7-10.
36
TSN, October 2, 1995, p. 10.
37
Id. at 16.
38
Bert Osmea & Associates, Inc. v. Court of Appeals, 205 Phil. 328, 334 (1983); Kapoe v. Masa, 219 Phil.
204, 208 (1985).
39
Civil Code, Article 2229.
40
Philippine Airlines, Inc. v. Court of Appeals, G.R. Nos. 50504-05, August 13, 1990, 188 SCRA 461, 474.
41
ART. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial
costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to
incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly
valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen's compensation and employer's liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney's fees and expenses of
litigation should be recovered.
In all cases, the attorney's fees and expenses of litigation must be reasonable.
42
Citibank, N.A. v. Cabamongan, G.R. No. 146918, May 2, 2006, 488 SCRA 517, 535-536.
43
Id. citing Country Bankers Insurance Corporation v. Lianga Bay and Community Multi-purpose
Cooperative, Inc. 425 Phil. 511, 525 (2002); Ibaan Rural Bank, Inc. v. Court of Appeals, 378 Phil. 707, 714
(1999).
44
Samatra v. Vda. de Parias, 431 Phil. 255, 267 (2002); Development Bank of the Philippines v. Court of
Appeals, 330 Phil. 801, 810 (1996).
EN BANC

G.R. No. 97412 July 12, 1994
EASTERN SHIPPING LINES, INC., petitioner,
vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.
Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.
Zapa Law Office for private respondent.

VITUG, J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a
shipment of goods can be a solidary, or joint and several, liability of the common carrier, the arrastre
operator and the customs broker; (b) whether the payment of legal interest on an award for loss or
damage is to be computed from the time the complaint is filed or from the date the decision appealed
from is rendered; and (c) whether the applicable rate of interest, referred to above, is twelve percent
(12%) or six percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed
facts that have led to the controversy are hereunder reproduced:
This is an action against defendants shipping company, arrastre operator and broker-forwarder for
damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who paid
the consignee the value of such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery
vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177
for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of
defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which
damage was unknown to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant
Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey." Exh.
D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to
the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of
the contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).
Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses
totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented against
defendants who failed and refused to pay the same (Exhs. H, I, J, K, L).
As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95
under the aforestated marine insurance policy, so that it became subrogated to all the rights of action of
said consignee against defendants (per "Form of Subrogation", "Release" and Philbanking check, Exhs.
M, N, and O). (pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:
Defendants filed their respective answers, traversing the material allegations of the complaint
contending that: As for defendant Eastern Shipping it alleged that the shipment was discharged in good
order from the vessel unto the custody of Metro Port Service so that any damage/losses incurred after
the shipment was incurred after the shipment was turned over to the latter, is no longer its liability (p.
17, Record); Metroport averred that although subject shipment was discharged unto its custody, portion
of the same was already in bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause
of action against it, not having negligent or at fault for the shipment was already in damage and bad
order condition when received by it, but nonetheless, it still exercised extra ordinary care and diligence
in the handling/delivery of the cargo to consignee in the same condition shipment was received by it.
From the evidence the court found the following:
The issues are:
1. Whether or not the shipment sustained losses/damages;
2. Whether or not these losses/damages were sustained while in the custody of defendants (in whose
respective custody, if determinable);
3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's pre-Trial
Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38).
As to the first issue, there can be no doubt that the shipment sustained losses/damages. The two drums
were shipped in good order and condition, as clearly shown by the Bill of Lading and Commercial Invoice
which do not indicate any damages drum that was shipped (Exhs. B and C). But when on December 12,
1981 the shipment was delivered to defendant Metro Port Service, Inc., it excepted to one drum in bad
order.
Correspondingly, as to the second issue, it follows that the losses/damages were sustained while in the
respective and/or successive custody and possession of defendants carrier (Eastern), arrastre operator
(Metro Port) and broker (Allied Brokerage). This becomes evident when the Marine Cargo Survey Report
(Exh. G), with its "Additional Survey Notes", are considered. In the latter notes, it is stated that when the
shipment was "landed on vessel" to dock of Pier # 15, South Harbor, Manila on December 12, 1981, it
was observed that "one (1) fiber drum (was) in damaged condition, covered by the vessel's Agent's Bad
Order Tally Sheet No. 86427." The report further states that when defendant Allied Brokerage withdrew
the shipment from defendant arrastre operator's custody on January 7, 1982, one drum was found
opened without seal, cello bag partly torn but contents intact. Net unrecovered spillages was
15 kgs. The report went on to state that when the drums reached the consignee, one drum was found
with adulterated/faked contents. It is obvious, therefore, that these losses/damages occurred before
the shipment reached the consignee while under the successive custodies of defendants. Under Art.
1737 of the New Civil Code, the common carrier's duty to observe extraordinary diligence in the
vigilance of goods remains in full force and effect even if the goods are temporarily unloaded and stored
in transit in the warehouse of the carrier at the place of destination, until the consignee has been
advised and has had reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC).
Defendant Eastern Shipping's own exhibit, the "Turn-Over Survey of Bad Order Cargoes" (Exhs. 3-
Eastern) states that on December 12, 1981 one drum was found "open".
and thus held:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:
1. The amount of P19,032.95, with the present legal interest of 12% per annumfrom October 1, 1982,
the date of filing of this complaints, until fully paid (the liability of defendant Eastern Shipping, Inc. shall
not exceed US$500 per case or the CIF value of the loss, whichever is lesser, while the liability of
defendant Metro Port Service, Inc. shall be to the extent of the actual invoice value of each package,
crate box or container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the
Management Contract);
2. P3,000.00 as attorney's fees, and
3. Costs.
B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage
Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's recourse to US.
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is
correct. As there is sufficient evidence that the shipment sustained damage while in the successive
possession of appellants, and therefore they are liable to the appellee, as subrogee for the amount it
paid to the consignee. (pp. 87-89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court
a quo.
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of
discretion on the part of the appellate court when
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR AND
CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED
DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD
COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE PERCENT PER
ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE RATE
OF SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that
novel. Indeed, we do have a fairly good number of previous decisions this Court can merely tack to.
The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the
time the articles are surrendered to or unconditionally placed in the possession of, and received by, the
carrier for transportation until delivered to, or until the lapse of a reasonable time for their acceptance
by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161
SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or
arrive in damaged condition, a presumption arises against the carrier of its failure to observe that
diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code;
Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals,
131 SCRA 365). There are, of course, exceptional cases when such presumption of fault is not observed
but these cases, enumerated in Article 1734
1
of the Civil Code, are exclusive, not one of which can be
applied to this case.
The question of charging both the carrier and the arrastre operator with the obligation of properly
delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund
Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding the carrier and the
arrastre operator liable in solidum, thus:
The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and
warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the
consignee and the common carrier is similar to that of the consignee and the arrastre operator
(Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to
take good care of the goods that are in its custody and to deliver them in good condition to the
consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are
therefore charged with the obligation to deliver the goods in good condition to the consignee.
We do not, of course, imply by the above pronouncement that the arrastre operator and the customs
broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that
attendant facts in a given case may not vary the rule. The instant petition has been brought solely by
Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption of
fault, is, in any event, to be held liable in this particular case. A factual finding of both the court a
quo and the appellate court, we take note, is that "there is sufficient evidence that the shipment
sustained damage while in the successive possession of appellants" (the herein petitioner among them).
Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is
inevitable regardless of whether there are others solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that deserves more than just a
passing remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service,
2
decided
3
on 15 May 1969, involved a suit for recovery of money arising out of short deliveries
and pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred
in its complaint that the total amount of its claim for the value of the undelivered goods amounted to
P3,947.20. This demand, however, was neither established in its totality nor definitely ascertained. In
the stipulation of facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 was
agreed upon. The trial court rendered judgment ordering the appellants (defendants) Manila Port
Service and Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51
withlegal interest thereon from the date the complaint was filed on 28 December 1962 until full payment
thereof. The appellants then assailed, inter alia, the award of legal interest. In sustaining the appellants,
this Court ruled:
Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate.
Such interest normally is allowable from the date of demand, judicial or extrajudicial. The trial court
opted for judicial demand as the starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon
unliquidated claims or damages, except when the demand can be established with reasonable
certainty." And as was held by this Court in Rivera vs. Perez,
4
L-6998, February 29, 1956, if the suit were
for damages, "unliquidated and not known until definitely ascertained, assessed and determined by the
courts after proof (Montilla c. Corporacion de P.P. Agustinos, 25 Phil.447; Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)
The case of Reformina vs. Tomol,
5
rendered on 11 October 1985, was for "Recovery of Damages for
Injury to Person and Loss of Property." After trial, the lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and
against the defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and
severally the following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value of
the boat F B Pacita III together with its accessories, fishing gear and equipment minus P80,000.00 which
is the value of the insurance recovered and the amount of P10,000.00 a month as the estimated
monthly loss suffered by them as a result of the fire of May 6, 1969 up to the time they are actually paid
or already the total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the
complaint until paid and to pay attorney's fees of P5,000.00 with costs against defendants and third
party plaintiffs. (Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained
the trial court in adjudging legal interest from the filing of the complaint until fully paid. When the
appellate court's decision became final, the case was remanded to the lower court for execution, and
this was when the trial court issued its assailed resolution which applied the 6% interest per
annum prescribed in Article 2209 of the Civil Code. In their petition for review oncertiorari, the
petitioners contended that Central Bank Circular
No. 416, providing thus
By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its
Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or
forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of
express contract as to such rate of interest, shall be twelve (12%) percent per annum. This Circular shall
take effect immediately. (Emphasis found in the text)
should have, instead, been applied. This Court
6
ruled:
The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of
any money, goods or credits. Any other kind of monetary judgment which has nothing to do with, nor
involving loans or forbearance of any money, goods or credits does not fall within the coverage of the
said law for it is not within the ambit of the authority granted to the Central Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action for
Damages for injury to persons and loss of property and does not involve any loan, much less
forbearances of any money, goods or credits. As correctly argued by the private respondents, the law
applicable to the said case is Article 2209 of the New Civil Code which reads
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay,
the indemnity for damages, there being no stipulation to the contrary, shall be the payment of interest
agreed upon, and in the absence of stipulation, the legal interest which is six percent per annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz,
7
promulgated on 28 July 1986.
The case was for damages occasioned by an injury to person and loss of property. The trial court
awarded private respondent Pedro Manabat actual and compensatory damages in the amount of
P72,500.00 with legal interest thereon from the filing of the complaint until fully paid. Relying on
the Reformina v. Tomolcase, this Court
8
modified the interest award from 12% to 6% interest per annum
but sustained the time computation thereof, i.e., from the filing of the complaint until fully paid.
In Nakpil and Sons vs. Court of Appeals,
9
the trial court, in an action for the recovery of damages arising
from the collapse of a building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29,
1968, the date of the filing of the complaint until full payment. . . ." Save from the modification of the
amount granted by the lower court, the Court of Appeals sustained the trial court's decision. When
taken to this Court for review, the case, on 03 October 1986, was decided, thus:
WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and
environmental circumstances of this case, we deem it reasonable to render a decision imposing, as We
do hereby impose, upon the defendant and the third-party defendants (with the exception of Roman
Ozaeta) a solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to
cover all damages (with the exception to attorney's fees) occasioned by the loss of the building
(including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00)
Pesos as and for attorney's fees, the total sum being payable upon the finality of this decision. Upon
failure to pay on such finality, twelve (12%) per cent interest per annum shall be imposed upon
aforementioned amounts from finality until paid. Solidary costs against the defendant and third-party
defendants (Except Roman Ozaeta). (Emphasis supplied)
A motion for reconsideration was filed by United Construction, contending that "the interest of twelve
(12%) per cent per annum imposed on the total amount of the monetary award was in contravention of
law." The Court
10
ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases and,
in its resolution of 15 April 1988, it explained:
There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No.
416 . . . is applicable only in the following: (1) loans; (2) forbearance of any money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of
any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986];
Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is neither a loan or
a forbearance, but then no interest is actually imposed provided the sums referred to in the judgment are
paid upon the finality of the judgment. It is delay in the payment of such final judgment, that will cause
the imposition of the interest.
It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum,
from the filing of the complaint until paid; in other words, as part of the judgment for damages. Clearly,
they are not applicable to the instant case. (Emphasis supplied.)
The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court
11
was a
petition for review on certiorari from the decision, dated 27 February 1985, of the then Intermediate
Appellate Court reducing the amount of moral and exemplary damages awarded by the trial court, to
P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the
amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages and P400,000.00
as exemplary damages with interest thereon at 12% per annum from notice of judgment, plus costs of
suit. In a decision of 09 November 1988, this Court, while recognizing the right of the private respondent
to recover damages, held the award, however, for moral damages by the trial court, later sustained by
the IAC, to be inconceivably large. The Court
12
thus set aside the decision of the appellate court and
rendered a new one, "ordering the petitioner to pay private respondent the sum of One Hundred
Thousand (P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis
supplied)
Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz
13
which arose from a
breach of employment contract. For having been illegally dismissed, the petitioner was awarded by the
trial court moral and exemplary damages without, however, providing any legal interest thereon. When
the decision was appealed to the Court of Appeals, the latter held:
WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated October
31, 1972 is affirmed in all respects, with the modification that defendants-appellants, except defendant-
appellant Merton Munn, are ordered to pay, jointly and severally, the amounts stated in the dispositive
portion of the decision, including the sum of P1,400.00 in concept of compensatory damages,
with interest at the legal rate from the date of the filing of the complaint until fully paid (Emphasis
supplied.)
The petition for review to this Court was denied. The records were thereupon transmitted to the trial
court, and an entry of judgment was made. The writ of execution issued by the trial court directed that
only compensatory damages should earn interest at 6% per annum from the date of the filing of the
complaint. Ascribing grave abuse of discretion on the part of the trial judge, a petition
forcertiorari assailed the said order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal rate" from
the time of the filing of the complaint. . . Said circular [Central Bank Circular No. 416] does not apply to
actions based on a breach of employment contract like the case at bar. (Emphasis supplied)
The Court reiterated that the 6% interest per annum on the damages should be computed from the time
the complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter. National Power Corporation
vs.Angas,
14
decided on 08 May 1992, involved the expropriation of certain parcels of land. After
conducting a hearing on the complaints for eminent domain, the trial court ordered the petitioner to pay
the private respondents certain sums of money as just compensation for their lands so expropriated
"with legal interest thereon . . . until fully paid." Again, in applying the 6% legal interest per annum under
the Civil Code, the Court
15
declared:
. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but
expropriation of certain parcels of land for a public purpose, the payment of which is without stipulation
regarding interest, and the interest adjudged by the trial court is in the nature of indemnity for
damages. The legal interest required to be paid on the amount of just compensation for the properties
expropriated is manifestly in the form of indemnity for damages for the delay in the payment thereof.
Therefore, since the kind of interest involved in the joint judgment of the lower court sought to be
enforced in this case is interest by way of damages, and not by way of earnings from loans, etc. Art.
2209 of the Civil Code shall apply.
Concededly, there have been seeming variances in the above holdings. The cases can perhaps be
classified into two groups according to the similarity of the issues involved and the corresponding rulings
rendered by the court. The "first group" would consist of the cases of Reformina v. Tomol (1985),
Philippine Rabbit Bus Lines v. Cruz (1986), Florendo v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance
Company v. Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American
Express International v. Intermediate Appellate Court (1988).
In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or
12% (under the Central Bank Circular) interest per annum. It is easily discernible in these cases that
there has been a consistent holding that the Central Bank Circular imposing the 12% interest per
annumapplies only to loans or forbearance
16
of money, goods or credits, as well as to judgments
involving such loan or forbearance of money, goods or credits, and that the 6% interest under the Civil
Code governs when the transaction involves the payment of indemnities in the concept of damage
arising from the breach or a delay in the performance of obligations in general. Observe, too, that in
these cases, a common time frame in the computation of the 6% interest per annumhas been
applied, i.e., from the time the complaint is filed until the adjudged amount is fully paid.
The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per
annum,
17
depending on whether or not the amount involved is a loan or forbearance, on the one hand,
or one of indemnity for damage, on the other hand. Unlike, however, the "first group" which remained
consistent in holding that the running of the legal interest should be from the time of the filing of the
complaint until fully paid, the "second group" varied on the commencement of the running of the legal
interest.
Malayan held that the amount awarded should bear legal interest from the date of the decision of the
court a quo, explaining that "if the suit were for damages, 'unliquidated and not known until definitely
ascertained, assessed and determined by the courts after proof,' then, interest 'should be from the date
of the decision.'" American Express International v. IAC, introduced a different time frame for reckoning
the 6% interest by ordering it to be "computed from the finality of (the) decision until paid." The Nakpil
and Sons case ruled that 12% interest per annum should be imposed from the finality of the decision
until the judgment amount is paid.
The ostensible discord is not difficult to explain. The factual circumstances may have called for different
applications, guided by the rule that the courts are vested with discretion, depending on the equities of
each case, on the award of interest. Nonetheless, it may not be unwise, by way of clarification and
reconciliation, to suggest the following rules of thumb for future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
delicts
18
is breached, the contravenor can be held liable for damages.
19
The provisions under Title XVIII
on "Damages" of the Civil Code govern in determining the measure of recoverable damages.
20

II. With regard particularly to an award of interest in the concept of actual and compensatory damages,
the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in
writing.
21
Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded.
22
In the absence of stipulation, the rate of interest shall be 12% per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article
1169
23
of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court
24
at the rate of 6%per
annum.
25
No interest, however, shall be adjudged on unliquidated claims or damages except when or
until the demand can be established with reasonable certainty.
26
Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be
on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annumfrom such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.
WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the
MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from
the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%),
shall be imposed on such amount upon finality of this decision until the payment thereof.
SO ORDERED.
Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason,
Puno and Kapunan, JJ., concur.
Mendoza, J., took no part.

#Footnotes
1 Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
2 28 SCRA 65.
3 Penned by Justice Conrado Sanchez, concurred in by Justices Jose B.L. Reyes, Arsenio Dizon, Querube
Makalintal, Calixto Zaldivar, Enrique Fernando, Francisco Capistrano, Claudio Teehankee and Antonio
Barredo, Chief Justice Roberto Concepcion and Justice Fred Ruiz Castro were on official leave.
4 The correct caption of the case is "Claro Rivera vs. Amadeo Matute, L-6998,
29 February 1956," 98 Phil. 516.
5 139 SCRA 260, 265.
6 Penned by Justice Serafin Cuevas, concurred in by Justices Hermogenes Concepcion, Jr., Vicente Abad
Santos, Ameurfina Melencio-Herrera, Venicio Escolin, Lorenzo Relova, Hugo Gutierrez, Jr., Buenaventura
de la Fuente, Nestor Alampay and Lino Patajo. Justice Ramon Aquino concurred in the result. Justice
Efren Plana filed a concurring and dissenting opinion, concurred in by Justice Claudio Teehankee while
Chief Justice Felix Makasiar concurred with the separate opinion of Justice Plana.
7 143 SCRA 158.
8 Penned by then Justice, now Chief Justice, Andres Narvasa, concurred in by Justices Pedro Yap,
Ameurfina Melencio-Herrera, Isagani A. Cruz and Edgardo Paras.
9 160 SCRA 334.
10 Penned by Justice Edgardo Paras, with the concurrence of Justices Marcelo Fernan, Teodoro Padilla,
Abdulwahid Bidin, and Irene Cortes. Justice Hugo Gutierrez, Jr., took no part because he was
the ponente in the Court of Appeals.
11 167 SCRA 209.
12 Rendered per curiam with the concurrence of then Chief Justice Marcelo Fernan, Justices Andres
Narvasa, Isagani A. Cruz, Emilio Gancayco, Teodoro Padilla, Abdulwahid Bidin, Abraham Sarmiento, Irene
Cortes, Carolina Grio-Aquino, Leo Medialdea and Florenz Regalado. Justices Ameurfina Melencio-
Herrera and Hugo Gutierrez, Jr., took no part because they did not participate in the deliberations.
Justices Edgardo Paras and Florentino Feliciano also took no part.
13 170 SCRA 461.
14 208 SCRA 542.
15 Penned by Justice Edgardo Paras with the concurrence of Justices Ameurfina Melencio-Herrera,
Teodoro Padilla, Florenz Regalado and Rodolfo Nocon.
16 Black's Law Dictionary (1990 ed., 644) citing the case of Hafer v. Spaeth,
22 Wash. 2d 378, 156 P.2d 408, 411 defines the word forbearance, within the context of usury law, as a
contractual obligation of lender or creditor to refrain, during given period of time, from requiring
borrower or debtor to repay loan or debt then due and payable.
17 In the case of Malayan Insurance, the application of the 6% and 12% interest per annumhas no
bearing considering that this case was decided upon before the issuance of Circular No. 416 by the
Central Bank.
18 Art. 1157. Obligations arise from.
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Qausi-delicts."
19 Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay,
and those who in any manner contravene the tenor thereof, are liable for damages.
20 Art. 2195. The provisions of this Title (on Damages) shall be respectively applicable to all obligations
mentioned in article 1157.
21 Art. 1956. No interest shall be due unless it has been expressly stipulated in writing.
22 Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the
obligation may be silent upon this point.
23 Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
"However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of the
time when the thing is to be delivered or the service is to be rendered was a controlling motive for the
establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
"In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins."
24 Art. 2210. Interest may, in the discretion of the court, be allowed upon damages awarded for breach
of contract.
Art. 2211. In crimes and quasi-delicts, interest as a part of the damages may, in a proper case, be
adjudicated in the discretion of the court.
25 Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay,
the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the
interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per
annum.
26 Art. 2213. Interest cannot be recovered upon unliquidated claims or damages, except when the
demand can be established with reasonable certainty.



THIRD DIVISION


SEBASTIAN SIGA-AN,
Petitioner,





-versus




G.R. No. 173227

Present:

YNARES-SANTIAGO,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
LEONARDO-DE CASTRO,* JJ.



ALICIA VILLANUEVA,
Respondent.
Promulgated:

January 20, 2009
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x


D E C I S I O N

CHICO-NAZARIO, J.:

Before Us is a Petition
[1]
for Review on Certiorari under Rule 45 of the Rules of Court seeking to set aside
the Decision,
[2]
dated 16 December 2005, and Resolution,
[3]
dated 19 June 2006 of the Court of Appeals
in CA-G.R. CV No. 71814, which affirmed in toto the Decision,
[4]
dated 26 January 2001, of the Las Pinas
City Regional Trial Court, Branch 255, in Civil Case No. LP-98-0068.

The facts gathered from the records are as follows:

On 30 March 1998, respondent Alicia Villanueva filed a complaint
[5]
for sum of money against petitioner
Sebastian Siga-an before the Las Pinas City Regional Trial Court (RTC), Branch 255, docketed as Civil Case
No. LP-98-0068. Respondent alleged that she was a businesswoman engaged in supplying office
materials and equipments to the Philippine Navy Office (PNO) located at Fort Bonifacio, Taguig City,
while petitioner was a military officer and comptroller of the PNO from 1991 to 1996.

Respondent claimed that sometime in 1992, petitioner approached her inside the PNO and offered to
loan her the amount of P540,000.00. Since she needed capital for her business transactions with the
PNO, she accepted petitioners proposal. The loan agreement was not reduced in writing. Also, there
was no stipulation as to the payment of interest for the loan.
[6]


On 31 August 1993, respondent issued a check worth P500,000.00 to petitioner as partial payment of
the loan. On 31 October 1993, she issued another check in the amount of P200,000.00 to petitioner as
payment of the remaining balance of the loan. Petitioner told her that since she paid a total amount
of P700,000.00 for theP540,000.00 worth of loan, the excess amount of P160,000.00 would be applied
as interest for the loan. Not satisfied with the amount applied as interest, petitioner pestered her to
pay additional interest. Petitioner threatened to block or disapprove her transactions with the PNO if
she would not comply with his demand. As all her transactions with the PNO were subject to the
approval of petitioner as comptroller of the PNO, and fearing that petitioner might block or unduly
influence the payment of her vouchers in the PNO, she conceded. Thus, she paid additional amounts in
cash and checks as interests for the loan. She asked petitioner for receipt for the payments but
petitioner told her that it was not necessary as there was mutual trust and confidence between them.
According to her computation, the total amount she paid to petitioner for the loan and interest
accumulated to P1,200,000.00.
[7]


Thereafter, respondent consulted a lawyer regarding the propriety of paying interest on the loan despite
absence of agreement to that effect. Her lawyer told her that petitioner could not validly collect
interest on the loan because there was no agreement between her and petitioner regarding payment of
interest. Since she paid petitioner a total amount of P1,200,000.00 for the P540,000.00 worth of loan,
and upon being advised by her lawyer that she made overpayment to petitioner, she sent a demand
letter to petitioner asking for the return of the excess amount of P660,000.00. Petitioner, despite receipt
of the demand letter, ignored her claim for reimbursement.
[8]


Respondent prayed that the RTC render judgment ordering petitioner to pay respondent
(1) P660,000.00 plus legal interest from the time of demand; (2)P300,000.00 as moral damages;
(3) P50,000.00 as exemplary damages; and (4) an amount equivalent to 25% of P660,000.00 as
attorneys fees.
[9]


In his answer
[10]
to the complaint, petitioner denied that he offered a loan to respondent. He averred
that in 1992, respondent approached and asked him if he could grant her a loan, as she needed money
to finance her business venture with the PNO. At first, he was reluctant to deal with respondent,
because the latter had a spotty record as a supplier of the PNO. However, since respondent was an
acquaintance of his officemate, he agreed to grant her a loan. Respondent paid the loan in full.
[11]


Subsequently, respondent again asked him to give her a loan. As respondent had been able to pay the
previous loan in full, he agreed to grant her another loan. Later, respondent requested him to
restructure the payment of the loan because she could not give full payment on the due date. He
acceded to her request. Thereafter, respondent pleaded for another restructuring of the payment of the
loan. This time he rejected her plea. Thus, respondent proposed to execute a promissory note wherein
she would acknowledge her obligation to him, inclusive of interest, and that she would issue several
postdated checks to guarantee the payment of her obligation. Upon his approval of respondents
request for restructuring of the loan, respondent executed a promissory note dated 12 September 1994
wherein she admitted having borrowed an amount of P1,240,000.00, inclusive of interest, from
petitioner and that she would pay said amount in March 1995. Respondent also issued to him six
postdated checks amounting to P1,240,000.00 as guarantee of compliance with her obligation.
Subsequently, he presented the six checks for encashment but only one check was honored. He
demanded that respondent settle her obligation, but the latter failed to do so. Hence, he filed criminal
cases for Violation of the Bouncing Checks Law (Batas Pambansa Blg. 22) against respondent. The cases
were assigned to the Metropolitan Trial Court of Makati City, Branch 65 (MeTC).
[12]


Petitioner insisted that there was no overpayment because respondent admitted in the latters
promissory note that her monetary obligation as of 12 September 1994 amounted to P1,240,000.00
inclusive of interests. He argued that respondent was already estopped from complaining that she
should not have paid any interest, because she was given several times to settle her obligation but failed
to do so. He maintained that to rule in favor of respondent is tantamount to concluding that the loan
was given interest-free. Based on the foregoing averments, he asked the RTC to dismiss respondents
complaint.

After trial, the RTC rendered a Decision on 26 January 2001 holding that respondent made an
overpayment of her loan obligation to petitioner and that the latter should refund the excess amount to
the former. It ratiocinated that respondents obligation was only to pay the loaned amount
of P540,000.00, and that the alleged interests due should not be included in the computation of
respondents total monetary debt because there was no agreement between them regarding payment
of interest. It concluded that since respondent made an excess payment to petitioner in the amount
of P660,000.00 through mistake, petitioner should return the said amount to respondent pursuant to
the principle of solutio indebiti.
[13]


The RTC also ruled that petitioner should pay moral damages for the sleepless nights and wounded
feelings experienced by respondent. Further, petitioner should pay exemplary damages by way of
example or correction for the public good, plus attorneys fees and costs of suit.

The dispositive portion of the RTC Decision reads:

WHEREFORE, in view of the foregoing evidence and in the light of the provisions of law and
jurisprudence on the matter, judgment is hereby rendered in favor of the plaintiff and against the
defendant as follows:

(1) Ordering defendant to pay plaintiff the amount of P660,000.00 plus legal interest of 12% per
annum computed from 3 March 1998 until the amount is paid in full;

(2) Ordering defendant to pay plaintiff the amount of P300,000.00 as moral damages;

(3) Ordering defendant to pay plaintiff the amount of P50,000.00 as exemplary damages;

(4) Ordering defendant to pay plaintiff the amount equivalent to 25% of P660,000.00 as attorneys fees;
and

(5) Ordering defendant to pay the costs of suit.
[14]



Petitioner appealed to the Court of Appeals. On 16 December 2005, the appellate court promulgated its
Decision affirming in toto the RTC Decision, thus:

WHEREFORE, the foregoing considered, the instant appeal is hereby DENIED and the assailed decision
[is] AFFIRMED in toto.
[15]



Petitioner filed a motion for reconsideration of the appellate courts decision but this was
denied.
[16]
Hence, petitioner lodged the instant petition before us assigning the following errors:

I.

THE RTC AND THE COURT OF APPEALS ERRED IN RULING THAT NO INTEREST WAS DUE TO PETITIONER;


II.

THE RTC AND THE COURT OF APPEALS ERRED IN APPLYING THE PRINCIPLE OF SOLUTIO INDEBITI.
[17]



Interest is a compensation fixed by the parties for the use or forbearance of money. This is referred to
as monetary interest. Interest may also be imposed by law or by courts as penalty or indemnity for
damages. This is called compensatory interest.
[18]
The right to interest arises only by virtue of a contract
or by virtue of damages for delay or failure to pay the principal loan on which interest is demanded.
[19]


Article 1956 of the Civil Code, which refers to monetary interest,
[20]
specifically mandates that no
interest shall be due unless it has been expressly stipulated in writing. As can be gleaned from the
foregoing provision, payment of monetary interest is allowed only if: (1) there was an express
stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced
in writing. The concurrence of the two conditions is required for the payment of monetary
interest. Thus, we have held that collection of interest without any stipulation therefor in writing is
prohibited by law.
[21]


It appears that petitioner and respondent did not agree on the payment of interest for the loan. Neither
was there convincing proof of written agreement between the two regarding the payment of
interest. Respondent testified that although she accepted petitioners offer of loan amounting
to P540,000.00, there was, nonetheless, no verbal or written agreement for her to pay interest on the
loan.
[22]


Petitioner presented a handwritten promissory note dated 12 September 1994
[23]
wherein respondent
purportedly admitted owing petitioner capital and interest. Respondent, however, explained that it
was petitioner who made a promissory note and she was told to copy it in her own handwriting; that all
her transactions with the PNO were subject to the approval of petitioner as comptroller of the PNO; that
petitioner threatened to disapprove her transactions with the PNO if she would not pay interest; that
being unaware of the law on interest and fearing that petitioner would make good of his threats if she
would not obey his instruction to copy the promissory note, she copied the promissory note in her own
handwriting; and that such was the same promissory note presented by petitioner as alleged proof of
their written agreement on interest.
[24]
Petitioner did not rebut the foregoing testimony. It is evident
that respondent did not really consent to the payment of interest for the loan and that she was merely
tricked and coerced by petitioner to pay interest. Hence, it cannot be gainfully said that such
promissory note pertains to an express stipulation of interest or written agreement of interest on the
loan between petitioner and respondent.

Petitioner, nevertheless, claims that both the RTC and the Court of Appeals found that he and
respondent agreed on the payment of 7% rate of interest on the loan; that the agreed 7% rate of
interest was duly admitted by respondent in her testimony in the Batas Pambansa Blg. 22 cases he filed
against respondent; that despite such judicial admission by respondent, the RTC and the Court of
Appeals, citing Article 1956 of the Civil Code, still held that no interest was due him since the agreement
on interest was not reduced in writing; that the application of Article 1956 of the Civil Code should not
be absolute, and an exception to the application of such provision should be made when the borrower
admits that a specific rate of interest was agreed upon as in the present case; and that it would be unfair
to allow respondent to pay only the loan when the latter very well knew and even admitted in the Batas
Pambansa Blg. 22 cases that there was an agreed 7% rate of interest on the loan.
[25]


We have carefully examined the RTC Decision and found that the RTC did not make a ruling therein that
petitioner and respondent agreed on the payment of interest at the rate of 7% for the loan. The RTC
clearly stated that although petitioner and respondent entered into a valid oral contract of loan
amounting toP540,000.00, they, nonetheless, never intended the payment of interest thereon.
[26]
While
the Court of Appeals mentioned in its Decision that it concurred in the RTCs ruling that petitioner and
respondent agreed on a certain rate of interest as regards the loan, we consider this as merely an
inadvertence because, as earlier elucidated, both the RTC and the Court of Appeals ruled that petitioner
is not entitled to the payment of interest on the loan. The rule is that factual findings of the trial court
deserve great weight and respect especially when affirmed by the appellate court.
[27]
We found no
compelling reason to disturb the ruling of both courts.

Petitioners reliance on respondents alleged admission in the Batas Pambansa Blg. 22 cases that they
had agreed on the payment of interest at the rate of 7% deserves scant consideration. In the said case,
respondent merely testified that after paying the total amount of loan, petitioner ordered her to pay
interest.
[28]
Respondent did not categorically declare in the same case that she and respondent made
an express stipulation in writing as regards payment of interest at the rate of 7%. As earlier discussed,
monetary interest is due only if there was an express stipulation in writing for the payment of interest.

There are instances in which an interest may be imposed even in the absence of express stipulation,
verbal or written, regarding payment of interest. Article 2209 of the Civil Code states that if the
obligation consists in the payment of a sum of money, and the debtor incurs delay, a legal interest of
12% per annum may be imposed as indemnity for damages if no stipulation on the payment of interest
was agreed upon. Likewise, Article 2212 of the Civil Code provides that interest due shall earn legal
interest from the time it is judicially demanded, although the obligation may be silent on this point.

All the same, the interest under these two instances may be imposed only as a penalty or damages for
breach of contractual obligations. It cannot be charged as a compensation for the use or forbearance of
money. In other words, the two instances apply only to compensatory interest and not to monetary
interest.
[29]
The case at bar involves petitioners claim for monetary interest.

Further, said compensatory interest is not chargeable in the instant case because it was not duly proven
that respondent defaulted in paying the loan. Also, as earlier found, no interest was due on the loan
because there was no written agreement as regards payment of interest.

Apropos the second assigned error, petitioner argues that the principle of solutio indebiti does not apply
to the instant case. Thus, he cannot be compelled to return the alleged excess amount paid by
respondent as interest.
[30]


Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there has been no
stipulation therefor, the provisions of the Civil Code concerning solutio indebiti shall be applied. Article
2154 of the Civil Code explains the principle of solutio indebiti. Said provision provides that if something
is received when there is no right to demand it, and it was unduly delivered through mistake, the
obligation to return it arises. In such a case, a creditor-debtor relationship is created under a quasi-
contract whereby the payor becomes the creditor who then has the right to demand the return of
payment made by mistake, and the person who has no right to receive such payment becomes obligated
to return the same. The quasi-contract of solutio indebiti harks back to the ancient principle that no one
shall enrich himself unjustly at the expense of another.
[31]
The principle of solutio indebiti applies where
(1) a payment is made when there exists no binding relation between the payor, who has no duty to
pay, and the person who received the payment; and (2) the payment is made through mistake, and not
through liberality or some other cause.
[32]
We have held that the principle of solutio indebiti applies in
case of erroneous payment of undue interest.
[33]


It was duly established that respondent paid interest to petitioner. Respondent was under no duty to
make such payment because there was no express stipulation in writing to that effect. There was no
binding relation between petitioner and respondent as regards the payment of interest. The payment
was clearly a mistake. Since petitioner received something when there was no right to demand it, he
has an obligation to return it.

We shall now determine the propriety of the monetary award and damages imposed by the RTC and the
Court of Appeals.

Records show that respondent received a loan amounting to P540,000.00 from
petitioner.
[34]
Respondent issued two checks with a total worth of P700,000.00 in favor of petitioner as
payment of the loan.
[35]
These checks were subsequently encashed by petitioner.
[36]
Obviously, there
was an excess of P160,000.00 in the payment for the loan. Petitioner claims that the excess
of P160,000.00 serves as interest on the loan to which he was entitled. Aside from issuing the said two
checks, respondent also paid cash in the total amount of P175,000.00 to petitioner as
interest.
[37]
Although no receipts reflecting the same were presented because petitioner refused to
issue such to respondent, petitioner, nonetheless, admitted in his Reply-Affidavit
[38]
in the Batas
Pambansa Blg. 22 cases that respondent paid him a total amount of P175,000.00 cash in addition to the
two checks. Section 26 Rule 130 of the Rules of Evidence provides that the declaration of a party as to a
relevant fact may be given in evidence against him. Aside from the amounts of P160,000.00
and P175,000.00 paid as interest, no other proof of additional payment as interest was presented by
respondent. Since we have previously found that petitioner is not entitled to payment of interest and
that the principle of solutio indebiti applies to the instant case, petitioner should return to respondent
the excess amount of P160,000.00 and P175,000.00 or the total amount of P335,000.00. Accordingly,
the reimbursable amount to respondent fixed by the RTC and the Court of Appeals should be reduced
from P660,000.00 to P335,000.00.

As earlier stated, petitioner filed five (5) criminal cases for violation of Batas Pambansa Blg. 22 against
respondent. In the said cases, the MeTC found respondent guilty of violating Batas Pambansa Blg. 22 for
issuing five dishonored checks to petitioner. Nonetheless, respondents conviction therein does not
affect our ruling in the instant case. The two checks, subject matter of this case, totaling P700,000.00
which respondent claimed as payment of the P540,000.00 worth of loan, were not among the five
checks found to be dishonored or bounced in the five criminal cases. Further, the MeTC found that
respondent made an overpayment of the loan by reason of the interest which the latter paid to
petitioner.
[39]


Article 2217 of the Civil Code provides that moral damages may be recovered if the party underwent
physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings,
moral shock, social humiliation and similar injury. Respondent testified that she experienced sleepless
nights and wounded feelings when petitioner refused to return the amount paid as interest despite her
repeated demands. Hence, the award of moral damages is justified. However, its corresponding
amount of P300,000.00, as fixed by the RTC and the Court of Appeals, is exorbitant and should be
equitably reduced. Article 2216 of the Civil Code instructs that assessment of damages is left to the
discretion of the court according to the circumstances of each case. This discretion is limited by the
principle that the amount awarded should not be palpably excessive as to indicate that it was the result
of prejudice or corruption on the part of the trial court.
[40]
To our mind, the amount of P150,000.00 as
moral damages is fair, reasonable, and proportionate to the injury suffered by respondent.

Article 2232 of the Civil Code states that in a quasi-contract, such as solutio indebiti, exemplary damages
may be imposed if the defendant acted in an oppressive manner. Petitioner acted oppressively when he
pestered respondent to pay interest and threatened to block her transactions with the PNO if she would
not pay interest. This forced respondent to pay interest despite lack of agreement thereto. Thus, the
award of exemplary damages is appropriate. The amount ofP50,000.00 imposed as exemplary damages
by the RTC and the Court is fitting so as to deter petitioner and other lenders from committing similar
and other serious wrongdoings.
[41]


Jurisprudence instructs that in awarding attorneys fees, the trial court must state the factual, legal or
equitable justification for awarding the same.
[42]
In the case under consideration, the RTC stated in its
Decision that the award of attorneys fees equivalent to 25% of the amount paid as interest by
respondent to petitioner is reasonable and moderate considering the extent of work rendered by
respondents lawyer in the instant case and the fact that it dragged on for several years.
[43]
Further,
respondent testified that she agreed to compensate her lawyer handling the instant case such
amount.
[44]
The award, therefore, of attorneys fees and its amount equivalent to 25% of the amount
paid as interest by respondent to petitioner is proper.

Finally, the RTC and the Court of Appeals imposed a 12% rate of legal interest on the amount refundable
to respondent computed from 3 March 1998 until its full payment. This is erroneous.

We held in Eastern Shipping Lines, Inc. v. Court of Appeals,
[45]
that when an obligation, not constituting a
loan or forbearance of money is breached, an interest on the amount of damages awarded may be
imposed at the rate of 6% per annum. We further declared that when the judgment of the court
awarding a sum of money becomes final and executory, the rate of legal interest, whether it is a
loan/forbearance of money or not, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed equivalent to a forbearance of credit.

In the present case, petitioners obligation arose from a quasi-contract of solutio indebiti and not from a
loan or forbearance of money. Thus, an interest of 6% per annum should be imposed on the amount to
be refunded as well as on the damages awarded and on the attorneys fees, to be computed from the
time of the extra-judicial demand on 3 March 1998,
[46]
up to the finality of this Decision. In addition, the
interest shall become 12% per annum from the finality of this Decision up to its satisfaction.

WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 71814, dated 16 December 2005, is
hereby AFFIRMED with the followingMODIFICATIONS: (1) the amount of P660,000.00 as refundable
amount of interest is reduced to THREE HUNDRED THIRTY FIVE THOUSAND PESOS (P335,000.00); (2) the
amount of P300,000.00 imposed as moral damages is reduced to ONE HUNDRED FIFTY THOUSAND
PESOS (P150,000.00); (3) an interest of 6% per annum is imposed on the P335,000.00, on the damages
awarded and on the attorneys fees to be computed from the time of the extra-judicial demand on 3
March 1998 up to the finality of this Decision; and (4) an interest of 12% per annum is also imposed
from the finality of this Decision up to its satisfaction. Costs against petitioner.

SO ORDERED.



MINITA V. CHICO-NAZARIO
Associate Justice



WE CONCUR:



CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson



MA. ALICIA AUSTRIA-MARTINEZ ANTONIO EDUARDO B. NACHURA
Associate Justice Associate Justice



TERESITA J. LEONARDO-DE CASTRO
Associate Justice










ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.



CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division



CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation,
it is hereby certified that the conclusions in the above Decision were reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.



REYNATO S. PUNO
Chief Justice








* Per Special Order No. 546, Associate Justice Teresita J. Leonardo-De Castro was designated to
sit as additional member in view of the retirement of Associate Justice Ruben T. Reyes dated 5 January
2009.
[1]
Rollo, pp. 9-23.
[2]
Penned by Associate Justice Josefina Guevara-Salonga with Associate Justices Eliezer R. de
Los Santos and Fernanda Lampas-Peralta, concurring; rollo, pp. 24-32.
[3]
Rollo, pp. 34-35.
[4]
Penned by Judge Florentino M. Alumbres; records, pp. 510-516.
[5]
Records, pp. 1-5.
[6]
Id. at 2.
[7]
Id. at 2-3.
[8]
Id. at 3-4.
[9]
Id. at 4-5.
[10]
Id. at 150-160.
[11]
Id. at 3-4.
[12]
Id. at 4-5.
[13]
Id. at 514-515.
[14]
Id. at 515-516.
[15]
Rollo, p. 32.
[16]
Id. at 34-35.
[17]
Id. at 16.
[18]
Paras, CIVIL CODE OF THE PHILIPPINES ANNOTATED (13
th
Edition, 1995, Volume V), p. 854;
Caguioa, COMMENTS AND CASES ON CIVIL LAW, (1
st
Edition, Volume VI), p. 260.
[19]
Baretto v. Santa Marina, 37 Phil. 568, 571 (1918).
[20]
Supra note 18.
[21]
Ching v. Nicdao, G.R. No. 141181, 27 April 2007, 522 SCRA 316, 361; Tan v. Valdehueza, 160
Phil. 760, 767 (1975).
[22]
TSN, 18 April 2000, pp. 7-8.
[23]
Records, p. 321.
[24]
Rollo, pp. 70-71; TSN, 18 April 2000, pp. 17-18.
[25]
Id. at 17-18.
[26]
Records, p. 514.
[27]
Pantranco North Express Inc. v. Standard Insurance Company Inc., G.R. No. 140746, 16 March
2005, 453 SCRA 482, 490.
[28]
CA rollo, p. 88.
[29]
Supra note 18 at 856-857.
[30]
Rollo, pp. 18-20.
[31]
Moreo-Lentfer v. Wolff, G.R. No. 152317, 10 November 2004, 441 SCRA 584, 591.
[32]
Id.
[33]
Velez v. Balzarza, 73 Phil. 630, 632 (1942).
[34]
TSN, 18 April 2000, p. 7.
[35]
Exhibits A & B; records, pp. 367, 371 and 372.
[36]
CA rollo, pp. 58-63.
[37]
TSN, 18 April 2000, p. 23.
[38]
CA rollo, pp. 94-96.
[39]
Records, pp. 510-516.
[40]
Philippine Airlines v. Court of Appeals, G.R. No. 123238, 22 September 2008.
[41]
Id.
[42]
Serrano v. Gutierrez, G.R. No. 162366, 10 November 2006, 506 SCRA 712, 724; Buing
v. Santos, G.R. No. 152544, 19 September 2006, 502 SCRA 315, 321-323; Ballesteros v. Abion, G.R.
No. 143361, 9 February 2006, 482 SCRA 23, 39-40.
[43]
Records, p. 515.
[44]
TSN, 18 April 2000, pp. 35-36.
[45]
G.R. No. 97412, 12 July 1994, 234 SCRA 78, 95-97.
[46]
Records, p. 7.
THIRD DIVISION
[G.R. No. 138677. February 12, 2002]
TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA, petitioners, vs. HON. COURT OF APPEALS &
SECURITY BANK & TRUST COMPANY,respondents.
D E C I S I O N
VITUG, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the
decision and resolutions of the Court of Appeals in CA-G.R. CV No. 34594, entitled "Security Bank and
Trust Co. vs. Tolomeo Ligutan, et al."
Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on 11 May 1981 a loan in the amount of
P120,000.00 from respondent Security Bank and Trust Company. Petitioners executed a promissory note
binding themselves, jointly and severally, to pay the sum borrowed with an interest of 15.189% per
annum upon maturity and to pay a penalty of 5% every month on the outstanding principal and interest
in case of default. In addition, petitioners agreed to pay 10% of the total amount due by way of
attorneys fees if the matter were indorsed to a lawyer for collection or if a suit were instituted to
enforce payment. The obligation matured on 8 September 1981; the bank, however, granted an
extension but only up until 29 December 1981.
Despite several demands from the bank, petitioners failed to settle the debt which, as of 20 May 1982,
amounted to P114,416.10. On 30 September 1982, the bank sent a final demand letter to petitioners
informing them that they had five days within which to make full payment. Since petitioners still
defaulted on their obligation, the bank filed on 3 November 1982, with the Regional Trial Court
of Makati, Branch 143, a complaint for recovery of the due amount.
After petitioners had filed a joint answer to the complaint, the bank presented its evidence and, on 27
March 1985, rested its case. Petitioners, instead of introducing their own evidence, had the hearing of
the case reset on two consecutive occasions. In view of the absence of petitioners and their counsel on
28 August 1985, the third hearing date, the bank moved, and the trial court resolved, to consider the
case submitted for decision.
Two years later, or on 23 October 1987, petitioners filed a motion for reconsideration of the order of the
trial court declaring them as having waived their right to present evidence and prayed that they be
allowed to prove their case. The court a quo denied the motion in an order, dated 5 September 1988,
and on 20 October 1989, it rendered its decision,
[1]
the dispositive portion of which read:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, ordering
the latter to pay, jointly and severally, to the plaintiff, as follows:
"1. The sum of P114,416.00 with interest thereon at the rate of 15.189% per annum, 2% service charge
and 5% per month penalty charge, commencing on 20 May 1982until fully paid;
"2. To pay the further sum equivalent to 10% of the total amount of indebtedness for and as attorneys
fees; and
"3. To pay the costs of the suit.
[2]

Petitioners interposed an appeal with the Court of Appeals, questioning the rejection by the trial court
of their motion to present evidence and assailing the imposition of the 2% service charge, the 5% per
month penalty charge and 10% attorney's fees. In its decision
[3]
of 7 March 1996, the appellate court
affirmed the judgment of the trial court except on the matter of the 2% service charge which was
deleted pursuant to Central Bank Circular No. 783. Not fully satisfied with the decision of the appellate
court, both parties filed their respective motions for reconsideration.
[4]
Petitioners prayed for the
reduction of the 5% stipulated penalty for being unconscionable. The bank, on the other hand, asked
that the payment of interest and penalty be commenced not from the date of filing of complaint but
from the time of default as so stipulated in the contract of the parties.
On 28 October 1998, the Court of Appeals resolved the two motions thusly:
We find merit in plaintiff-appellees claim that the principal sum of P114,416.00 with interest thereon
must commence not on the date of filing of the complaint as we have previously held in our decision but
on the date when the obligation became due.
Default generally begins from the moment the creditor demands the performance of the
obligation. However, demand is not necessary to render the obligor in default when the obligation or
the law so provides.
In the case at bar, defendants-appellants executed a promissory note where they undertook to pay the
obligation on its maturity date 'without necessity of demand.' They also agreed to pay the interest in
case of non-payment from the date of default.
x x x x x x x x x
While we maintain that defendants-appellants must be bound by the contract which they
acknowledged and signed, we take cognizance of their plea for the application of the provisions of
Article 1229 x x x.
Considering that defendants-appellants partially complied with their obligation under the promissory
note by the reduction of the original amount of P120,000.00 to P114,416.00 and in order that they will
finally settle their obligation, it is our view and we so hold that in the interest of justice and public policy,
a penalty of 3% per month or 36% per annum would suffice.
x x x x x x x x x
WHEREFORE, the decision sought to be reconsidered is hereby MODIFIED. The defendants-
appellants Tolomeo Ligutan and Leonidas dela Llana are hereby ordered to pay the plaintiff-
appellee Security Bank and Trust Company the following:
1. The sum of P114,416.00 with interest thereon at the rate of 15.189% per annum and 3% per month
penalty charge commencing May 20, 1982 until fully paid;
2. The sum equivalent to 10% of the total amount of the indebtedness as and for attorneys fees.
[5]

On 16 November 1998, petitioners filed an omnibus motion for reconsideration and to admit newly
discovered evidence,
[6]
alleging that while the case was pending before the trial court,
petitioner Tolomeo Ligutan and his wife Bienvenida Ligutan executed a real estate mortgage on 18
January 1984 to secure the existing indebtedness of petitionersLigutan and dela Llana with the
bank. Petitioners contended that the execution of the real estate mortgage had the effect
of novating the contract between them and the bank. Petitioners further averred that the mortgage
was extrajudicially foreclosed on 26 August 1986, that they were not informed about it, and the bank
did not credit them with the proceeds of the sale. The appellate court denied the omnibus motion for
reconsideration and to admit newly discovered evidence, ratiocinating that such a second motion for
reconsideration cannot be entertained under Section 2, Rule 52, of the 1997 Rules of Civil
Procedure. Furthermore, the appellate court said, the newly-discovered evidence being invoked by
petitioners had actually been known to them when the case was brought on appeal and when the first
motion for reconsideration was filed.
[7]

Aggrieved by the decision and resolutions of the Court of Appeals, petitioners elevated their case to this
Court on 9 July 1999 via a petition for review on certiorari under Rule 45 of the Rules of Court,
submitting thusly -
I. The respondent Court of Appeals seriously erred in not holding that the 15.189% interest and
the penalty of three (3%) percent per month or thirty-six (36%) percent per annum imposed by private
respondent bank on petitioners loan obligation are still manifestly exorbitant, iniquitous and
unconscionable.
II. The respondent Court of Appeals gravely erred in not reducing to a reasonable level the ten
(10%) percent award of attorneys fees which is highly and grossly excessive, unreasonable and
unconscionable.
III. The respondent Court of Appeals gravely erred in not admitting petitioners newly discovered
evidence which could not have been timely produced during the trial of this case.
IV. The respondent Court of Appeals seriously erred in not holding that there was a novation of
the cause of action of private respondents complaint in the instant case due to the subsequent
execution of the real estate mortgage during the pendency of this case and the subsequent foreclosure
of the mortgage.
[8]

Respondent bank, which did not take an appeal, would, however, have it that the penalty sought to be
deleted by petitioners was even insufficient to fully cover and compensate for the cost of money
brought about by the radical devaluation and decrease in the purchasing power of the peso,
particularly vis-a-vis the U.S. dollar, taking into account the time frame of its occurrence. The Bank
would stress that only the amount of P5,584.00 had been remitted out of the entire loan of
P120,000.00.
[9]

A penalty clause, expressly recognized by law,
[10]
is an accessory undertaking to assume greater liability
on the part of an obligor in case of breach of an obligation. It functions to strengthen the coercive force
of the obligation
[11]
and to provide, in effect, for what could be the liquidated damages resulting from
such a breach. The obligor would then be bound to pay the stipulated indemnity without the necessity
of proof on the existence and on the measure of damages caused by the breach.
[12]
Although a court
may not at liberty ignore the freedom of the parties to agree on such terms and conditions as they see
fit that contravene neither law nor morals, good customs, public order or public policy, a stipulated
penalty, nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable or if
the principal obligation has been partly or irregularly complied with.
[13]

The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly
objective. Its resolution would depend on such factors as, but not necessarily confined to, the type,
extent and purpose of the penalty, the nature of the obligation, the mode of breach and its
consequences, the supervening realities, the standing and relationship of the parties, and the like, the
application of which, by and large, is addressed to the sound discretion of the court. In Rizal Commercial
Banking Corp. vs. Court of Appeals,
[14]
just an example, the Court has tempered the penalty charges after
taking into account the debtors pitiful situation and its offer to settle the entire obligation with the
creditor bank. The stipulated penalty might likewise be reduced when a partial or irregular performance
is made by the debtor.
[15]
The stipulated penalty might even be deleted such as when there has been
substantial performance in good faith by the obligor,
[16]
when the penalty clause itself suffers from fatal
infirmity, or when exceptional circumstances so exist as to warrant it.
[17]

The Court of Appeals, exercising its good judgment in the instant case, has reduced the penalty interest
from 5% a month to 3% a month which petitioner still disputes. Given the circumstances, not to
mention the repeated acts of breach by petitioners of their contractual obligation, the Court sees no
cogent ground to modify the ruling of the appellate court..
Anent the stipulated interest of 15.189% per annum, petitioners, for the first time, question its
reasonableness and prays that the Court reduce the amount. This contention is a fresh issue that has
not been raised and ventilated before the courts below. In any event, the interest stipulation, on its
face, does not appear as being that excessive. The essence or rationale for the payment of interest,
quite often referred to as cost of money, is not exactly the same as that of a surcharge or a penalty. A
penalty stipulation is not necessarily preclusive of interest, if there is an agreement to that effect, the
two being distinct concepts which may separately be demanded.
[18]
What may justify a court in not
allowing the creditor to impose full surcharges and penalties, despite an express stipulation therefor in a
valid agreement, may not equally justify the non-payment or reduction of interest. Indeed, the interest
prescribed in loan financing arrangements is a fundamental part of the banking business and the core of
a bank's existence.
[19]

Petitioners next assail the award of 10% of the total amount of indebtedness by way of attorney's fees
for being grossly excessive, exorbitant and unconscionable vis-a-vis the time spent and the extent of
services rendered by counsel for the bank and the nature of the case. Bearing in mind that the rate of
attorneys fees has been agreed to by the parties and intended to answer not only for litigation
expenses but also for collection efforts as well, the Court, like the appellate court, deems the award of
10% attorneys fees to be reasonable.
Neither can the appellate court be held to have erred in rejecting petitioners' call for a new trial or to
admit newly discovered evidence. As the appellate court so held in its resolution of 14 May 1999 -
Under Section 2, Rule 52 of the 1997 Rules of Civil Procedure, no second motion for reconsideration of
a judgment or final resolution by the same party shall be entertained. Considering that the instant
motion is already a second motion for reconsideration, the same must therefore be denied.
Furthermore, it would appear from the records available to this court that the newly-discovered
evidence being invoked by defendants-appellants have actually been existent when the case was
brought on appeal to this court as well as when the first motion for reconsideration was filed. Hence, it
is quite surprising why defendants-appellants raised the alleged newly-discovered evidence only at this
stage when they could have done so in the earlier pleadings filed before this court.
The propriety or acceptability of such a second motion for reconsideration is not contingent upon the
averment of 'new' grounds to assail the judgment, i.e., grounds other than those theretofore presented
and rejected. Otherwise, attainment of finality of a judgment might be stayed off indefinitely,
depending on the partys ingenuousness or cleverness in conceiving and formulating 'additional flaws' or
'newly discovered errors' therein, or thinking up some injury or prejudice to the rights of the movant for
reconsideration.
[20]

At any rate, the subsequent execution of the real estate mortgage as security for the existing loan would
not have resulted in the extinguishment of the original contract of loan because of novation. Petitioners
acknowledge that the real estate mortgage contract does not contain any express stipulation by the
parties intending it to supersede the existing loan agreement between the petitioners and the
bank.
[21]
Respondent bank has correctly postulated that the mortgage is but an accessory contract to
secure the loan in the promissory note.
Extinctive novation requires, first, a previous valid obligation; second, the agreement of all the parties to
the new contract; third, the extinguishment of the obligation; and fourth,the validity of the new
one.
[22]
In order that an obligation may be extinguished by another which substitutes the same, it is
imperative that it be so declared in unequivocal terms, or that the old and the new obligation be on
every point incompatible with each other.
[23]
An obligation to pay a sum of money is
not extinctively novated by a new instrument which merely changes the terms of payment or adding
compatible covenants or where the old contract is merely supplemented by the new one.
[24]
When not
expressed, incompatibility is required so as to ensure that the parties have indeed intended
such novation despite their failure to express it in categorical terms. The incompatibility, to be sure,
should take place in any of the essential elements of the obligation, i.e., (1) the juridical relation or tie,
such as from a mere commodatum to lease of things, or from negotiorum gestio to agency, or from a
mortgage to antichresis,
[25]
or from a sale to one of loan;
[26]
(2) the object or principal conditions, such as
a change of the nature of the prestation; or (3) the subjects, such as the substitution of a debtor
[27]
or
the subrogation of the creditor. Extinctive novation does not necessarily imply that the new agreement
should be complete by itself; certain terms and conditions may be carried, expressly or by implication,
over to the new obligation.
WHEREFORE, the petition is DENIED.
SO ORDERED.
Melo, (Chairman), Panganiban, Sandoval-Gutierrez, and Carpio, JJ., concur.



[1]
Rollo, p. 114.
[2]
Rollo, pp. 117-118.
[3]
Rollo, p. 39.
[4]
Rollo, pp. 55, 58.
[5]
Rollo, pp. 48-49.
[6]
Rollo, p. 67.
[7]
Rollo, p. 52.
[8]
Rollo, pp. 17-18.
[9]
Memorandum for Respondent.
[10]
Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages
and the payment of interests in case of noncompliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of
fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the provisions of
this Code. (1152a)
[11]
SSS vs. Moonwalk Development and Housing Corporation, 221 SCRA 119.
[12]
Article 1228, Civil Code; Manila Racing Club vs. Manila Jockey Club, 69 Phil. 55.
[13]
Article 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable.
Article 1229. The judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty
may also be reduced by the courts if it is iniquitous or unconscionable.
[14]
289 SCRA 292.
[15]
Insular Bank of Asia and America vs. Spouses Salazar (159 SCRA 111), for instance, the Court reduced
the penalty charge of 2% a month to 1% a month, considering that, on a loan of P42,050.00, the debtor
spouses paid a total of P68,676.75 which was applied by the creditor to satisfy the penalty and interest
charges.
[16]
Art. 1234. If the obligation has been substantially performed in good faith, the obligor may recover
as though there had been a strict and complete fulfillment, less damages suffered by the obligee.
[17]
Garcia vs. Court of Appeals, 167 SCRA 815; See Palmares vs. Court of Appeals, 288 SCRA 423;
Ibarra vs. Aveyro, 37 Phil. 278.
[18]
Insular Bank of Asia and America vs. Spouses Salazar, 159 SCRA 133; GSIS vs. Court of Appeals, 145
SCRA 311; Equitable Banking Corporation vs. Liwanag, 32 SCRA 293.
[19]
Rizal Commercial Banking Corporation vs. Court of Appeals, 289 SCRA 292.
[20]
Rollo, p. 53.
[21]
Memorandum for Petitioners, Rollo, p. 196.
[22]
Velasquez vs. Court of Appeals, 309 SCRA 539; Ong vs. Court of Appeals, 310 SCRA
1; Bautista vs. Pilar Development Corporation, 312 SCRA 611.
[23]
See Article 1292, Civil Code; Pacific Mills, Inc. vs. Court of Appeals, 206 SCRA 317; Quinto vs. People,
305 SCRA 708; Cruz vs. Court of Appeals, 293 SCRA 239.
[24]
Magdalena Estates, Inc. vs. Rodriguez, 18 SCRA 967, as reiterated in Velasquez vs. Court of Appeals,
309 SCRA 539.
[25]
Jagunap vs. Mirasol, [CA], 48 O.G. 3911.
[26]
Soncuya vs. Azarraga, 65 Phil. 635.
[27]
Azarraga vs. Rodriquez, 9 Phil. 637.


THIRD DIVISION


UNITED COCONUT PLANTERS BANK,
Petitioner,




- versus -




SPOUSES SAMUEL and ODETTE BELUSO,
Respondents.
G.R. No. 159912

Present:

YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.


Promulgated:

August 17, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x


D E C I S I O N


CHICO-NAZARIO, J.:


This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, which seeks to annul the
Court of Appeals Decision
[1]
dated 21 January 2003and its Resolution
[2]
dated 9 September 2003 in CA-
G.R. CV No. 67318. The assailed Court of Appeals Decision and Resolution affirmed in turn the
Decision
[3]
dated 23 March 2000 and Order
[4]
dated 8 May 2000 of the Regional Trial Court (RTC), Branch
65 of Makati City, in Civil Case No. 99-314, declaring void the interest rate provided in the promissory
notes executed by the respondents Spouses Samuel and Odette Beluso (spouses Beluso) in favor of
petitioner United Coconut Planters Bank (UCPB).

The procedural and factual antecedents of this case are as follows:

On 16 April 1996, UCPB granted the spouses Beluso a Promissory Notes Line under a Credit Agreement
whereby the latter could avail from the former credit of up to a maximum amount of P1.2 Million pesos
for a term ending on 30 April 1997. The spouses Beluso constituted, other than their promissory notes,
a real estate mortgage over parcels of land in Roxas City, covered by Transfer Certificates of Title No. T-
31539 and T-27828, as additional security for the obligation. The Credit Agreement was subsequently
amended to increase the amount of the Promissory Notes Line to a maximum of P2.35 Million pesos and
to extend the term thereof to 28 February 1998.

The spouses Beluso availed themselves of the credit line under the following Promissory Notes:

PN # Date of PN Maturity Date Amount Secured
8314-96-00083-3 29 April 1996 27 August 1996 P 700,000
8314-96-00085-0 2 May 1996 30 August 1996 P 500,000
8314-96-000292-2 20 November 1996 20 March 1997 P 800,000


The three promissory notes were renewed several times. On 30 April 1997, the payment of the principal
and interest of the latter two promissory notes were debited from the spouses Belusos account with
UCPB; yet, a consolidated loan for P1.3 Million was again released to the spouses Beluso under one
promissory note with a due date of 28 February 1998.

To completely avail themselves of the P2.35 Million credit line extended to them by UCPB, the spouses
Beluso executed two more promissory notes for a total of P350,000.00:

PN # Date of PN Maturity Date Amount Secured
97-00363-1 11 December 1997 28 February 1998 P 200,000
98-00002-4 2 January 1998 28 February 1998 P 150,000


However, the spouses Beluso alleged that the amounts covered by these last two promissory notes
were never released or credited to their account and, thus, claimed that the principal indebtedness was
only P2 Million.

In any case, UCPB applied interest rates on the different promissory notes ranging from 18% to
34%. From 1996 to February 1998 the spouses Beluso were able to pay the total sum of P763,692.03.

From 28 February 1998 to 10 June 1998, UCPB continued to charge interest and penalty on the
obligations of the spouses Beluso, as follows:

PN # Amount Secured Interest Penalty Total
97-00363-1 P 200,000 31% 36% P 225,313.24
97-00366-6 P 700,000 30.17%
(7 days)
32.786%
(102 days)
P 795,294.72
97-00368-2 P 1,300,000 28%
(2 days)
30.41% (102
days)
P 1,462,124.54
98-00002-4 P 150,000 33%
(102 days)
36% P 170,034.71


The spouses Beluso, however, failed to make any payment of the foregoing amounts.

On 2 September 1998, UCPB demanded that the spouses Beluso pay their total obligation
of P2,932,543.00 plus 25% attorneys fees, but the spouses Beluso failed to comply therewith. On 28
December 1998, UCPB foreclosed the properties mortgaged by the spouses Beluso to secure their credit
line, which, by that time, already ballooned to P3,784,603.00.

On 9 February 1999, the spouses Beluso filed a Petition for Annulment, Accounting and Damages against
UCPB with the RTC of Makati City.

On 23 March 2000, the RTC ruled in favor of the spouses Beluso, disposing of the case as follows:

PREMISES CONSIDERED, judgment is hereby rendered declaring the interest rate used by [UCPB] void
and the foreclosure and Sheriffs Certificate of Sale void. [UCPB] is hereby ordered to return to [the
spouses Beluso] the properties subject of the foreclosure; to pay [the spouses Beluso] the amount
of P50,000.00 by way of attorneys fees; and to pay the costs of suit. [The spouses Beluso] are hereby
ordered to pay [UCPB] the sum of P1,560,308.00.
[5]



On 8 May 2000, the RTC denied UCPBs Motion for Reconsideration,
[6]
prompting UCPB to appeal the
RTC Decision with the Court of Appeals. The Court of Appeals affirmed the RTC Decision, to wit:

WHEREFORE, premises considered, the decision dated March 23, 2000 of the Regional Trial Court,
Branch 65, Makati City in Civil Case No. 99-314 is hereby AFFIRMED subject to the modification that
defendant-appellant UCPB is not liable for attorneys fees or the costs of suit.
[7]


On 9 September 2003, the Court of Appeals denied UCPBs Motion for Reconsideration for lack of
merit. UCPB thus filed the present petition, submitting the following issues for our resolution:

I

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR
WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT WHICH DECLARED VOID THE PROVISION ON
INTEREST RATE AGREED UPON BETWEEN PETITIONER AND RESPONDENTS


II

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR
WHEN IT AFFIRMED THE COMPUTATION BY THE TRIAL COURT OF RESPONDENTS INDEBTEDNESS AND
ORDERED RESPONDENTS TO PAY PETITIONER THE AMOUNT OF ONLY ONE MILLION FIVE HUNDRED
SIXTY THOUSAND THREE HUNDRED EIGHT PESOS (P1,560,308.00)

III

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR
WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT WHICH ANNULLED THE FORECLOSURE BY
PETITIONER OF THE SUBJECT PROPERTIES DUE TO AN ALLEGED INCORRECT COMPUTATION OF
RESPONDENTS INDEBTEDNESS

IV

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR
WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT WHICH FOUND PETITIONER LIABLE FOR
VIOLATION OF THE TRUTH IN LENDING ACT

V

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR
WHEN IT FAILED TO ORDER THE DISMISSAL OF THE CASE BECAUSE THE RESPONDENTS ARE GUILTY OF
FORUM SHOPPING
[8]



Validity of the Interest Rates

The Court of Appeals held that the imposition of interest in the following provision found in the
promissory notes of the spouses Beluso is void, as the interest rates and the bases therefor were
determined solely by petitioner UCPB:

FOR VALUE RECEIVED, I, and/or We, on or before due date, SPS. SAMUEL AND ODETTE BELUSO
(BORROWER), jointly and severally promise to pay to UNITED COCONUT PLANTERS BANK (LENDER) or
order at UCPB Bldg., Makati Avenue, Makati City, Philippines, the sum of ______________ PESOS,
(P_____), Philippine Currency, with interest thereon at the rate indicative of DBD retail rate or as
determined by the Branch Head.
[9]



UCPB asserts that this is a reversible error, and claims that while the interest rate was not numerically
quantified in the face of the promissory notes, it was nonetheless categorically fixed, at the time of
execution thereof, at the rate indicative of the DBD retail rate. UCPB contends that said provision
must be read with another stipulation in the promissory notes subjecting to review the interest rate as
fixed:

The interest rate shall be subject to review and may be increased or decreased by the LENDER
considering among others the prevailing financial and monetary conditions; or the rate of interest and
charges which other banks or financial institutions charge or offer to charge for similar
accommodations; and/or the resulting profitability to the LENDER after due consideration of all dealings
with the BORROWER.
[10]


In this regard, UCPB avers that these are valid reference rates akin to a prevailing rate or prime rate
allowed by this Court in Polotan v. Court of Appeals.
[11]
Furthermore, UCPB argues that even if the
proviso as determined by the branch head is considered void, such a declaration would not ipso
facto render the connecting clause indicative of DBD retail rate void in view of the separability clause
of the Credit Agreement, which reads:

Section 9.08 Separability Clause. If any one or more of the provisions contained in this AGREEMENT, or
documents executed in connection herewith shall be declared invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions hereof shall not in any way
be affected or impaired.
[12]


According to UCPB, the imposition of the questioned interest rates did not infringe on the principle of
mutuality of contracts, because the spouses Beluso had the liberty to choose whether or not to renew
their credit line at the new interest rates pegged by petitioner.
[13]
UCPB also claims that assuming there
was any defect in the mutuality of the contract at the time of its inception, such defect was cured by the
subsequent conduct of the spouses Beluso in availing themselves of the credit line from April 1996 to
February 1998 without airing any protest with respect to the interest rates imposed by UCPB. According
to UCPB, therefore, the spouses Beluso are in estoppel.
[14]


We agree with the Court of Appeals, and find no merit in the contentions of UCPB.

Article 1308 of the Civil Code provides:

Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to
the will of one of them.

We applied this provision in Philippine National Bank v. Court of Appeals,
[15]
where we held:

In order that obligations arising from contracts may have the force of law between the parties, there
must be mutuality between the parties based on their essential equality. A contract containing a
condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the
contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that the
P1.8 million loan agreement between the PNB and the private respondent gave the PNB a license
(although in fact there was none) to increase the interest rate at will during the term of the loan, that
license would have been null and void for being violative of the principle of mutuality essential in
contracts. It would have invested the loan agreement with the character of a contract of adhesion,
where the parties do not bargain on equal footing, the weaker party's (the debtor) participation being
reduced to the alternative "to take it or leave it" (Qua vs. Law Union & Rock Insurance Co., 95 Phil. 85).
Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against
abuse and imposition.


The provision stating that the interest shall be at the rate indicative of DBD retail rate or as determined
by the Branch Head is indeed dependent solely on the will of petitioner UCPB. Under such provision,
petitioner UCPB has two choices on what the interest rate shall be: (1) a rate indicative of the DBD retail
rate; or (2) a rate as determined by the Branch Head. As UCPB is given this choice, the rate should be
categorically determinable in both choices. If either of these two choices presents an opportunity for
UCPB to fix the rate at will, the bank can easily choose such an option, thus making the entire interest
rate provision violative of the principle of mutuality of contracts.

Not just one, but rather both, of these choices are dependent solely on the will of UCPB. Clearly, a rate
as determined by the Branch Head gives the latter unfettered discretion on what the rate may
be. The Branch Head may choose any rate he or she desires. As regards the rate indicative of the DBD
retail rate, the same cannot be considered as valid for being akin to a prevailing rate or prime rate
allowed by this Court in Polotan. The interest rate in Polotan reads:

The Cardholder agrees to pay interest per annum at 3% plus the prime rate of Security Bank and Trust
Company. x x x.
[16]


In this provision in Polotan, there is a fixed margin over the reference rate: 3%. Thus, the parties can
easily determine the interest rate by applying simple arithmetic. On the other hand, the provision in the
case at bar does not specify any margin above or below the DBD retail rate. UCPB can peg the interest
at any percentage above or below the DBD retail rate, again giving it unfettered discretion in
determining the interest rate.

The stipulation in the promissory notes subjecting the interest rate to review does not render the
imposition by UCPB of interest rates on the obligations of the spouses Beluso valid. According to said
stipulation:

The interest rate shall be subject to review and may be increased or decreased by the LENDER
considering among others the prevailing financial and monetary conditions; or the rate of interest and
charges which other banks or financial institutions charge or offer to charge for similar
accommodations; and/or the resulting profitability to the LENDER after due consideration of all dealings
with the BORROWER.
[17]



It should be pointed out that the authority to review the interest rate was given UCPB alone as the
lender. Moreover, UCPB may apply the considerations enumerated in this provision as it wishes. As
worded in the above provision, UCPB may give as much weight as it desires to each of the following
considerations: (1) the prevailing financial and monetary condition; (2) the rate of interest and charges
which other banks or financial institutions charge or offer to charge for similar accommodations; and/or
(3) the resulting profitability to the LENDER (UCPB) after due consideration of all dealings with the
BORROWER (the spouses Beluso). Again, as in the case of the interest rate provision, there is no fixed
margin above or below these considerations.

In view of the foregoing, the Separability Clause cannot save either of the two options of UCPB as to the
interest to be imposed, as both options violate the principle of mutuality of contracts.

UCPB likewise failed to convince us that the spouses Beluso were in estoppel.

Estoppel cannot be predicated on an illegal act. As between the parties to a contract, validity cannot be
given to it by estoppel if it is prohibited by law or is against public policy.
[18]


The interest rate provisions in the case at bar are illegal not only because of the provisions of the Civil
Code on mutuality of contracts, but also, as shall be discussed later, because they violate the Truth in
Lending Act. Not disclosing the true finance charges in connection with the extensions of credit is,
furthermore, a form of deception which we cannot countenance. It is against the policy of the State as
stated in the Truth in Lending Act:

Sec. 2. Declaration of Policy. It is hereby declared to be the policy of the State to protect its citizens
from a lack of awareness of the true cost of credit to the user by assuring a full disclosure of such cost
with a view of preventing the uninformed use of credit to the detriment of the national economy.
[19]



Moreover, while the spouses Beluso indeed agreed to renew the credit line, the offending provisions are
found in the promissory notes themselves, not in the credit line. In fixing the interest rates in the
promissory notes to cover the renewed credit line, UCPB still reserved to itself the same two options
(1) a rate indicative of the DBD retail rate; or (2) a rate as determined by the Branch Head.

Error in Computation

UCPB asserts that while both the RTC and the Court of Appeals voided the interest rates imposed by
UCPB, both failed to include in their computation of the outstanding obligation of the spouses Beluso
the legal rate of interest of 12% per annum. Furthermore, the penalty charges were also deleted in the
decisions of the RTC and the Court of Appeals. Section 2.04, Article II on Interest and other Bank
Charges of the subject Credit Agreement, provides:

Section 2.04 Penalty Charges. In addition to the interest provided for in Section 2.01 of this ARTICLE,
any principal obligation of the CLIENT hereunder which is not paid when due shall be subject to a
penalty charge of one percent (1%) of the amount of such obligation per month computed from due
date until the obligation is paid in full. If the bank accelerates teh (sic) payment of availments hereunder
pursuant to ARTICLE VIII hereof, the penalty charge shall be used on the total principal amount
outstanding and unpaid computed from the date of acceleration until the obligation is paid in full.
[20]



Paragraph 4 of the promissory notes also states:

In case of non-payment of this Promissory Note (Note) at maturity, I/We, jointly and severally, agree to
pay an additional sum equivalent to twenty-five percent (25%) of the total due on the Note as attorneys
fee, aside from the expenses and costs of collection whether actually incurred or not, and a penalty
charge of one percent (1%) per month on the total amount due and unpaid from date of default until
fully paid.
[21]



Petitioner further claims that it is likewise entitled to attorneys fees, pursuant to Section 9.06 of the
Credit Agreement, thus:

If the BANK shall require the services of counsel for the enforcement of its rights under this
AGREEMENT, the Note(s), the collaterals and other related documents, the BANK shall be entitled to
recover attorneys fees equivalent to not less than twenty-five percent (25%) of the total amounts due
and outstanding exclusive of costs and other expenses.
[22]


Another alleged computational error pointed out by UCPB is the negation of the Compounding Interest
agreed upon by the parties under Section 2.02 of the Credit Agreement:

Section 2.02 Compounding Interest. Interest not paid when due shall form part of the principal and
shall be subject to the same interest rate as herein stipulated.
[23]



and paragraph 3 of the subject promissory notes:

Interest not paid when due shall be added to, and become part of the principal and shall likewise bear
interest at the same rate.
[24]



UCPB lastly avers that the application of the spouses Belusos payments in the disputed computation
does not reflect the parties agreement. The RTC deducted the payment made by the spouses Beluso
amounting to P763,693.00 from the principal of P2,350,000.00. This was allegedly inconsistent with the
Credit Agreement, as well as with the agreement of the parties as to the facts of the case. In paragraph
7 of the spouses Belusos Manifestation and Motion on Proposed Stipulation of Facts and Issues vis--
vis UCPBs Manifestation, the parties agreed that the amount of P763,693.00 was applied to the interest
and not to the principal, in accord with Section 3.03, Article II of the Credit Agreement on Order of the
Application of Payments, which provides:

Section 3.03 Application of Payment. Payments made by the CLIENT shall be applied in accordance with
the following order of preference:

1. Accounts receivable and other out-of-pocket expenses
2. Front-end Fee, Origination Fee, Attorneys Fee and other expenses of collection;
3. Penalty charges;
4. Past due interest;
5. Principal amortization/Payment in arrears;
6. Advance interest;
7. Outstanding balance; and
8. All other obligations of CLIENT to the BANK, if any.
[25]



Thus, according to UCPB, the interest charges, penalty charges, and attorneys fees had been
erroneously excluded by the RTC and the Court of Appeals from the computation of the total amount
due and demandable from spouses Beluso.

The spouses Belusos defense as to all these issues is that the demand made by UCPB is for a
considerably bigger amount and, therefore, the demand should be considered void. There being no
valid demand, according to the spouses Beluso, there would be no default, and therefore the interests
and penalties would not commence to run. As it was likewise improper to foreclose the mortgaged
properties or file a case against the spouses Beluso, attorneys fees were not warranted.

We agree with UCPB on this score. Default commences upon judicial or extrajudicial demand.
[26]
The
excess amount in such a demand does not nullify the demand itself, which is valid with respect to the
proper amount. A contrary ruling would put commercial transactions in disarray, as validity of demands
would be dependent on the exactness of the computations thereof, which are too often contested.

There being a valid demand on the part of UCPB, albeit excessive, the spouses Beluso are considered in
default with respect to the proper amount and, therefore, the interests and the penalties began to run
at that point.

As regards the award of 12% legal interest in favor of petitioner, the RTC actually recognized that said
legal interest should be imposed, thus: There being no valid stipulation as to interest, the legal rate of
interest shall be charged.
[27]
It seems that the RTC inadvertently overlooked its non-inclusion in its
computation.

The spouses Beluso had even originally asked for the RTC to impose this legal rate of interest in both the
body and the prayer of its petition with the RTC:

12. Since the provision on the fixing of the rate of interest by the sole will of the respondent Bank is null
and void, only the legal rate of interest which is 12% per annum can be legally charged and imposed by
the bank, which would amount to only about P599,000.00 since 1996 up to August 31, 1998.

x x x x

WHEREFORE, in view of the foregoing, petiitoners pray for judgment or order:

x x x x

2. By way of example for the public good against the Banks taking unfair advantage of the weaker party
to their contract, declaring the legal rate of 12% per annum, as the imposable rate of interest up
to February 28, 1999 on the loan of 2.350 million.
[28]



All these show that the spouses Beluso had acknowledged before the RTC their obligation to pay a 12%
legal interest on their loans. When the RTC failed to include the 12% legal interest in its computation,
however, the spouses Beluso merely defended in the appellate courts this non-inclusion, as the same
was beneficial to them. We see, however, sufficient basis to impose a 12% legal interest in favor of
petitioner in the case at bar, as what we have voided is merely the stipulated rate of interest and not the
stipulation that the loan shall earn interest.

We must likewise uphold the contract stipulation providing the compounding of interest. The provisions
in the Credit Agreement and in the promissory notes providing for the compounding of interest were
neither nullified by the RTC or the Court of Appeals, nor assailed by the spouses Beluso in their petition
with the RTC. The compounding of interests has furthermore been declared by this Court to be
legal. We have held in Tan v. Court of Appeals,
[29]
that:

Without prejudice to the provisions of Article 2212, interest due and unpaid shall not earn
interest. However, the contracting parties may by stipulation capitalize the interest due and unpaid,
which as added principal, shall earn new interest.


As regards the imposition of penalties, however, although we are likewise upholding the imposition
thereof in the contract, we find the rate iniquitous. Like in the case of grossly excessive interests, the
penalty stipulated in the contract may also be reduced by the courts if it is iniquitous or
unconscionable.
[30]


We find the penalty imposed by UCPB, ranging from 30.41% to 36%, to be iniquitous considering the
fact that this penalty is already over and above the compounded interest likewise imposed in the
contract. If a 36% interest in itself has been declared unconscionable by this Court,
[31]
what more a
30.41% to 36% penalty, over and above the payment of compounded interest? UCPB itself must have
realized this, as it gave us a sample computation of the spouses Belusos obligation if both the interest
and the penalty charge are reduced to 12%.

As regards the attorneys fees, the spouses Beluso can actually be liable therefor even if there had been
no demand. Filing a case in court is the judicial demand referred to in Article 1169
[32]
of the Civil Code,
which would put the obligor in delay.

The RTC, however, also held UCPB liable for attorneys fees in this case, as the spouses Beluso were
forced to litigate the issue on the illegality of the interest rate provision of the promissory notes. The
award of attorneys fees, it must be recalled, falls under the sound discretion of the court.
[33]
Since both
parties were forced to litigate to protect their respective rights, and both are entitled to the award of
attorneys fees from the other, practical reasons dictate that we set off or compensate both parties
liabilities for attorneys fees. Therefore, instead of awarding attorneys fees in favor of petitioner, we
shall merely affirm the deletion of the award of attorneys fees to the spouses Beluso.

In sum, we hold that spouses Beluso should still be held liable for a compounded legal interest of 12%
per annum and a penalty charge of 12% per annum. We also hold that, instead of awarding attorneys
fees in favor of petitioner, we shall merely affirm the deletion of the award of attorneys fees to the
spouses Beluso.

Annulment of the Foreclosure Sale

Properties of spouses Beluso had been foreclosed, titles to which had already been consolidated on 19
February 2001 and 20 March 2001 in the name of UCPB, as the spouses Beluso failed to exercise their
right of redemption which expired on 25 March 2000. The RTC, however, annulled the foreclosure of
mortgage based on an alleged incorrect computation of the spouses Belusos indebtedness.

UCPB alleges that none of the grounds for the annulment of a foreclosure sale are present in the case at
bar. Furthermore, the annulment of the foreclosure proceedings and the certificates of sale were
mooted by the subsequent issuance of new certificates of title in the name of said bank. UCPB claims
that the spouses Belusos action for annulment of foreclosure constitutes a collateral attack on its
certificates of title, an act proscribed by Section 48 of Presidential Decree No. 1529, otherwise known as
the Property Registration Decree, which provides:

Section 48. Certificate not subject to collateral attack. A certificate of title shall not be subject to
collateral attack. It cannot be altered, modified or cancelled except in a direct proceeding in accordance
with law.


The spouses Beluso retort that since they had the right to refuse payment of an excessive demand on
their account, they cannot be said to be in default for refusing to pay the same. Consequently,
according to the spouses Beluso, the enforcement of such illegal and overcharged demand through
foreclosure of mortgage should be voided.

We agree with UCPB and affirm the validity of the foreclosure proceedings. Since we already found that
a valid demand was made by UCPB upon the spouses Beluso, despite being excessive, the spouses
Beluso are considered in default with respect to the proper amount of their obligation to UCPB and,
thus, the property they mortgaged to secure such amounts may be foreclosed. Consequently, proceeds
of the foreclosure sale should be applied to the extent of the amounts to which UCPB is rightfully
entitled.

As argued by UCPB, none of the grounds for the annulment of a foreclosure sale are present in this
case. The grounds for the proper annulment of the foreclosure sale are the following: (1) that there was
fraud, collusion, accident, mutual mistake, breach of trust or misconduct by the purchaser; (2) that the
sale had not been fairly and regularly conducted; or (3) that the price was inadequate and the
inadequacy was so great as to shock the conscience of the court.
[34]




Liability for Violation of Truth in Lending Act

The RTC, affirmed by the Court of Appeals, imposed a fine of P26,000.00 for UCPBs alleged violation of
Republic Act No. 3765, otherwise known as the Truth in Lending Act.

UCPB challenges this imposition, on the argument that Section 6(a) of the Truth in Lending Act which
mandates the filing of an action to recover such penalty must be made under the following
circumstances:

Section 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any person
any information in violation of this Act or any regulation issued thereunder shall be liable to such person
in the amount of P100 or in an amount equal to twice the finance charge required by such creditor in
connection with such transaction, whichever is greater, except that such liability shall not exceed P2,000
on any credit transaction. Action to recover such penalty may be brought by such person within one
year from the date of the occurrence of the violation, in any court of competent jurisdiction. x x
x (Emphasis ours.)

According to UCPB, the Court of Appeals even stated that *a+dmittedly the original complaint did not
explicitly allege a violation of the Truth in Lending Act and no action to formally admit the amended
petition [which expressly alleges violation of the Truth in Lending Act] was made either by [respondents]
spouses Beluso and the lower court. x x x.
[35]


UCPB further claims that the action to recover the penalty for the violation of the Truth in Lending Act
had been barred by the one-year prescriptive period provided for in the Act. UCPB asserts that per the
records of the case, the latest of the subject promissory notes had been executed on 2 January 1998,
but the original petition of the spouses Beluso was filed before the RTC on 9 February 1999, which was
after the expiration of the period to file the same on 2 January 1999.

On the matter of allegation of the violation of the Truth in Lending Act, the Court of Appeals ruled:

Admittedly the original complaint did not explicitly allege a violation of the Truth in Lending Act
and no action to formally admit the amended petition was made either by [respondents] spouses Beluso
and the lower court. In such transactions, the debtor and the lending institutions do not deal on an
equal footing and this law was intended to protect the public from hidden or undisclosed charges on
their loan obligations, requiring a full disclosure thereof by the lender. We find that its infringement
may be inferred or implied from allegations that when [respondents] spouses Beluso executed the
promissory notes, the interest rate chargeable thereon were left blank. Thus, [petitioner] UCPB failed to
discharge its duty to disclose in full to [respondents] Spouses Beluso the charges applicable on their
loans.
[36]



We agree with the Court of Appeals. The allegations in the complaint, much more than the title thereof,
are controlling. Other than that stated by the Court of Appeals, we find that the allegation of violation
of the Truth in Lending Act can also be inferred from the same allegation in the complaint we discussed
earlier:

b.) In unilaterally imposing an increased interest rates (sic) respondent bank has relied on the provision
of their promissory note granting respondent bank the power to unilaterally fix the interest rates, which
rate was not determined in the promissory note but was left solely to the will of the Branch Head of the
respondent Bank, x x x.
[37]



The allegation that the promissory notes grant UCPB the power to unilaterally fix the interest rates
certainly also means that the promissory notes do not contain a clear statement in writing of (6) the
finance charge expressed in terms of pesos and centavos; and (7) the percentage that the finance charge
bears to the amount to be financed expressed as a simple annual rate on the outstanding unpaid
balance of the obligation.
[38]
Furthermore, the spouses Belusos prayer for such other reliefs just and
equitable in the premises should be deemed to include the civil penalty provided for in Section 6(a) of
the Truth in Lending Act.

UCPBs contention that this action to recover the penalty for the violation of the Truth in Lending Act
has already prescribed is likewise without merit. The penalty for the violation of the act is P100 or an
amount equal to twice the finance charge required by such creditor in connection with such transaction,
whichever is greater, except that such liability shall not exceed P2,000.00 on any credit
transaction.
[39]
As this penalty depends on the finance charge required of the borrower, the borrowers
cause of action would only accrue when such finance charge is required. In the case at bar, the date of
the demand for payment of the finance charge is 2 September 1998, while the foreclosure was made
on 28 December 1998. The filing of the case on 9 February 1999 is therefore within the one-year
prescriptive period.

UCPB argues that a violation of the Truth in Lending Act, being a criminal offense, cannot be inferred nor
implied from the allegations made in the complaint.
[40]
Pertinent provisions of the Act read:

Sec. 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any person any
information in violation of this Act or any regulation issued thereunder shall be liable to such person in
the amount of P100 or in an amount equal to twice the finance charge required by such creditor in
connection with such transaction, whichever is the greater, except that such liability shall not
exceed P2,000 on any credit transaction. Action to recover such penalty may be brought by such person
within one year from the date of the occurrence of the violation, in any court of competent
jurisdiction. In any action under this subsection in which any person is entitled to a recovery, the
creditor shall be liable for reasonable attorneys fees and court costs as determined by the court.

x x x x

(c) Any person who willfully violates any provision of this Act or any regulation issued
thereunder shall be fined by not less than P1,000 or more than P5,000 or imprisonment for not less than
6 months, nor more than one year or both.


As can be gleaned from Section 6(a) and (c) of the Truth in Lending Act, the violation of the said Act
gives rise to both criminal and civil liabilities. Section 6(c) considers a criminal offense the willful
violation of the Act, imposing the penalty therefor of fine, imprisonment or both. Section 6(a), on the
other hand, clearly provides for a civil cause of action for failure to disclose any information of the
required information to any person in violation of the Act. The penalty therefor is an amount of P100 or
in an amount equal to twice the finance charge required by the creditor in connection with such
transaction, whichever is greater, except that the liability shall not exceed P2,000.00 on any credit
transaction. The action to recover such penalty may be instituted by the aggrieved private person
separately and independently from the criminal case for the same offense.

In the case at bar, therefore, the civil action to recover the penalty under Section 6(a) of the Truth in
Lending Act had been jointly instituted with (1) the action to declare the interests in the promissory
notes void, and (2) the action to declare the foreclosure void. This joinder is allowed under Rule 2,
Section 5 of the Rules of Court, which provides:

SEC. 5. Joinder of causes of action.A party may in one pleading assert, in the alternative or otherwise,
as many causes of action as he may have against an opposing party, subject to the following conditions:
(a) The party joining the causes of action shall comply with the rules on joinder of parties;
(b) The joinder shall not include special civil actions or actions governed by special rules;
(c) Where the causes of action are between the same parties but pertain to different venues or
jurisdictions, the joinder may be allowed in the Regional Trial Court provided one of the causes of action
falls within the jurisdiction of said court and the venue lies therein; and
(d) Where the claims in all the causes of action are principally for recovery of money, the aggregate
amount claimed shall be the test of jurisdiction.


In attacking the RTCs disposition on the violation of the Truth in Lending Act since the same was not
alleged in the complaint, UCPB is actually asserting a violation of due process. Indeed, due process
mandates that a defendant should be sufficiently apprised of the matters he or she would be defending
himself or herself against. However, in the 1 July 1999 pre-trial brief filed by the spouses Beluso before
the RTC, the claim for civil sanctions for violation of the Truth in Lending Act was expressly alleged, thus:

Moreover, since from the start, respondent bank violated the Truth in Lending Act in not informing the
borrower in writing before the execution of the Promissory Notes of the interest rate expressed as a
percentage of the total loan, the respondent bank instead is liable to pay petitioners double the amount
the bank is charging petitioners by way of sanction for its violation.
[41]



In the same pre-trial brief, the spouses Beluso also expressly raised the following issue:

b.) Does the expression indicative rate of DBD retail (sic) comply with the Truth in Lending Act provision
to express the interest rate as a simple annual percentage of the loan?
[42]



These assertions are so clear and unequivocal that any attempt of UCPB to feign ignorance of the
assertion of this issue in this case as to prevent it from putting up a defense thereto is plainly hogwash.

Petitioner further posits that it is the Metropolitan Trial Court which has jurisdiction to try and
adjudicate the alleged violation of the Truth in Lending Act, considering that the present action allegedly
involved a single credit transaction as there was only one Promissory Note Line.

We disagree. We have already ruled that the action to recover the penalty under Section 6(a) of the
Truth in Lending Act had been jointly instituted with (1) the action to declare the interests in the
promissory notes void, and (2) the action to declare the foreclosure void. There had been no question
that the above actions belong to the jurisdiction of the RTC. Subsection (c) of the above-quoted Section
5 of the Rules of Court on Joinder of Causes of Action provides:

(c) Where the causes of action are between the same parties but pertain to different venues or
jurisdictions, the joinder may be allowed in the Regional Trial Court provided one of the causes of action
falls within the jurisdiction of said court and the venue lies therein.


Furthermore, opening a credit line does not create a credit transaction of loan or mutuum, since the
former is merely a preparatory contract to the contract of loan or mutuum. Under such credit line, the
bank is merely obliged, for the considerations specified therefor, to lend to the other party amounts not
exceeding the limit provided. The credit transaction thus occurred not when the credit line was opened,
but rather when the credit line was availed of. In the case at bar, the violation of the Truth in Lending
Act allegedly occurred not when the parties executed the Credit Agreement, where no interest rate was
mentioned, but when the parties executed the promissory notes, where the allegedly offending interest
rate was stipulated.

UCPB further argues that since the spouses Beluso were duly given copies of the subject promissory
notes after their execution, then they were duly notified of the terms thereof, in substantial compliance
with the Truth in Lending Act.

Once more, we disagree. Section 4 of the Truth in Lending Act clearly provides that the disclosure
statement must be furnished prior to the consummation of the transaction:

SEC. 4. Any creditor shall furnish to each person to whom credit is extended, prior to the
consummation of the transaction, a clear statement in writing setting forth, to the extent applicable
and in accordance with rules and regulations prescribed by the Board, the following information:

(1) the cash price or delivered price of the property or service to be acquired;

(2) the amounts, if any, to be credited as down payment and/or trade-in;

(3) the difference between the amounts set forth under clauses (1) and (2)

(4) the charges, individually itemized, which are paid or to be paid by such person in connection with
the transaction but which are not incident to the extension of credit;

(5) the total amount to be financed;

(6) the finance charge expressed in terms of pesos and centavos; and

(7) the percentage that the finance bears to the total amount to be financed expressed as a simple
annual rate on the outstanding unpaid balance of the obligation.


The rationale of this provision is to protect users of credit from a lack of awareness of the true cost
thereof, proceeding from the experience that banks are able to conceal such true cost by hidden
charges, uncertainty of interest rates, deduction of interests from the loaned amount, and the like. The
law thereby seeks to protect debtors by permitting them to fully appreciate the true cost of their loan,
to enable them to give full consent to the contract, and to properly evaluate their options in arriving at
business decisions. Upholding UCPBs claim of substantial compliance would defeat these purposes of
the Truth in Lending Act. The belated discovery of the true cost of credit will too often not be able to
reverse the ill effects of an already consummated business decision.

In addition, the promissory notes, the copies of which were presented to the spouses Beluso after
execution, are not sufficient notification from UCPB. As earlier discussed, the interest rate provision
therein does not sufficiently indicate with particularity the interest rate to be applied to the loan
covered by said promissory notes.

Forum Shopping

UCPB had earlier moved to dismiss the petition (originally Case No. 99-314 in RTC, Makati City) on the
ground that the spouses Beluso instituted another case (Civil Case No. V-7227) before the RTC of Roxas
City, involving the same parties and issues. UCPB claims that while Civil Case No. V-7227 initially appears
to be a different action, as it prayed for the issuance of a temporary restraining order and/or injunction
to stop foreclosure of spouses Belusos properties, it poses issues which are similar to those of the
present case.
[43]
To prove its point, UCPB cited the spouses Belusos Amended Petition in Civil Case No.
V-7227, which contains similar allegations as those in the present case. The RTC of Makati denied
UCPBs Motion to Dismiss Case No. 99-314 for lack of merit. Petitioner UCPB raised the same issue with
the Court of Appeals, and is raising the same issue with us now.

The spouses Beluso claim that the issue in Civil Case No. V-7227 before the RTC of Roxas City, a Petition
for Injunction Against Foreclosure, is the propriety of the foreclosure before the true account of spouses
Beluso is determined. On the other hand, the issue in Case No. 99-314 before the RTC of Makati City is
the validity of the interest rate provision. The spouses Beluso claim that Civil Case No. V-7227 has
become moot because, before the RTC of Roxas City could act on the restraining order, UCPB proceeded
with the foreclosure and auction sale. As the act sought to be restrained by Civil Case No. V-7227 has
already been accomplished, the spouses Beluso had to file a different action, that of Annulment of the
Foreclosure Sale, Case No. 99-314 with the RTC, Makati City.

Even if we assume for the sake of argument, however, that only one cause of action is involved in the
two civil actions, namely, the violation of the right of the spouses Beluso not to have their property
foreclosed for an amount they do not owe, the Rules of Court nevertheless allows the filing of the
second action. Civil Case No. V-7227 was dismissed by the RTC of Roxas City before the filing of Case No.
99-314 with the RTC of Makati City, since the venue of litigation as provided for in the Credit Agreement
is in Makati City.

Rule 16, Section 5 bars the refiling of an action previously dismissed only in the following instances:

SEC. 5. Effect of dismissal.Subject to the right of appeal, an order granting a motion to dismiss based
on paragraphs (f), (h) and (i) of section 1 hereof shall bar the refiling of the same action or claim. (n)

Improper venue as a ground for the dismissal of an action is found in paragraph (c) of Section 1, not in
paragraphs (f), (h) and (i):

SECTION 1. Grounds.Within the time for but before filing the answer to the complaint or pleading
asserting a claim, a motion to dismiss may be made on any of the following grounds:

(a) That the court has no jurisdiction over the person of the defending party;

(b) That the court has no jurisdiction over the subject matter of the claim;

(c) That venue is improperly laid;

(d) That the plaintiff has no legal capacity to sue;

(e) That there is another action pending between the same parties for the same cause;

(f) That the cause of action is barred by a prior judgment or by the statute of limitations;

(g) That the pleading asserting the claim states no cause of action;

(h) That the claim or demand set forth in the plaintiffs pleading has been paid, waived, abandoned, or
otherwise extinguished;

(i) That the claim on which the action is founded is unenforceable under the provisions of the statute
of frauds; and

(j) That a condition precedent for filing the claim has not been complied with.
[44]
(Emphases supplied.)


When an action is dismissed on the motion of the other party, it is only when the ground for the
dismissal of an action is found in paragraphs (f), (h) and (i) that the action cannot be refiled. As regards
all the other grounds, the complainant is allowed to file same action, but should take care that, this
time, it is filed with the proper court or after the accomplishment of the erstwhile absent condition
precedent, as the case may be.

UCPB, however, brings to the attention of this Court a Motion for Reconsideration filed by the spouses
Beluso on 15 January 1999 with the RTC of Roxas City, which Motion had not yet been ruled upon when
the spouses Beluso filed Civil Case No. 99-314 with the RTC of Makati. Hence, there were allegedly two
pending actions between the same parties on the same issue at the time of the filing of Civil Case No.
99-314 on 9 February 1999 with the RTC of Makati. This will still not change our findings. It is indeed
the general rule that in cases where there are two pending actions between the same parties on the
same issue, it should be the later case that should be dismissed. However, this rule is not
absolute. According to this Court in Allied Banking Corporation v. Court of Appeals
[45]
:

In these cases, it is evident that the first action was filed in anticipation of the filing of the later action
and the purpose is to preempt the later suit or provide a basis for seeking the dismissal of the second
action.

Even if this is not the purpose for the filing of the first action, it may nevertheless be dismissed if the
later action is the more appropriate vehicle for the ventilation of the issues between the parties. Thus,
in Ramos v. Peralta, it was held:

[T]he rule on litis pendentia does not require that the later case should yield to the earlier case. What is
required merely is that there be another pending action, not a prior pending action. Considering the
broader scope of inquiry involved in Civil Case No. 4102 and the location of the property involved, no
error was committed by the lower court in deferring to the Bataan court's jurisdiction.

Given, therefore, the pendency of two actions, the following are the relevant considerations in
determining which action should be dismissed: (1) the date of filing, with preference generally given to
the first action filed to be retained; (2) whether the action sought to be dismissed was filed merely to
preempt the later action or to anticipate its filing and lay the basis for its dismissal; and (3) whether the
action is the appropriate vehicle for litigating the issues between the parties.


In the case at bar, Civil Case No. V-7227 before the RTC of Roxas City was an action for injunction against
a foreclosure sale that has already been held, while Civil Case No. 99-314 before the RTC of Makati City
includes an action for the annulment of said foreclosure, an action certainly more proper in view of the
execution of the foreclosure sale. The former case was improperly filed in Roxas City, while the latter
was filed in Makati City, the proper venue of the action as mandated by the Credit Agreement. It is
evident, therefore, that Civil Case No. 99-314 is the more appropriate vehicle for litigating the issues
between the parties, as compared to Civil Case No. V-7227. Thus, we rule that the RTC of Makati City
was not in error in not dismissing Civil Case No. 99-314.

WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED with the
following MODIFICATIONS:

1. In addition to the sum of P2,350,000.00 as determined by the courts a quo, respondent
spouses Samuel and Odette Beluso are also liable for the following amounts:
a. Penalty of 12% per annum on the amount due
[46]
from the date of demand; and
b. Compounded legal interest of 12% per annum on the amount due
[47]
from date of demand;
2. The following amounts shall be deducted from the liability of the spouses Samuel and
Odette Beluso:
a. Payments made by the spouses in the amount of P763,692.00. These payments shall be applied to
the date of actual payment of the following in the order that they are listed, to wit:
i. penalty charges due and demandable as of the time of
payment;
ii. interest due and demandable as of the time of payment;
iii. principal amortization/payment in arrears as of the time of
payment;
iv. outstanding balance.
b. Penalty under Republic Act No. 3765 in the amount of P26,000.00. This amount shall be deducted
from the liability of the spouses Samuel and Odette Beluso on 9 February 1999 to the following in the
order that they are listed, to wit:
i. penalty charges due and demandable as of time of
payment;
ii. interest due and demandable as of the time of payment;
iii. principal amortization/payment in arrears as of the time of
payment;
iv. outstanding balance.
3. The foreclosure of mortgage is hereby declared VALID. Consequently, the amounts which
the Regional Trial Court and the Court of Appeals ordered respondents to pay, as modified in this
Decision, shall be deducted from the proceeds of the foreclosure sale.


SO ORDERED.


MINITA V. CHICO-NAZARIO
Associate Justice



WE CONCUR:



CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson



MA. ALICIA AUSTRIA-MARTINEZ ANTONIO EDUARDO B. NACHURA
Associate Justice Associate Justice



RUBEN T. REYES
Associate Justice



ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.



CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division





CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation,
it is hereby certified that the conclusions in the above Decision were reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.



REYNATO S. PUNO
Chief Justice



[1]
Penned by Associate Justice Remedios A. Salazar-Fernando with Associate Justices Ruben T.
Reyes (now a member of this Court) and Edgardo F. Sundiam concurring; Rollo, pp. 69-81.
[2]
Rollo, p. 82.
[3]
Id. at 83-87.
[4]
Id. at 88.
[5]
Id. at 86.
[6]
Id. at 88.
[7]
Id. at. 81.
[8]
Id. at 337-338.
[9]
Id. at 184.
[10]
Id.
[11]
357 Phil. 250 (1998).
[12]
Rollo, p. 341.
[13]
Id. at 342.
[14]
Id. at 344-346.
[15]
G.R. No. 88880, 30 April 1991, 196 SCRA 536, 545.
[16]
Supra note 11 at 254-255.
[17]
Rollo, p. 184.
[18]
Eugenio v. Perdido, 97 Phil. 41, 44 (1955); Auyong Hian v. Court of Tax Appeals, G.R. No. L-
28782, 12 September 1974, 59 SCRA 110, 133-134, cited in IV Tolentino, Commentaries and
Jurisprudence on the Civil Code (1986 Ed.), p. 659.
[19]
Section 2, Republic Act No. 3765.
[20]
Rollo, p. 350.
[21]
Id. at 184.
[22]
Id. at 352.
[23]
Id. at 353.
[24]
Id. at 184.
[25]
Id. at 357-358.
[26]
Civil Code, Article 1169.
[27]
Rollo, p. 86.
[28]
Records, pp. 5-6.
[29]
419 Phil. 857, 866 (2001).
[30]
Equitable Banking Corporation v. Liwanag, 143 Phil. 102, 106 (1970); Civil Code, Article 1229.
[31]
Ruiz v. Court of Appeals, 449 Phil. 419, 434-435 (2003).
[32]
Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time
the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may
exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered was a
controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him. From the moment one of
the parties fulfills his obligation, delay by the other begins.
[33]
Nielson & Co., Inc. v. Lepanto Consolidated Mining Co., 135 Phil. 532, 566 (1968); Kalalo v. Luz,
145 Phil. 152, 174 (1970); San Miguel Brewery, Inc. v. Magno, 128 Phil. 328, 337 (1967); Philippine
Airlines, Inc. v. Court of Appeals, G.R. Nos. 50504-05, 13 August 1990, 188 SCRA 461, 464; Pleno v. Court
of Appeals, G.R. No. L-56505, 9 May 1988, 161 SCRA 208, 225.

[34]
Philippine National Bank v. Gonzalez, 45 Phil. 693, 699 (1924).
[35]
Rollo, p. 80.
[36]
Id.
[37]
Records, p. 4.
[38]
Republic Act No. 3765, Sec. 4.
[39]
Republic Act No. 3765, Section 6(a).
[40]
Rollo, p. 376.
[41]
Records, pp. 64-65.
[42]
Id. at 68.
[43]
Petitioners Memorandum, pp. 57-62; rollo, pp. 378-382.
[44]
Rules of Court, Rule 16.
[45]
328 Phil. 710, 718-719 (1996).
[46]
The amount still due at the time of the application of penalty charges shall take into account
the dates when the amounts in item No. 2 of this fallo shall be deducted.
[47]
The amount still due at the time of the application of the compounded legal interest shall take
into account the dates when the amounts in item No. 2 of this fallo shall be deducted


SECOND DIVISION

SPOUSES DAVID B. CARPO G.R. Nos. 150773 &
and RECHILDA S. CARPO, 153599
Petitioners,
Present:

- versus - PUNO, J.,
Chairman,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
ELEANOR CHUA and TINGA, and
ELMA DY NG, CHICO-NAZARIO, JJ.
Respondents.

Promulgated:

September 30, 2005

x-------------------------------------------------------------------x


D E C I S I O N

TINGA, J.:

Before this Court are two consolidated petitions for review. The first, docketed as G.R. No. 150773,
assails the Decision
[1]
of the Regional Trial Court (RTC), Branch 26 of Naga City dated 26 October 2001 in
Civil Case No. 99-4376. RTC Judge Filemon B. Montenegro dismissed the complaint
[2]
for annulment of
real estate mortgage and consequent foreclosure proceedings filed by the spouses David B. Carpo and
Rechilda S. Carpo (petitioners).

The second, docketed as G.R. No. 153599, seeks to annul the Court of Appeals Decision
[3]
dated 30
April 2002 in CA-G.R. SP No. 57297. The Court of Appeals Third Division annulled and set aside the
orders of Judge Corazon A. Tordilla to suspend the sheriffs enforcement of the writ of possession.

The cases stemmed from a loan contracted by petitioners. On 18 July 1995, they borrowed from
Eleanor Chua and Elma Dy Ng (respondents) the amount of One Hundred Seventy-Five Thousand Pesos
(P175,000.00), payable within six (6) months with an interest rate of six percent (6%) per month. To
secure the payment of the loan, petitioners mortgaged their residential house and lot situated at San
Francisco, Magarao, Camarines Sur, which lot is covered by Transfer Certificate of Title (TCT) No.
23180. Petitioners failed to pay the loan upon demand. Consequently, the real estate mortgage was
extrajudicially foreclosed and the mortgaged property sold at a public auction on 8 July 1996. The house
and lot was awarded to respondents, who were the only bidders, for the amount of Three Hundred
Sixty-Seven Thousand Four Hundred Fifty-Seven Pesos and Eighty Centavos (P367,457.80).

Upon failure of petitioners to exercise their right of redemption, a certificate of sale was issued on 5
September 1997 by Sheriff Rolando A. Borja. TCT No. 23180 was cancelled and in its stead, TCT No.
29338 was issued in the name of respondents.

Despite the issuance of the TCT, petitioners continued to occupy the said house and lot, prompting
respondents to file a petition for writ of possession with the RTC docketed as Special Proceedings (SP)
No. 98-1665. On 23 March 1999, RTC Judge Ernesto A. Miguel issued an Order
[4]
for the issuance of a
writ of possession.

On 23 July 1999, petitioners filed a complaint for annulment of real estate mortgage and the
consequent foreclosure proceedings, docketed as Civil Case No. 99-4376 of the RTC. Petitioners
consigned the amount of Two Hundred Fifty-Seven Thousand One Hundred Ninety-Seven Pesos and
Twenty-Six Centavos (P257,197.26) with the RTC.

Meanwhile, in SP No. 98-1665, a temporary restraining order was issued upon motion on 3 August
1999, enjoining the enforcement of the writ of possession. In an Order
[5]
dated 6 January 2000, the RTC
suspended the enforcement of the writ of possession pending the final disposition of Civil Case No. 99-
4376. Against this Order, respondents filed a petition for certiorari and mandamus before the Court of
Appeals, docketed as CA-G.R. SP No. 57297.

During the pendency of the case before the Court of Appeals, RTC Judge Filemon B. Montenegro
dismissed the complaint in Civil Case No. 99-4376 on the ground that it was filed out of time and barred
by laches. The RTC proceeded from the premise that the complaint was one for annulment of a
voidable contract and thus barred by the four-year prescriptive period. Hence, the first petition for
review now under consideration was filed with this Court, assailing the dismissal of the complaint.

The second petition for review was filed with the Court after the Court of Appeals on 30 April 2002
annulled and set aside the RTC orders in SP No. 98-1665 on the ground that it was the ministerial duty of
the lower court to issue the writ of possession when title over the mortgaged property had been
consolidated in the mortgagee.

This Court ordered the consolidation of the two cases, on motion of petitioners.

In G.R. No. 150773, petitioners claim that following the Courts ruling in Medel v. Court of
Appeals
[6]
the rate of interest stipulated in the principal loan agreement is clearly null and void.
Consequently, they also argue that the nullity of the agreed interest rate affects the validity of the real
estate mortgage. Notably, while petitioners were silent in their petition on the issues of prescription and
laches on which the RTC grounded the dismissal of the complaint, they belatedly raised the matters in
theirMemorandum. Nonetheless, these points warrant brief comment.

On the other hand, petitioners argue in G.R. No. 153599 that the RTC did not commit any grave
abuse of discretion when it issued the orders dated 3 August 1999 and 6 January 2000, and that these
orders could not have been the proper subjects of a petition for certiorari and mandamus. More
accurately, the justiciable issues before us are whether the Court of Appeals could properly entertain
the petition for certiorari from the timeliness aspect, and whether the appellate court correctly
concluded that the writ of possession could no longer be stayed.


We first resolve the petition in G.R. No. 150773.

Petitioners contend that the agreed rate of interest of 6% per month or 72% per annum is so excessive,
iniquitous, unconscionable and exorbitant that it should have been declared null and void. Instead of
dismissing their complaint, they aver that the lower court should have declared them liable to
respondents for the original amount of the loan plus 12% interest per annum and 1% monthly penalty
charge as liquidated damages,
[7]
in view of the ruling in Medel v. Court of Appeals.
[8]


In Medel, the Court found that the interest stipulated at 5.5% per month or 66% per annum was so
iniquitous or unconscionable as to render the stipulation void.

Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties
in the promissory note iniquitous or unconscionable, and, hence, contrary to morals (contra bonos
mores), if not against the law. The stipulation is void. The Court shall reduce equitably liquidated
damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable.
[9]


In a long line of cases, this Court has invalidated similar stipulations on interest rates for being
excessive, iniquitous, unconscionable and exorbitant. In Solangon v. Salazar,
[10]
we annulled the
stipulation of 6% per month or 72% per annum interest on a P60,000.00 loan. In Imperial v.
Jaucian,
[11]
we reduced the interest rate from 16% to 1.167% per month or 14% per annum. In Ruiz v.
Court of Appeals,
[12]
we equitably reduced the agreed 3% per month or 36% per annum interest to 1%
per month or 12% per annum interest. The 10% and 8% interest rates per month on a P1,000,000.00
loan were reduced to 12% per annum in Cuaton v. Salud.
[13]
Recently, this Court, in Arrofo v.
Quino,
[14]
reduced the 7% interest per month on a P15,000.00 loan amounting to 84% interest per
annum to 18% per annum.

There is no need to unsettle the principle affirmed in Medel and like cases. From that perspective,
it is apparent that the stipulated interest in the subject loan is excessive, iniquitous, unconscionable and
exorbitant. Pursuant to the freedom of contract principle embodied in Article 1306 of the Civil Code,
contracting parties may establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public order, or public
policy. In the ordinary course, the codal provision may be invoked to annul the excessive stipulated
interest.

In the case at bar, the stipulated interest rate is 6% per month, or 72% per annum. By the standards set
in the above-cited cases, this stipulation is similarly invalid. However, the RTC refused to apply the
principle cited and employed in Medel on the ground that Medel did not pertain to the annulment of a
real estate mortgage,
[15]
as it was a case for annulment of the loan contract itself. The question thus
sensibly arises whether the invalidity of the stipulation on interest carries with it the invalidity of the
principal obligation.

The question is crucial to the present petition even if the subject thereof is not the annulment of the
loan contract but that of the mortgage contract. The consideration of the mortgage contract is the same
as that of the principal contract from which it receives life, and without which it cannot exist as an
independent contract. Being a mere accessory contract, the validity of the mortgage contract would
depend on the validity of the loan secured by it.
[16]


Notably in Medel, the Court did not invalidate the entire loan obligation despite the inequitability of
the stipulated interest, but instead reduced the rate of interest to the more reasonable rate of 12% per
annum. The same remedial approach to the wrongful interest rates involved was employed or affirmed
by the Court in Solangon, Imperial, Ruiz, Cuaton, and Arrofo.

The Courts ultimate affirmation in the cases cited of the validity of the principal loan obligation
side by side with the invalidation of the interest rates thereupon is congruent with the rule that a
usurious loan transaction is not a complete nullity but defective only with respect to the agreed interest.

We are aware that the Court of Appeals, on certain occasions, had ruled that a usurious loan is
wholly null and void both as to the loan and as to the usurious interest.
[17]
However, this Court adopted
the contrary rule,

as comprehensively discussed in Briones v. Cammayo:
[18]


In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this Court likewise declared that, in any event, the
debtor in a usurious contract of loan should pay the creditor the amount which he justly owes him,
citing in support of this ruling its previous decisions in Go Chioco, Supra, Aguilar vs. Rubiato, et al., 40
Phil. 570, and Delgado vs. Duque Valgona, 44 Phil. 739.

. . . .


Then in Lopez and Javelona vs. El Hogar Filipino, 47 Phil. 249, We also held that the standing
jurisprudence of this Court on the question under consideration was clearly to the effect that the Usury
Law, by its letter and spirit, did not deprive the lender of his right to recover from the borrower the
money actually loaned to and enjoyed by the latter. This Court went further to say that the Usury Law
did not provide for the forfeiture of the capital in favor of the debtor in usurious contracts, and that
while the forfeiture might appear to be convenient as a drastic measure to eradicate the evil of usury,
the legal question involved should not be resolved on the basis of convenience.

Other cases upholding the same principle are Palileo vs. Cosio, 97 Phil. 919 and Pascua vs. Perez, L-
19554, January 31, 1964, 10 SCRA 199, 200-202. In the latter We expressly held that when a contract is
found to be tainted with usury "the only right of the respondent (creditor) . . . was merely to collect the
amount of the loan, plus interest due thereon."

The view has been expressed, however, that the ruling thus consistently adhered to should now be
abandoned because Article 1957 of the new Civil Code a subsequent law provides that contracts
and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury,
shall be void, and that in such cases "the borrower may recover in accordance with the laws on usury."
From this the conclusion is drawn that the whole contract is void and that, therefore, the creditor has no
right to recover not even his capital.

The meaning and scope of our ruling in the cases mentioned heretofore is clearly stated, and the view
referred to in the preceding paragraph is adequately answered, in Angel Jose, etc. vs. Chelda
Enterprises, et al. (L-25704, April 24, 1968). On the question of whether a creditor in a usurious contract
may or may not recover the principal of the loan, and, in the affirmative, whether or not he may also
recover interest thereon at the legal rate, We said the following:

. . . .

Appealing directly to Us, defendants raise two questions of law: (1) In a loan with usurious interest, may
the creditor recover the principal of the loan? (2) Should attorney's fees be awarded in plaintiff's favor?"

Great reliance is made by appellants on Art. 1411 of the New Civil Code . . . .

Since, according to the appellants, a usurious loan is void due to illegality of cause or object, the rule of
pari delicto expressed in Article 1411, supra, applies, so that neither party can bring action against each
other. Said rule, however, appellants add, is modified as to the borrower, by express provision of the
law (Art. 1413, New Civil Code), allowing the borrower to recover interest paid in excess of the interest
allowed by the Usury Law. As to the lender, no exception is made to the rule; hence, he cannot recover
on the contract. So they continue the New Civil Code provisions must be upheld as against the
Usury Law, under which a loan with usurious interest is not totally void, because of Article 1961 of the
New Civil Code, that: "Usurious contracts shall be governed by the Usury Law and other special laws, so
far as they are not inconsistent with this Code."

We do not agree with such reasoning. Article 1411 of the New Civil Code is not new; it is the same as
Article 1305 of the Old Civil Code. Therefore, said provision is no warrant for departing from previous
interpretation that, as provided in the Usury Law (Act No. 2655, as amended), a loan with usurious
interest is not totally void only as to the interest.

. . . [a]ppellants fail to consider that a contract of loan with usurious interest consists of principal and
accessory stipulations; the principal one is to pay the debt; the accessory stipulation is to pay interest
thereon.

And said two stipulations are divisible in the sense that the former can still stand without the latter.
Article 1273, Civil Code, attests to this: "The renunciation of the principal debt shall extinguish the
accessory obligations; but the waiver of the latter shall leave the former in force."

The question therefore to resolve is whether the illegal terms as to payment of interest likewise
renders a nullity the legal terms as to payments of the principal debt. Article 1420 of the New Civil
Code provides in this regard: "In case of a divisible contract, if the illegal terms can be separated from
the legal ones, the latter may be enforced."

In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal
debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only
as to the prestation to pay the stipulated interest; hence, being separable, the latter only should be
deemed void, since it is the only one that is illegal.

. . . .

The principal debt remaining without stipulation for payment of interest can thus be recovered by
judicial action. And in case of such demand, and the debtor incurs in delay, the debt earns interest from
the date of the demand (in this case from the filing of the complaint). Such interest is not due to
stipulation, for there was none, the same being void. Rather, it is due to the general provision of law
that in obligations to pay money, where the debtor incurs in delay, he has to pay interest by way of
damages (Art. 2209, Civil Code). The court a quo therefore, did not err in ordering defendants to pay the
principal debt with interest thereon at the legal rate, from the date of filing of the complaint."
[19]


The Courts wholehearted affirmation of the rule that the principal obligation subsists despite the
nullity of the stipulated interest is evinced by its subsequent rulings, cited above, in all of which the main
obligation was upheld and the offending interest rate merely corrected. Hence, it is clear and settled
that the principal loan obligation still stands and remains valid. By the same token, since the mortgage
contract derives its vitality from the validity of the principal obligation, the invalid stipulation on interest
rate is similarly insufficient to render void the ancillary mortgage contract.

It should be noted that had the Court declared the loan and mortgage agreements void for being
contrary to public policy, no prescriptive period could have run.
[20]
Such benefit is obviously not available
to petitioners.

Yet the RTC pronounced that the complaint was barred by the four-year prescriptive period provided in
Article 1391 of the Civil Code, which governs voidable contracts. This conclusion was derived from the
allegation in the complaint that the consent of petitioners was vitiated through undue influence. While
the RTC correctly acknowledged the rule of prescription for voidable contracts, it erred in applying the
rule in this case. We are hard put to conclude in this case that there was any undue influence in the first
place.

There is ultimately no showing that petitioners consent to the loan and mortgage agreements was
vitiated by undue influence. The financial condition of petitioners may have motivated them to contract
with respondents, but undue influence cannot be attributed to respondents simply because they had
lent money. Article 1391, in relation to Article 1390 of the Civil Code, grants the aggrieved party the
right to obtain the annulment of contract on account of factors which vitiate consent. Article 1337
defines the concept of undue influence, as follows:

There is undue influence when a person takes improper advantage of his power over the will of another,
depriving the latter of a reasonable freedom of choice. The following circumstances shall be considered:
the confidential, family, spiritual and other relations between the parties or the fact that the person
alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or in
financial distress.

While petitioners were allegedly financially distressed, it must be proven that there is deprivation of
their free agency. In other words, for undue influence to be present, the influence exerted must have so
overpowered or subjugated the mind of a contracting party as to destroy his free agency, making him
express the will of another rather than his own.
[21]
The alleged lingering financial woes of petitioners per
se cannot be equated with the presence of undue influence.

The RTC had likewise concluded that petitioners were barred by laches from assailing the validity of the
real estate mortgage. We wholeheartedly agree. If indeed petitioners unwillingly gave their consent to
the agreement, they should have raised this issue as early as in the foreclosure proceedings. It was only
when the writ of possession was issued did petitioners challenge the stipulations in the loan contract in
their action for annulment of mortgage. Evidently, petitioners slept on their rights. The Court of Appeals
succinctly made the following observations:

In all these proceedings starting from the foreclosure, followed by the issuance of a provisional
certificate of sale; then the definite certificate of sale; then the issuance of TCT No. 29338 in favor of the
defendants and finally the petition for the issuance of the writ of possession in favor of the defendants,
there is no showing that plaintiffs questioned the validity of these proceedings. It was only after the
issuance of the writ of possession in favor of the defendants, that plaintiffs allegedly tendered to the
defendants the amount of P260,000.00 which the defendants refused. In all these proceedings, why did
plaintiffs sleep on their rights?
[22]


Clearly then, with the absence of undue influence, petitioners have no cause of action. Even
assuming undue influence vitiated their consent to the loan contract, their action would already be
barred by prescription when they filed it. Moreover, petitioners had clearly slept on their rights as they
failed to timely assail the validity of the mortgage agreement. The denial of the petition in G.R. No.
150773 is warranted.

We now resolve the petition in G.R. No. 153599.

Petitioners claim that the assailed RTC orders dated 3 August 1999 and 6 January 2000 could no
longer be questioned in a special civil action for certiorari and mandamus as the reglementary period
for such action had already elapsed.

It must be noted that the Order dated 3 August 1999 suspending the enforcement of the writ of
possession had a period of effectivity of only twenty (20) days from 3 August 1999, or until 23 August
1999. Thus, upon the expiration of the twenty (20)-day period, the said Order became functus officio.
Thus, there is really no sense in assailing the validity of this Order, mooted as it was. For the same
reason, the validity of the order need not have been assailed by respondents in their special civil action
before the Court of Appeals.

On the other hand, the Order dated 6 January 2000 is in the nature of a writ of injunction whose
period of efficacy is indefinite. It may be properly assailed by way of the special civil action for certiorari,
as it is interlocutory in nature.

As a rule, the special civil action for certiorari under Rule 65 must be filed not later than sixty (60)
days from notice of the judgment or order.
[23]
Petitioners argue that the 3 August 1999 Order could no
longer be assailed by respondents in a special civil action for certiorari before the Court of Appeals, as
the petition was filed beyond sixty (60) days following respondents receipt of theOrder. Considering
that the 3 August 1999 Order had become functus officio in the first place, this argument deserves scant
consideration.

Petitioners further claim that the 6 January 2000 Order could not have likewise been the subject of
a special civil action for certiorari, as it is according to them a final order, as opposed to an interlocutory
order. That the 6 January 2000 Order is interlocutory in nature should be beyond doubt. An order is
interlocutory if its effects would only be provisional in character and would still leave substantial
proceedings to be further had by the issuing court in order to put the controversy to rest.
[24]
The
injunctive relief granted by the order is definitely final, but merely provisional, its effectivity hinging on
the ultimate outcome of the then pending action for annulment of real estate mortgage. Indeed, an
interlocutory order hardly puts to a close, or disposes of, a case or a disputed issue leaving nothing else
to be done by the court in respect thereto, as is characteristic of a final order.

Since the 6 January 2000 Order is not a final order, but rather interlocutory in nature, we cannot
agree with petitioners who insist that it may be assailed only through an appeal perfected within fifteen
(15) days from receipt thereof by respondents. It is axiomatic that an
interlocutory order cannot be challenged by an appeal,

but is susceptible to review only through the special civil action of certiorari.
[25]
The sixty (60)-day
reglementary period for special civil actions under Rule 65 applies, and respondents petition was filed
with the Court of Appeals well within the period.

Accordingly, no error can be attributed to the Court of Appeals in granting the petition for certiorari
and mandamus. As pointed out by respondents, the remedy of mandamus lies to compel the
performance of a ministerial duty. The issuance of a writ of possession to a purchaser in an
extrajudicial foreclosure is merely a ministerial function.
[26]


Thus, we also affirm the Court of Appeals ruling to set aside the RTC orders enjoining the enforcement
of the writ of possession.
[27]
The purchaser in a foreclosure sale is entitled as a matter of right to a writ
of possession, regardless of whether or not there is a pending suit for annulment of the mortgage or the
foreclosure proceedings. An injunction to prohibit the issuance or enforcement of the writ is entirely
out of place.
[28]


One final note. The issue on the validity of the stipulated interest rates, regrettably for petitioners, was
not raised at the earliest possible opportunity. It should be pointed out though that since an excessive
stipulated interest rate may be void for being contrary to public policy, an action to annul said interest
rate does not prescribe. Such indeed is the remedy; it is not the action for annulment of the ancillary
real estate mortgage. Despite the nullity of the stipulated interest rate, the principal loan obligation
subsists, and along with it the mortgage that serves as collateral security for it.

WHEREFORE, in view of all the foregoing, the petitions are DENIED. Costs against petitioners.

SO ORDERED.



DANTE O. TINGA Associate Justice


WE CONCUR:





REYNATO S. PUNO
Associate Justice
Chairman





MA. ALICIA AUSTRIA-MARTINEZ ROMEO J. CALLEJO, SR.
Associate Justice Associate Justice





MINITA V. CHICO-NAZARIO
Associate Justice





ATTESTATION

I attest that the conclusions in the above Decision had been in consultation before the case was
assigned to the writer of the opinion of the Courts Division.



REYNATO S. PUNO
Associate Justice
Chairman, Second Division


CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairmans Attestation, it is
hereby certified that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.


HILARIO G. DAVIDE, JR.
Chief Justice






[1]
G.R. No. 150773, Rollo, pp. 15-21.


[2]
Id. at 22-25. Elevated directly to this Court, it raising pure questions of law, in accordance with Section
1, Rule 45, Rules of Court.

[3]
Penned by Associate Justice Eubolo G. Verzola and concurred in by Associate Justices Bernardo P.
Abesamis and Josefina Guevara-Salonga. G.R. No. 153599, Rollo, pp. 22-26.

[4]
G.R. No. 153599, Rollo, p.30.

[5]
Id. at 38-40.

[6]
359 Phil. 820 (1998).

[7]
G.R. No. 150773, Rollo, p.10.

[8]
Supra note 6.

[9]
Ibid. Citing Ibarra v. Averyro, 37 Phil. 274 (1917); Almeda v. Court of Appeals, 326 Phil. 309 (1998).


[10]
412 Phil. 816 (2001).

[11]
G.R. No. 149004, 14 April 2004, 427 SCRA 517.

[12]
G.R. No. 146942, 22 April 2003, 401 SCRA 410.

[13]
G.R. No. 158382, 27 January 2004, 421 SCRA 278.

[14]
G.R. No. 145794, 26 January 2005, 449 SCRA 284.

[15]
G.R. No. 150773, Rollo, p. 18.

[16]
Naguiat v. Court of Appeals, G.R. No. 118375, 3 October 2003, 412 SCRA 591, citing China Banking
Corporation v. Lichauco, 46 Phil. 460 (1926) and Filipinas Marble Corp. v. Intermediate Appellate Court,
226 Phil. 109, 119 (1986).

[17]
See H. DE LEON, COMMENTS AND CASES ON CREDIT TRANSACTIONS (2002 ed.), at
95, citing Sebastian v. Bautista [CA] 58 O.G. No. 15, 3147; People v. Masangkay, [CA] 58 O.G. No. 17,
3565; Torres v. Joco, [CA] 59 O.G. No. 10, 1580.

[18]
148-B Phil. 881 (1971).

[19]
Id. at 891-893. Emphasis supplied.

[20]
See Article 1410, Civil Code.

[21]
Coso v. Fernandez Deza, 42 Phil. 595 (1921).

[22]
G.R. No. 150773, Rollo, p. 20.


[23]
Section 4, Rule 65, Rules of Court.

[24]
Sto. Tomas Hospital v. Surla, 355 Phil. 804 (1998), citing Investments, Inc. vs. Court of Appeals, L-
60036, 27 January 1987, 147 SCRA 334; Denso Phils. Inc. v. Intermediate Appellate Court, L-75000, 27
February 1987, 148 SCRA 280; Bairan v. Tan Siu Lay, 125 Phil. 371 (1966).

[25]
Yamaoka v. Pescarich, 414 Phil. 211 (2001); Go v. Court of Appeals, 358 Phil. 214 (1998). *T+he proper
remedy in such cases is an ordinary appeal from an adverse judgment on the merits, incorporating in
said appeal the grounds for assailing the interlocutory orders. Allowing appeals from interlocutory
orders would result in the sorry spectacle of a case being subject of a counterproductive ping-pong to
and from the appellate court as often as a trial court is perceived to have made an error in any of its
interlocutory rulings. However, where the assailed order is patently erroneous and the remedy of
appeal would not afford adequate and expeditious relief, the Court may allow certiorari as a mode of
redress.

[26]
F. David Enterprises v. Insular Bank of Asia and America, G.R. No. 78714, 21 November 1990, 191
SCRA 516; Primetown Property Group v. Juntilla, G.R. No. 157801, 8 June 2005; Santiago v. Merchants
Rural Bank of Talavera, Inc., G.R. No. 147820, 18 March 2005; DBP v. Gatal, G.R. No. 138567, 4 March
2005; Mamerto Maniquis Foundation v. Pizarro, A.M. No. RTJ-03-1750, 14 January 2005, 448 SCRA 140;
De Vera v. Agloro, G.R. No. 155673, 14 January 2005, 448 SCRA 203, citing China Banking Corporation v.
Ordinario, G.R. No. 121943, 24 March 2003, 399 SCRA 430; A.G. Development Corporation v. Court of
Appeals, 346 Phil. 136 (1997); Suico Industrial Corporation v. Court of Appeals, 361 Phil. 160 (1999);
Idolor v. Court of Appeals, G.R. No. 161028, 31 January 2005, 450 SCRA 396, citing Samson, et al. v.
Judge Rivera, et al., G.R. No. 154355, 20 May 2004, 428 SCRA 759.




[27]
Primetown Property Group v. Juntilla, G.R. No. 157801, 8 June 2005; Santiago v. Merchants Rural
Bank of Talavera, Inc., G.R. No. 147820, 18 March 2005; DBP v. Gatal, G.R. No. 138567, 4 March 2005;
Mamerto Maniquis Foundation v. Pizarro, A.M. No. RTJ-03-1750, 14 January 2005, 448 SCRA 140; De
Vera v. Agloro, G.R. No. 155673, 14 January 2005, 448 SCRA 203, citing China Banking Corporation v.
Ordinario, G.R. No. 121943, 24 March 2003, 399 SCRA 430; A.G. Development Corporation v. Court of
Appeals, 346 Phil. 136 (1997); Suico Industrial Corporation v. Court of Appeals, 361 Phil. 160 (1999).
Idolor v. Court of Appeals, G.R. No. 161028, 31 January 2005, 450 SCRA 396, citing Samson, et al. v.
Judge Rivera, et al., G.R. No. 154355, 20 May 2004, 428 SCRA 759.

[28]
Kho v. Court of Appeals, G.R. No. 83498, 22 October 1991, 203 SCRA 160; Veloso v. Intermediate
Appellate Court, G.R. No. 73338, 21 January 1992, 205 SCRA 227.

SECOND DIVISION
G.R. No. 164401 June 25, 2008
LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS; THE HONORABLE PRESIDING JUDGE, Regional Trial Court,
Branch 11, Sindangan, Zamboanga Del Norte; THE REGIONAL TRIAL COURT SHERIFF, Branch 11,
Sindangan, Zamboanga Del Norte; THE CLERK OF COURT OF MANILA, as Ex-Officio Sheriff; and
LAMBERTO T. CHUA, respondents.
D E C I S I O N
VELASCO, JR., J.:
The Case
Before us is a petition for review under Rule 45, seeking to nullify and set aside the Decision
1
and
Resolution dated November 6, 2003 and July 6, 2004, respectively, of the Court of Appeals (CA) in CA-
G.R. SP No. 75688. The impugned CA Decision and Resolution denied the petition for certiorari
interposed by petitioners assailing the Resolutions
2
dated November 6, 2002 and January 7, 2003,
respectively, of the Regional Trial Court (RTC), Branch 11 in Sindangan, Zamboanga Del Norte in Civil
Case No. S-494, a suit for winding up of partnership affairs, accounting, and recovery of shares
commenced thereat by respondent Lamberto T. Chua.
The Facts
In 1977, Chua and Jacinto Sunga formed a partnership to engage in the marketing of liquefied petroleum
gas. For convenience, the business, pursued under the name, Shellite Gas Appliance Center (Shellite),
was registered as a sole proprietorship in the name of Jacinto, albeit the partnership arrangement called
for equal sharing of the net profit.
After Jacintos death in 1989, his widow, petitioner Cecilia Sunga, and married daughter, petitioner
Lilibeth Sunga-Chan, continued with the business without Chuas consent. Chuas subsequent repeated
demands for accounting and winding up went unheeded, prompting him to file on June 22, 1992 a
Complaint for Winding Up of a Partnership Affairs, Accounting, Appraisal and Recovery of Shares and
Damages with Writ of Preliminary Attachment, docketed as Civil Case No. S-494 of the RTC in Sindangan,
Zamboanga del Norte and raffled to Branch 11 of the court.
After trial, the RTC rendered, on October 7, 1997, judgment finding for Chua, as plaintiff a quo. The
RTCs decision would subsequently be upheld by the CA in CA-G.R. CV No. 58751 and by this Court per
its Decision dated August 15, 2001 in G.R. No. 143340.
3
The corresponding Entry of Judgment
4
would
later issue declaring the October 7, 1997 RTC decision final and executory as of December 20, 2001. The
fallo of the RTCs decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, as
follows:
(1) DIRECTING them to render an accounting in acceptable form under accounting procedures and
standards of the properties, assets, income and profits of [Shellite] since the time of death of Jacinto
L. Sunga, from whom they continued the business operations including all businesses derived from
[Shellite]; submit an inventory, and appraisal of all these properties, assets, income, profits, etc. to the
Court and to plaintiff for approval or disapproval;
(2) ORDERING them to return and restitute to the partnership any and all properties, assets, income
and profits they misapplied and converted to their own use and advantage that legally pertain to the
plaintiff and account for the properties mentioned in pars. A and B on pages 4-5 of this petition as basis;
(3) DIRECTING them to restitute and pay to the plaintiff shares and interest of the plaintiff in the
partnership of the listed properties, assets and good will in schedules A, B and C, on pages 4-5 of the
petition;
(4) ORDERING them to pay the plaintiff earned but unreceived income and profits from the partnership
from 1988 to May 30, 1992, when the plaintiff learned of the closure of the store the sum of P35,000.00
per month, with legal rate of interest until fully paid;
(5) ORDERING them to wind up the affairs of the partnership and terminate its business activities
pursuant to law, after delivering to the plaintiff all the interest, shares, participation and equity in the
partnership, or the value thereof in money or moneys worth, if the properties are not physically
divisible;
(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in bad faith and hold them
liable to the plaintiff the sum of P50,000.00 as moral and exemplary damages; and,
(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorneys *fee+ and P25,000.00 as
litigation expenses.
NO special pronouncements as to COSTS.
SO ORDERED.
5
(Emphasis supplied.)
Via an Order
6
dated January 16, 2002, the RTC granted Chuas motion for execution. Over a month later,
the RTC, acting on another motion of Chua, issued an amended writ of execution.
7

It seems, however, that the amended writ of execution could not be immediately implemented, for, in
an omnibus motion of April 3, 2002, Chua, inter alia, asked the trial court to commission a certified
public accountant (CPA) to undertake the accounting work and inventory of the partnership assets if
petitioners refuse to do it within the time set by the court. Chua later moved to withdraw his motion
and instead ask the admission of an accounting report prepared by CPA Cheryl A. Gahuman. In the
report under the heading, Computation of Claims,
8
Chuas aggregate claim, arrived at using the
compounding-of-interest method, amounted to PhP 14,277,344.94. Subsequently, the RTC admitted
and approved the computation of claims in view of petitioners failure and refusal, despite notice, to
appear and submit an accounting report on the winding up of the partnership on the scheduled hearings
on April 29 and 30, 2002.
9

After another lengthy proceedings, petitioners, on September 24, 2002, submitted their own CPA-
certified valuation and accounting report. In it, petitioners limited Chuas entitlement from the winding
up of partnership affairs to an aggregate amount of PhP 3,154,736.65 only.
10
Chua, on the other hand,
submitted a new computation,
11
this time applying simple interest on the various items covered by his
claim. Under this methodology, Chuas aggregate claim went down to PhP 8,733,644.75.
On November 6, 2002, the RTC issued a Resolution,
12
rejecting the accounting report petitioners
submitted, while approving the new computation of claims Chua submitted. The fallo of the resolution
reads:
WHEREFORE, premises considered, this Court resolves, as it is hereby resolved, that the Computation of
Claims submitted by the plaintiff dated October 15, 2002 amounting to P8,733,644.75 be APPROVED in
all respects as the final computation and accounting of the defendants liabilities in favor of the plaintiff
in the above-captioned case, DISAPPROVING for the purpose, in its entirety, the computation and
accounting filed by the defendants.
SO RESOLVED.
13

Petitioners sought reconsideration, but their motion was denied by the RTC per its Resolution of January
7, 2003.
14

In due time, petitioners went to the CA on a petition for certiorari
15
under Rule 65, assailing the
November 6, 2002 and January 7, 2003 resolutions of the RTC, the recourse docketed as CA-G.R. SP No.
75688.
The Ruling of the CA
As stated at the outset, the CA, in the herein assailed Decision of November 6, 2003, denied the petition
for certiorari, thus:
WHEREFORE, the foregoing considered, the Petition is hereby DENIED for lack of merit.
SO ORDERED.
16

The CA predicated its denial action on the ensuing main premises:
1. Petitioners, by not appearing on the hearing dates, i.e., April 29 and 30, 2002, scheduled to consider
Chuas computation of claims, or rendering, as required, an accounting of the winding up of the
partnership, are deemed to have waived their right to interpose any objection to the computation of
claims thus submitted by Chua.
2. The 12% interest added on the amounts due is proper as the unwarranted keeping by petitioners of
Chuas money passes as an involuntary loan and forbearance of money.
3. The reiterative arguments set forth in petitioners pleadings below were part of their delaying tactics.
Petitioners had come to the appellate court at least thrice and to this Court twice. Petitioners had more
than enough time to question the award and it is now too late in the day to change what had become
final and executory.
Petitioners motion for reconsideration was rejected by the appellate court through the assailed
Resolution
17
dated July 6, 2004. Therein, the CA explained that the imposition of the 12% interest for
forbearance of credit or money was proper pursuant to paragraph 1 of the October 7, 1997 RTC
decision, as the computation done by CPA Gahuman was made in "acceptable form under accounting
procedures and standards of the properties, assets, income and profits of [Shellite]."
18
Moreover, the CA
ruled that the imposition of interest is not based on par. 3 of the October 7, 1997 RTC decision as the
phrase "shares and interests" mentioned therein refers not to an imposition of interest for use of money
in a loan or credit, but to a legal share or right. The appellate court also held that the imposition of
interest on the partnership assets falls under par. 2 in relation to par. 1 of the final RTC decision as the
restitution mentioned therein does not simply mean restoration but also reparation for the injury or
damage committed against the rightful owner of the property.
Finally, the CA declared the partnership assets referred to in the final decision as "liquidated claim" since
the claim of Chua is ascertainable by mathematical computation; therefore, interest is recoverable as an
element of damage.
The Issues
Hence, the instant petition with petitioners raising the following issues for our consideration:
I.
Whether or not the Regional Trial Court can [impose] interest on a final judgment of unliquidated
claims.
II.
Whether or not the Sheriff can enforce the whole divisible obligation under judgment only against one
Defendant.
III.
Whether or not the absolute community of property of spouses Lilibeth Sunga Chan with her husband
Norberto Chan can be lawfully made to answer for the liability of Lilibeth Chan under the judgment.
19

Significant Intervening Events
In the meantime, pending resolution of the instant petition for review and even before the resolution by
the CA of its CA-G.R. SP No. 75688, the following relevant events transpired:
1. Following the RTCs approval of Chuas computation of claims in the amount of PhP 8,733,644.75, the
sheriff of Manila levied upon petitioner Sunga-Chans property located along Linao St., Paco, Manila,
covered by Transfer Certificate of Title (TCT) No. 208782,
20
over which a building leased to the Philippine
National Bank (PNB) stood. In the auction sale of the levied lot, Chua, with a tender of PhP 8
million,
21
emerged as the winning bidder.
2. On January 21, 2005, Chua moved for the issuance of a final deed of sale and a writ of possession. He
also asked the RTC to order the Registry of Deeds of Manila to cancel TCT No. 208782 and to issue a new
certificate. Despite petitioners opposition on the ground of prematurity, a final deed of sale
22
was
issued on February 16, 2005.
3. On February 18, 2005, Chua moved for the confirmation of the sheriffs final deed of sale and for the
issuance of an order for the cancellation of TCT No. 208782. Petitioners again interposed an opposition
in which they informed the RTC that this Court had already granted due course to their petition for
review on January 31, 2005;
4. On April 11, 2005, the RTC, via a Resolution, confirmed the sheriffs final deed of sale, ordered the
Registry of Deeds of Manila to cancel TCT No. 208782, and granted a writ of possession
23
in favor of
Chua.
5. On May 3, 2005, petitioners filed before this Court a petition for the issuance of a temporary
restraining order (TRO). On May 24, 2005, the sheriff of Manila issued a Notice to Vacate
24
against
petitioners, compelling petitioners to repair to this Court anew for the resolution of their petition for a
TRO.
6. On May 31, 2005, the Court issued a TRO,
25
enjoining the RTC and the sheriff from enforcing the April
11, 2005 writ of possession and the May 24, 2005 Notice to Vacate. Consequently, the RTC issued an
Order
26
on June 17, 2005, suspending the execution proceedings before it.
7. Owing to the clashing ownership claims over the leased Paco property, coupled with the filing of an
unlawful detainer suit before the Metropolitan Trial Court (MeTC) in Manila against PNB, the Court,
upon the banks motion, allowed, by Resolution
27
dated April 26, 2006, the consignation of the monthly
rentals with the MeTC hearing the ejectment case.
The Courts Ruling
The petition is partly meritorious.
First Issue: Interest Proper in Forbearance of Credit
Petitioners, citing Article 2213
28
of the Civil Code, fault the trial court for imposing, in the execution of its
final judgment, interests on what they considered as unliquidated claims. Among these was the claim for
goodwill upon which the RTC attached a monetary value of PhP 250,000. Petitioners also question the
imposition of 12% interest on the claimed monthly profits of PhP 35,000, reckoned from 1988 to
October 15, 1992. To petitioners, the imposable rate should only be 6% and computed from the finality
of the RTCs underlying decision, i.e., from December 20, 2001.
Third on the petitioners list of unliquidated claims is the yet-to-be established value of the one-half
partnership share and interest adjudicated to Chua, which, they submit, must first be determined with
reasonable certainty in a judicial proceeding. And in this regard, petitioners, citing Eastern Shipping
Lines, Inc. v. Court of Appeals,
29
would ascribe error on the RTC for adding a 12% per annum interest on
the approved valuation of the one-half share of the assets, inclusive of goodwill, due Chua.
Petitioners are partly correct.
For clarity, we reproduce the summary valuations and accounting reports on the computation of claims
certified to by the parties respective CPAs. Chua claimed the following:
A 50% share on assets (exclusive of goodwill) at
fair market value (Schedule 1) P 1,613,550.00
B 50% share in the monetary value of goodwill
(P500,000 x 50%) 250,000.00
C Legal interest on share of assets from June 1,
1992 to Oct. 15, 2002 at 12% interest per year
(Schedule 2) 2,008,869.75
D Unreceived profits from 1988 to 1992 and its
corresponding interest from Jan. 1, 1988 to Oct.
15, 2002 (Schedule 3) 4,761,225.00
E Damages 50,000.00
F Attorneys fees 25,000.00
G Litigation fees 25,000.00
TOTAL AMOUNT P 8,733,644.75
On the other hand, petitioners acknowledged the following to be due to Chua:
Total Assets Schedule 1 P2,431,956.35
50% due to Lamberto Chua P1,215,978.16
Total Alleged Profit, Net of Payments Made,
May 1992-Sch. 2 1,613,758.49
50% share in the monetary value of goodwill
(500,000 x 50%) 250,000.00
Moral and Exemplary Damages 50,000.00
Attorneys Fee 25,000.00
Litigation Fee 25,000.00
TOTAL AMOUNT P3,154,736.65
As may be recalled, the trial court admitted and approved Chuas computation of claims amounting to
PhP 8,733,644.75, but rejected that of petitioners, who came up with the figure of only PhP
3,154,736.65. We highlight the substantial differences in the accounting reports on the following items,
to wit: (1) the aggregate amount of the partnership assets bearing on the 50% share of Chua thereon;
(2) interests added on Chuas share of the assets; (3) amount of profits from 1988 through May 30,
1992, net of alleged payments made to Chua; and (4) interests added on the amount entered as profits.
From the foregoing submitted valuation reports, there can be no dispute about the goodwill earned thru
the years by Shellite. In fact, the parties, by their own judicial admissions, agreed on the monetary value,
i.e., PhP 250,000, of this item. Clearly then, petitioners contradict themselves when they say that such
amount of goodwill is without basis. Thus, the Court is loathed to disturb the trial courts approval of the
amount of PhP 250,000, representing the monetary value of the goodwill, to be paid to Chua.
Neither is the Court inclined to interfere with the CAs conclusion as to the total amount of the
partnership profit, that is, PhP 1,855,000, generated for the period January 1988 through May 30, 1992,
and the total partnership assets of PhP 3,227,100, 50% of which, or PhP 1,613,550, pertains to Chua as
his share. To be sure, petitioners have not adduced adequate evidence to belie the above CAs factual
determination, confirmatory of the trial courts own. Needless to stress, it is not the duty of the Court,
not being a trier of facts, to analyze or weigh all over again the evidence or premises supportive of such
determination, absent, as here, the most compelling and cogent reasons.
This brings us to the question of the propriety of the imposition of interest and, if proper, the imposable
rate of interest applicable.
In Reformina v. Tomol, Jr.,
30
the Court held that the legal interest at 12% per annum under Central Bank
(CB) Circular No. 416 shall be adjudged only in cases involving the loan or forbearance of money. And for
transactions involving payment of indemnities in the concept of damages arising from default in the
performance of obligations in general and/or for money judgment not involving a loan or forbearance of
money, goods, or credit, the governing provision is Art. 2209 of the Civil Code prescribing a yearly 6%
interest. Art. 2209 pertinently provides:
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay,
the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the
interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per
annum.
The term "forbearance," within the context of usury law, has been described as a contractual obligation
of a lender or creditor to refrain, during a given period of time, from requiring the borrower or debtor to
repay the loan or debt then due and payable.
31

Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the
applicable rate, as follows: The 12% per annum rate under CB Circular No. 416 shall apply only to loans
or forbearance of money, goods, or credits, as well as to judgments involving such loan or forbearance
of money, goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code applies "when the
transaction involves the payment of indemnities in the concept of damage arising from the breach or a
delay in the performance of obligations in general,"
32
with the application of both rates reckoned "from
the time the complaint was filed until the [adjudged] amount is fully paid."
33
In either instance, the
reckoning period for the commencement of the running of the legal interest shall be subject to the
condition "that the courts are vested with discretion, depending on the equities of each case, on the
award of interest."
34

Otherwise formulated, the norm to be followed in the future on the rates and application thereof is:
I. When an obligation, regardless of its source, is breached, the contravenor can be held liable for
damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the
measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation breached consists in the payment of a sum of money, i.e., a loan or forbearance
of money, the interest due should be that which may have been stipulated in writing. Furthermore, the
interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial
or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation not constituting loans or forbearance of money is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until
the demand can be established with reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.
35

Guided by the foregoing rules, the award to Chua of the amount representing earned but unremitted
profits, i.e.. PhP 35,000 monthly, from January 1988 until May 30, 1992, must earn interest at 6% per
annum reckoned from October 7, 1997, the rendition date of the RTC decision, until December 20, 2001,
when the said decision became final and executory. Thereafter, the total of the monthly profits inclusive
of the add on 6% interest shall earn 12% per annum reckoned from December 20, 2001 until fully paid,
as the award for that item is considered to be, by then, equivalent to a forbearance of credit. Likewise,
the PhP 250,000 award, representing the goodwill value of the business, the award of PhP 50,000 for
moral and exemplary damages, PhP 25,000 attorneys fee, and PhP 25,000 litigation fee shall earn 12%
per annum from December 20, 2001 until fully paid.
Anent the impasse over the partnership assets, we are inclined to agree with petitioners assertion that
Chuas share and interest on such assets partake of an unliquidated claim which, until reasonably
determined, shall not earn interest for him. As may be noted, the legal norm for interest to accrue is
"reasonably determinable," not, as Chua suggested and the CA declared, determinable by mathematical
computation.
The Court has certainly not lost sight of the fact that the October 7, 1997 RTC decision clearly directed
petitioners to render an accounting, inventory, and appraisal of the partnership assets and then to wind
up the partnership affairs by restituting and delivering to Chua his one-half share of the accounted
partnership assets. The directive itself is a recognition that the exact share and interest of Chua over the
partnership cannot be determined with reasonable precision without going through with the inventory
and accounting process. In fine, a liquidated claim cannot validly be asserted without accounting. In net
effect, Chuas interest and share over the partnership asset, exclusive of the goodwill, assumed the
nature of a liquidated claim only after the trial court, through its November 6, 2002 resolution, approved
the assets inventory and accounting report on such assets.
Considering that Chuas computation of claim, as approved by the trial court, was submitted only on
October 15, 2002, no interest in his favor can be added to his share of the partnership assets.
Consequently, the computation of claims of Chua should be as follows:
(1) 50% share on assets (exclusive of goodwill)
at fair market value
PhP
1,613,550.00
(2) 50% share in the monetary value of goodwill
(PhP 500,000 x 50%) 250,000.00
(3) 12% interest on share of goodwill from
December 20, 2001 to October 15, 2000
[PhP 250,000 x 0.12 x 299/365 days] 24,575.34
(4) Unreceived profits from 1988 to May 30,
1992 1,855,000.00
(5) 6% interest on unreceived profits from
January 1, 1988 to December 20, 2001
36
1,360,362.50
(6) 12% interest on unreceived profits from
December
20, 2001 to October 15, 2002
[PhP 3,215,362.50 x 12% x 299/365 days] 316,074.54
(7) Moral and exemplary damages 50,000.00
(8) Attorneys fee 25,000.00
(9) Litigation fee 25,000.00
(10) 12% interest on moral and exemplary
damages,
attorneys fee, and litigation fee from December
20, 2001 to October 15, 2002
[PhP 100,000 x 12% x 299/365 days] 9,830.14
TOTAL AMOUNT
PhP
5,529,392.52
Second Issue: Petitioners Obligation Solidary
Petitioners, on the submission that their liability under the RTC decision is divisible, impugn the
implementation of the amended writ of execution, particularly the levy on execution of the absolute
community property of spouses petitioner Sunga-Chan and Norberto Chan. Joint, instead of solidary,
liability for any and all claims of Chua is obviously petitioners thesis.
Under the circumstances surrounding the case, we hold that the obligation of petitioners is solidary for
several reasons.
For one, the complaint of Chua for winding up of partnership affairs, accounting, appraisal, and recovery
of shares and damages is clearly a suit to enforce a solidary or joint and several obligation on the part of
petitioners. As it were, the continuance of the business and management of Shellite by petitioners
against the will of Chua gave rise to a solidary obligation, the acts complained of not being severable in
nature. Indeed, it is well-nigh impossible to draw the line between when the liability of one petitioner
ends and the liability of the other starts. In this kind of situation, the law itself imposes solidary
obligation. Art. 1207 of the Civil Code thus provides:
Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same
obligation does not imply that each one of the former has a right to demand, or that each of the latter is
bound to render, entire compliance with the prestation. There is solidary liability only when the
obligation expressly so states, or when the law or the nature of the obligation requires solidarity.
(Emphasis ours.)
Any suggestion that the obligation to undertake an inventory, render an accounting of partnership
assets, and to wind up the partnership affairs is divisible ought to be dismissed.
For the other, the duty of petitioners to remit to Chua his half interest and share of the total partnership
assets proceeds from petitioners indivisible obligation to render an accounting and inventory of such
assets. The need for the imposition of a solidary liability becomes all the more pronounced considering
the impossibility of quantifying how much of the partnership assets or profits was misappropriated by
each petitioner.
And for a third, petitioners obligation for the payment of damages and attorneys and litigation fees
ought to be solidary in nature, they having resisted in bad faith a legitimate claim and thus compelled
Chua to litigate.
Third Issue: Community Property Liable
Primarily anchored as the last issue is the erroneous theory of divisibility of petitioners obligation and
their joint liability therefor. The Court needs to dwell on it lengthily.
Given the solidary liability of petitioners to satisfy the judgment award, respondent sheriff cannot really
be faulted for levying upon and then selling at public auction the property of petitioner Sunga-Chan to
answer for the whole obligation of petitioners. The fact that the levied parcel of land is a conjugal or
community property, as the case may be, of spouses Norberto and Sunga-Chan does not per se vitiate
the levy and the consequent sale of the property. Verily, said property is not among those exempted
from execution under Section 13,
37
Rule 39 of the Rules of Court.
And it cannot be overemphasized that the TRO issued by the Court on May 31, 2005 came after the
auction sale in question.
Parenthetically, the records show that spouses Sunga-Chan and Norberto were married on February 4,
1992, or after the effectivity of the Family Code on August 3, 1988. Withal, their absolute community
property may be held liable for the obligations contracted by either spouse. Specifically, Art. 94 of said
Code pertinently provides:
Art. 94. The absolute community of property shall be liable for:
(1) x x x x
(2) All debts and obligations contracted during the marriage by the designated administrator-spouse for
the benefit of the community, or by both spouses, or by one spouse with the consent of the other.
(3) Debts and obligations contracted by either spouse without the consent of the other to the extent
that the family may have been benefited. (Emphasis ours.)
Absent any indication otherwise, the use and appropriation by petitioner Sunga-Chan of the assets of
Shellite even after the business was discontinued on May 30, 1992 may reasonably be considered to
have been used for her and her husbands benefit.
It may be stressed at this juncture that Chuas legitimate claim against petitioners, as readjusted in this
disposition, amounts to only PhP 5,529,392.52, whereas Sunga-Chans auctioned property which Chua
acquired, as the highest bidder, fetched a price of PhP 8 million. In net effect, Chua owes petitioner
Sunga-Chan the amount of PhP 2,470,607.48, representing the excess of the purchase price over his
legitimate claims.
Following the auction, the corresponding certificate of sale dated January 15, 2004 was annotated on
TCT No. 208782. On January 21, 2005, Chua moved for the issuance of a final deed of sale (1) to order
the Registry of Deeds of Manila to cancel TCT No. 208782; (2) to issue a new TCT in his name; and (3) for
the RTC to issue a writ of possession in his favor. And as earlier stated, the RTC granted Chuas motion,
albeit the Court restrained the enforcement of the RTCs package of orders via a TRO issued on May 31,
2005.
Therefore, subject to the payment by Chua of PhP 2,470,607.48 to petitioner Sunga-Chan, we affirm the
RTCs April 11, 2005 resolution, confirming the sheriffs final deed of sale of the levied property, ordering
the Registry of Deeds of Manila to cancel TCT No. 208782, and issuing a writ of possession in favor of
Chua.
WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the assailed decision and resolution of the
CA in CA-G.R. SP No. 75688 are hereby AFFIRMED with the following MODIFICATIONS:
(1) The Resolutions dated November 6, 2002 and January 7, 2003 of the RTC, Branch 11 in Sindangan,
Zamboanga Del Norte in Civil Case No. S-494, as effectively upheld by the CA, are AFFIRMED with the
modification that the approved claim of respondent Chua is hereby corrected and adjusted to cover only
the aggregate amount of PhP 5,529,392.52;
(2) Subject to the payment by respondent Chua of PhP 2,470,607.48 to petitioner Sunga-Chan, the
Resolution dated April 11, 2005 of the RTC, confirming the sheriffs final deed of sale of the levied
property, ordering the Registry of Deeds of Manila to cancel TCT No. 208782, and issuing a writ of
possession in favor of respondent Chua, is AFFIRMED; and
The TRO issued by the Court on May 31, 2005 in the instant petition is LIFTED.
No pronouncement as to costs.
SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice


WE CONCUR:
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
ANTONIO T. CARPIO
Associate Justice
DANTE O. TINGA
Associate Justice
ARTURO D. BRION
Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it is
hereby certified that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice


Footnotes
1
Rollo, pp. 36-45. Penned by Associate Justice Romeo A. Brawner (Chairperson, now retired) and
concurred in by Associate Justices Jose L. Sabio, Jr. and Jose C. Reyes, Jr.
2
Id. at 90-91. Penned by Judge Mariano S. Macias.
3
Reported in 363 SCRA 249.
4
Rollo, p. 69.
5
Id. at 38.
6
Id. at 72.
7
Id. at 73-76.
8
Id. at 78-81.
9
Id. at 77.
10
Id. at 40.
11
Id. at 85-89.
12
Id. at 90.
13
Id.
14
Id. at 91.
15
Id. at 93-112.
16
Supra note 1, at 45.
17
Rollo, pp. 47-55.
18
Id. at 52.
19
Id. at 175.
20
Id. at 304-307.
21
Id. at 92, Minutes of Sale.
22
Id. at 256-257.
23
Id. at 238-240.
24
Id. at 264-265.
25
Id. at 266-267.
26
Id. at 276.
27
Id. at 446A-446B.
28
Art. 2213. Interest cannot be recovered upon unliquidated claims or damages, except when the
demand can be established with reasonable certainty.
29
G.R. No. 97412, July 12, 1994, 234 SCRA 78.
30
No. L-59096, October 11, 1985, 139 SCRA 260.
31
Eastern Shipping Lines, Inc., supra note 29, at 93-94; citing Blacks Law Dictionary 644 (1990).
32
Id. at 94.
33
Id. at 92; citing Florendo v. Ruiz, G.R. No. 60225, May 8, 1992, 208 SCRA 542; Reformina, supra note
30.
34
Id. at 94-95.
35
Id. at 95-97.
36
Interest computed as follows:
Interest Period Interest
Year Principal Rate (months) Earned Balance
1988 420,000.00 6% 167.5 351,750.00 771,750.00
1989 420,000.00 6% 155.5 326,550.00 746,550.00
1990 420,000.00 6% 143.5 301,350.00 721,350.00
1991 420,000.00 6% 131.5 276,150.00 696,150.00
1992 175,000.00 6% 119.5 104,562.50 279,562.50

Totals 1,855,000.00 1,360,362.50

TOTAL (Principal plus Interest), as of December 20,
2001
PhP
3,215,362.50
37
SEC. 13. Property exempt from execution.Except as otherwise expressly provided by law, the
following property, and no other, shall be exempt from execution:
(a) The judgment obligors family home as provided by law, or the homestead in which he resides, and
the land necessarily used in connection therewith;
(b) Ordinary tools and implements personally used by him in his trade, employment or livelihood;
(c) Three horses x x x or other beasts of burden x x x;
(d) His necessary clothing and articles for ordinary personal use, excluding jewelry;
(e) Household furniture and utensils necessary for housekeeping x x x;
(f) Provisions for individual or family use sufficient for four months;
(g) The professional libraries and equipment of judges, lawyers, physicians x x x;
(h) One fishing boat and accessories x x x;
(i) So much of the salaries, wages, or earnings of the judgment obligor x x x;
(j) Lettered gravestones;
(k) Monies, benefits, privileges, or annuities accruing or x x x growing out of any life insurance;
(l) The right to receive legal support, or money or property obtained as such support, or any pension or
gratuity from the Government;
(m) Properties specially exempted by law.
But no article or species of property mentioned in this section shall be exempt from execution issued
upon a judgment recovered for its price or upon a judgment of foreclosure of a mortgage thereon.