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 copartnership "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.










































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 and P500,000) 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.
16
1awphi1.nt
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 of P500,000.00, 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 the MODIFICATION 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.







































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.

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 of P9,996.58 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 to June 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 of P35,648.23 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, 1982 for 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.1wphi1 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.























G.R. No. 174269 August 25, 2010
POLO S. PANTALEON, Petitioner,
vs.
AMERICAN EXPRESS INTERNATIONAL, INC., Respondent.
R E S O L U T I O N
BRION, J .:
We resolve the motion for reconsideration filed by respondent American Express International,
Inc. (AMEX) dated June 8, 2009,
1
seeking to reverse our Decision dated May 8, 2009 where we
ruled that AMEX was guilty of culpable delay in fulfilling its obligation to its cardholder
petitioner Polo Pantaleon. Based on this conclusion, we held AMEX liable for moral and
exemplary damages, as well as attorneys fees and costs of litigation.
2

FACTUAL ANTECEDENTS
The established antecedents of the case are narrated below.
AMEX is a resident foreign corporation engaged in the business of providing credit services
through the operation of a charge card system. Pantaleon has been an AMEX cardholder since
1980.
3

In October 1991, Pantaleon, together with his wife (Julialinda), daughter (Regina), and son
(Adrian Roberto), went on a guided European tour. On October 25, 1991, the tour group arrived
in Amsterdam. Due to their late arrival, they postponed the tour of the city for the following day.
4

The next day, the group began their sightseeing at around 8:50 a.m. with a trip to the Coster
Diamond House (Coster). To have enough time for take a guided city tour of Amsterdam before
their departure scheduled on that day, the tour group planned to leave Coster by 9:30 a.m. at the
latest.
While at Coster, Mrs. Pantaleon decided to purchase some diamond pieces worth a total of
US$13,826.00. Pantaleon presented his American Express credit card to the sales clerk to pay for
this purchase. He did this at around 9:15 a.m. The sales clerk swiped the credit card and asked
Pantaleon to sign the charge slip, which was then electronically referred to AMEXs Amsterdam
office at 9:20 a.m.
5

At around 9:40 a.m., Coster had not received approval from AMEX for the purchase so Pantaleon
asked the store clerk to cancel the sale. The store manager, however, convinced Pantaleon to wait
a few more minutes. Subsequently, the store manager informed Pantaleon that AMEX was asking
for bank references; Pantaleon responded by giving the names of his Philippine depository banks.
At around 10 a.m., or 45 minutes after Pantaleon presented his credit card, AMEX still had not
approved the purchase. Since the city tour could not begin until the Pantaleons were onboard the
tour bus, Coster decided to release at around 10:05 a.m. the purchased items to Pantaleon even
without AMEXs approval.
When the Pantaleons finally returned to the tour bus, they found their travel companions visibly
irritated. This irritation intensified when the tour guide announced that they would have to cancel
the tour because of lack of time as they all had to be in Calais, Belgium by 3 p.m. to catch the
ferry to London.
6

From the records, it appears that after Pantaleons purchase was transmitted for approval to
AMEXs Amsterdam office at 9:20 a.m.; was referred to AMEXs Manila office at 9:33 a.m.; and
was approved by the Manila office at 10:19 a.m. At 10:38 a.m., AMEXs Manila office finally
transmitted the Approval Code to AMEXs Amsterdam office. In all, it took AMEX a total of 78
minutes to approve Pantaleons purchase and to transmit the approval to the jewelry store.
7

After the trip to Europe, the Pantaleon family proceeded to the United States. Again, Pantaleon
experienced delay in securing approval for purchases using his American Express credit card on
two separate occasions. He experienced the first delay when he wanted to purchase golf
equipment in the amount of US$1,475.00 at the Richard Metz Golf Studio in New York on
October 30, 1991. Another delay occurred when he wanted to purchase childrens shoes worth
US$87.00 at the Quiency Market in Boston on November 3, 1991.
Upon return to Manila, Pantaleon sent AMEX a letter demanding an apology for the humiliation
and inconvenience he and his family experienced due to the delays in obtaining approval for his
credit card purchases. AMEX responded by explaining that the delay in Amsterdam was due to
the amount involved the charged purchase of US$13,826.00 deviated from Pantaleons
established charge purchase pattern. Dissatisfied with this explanation, Pantaleon filed an action
for damages against the credit card company with the Makati City Regional Trial Court (RTC).
On August 5, 1996, the RTC found AMEX guilty of delay, and awarded Pantaleon P500,000.00
as moral damages, P300,000.00 as exemplary damages, P100,000.00 as attorneys fees, and
P85,233.01 as litigation expenses.
On appeal, the CA reversed the awards.
8
While the CA recognized that delay in the nature of
mora accipiendi or creditors default attended AMEXs approval of Pantaleons purchases, it
disagreed with the RTCs finding that AMEX had breached its contract, noting that the delay was
not attended by bad faith, malice or gross negligence. The appellate court found that AMEX
exercised diligent efforts to effect the approval of Pantaleons purchases; the purchase at Coster
posed particularly a problem because it was at variance with Pantaleons established charge
pattern. As there was no proof that AMEX breached its contract, or that it acted in a wanton,
fraudulent or malevolent manner, the appellate court ruled that AMEX could not be held liable
for any form of damages.
Pantaleon questioned this decision via a petition for review on certiorari with this Court.
In our May 8, 2009 decision, we reversed the appellate courts decision and held that AMEX was
guilty of mora solvendi, or debtors default. AMEX, as debtor, had an obligation as the credit
provider to act on Pantaleons purchase requests, whether to approve or disapprove them, with
"timely dispatch." Based on the evidence on record, we found that AMEX failed to timely act on
Pantaleons purchases.
Based one ly, tual obligations. 271,ct; moral damages le. uitable that attorney'workers;plaitniff'
the testimony of AMEXs credit authorizer Edgardo Jaurique, the approval time for credit card
charges would be three to four seconds under regular circumstances. In Pantaleons case, it took
AMEX 78 minutes to approve the Amsterdam purchase. We attributed this delay to AMEXs
Manila credit authorizer, Edgardo Jaurique, who had to go over Pantaleons past credit history,
his payment record and his credit and bank references before he approved the purchase. Finding
this delay unwarranted, we reinstated the RTC decision and awarded Pantaleon moral and
exemplary damages, as well as attorneys fees and costs of litigation.
THE MOTION FOR RECONSIDERATION
In its motion for reconsideration, AMEX argues that this Court erred when it found AMEX guilty
of culpable delay in complying with its obligation to act with timely dispatch on Pantaleons
purchases. While AMEX admits that it normally takes seconds to approve charge purchases, it
emphasizes that Pantaleon experienced delay in Amsterdam because his transaction was not a
normal one. To recall, Pantaleon sought to charge in a single transaction jewelry items
purchased from Coster in the total amount of US$13,826.00 or P383,746.16. While the total
amount of Pantaleons previous purchases using his AMEX credit card did exceed
US$13,826.00, AMEX points out that these purchases were made in a span of more than 10
years, not in a single transaction.
Because this was the biggest single transaction that Pantaleon ever made using his AMEX credit
card, AMEX argues that the transaction necessarily required the credit authorizer to carefully
review Pantaleons credit history and bank references. AMEX maintains that it did this not only
to ensure Pantaleons protection (to minimize the possibility that a third party was fraudulently
using his credit card), but also to protect itself from the risk that Pantaleon might not be able to
pay for his purchases on credit. This careful review, according to AMEX, is also in keeping with
the extraordinary degree of diligence required of banks in handling its transactions. AMEX
concluded that in these lights, the thorough review of Pantaleons credit record was motivated by
legitimate concerns and could not be evidence of any ill will, fraud, or negligence by AMEX.
AMEX further points out that the proximate cause of Pantaleons humiliation and embarrassment
was his own decision to proceed with the purchase despite his awareness that the tour group was
waiting for him and his wife. Pantaleon could have prevented the humiliation had he cancelled
the sale when he noticed that the credit approval for the Coster purchase was unusually delayed.
In his Comment dated February 24, 2010, Pantaleon maintains that AMEX was guilty of mora
solvendi, or delay on the part of the debtor, in complying with its obligation to him. Based on
jurisprudence, a just cause for delay does not relieve the debtor in delay from the consequences of
delay; thus, even if AMEX had a justifiable reason for the delay, this reason would not relieve it
from the liability arising from its failure to timely act on Pantaleons purchase.
In response to AMEXs assertion that the delay was in keeping with its duty to perform its
obligation with extraordinary diligence, Pantaleon claims that this duty includes the timely or
prompt performance of its obligation.
As to AMEXs contention that moral or exemplary damages cannot be awarded absent a finding
of malice, Pantaleon argues that evil motive or design is not always necessary to support a
finding of bad faith; gross negligence or wanton disregard of contractual obligations is sufficient
basis for the award of moral and exemplary damages.
OUR RULING
We GRANT the motion for reconsideration.
Brief historical background
A credit card is defined as "any card, plate, coupon book, or other credit device existing for the
purpose of obtaining money, goods, property, labor or services or anything of value on credit."
9
It
traces its roots to the charge card first introduced by the Diners Club in New York City in 1950.
10

American Express followed suit by introducing its own charge card to the American market in
1958.
11

In the Philippines, the now defunct Pacific Bank was responsible for bringing the first credit card
into the country in the 1970s.
12
However, it was only in the early 2000s that credit card use
gained wide acceptance in the country, as evidenced by the surge in the number of credit card
holders then.
13

Nature of Credit Card Transactions
To better understand the dynamics involved in credit card transactions, we turn to the United
States case of Harris Trust & Savings Bank v. McCray
14
which explains:
The bank credit card system involves a tripartite relationship between the issuer bank, the
cardholder, and merchants participating in the system. The issuer bank establishes an account on
behalf of the person to whom the card is issued, and the two parties enter into an agreement
which governs their relationship. This agreement provides that the bank will pay for cardholders
account the amount of merchandise or services purchased through the use of the credit card and
will also make cash loans available to the cardholder. It also states that the cardholder shall be
liable to the bank for advances and payments made by the bank and that the cardholders
obligation to pay the bank shall not be affected or impaired by any dispute, claim, or demand by
the cardholder with respect to any merchandise or service purchased.
The merchants participating in the system agree to honor the banks credit cards. The bank
irrevocably agrees to honor and pay the sales slips presented by the merchant if the merchant
performs his undertakings such as checking the list of revoked cards before accepting the card. x
x x.
These slips are forwarded to the member bank which originally issued the card. The cardholder
receives a statement from the bank periodically and may then decide whether to make payment to
the bank in full within a specified period, free of interest, or to defer payment and ultimately
incur an interest charge.
We adopted a similar view in CIR v. American Express International, Inc. (Philippine branch),
15

where we also recognized that credit card issuers are not limited to banks. We said:
Under RA 8484, the credit card that is issued by banks in general, or by non-banks in particular,
refers to "any card x x x or other credit device existing for the purpose of obtaining x x x goods x
x x or services x x x on credit;" and is being used "usually on a revolving basis." This means that
the consumer-credit arrangement that exists between the issuer and the holder of the credit card
enables the latter to procure goods or services "on a continuing basis as long as the outstanding
balance does not exceed a specified limit." The card holder is, therefore, given "the power to
obtain present control of goods or service on a promise to pay for them in the future."
Business establishments may extend credit sales through the use of the credit card facilities of a
non-bank credit card company to avoid the risk of uncollectible accounts from their customers.
Under this system, the establishments do not deposit in their bank accounts the credit card drafts
that arise from the credit sales. Instead, they merely record their receivables from the credit card
company and periodically send the drafts evidencing those receivables to the latter.
The credit card company, in turn, sends checks as payment to these business establishments, but
it does not redeem the drafts at full price. The agreement between them usually provides for
discounts to be taken by the company upon its redemption of the drafts. At the end of each
month, it then bills its credit card holders for their respective drafts redeemed during the previous
month. If the holders fail to pay the amounts owed, the company sustains the loss.
Simply put, every credit card transaction involves three contracts, namely: (a) the sales contract
between the credit card holder and the merchant or the business establishment which accepted the
credit card; (b) the loan agreement between the credit card issuer and the credit card holder; and
lastly, (c) the promise to pay between the credit card issuer and the merchant or business
establishment.
16

Credit card issuer cardholder relationship
When a credit card company gives the holder the privilege of charging items at establishments
associated with the issuer,
17
a necessary question in a legal analysis is when does this
relationship begin? There are two diverging views on the matter. In City Stores Co. v.
Henderson,
18
another U.S. decision, held that:
The issuance of a credit card is but an offer to extend a line of open account credit. It is unilateral
and supported by no consideration. The offer may be withdrawn at any time, without prior notice,
for any reason or, indeed, for no reason at all, and its withdrawal breaches no duty for there is
no duty to continue it and violates no rights.
Thus, under this view, each credit card transaction is considered a separate offer and acceptance.
Novack v. Cities Service Oil Co.
19
echoed this view, with the court ruling that the mere issuance
of a credit card did not create a contractual relationship with the cardholder.
On the other end of the spectrum is Gray v. American Express Company
20
which recognized the
card membership agreement itself as a binding contract between the credit card issuer and the
card holder. Unlike in the Novack and the City Stores cases, however, the cardholder in Gray
paid an annual fee for the privilege of being an American Express cardholder.
In our jurisdiction, we generally adhere to the Gray ruling, recognizing the relationship between
the credit card issuer and the credit card holder as a contractual one that is governed by the terms
and conditions found in the card membership agreement.
21
This contract provides the rights and
liabilities of a credit card company to its cardholders and vice versa.
We note that a card membership agreement is a contract of adhesion as its terms are prepared
solely by the credit card issuer, with the cardholder merely affixing his signature signifying his
adhesion to these terms.
22
This circumstance, however, does not render the agreement void; we
have uniformly held that contracts of adhesion are "as binding as ordinary contracts, the reason
being that the party who adheres to the contract is free to reject it entirely."
23
The only effect is
that the terms of the contract are construed strictly against the party who drafted it.
24

On AMEXs obligations to Pantaleon
We begin by identifying the two privileges that Pantaleon assumes he is entitled to with the
issuance of his AMEX credit card, and on which he anchors his claims. First, Pantaleon presumes
that since his credit card has no pre-set spending limit, AMEX has the obligation to approve all
his charge requests. Conversely, even if AMEX has no such obligation, at the very least it is
obliged to act on his charge requests within a specific period of time.
i. Use of credit card a mere offer to enter into loan agreements
Although we recognize the existence of a relationship between the credit card issuer and the
credit card holder upon the acceptance by the cardholder of the terms of the card membership
agreement (customarily signified by the act of the cardholder in signing the back of the credit
card), we have to distinguish this contractual relationship from the creditor-debtor relationship
which only arises after the credit card issuer has approved the cardholders purchase request. The
first relates merely to an agreement providing for credit facility to the cardholder. The latter
involves the actual credit on loan agreement involving three contracts, namely: the sales contract
between the credit card holder and the merchant or the business establishment which accepted the
credit card; the loan agreement between the credit card issuer and the credit card holder; and the
promise to pay between the credit card issuer and the merchant or business establishment.
From the loan agreement perspective, the contractual relationship begins to exist only upon the
meeting of the offer
25
and acceptance of the parties involved. In more concrete terms, when
cardholders use their credit cards to pay for their purchases, they merely offer to enter into loan
agreements with the credit card company. Only after the latter approves the purchase requests
that the parties enter into binding loan contracts, in keeping with Article 1319 of the Civil Code,
which provides:
Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contract. The offer must be certain and the acceptance
absolute. A qualified acceptance constitutes a counter-offer.
This view finds support in the reservation found in the card membership agreement itself,
particularly paragraph 10, which clearly states that AMEX "reserve[s] the right to deny
authorization for any requested Charge." By so providing, AMEX made its position clear that
it has no obligation to approve any and all charge requests made by its card holders.
ii. AMEX not guilty of culpable delay
Since AMEX has no obligation to approve the purchase requests of its credit cardholders,
Pantaleon cannot claim that AMEX defaulted in its obligation. Article 1169 of the Civil Code,
which provides the requisites to hold a debtor guilty of culpable delay, states:
Article 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. x x x.
The three requisites for a finding of default are: (a) that the obligation is demandable and
liquidated; (b) the debtor delays performance; and (c) the creditor judicially or extrajudicially
requires the debtors performance.
26

Based on the above, the first requisite is no longer met because AMEX, by the express terms of
the credit card agreement, is not obligated to approve Pantaleons purchase request. Without a
demandable obligation, there can be no finding of default.
Apart from the lack of any demandable obligation, we also find that Pantaleon failed to make the
demand required by Article 1169 of the Civil Code.
As previously established, the use of a credit card to pay for a purchase is only an offer to the
credit card company to enter a loan agreement with the credit card holder. Before the credit card
issuer accepts this offer, no obligation relating to the loan agreement exists between them.
On the other hand, a demand is defined as the "assertion of a legal right; xxx an asking with
authority, claiming or challenging as due."
27
A demand presupposes the existence of an
obligation between the parties.
Thus, every time that Pantaleon used his AMEX credit card to pay for his purchases, what the
stores transmitted to AMEX were his offers to execute loan contracts. These obviously could not
be classified as the demand required by law to make the debtor in default, given that no
obligation could arise on the part of AMEX until after AMEX transmitted its acceptance of
Pantaleons offers. Pantaleons act of "insisting on and waiting for the charge purchases to be
approved by AMEX"
28
is not the demand contemplated by Article 1169 of the Civil Code.
For failing to comply with the requisites of Article 1169, Pantaleons charge that AMEX is guilty
of culpable delay in approving his purchase requests must fail.
iii. On AMEXs obligation to act on the offer within a specific period of time
Even assuming that AMEX had the right to review his credit card history before it approved his
purchase requests, Pantaleon insists that AMEX had an obligation to act on his purchase requests,
either to approve or deny, in "a matter of seconds" or "in timely dispatch." Pantaleon impresses
upon us the existence of this obligation by emphasizing two points: (a) his card has no pre-set
spending limit; and (b) in his twelve years of using his AMEX card, AMEX had always approved
his charges in a matter of seconds.
Pantaleons assertions fail to convince us.
We originally held that AMEX was in culpable delay when it acted on the Coster transaction, as
well as the two other transactions in the United States which took AMEX approximately 15 to 20
minutes to approve. This conclusion appears valid and reasonable at first glance, comparing the
time it took to finally get the Coster purchase approved (a total of 78 minutes), to AMEXs
"normal" approval time of three to four seconds (based on the testimony of Edgardo Jaurigue, as
well as Pantaleons previous experience). We come to a different result, however, after a closer
look at the factual and legal circumstances of the case.
AMEXs credit authorizer, Edgardo Jaurigue, explained that having no pre-set spending limit in a
credit card simply means that the charges made by the cardholder are approved based on his
ability to pay, as demonstrated by his past spending, payment patterns, and personal resources.
29

Nevertheless, every time Pantaleon charges a purchase on his credit card, the credit card
company still has to determine whether it will allow this charge, based on his past credit
history. This right to review a card holders credit history, although not specifically set out in the
card membership agreement, is a necessary implication of AMEXs right to deny authorization
for any requested charge.
As for Pantaleons previous experiences with AMEX (i.e., that in the past 12 years, AMEX has
always approved his charge requests in three or four seconds), this record does not establish that
Pantaleon had a legally enforceable obligation to expect AMEX to act on his charge requests
within a matter of seconds. For one, Pantaleon failed to present any evidence to support his
assertion that AMEX acted on purchase requests in a matter of three or four seconds as an
established practice. More importantly, even if Pantaleon did prove that AMEX, as a matter of
practice or custom, acted on its customers purchase requests in a matter of seconds, this would
still not be enough to establish a legally demandable right; as a general rule, a practice or custom
is not a source of a legally demandable or enforceable right.
30

We next examine the credit card membership agreement, the contract that primarily governs the
relationship between AMEX and Pantaleon. Significantly, there is no provision in this
agreement that obligates AMEX to act on all cardholder purchase requests within a
specifically defined period of time. Thus, regardless of whether the obligation is worded was to
"act in a matter of seconds" or to "act in timely dispatch," the fact remains that no obligation
exists on the part of AMEX to act within a specific period of time. Even Pantaleon admits in his
testimony that he could not recall any provision in the Agreement that guaranteed AMEXs
approval of his charge requests within a matter of minutes.
31

Nor can Pantaleon look to the law or government issuances as the source of AMEXs alleged
obligation to act upon his credit card purchases within a matter of seconds. As the following
survey of Philippine law on credit card transactions demonstrates, the State does not require
credit card companies to act upon its cardholders purchase requests within a specific period of
time.
Republic Act No. 8484 (RA 8484), or the Access Devices Regulation Act of 1998, approved on
February 11, 1998, is the controlling legislation that regulates the issuance and use of access
devices,
32
including credit cards. The more salient portions of this law include the imposition of
the obligation on a credit card company to disclose certain important financial information
33
to
credit card applicants, as well as a definition of the acts that constitute access device fraud.
As financial institutions engaged in the business of providing credit, credit card companies fall
under the supervisory powers of the Bangko Sentral ng Pilipinas (BSP).
34
BSP Circular No. 398
dated August 21, 2003 embodies the BSPs policy when it comes to credit cards
The Bangko Sentral ng Pilipinas (BSP) shall foster the development of consumer credit through
innovative products such as credit cards under conditions of fair and sound consumer credit
practices. The BSP likewise encourages competition and transparency to ensure more efficient
delivery of services and fair dealings with customers. (Emphasis supplied)
Based on this Circular, "x x x [b]efore issuing credit cards, banks and/or their subsidiary credit
card companies must exercise proper diligence by ascertaining that applicants possess good credit
standing and are financially capable of fulfilling their credit commitments."
35
As the above-
quoted policy expressly states, the general intent is to foster "fair and sound consumer credit
practices."
Other than BSP Circular No. 398, a related circular is BSP Circular No. 454, issued on
September 24, 2004, but this circular merely enumerates the unfair collection practices of credit
card companies a matter not relevant to the issue at hand.
In light of the foregoing, we find and so hold that AMEX is neither contractually bound nor
legally obligated to act on its cardholders purchase requests within any specific period of time,
much less a period of a "matter of seconds" that Pantaleon uses as his standard. The standard
therefore is implicit and, as in all contracts, must be based on fairness and reasonableness, read in
relation to the Civil Code provisions on human relations, as will be discussed below.
AMEX acted with good faith
Thus far, we have already established that: (a) AMEX had neither a contractual nor a legal
obligation to act upon Pantaleons purchases within a specific period of time; and (b) AMEX has
a right to review a cardholders credit card history. Our recognition of these entitlements,
however, does not give AMEX an unlimited right to put off action on cardholders purchase
requests for indefinite periods of time. In acting on cardholders purchase requests, AMEX
must take care not to abuse its rights and cause injury to its clients and/or third persons. We cite
in this regard Article 19, in conjunction with Article 21, of the Civil Code, which provide:
Article 19. Every person must, in the exercise of his rights and in the performance of his duties,
act with justice, give everyone his due and observe honesty and good faith.
Article 21. Any person who willfully causes loss or injury to another in a manner that is contrary
to morals, good customs or public policy shall compensate the latter for the damage.
Article 19 pervades the entire legal system and ensures that a person suffering damage in the
course of anothers exercise of right or performance of duty, should find himself without relief.
36

It sets the standard for the conduct of all persons, whether artificial or natural, and requires that
everyone, in the exercise of rights and the performance of obligations, must: (a) act with justice,
(b) give everyone his due, and (c) observe honesty and good faith. It is not because a person
invokes his rights that he can do anything, even to the prejudice and disadvantage of another.
37

While Article 19 enumerates the standards of conduct, Article 21 provides the remedy for the
person injured by the willful act, an action for damages. We explained how these two provisions
correlate with each other in GF Equity, Inc. v. Valenzona:
38

[Article 19], known to contain what is commonly referred to as the principle of abuse of rights,
sets certain standards which must be observed not only in the exercise of one's rights but also in
the performance of one's duties. These standards are the following: to act with justice; to give
everyone his due; and to observe honesty and good faith. The law, therefore, recognizes a
primordial limitation on all rights; that in their exercise, the norms of human conduct set forth in
Article 19 must be observed. A right, though by itself legal because recognized or granted by
law as such, may nevertheless become the source of some illegality. When a right is
exercised in a manner which does not conform with the norms enshrined in Article 19 and
results in damage to another, a legal wrong is thereby committed for which the wrongdoer
must be held responsible. But while Article 19 lays down a rule of conduct for the government
of human relations and for the maintenance of social order, it does not provide a remedy for its
violation. Generally, an action for damages under either Article 20 or Article 21 would be proper.
In the context of a credit card relationship, although there is neither a contractual stipulation nor a
specific law requiring the credit card issuer to act on the credit card holders offer within a
definite period of time, these principles provide the standard by which to judge AMEXs actions.
According to Pantaleon, even if AMEX did have a right to review his charge purchases, it abused
this right when it unreasonably delayed the processing of the Coster charge purchase, as well as
his purchase requests at the Richard Metz Golf Studio and Kids Unlimited Store; AMEX should
have known that its failure to act immediately on charge referrals would entail inconvenience and
result in humiliation, embarrassment, anxiety and distress to its cardholders who would be
required to wait before closing their transactions.
39

It is an elementary rule in our jurisdiction that good faith is presumed and that the burden of
proving bad faith rests upon the party alleging it.
40
Although it took AMEX some time before it
approved Pantaleons three charge requests, we find no evidence to suggest that it acted with
deliberate intent to cause Pantaleon any loss or injury, or acted in a manner that was contrary to
morals, good customs or public policy. We give credence to AMEXs claim that its review
procedure was done to ensure Pantaleons own protection as a cardholder and to prevent the
possibility that the credit card was being fraudulently used by a third person.
Pantaleon countered that this review procedure is primarily intended to protect AMEXs interests,
to make sure that the cardholder making the purchase has enough means to pay for the credit
extended. Even if this were the case, however, we do not find any taint of bad faith in such
motive. It is but natural for AMEX to want to ensure that it will extend credit only to people who
will have sufficient means to pay for their purchases. AMEX, after all, is running a business, not
a charity, and it would simply be ludicrous to suggest that it would not want to earn profit for its
services. Thus, so long as AMEX exercises its rights, performs its obligations, and generally acts
with good faith, with no intent to cause harm, even if it may occasionally inconvenience others, it
cannot be held liable for damages.
We also cannot turn a blind eye to the circumstances surrounding the Coster transaction which, in
our opinion, justified the wait. In Edgardo Jaurigues own words:
Q 21: With reference to the transaction at the Coster Diamond House covered by
Exhibit H, also Exhibit 4 for the defendant, the approval came at 2:19 a.m. after the
request was relayed at 1:33 a.m., can you explain why the approval came after about 46
minutes, more or less?
A21: Because we have to make certain considerations and evaluations of [Pantaleons]
past spending pattern with [AMEX] at that time before approving plaintiffs request
because [Pantaleon] was at that time making his very first single charge purchase of
US$13,826 [this is below the US$16,112.58 actually billed and paid for by the plaintiff
because the difference was already automatically approved by [AMEX] office in
Netherland[s] and the record of [Pantaleons] past spending with [AMEX] at that
time does not favorably support his ability to pay for such purchase. In fact, if the
foregoing internal policy of [AMEX] had been strictly followed, the transaction would
not have been approved at all considering that the past spending pattern of the plaintiff
with [AMEX] at that time does not support his ability to pay for such purchase.
41

x x x x
Q: Why did it take so long?
A: It took time to review the account on credit, so, if there is any delinquencies [sic] of
the cardmember. There are factors on deciding the charge itself which are standard
measures in approving the authorization. Now in the case of Mr. Pantaleon although his
account is single charge purchase of US$13,826. [sic] this is below the US$16,000.
plus actually billed x x x we would have already declined the charge outright and asked
him his bank account to support his charge. But due to the length of his membership as
cardholder we had to make a decision on hand.
42

As Edgardo Jaurigue clarified, the reason why Pantaleon had to wait for AMEXs approval was
because he had to go over Pantaleons credit card history for the past twelve months.
43
It would
certainly be unjust for us to penalize AMEX for merely exercising its right to review Pantaleons
credit history meticulously.
Finally, we said in Garciano v. Court of Appeals that "the right to recover [moral damages] under
Article 21 is based on equity, and he who comes to court to demand equity, must come with clean
hands. Article 21 should be construed as granting the right to recover damages to injured persons
who are not themselves at fault."
44
As will be discussed below, Pantaleon is not a blameless party
in all this.
Pantaleons action was the proximate cause for his injury
Pantaleon mainly anchors his claim for moral and exemplary damages on the embarrassment and
humiliation that he felt when the European tour group had to wait for him and his wife for
approximately 35 minutes, and eventually had to cancel the Amsterdam city tour. After
thoroughly reviewing the records of this case, we have come to the conclusion that Pantaleon is
the proximate cause for this embarrassment and humiliation.
As borne by the records, Pantaleon knew even before entering Coster that the tour group would
have to leave the store by 9:30 a.m. to have enough time to take the city tour of Amsterdam
before they left the country. After 9:30 a.m., Pantaleons son, who had boarded the bus ahead of
his family, returned to the store to inform his family that they were the only ones not on the bus
and that the entire tour group was waiting for them. Significantly, Pantaleon tried to cancel the
sale at 9:40 a.m. because he did not want to cause any inconvenience to the tour group. However,
when Costers sale manager asked him to wait a few more minutes for the credit card approval,
he agreed, despite the knowledge that he had already caused a 10-minute delay and that the city
tour could not start without him.
In Nikko Hotel Manila Garden v. Reyes,
45
we ruled that a person who knowingly and voluntarily
exposes himself to danger cannot claim damages for the resulting injury:
The doctrine of volenti non fit injuria ("to which a person assents is not esteemed in law as
injury") refers to self-inflicted injury or to the consent to injury which precludes the recovery of
damages by one who has knowingly and voluntarily exposed himself to danger, even if he is not
negligent in doing so.
This doctrine, in our view, is wholly applicable to this case. Pantaleon himself testified that the
most basic rule when travelling in a tour group is that you must never be a cause of any delay
because the schedule is very strict.
46
When Pantaleon made up his mind to push through with his
purchase, he must have known that the group would become annoyed and irritated with him. This
was the natural, foreseeable consequence of his decision to make them all wait.
We do not discount the fact that Pantaleon and his family did feel humiliated and embarrassed
when they had to wait for AMEX to approve the Coster purchase in Amsterdam. We have to
acknowledge, however, that Pantaleon was not a helpless victim in this scenario at any time, he
could have cancelled the sale so that the group could go on with the city tour. But he did not.
More importantly, AMEX did not violate any legal duty to Pantaleon under the circumstances
under the principle of damnum absque injuria, or damages without legal wrong, loss without
injury.
47
As we held in BPI Express Card v. CA:
48

We do not dispute the findings of the lower court that private respondent suffered damages as a
result of the cancellation of his credit card. However, there is a material distinction between
damages and injury. Injury is the illegal invasion of a legal right; damage is the loss, hurt, or
harm which results from the injury; and damages are the recompense or compensation awarded
for the damage suffered. Thus, there can be damage without injury in those instances in which the
loss or harm was not the result of a violation of a legal duty. In such cases, the consequences
must be borne by the injured person alone, the law affords no remedy for damages resulting from
an act which does not amount to a legal injury or wrong. These situations are often called
damnum absque injuria.
In other words, in order that a plaintiff may maintain an action for the injuries of which he
complains, he must establish that such injuries resulted from a breach of duty which the
defendant owed to the plaintiff - a concurrence of injury to the plaintiff and legal responsibility
by the person causing it. The underlying basis for the award of tort damages is the premise that an
individual was injured in contemplation of law. Thus, there must first be a breach of some duty
and the imposition of liability for that breach before damages may be awarded; and the breach of
such duty should be the proximate cause of the injury.
Pantaleon is not entitled to damages
Because AMEX neither breached its contract with Pantaleon, nor acted with culpable delay or the
willful intent to cause harm, we find the award of moral damages to Pantaleon unwarranted.
Similarly, we find no basis to award exemplary damages. In contracts, exemplary damages can
only be awarded if a defendant acted "in a wanton, fraudulent, reckless, oppressive or malevolent
manner."
49
The plaintiff must also 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.
50

As previously discussed, it took AMEX some time to approve Pantaleons purchase requests
because it had legitimate concerns on the amount being charged; no malicious intent was ever
established here. In the absence of any other damages, the award of exemplary damages clearly
lacks legal basis.1avvphi1
Neither do we find any basis for the award of attorneys fees and costs of litigation. No premium
should be placed on the right to litigate and not every winning party is entitled to an automatic
grant of attorney's fees.
51
To be entitled to attorneys fees and litigation costs, a party must show
that he falls under one of the instances enumerated in Article 2208 of the Civil Code.
52
This,
Pantaleon failed to do. Since we eliminated the award of moral and exemplary damages, so must
we delete the award for attorney's fees and litigation expenses.
Lastly, although we affirm the result of the CA decision, we do so for the reasons stated in this
Resolution and not for those found in the CA decision.
WHEREFORE, premises considered, we SET ASIDE our May 8, 2009 Decision and GRANT
the present motion for reconsideration. The Court of Appeals Decision dated August 18, 2006 is
hereby AFFIRMED. No costs.
SO ORDERED.

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 only P90,000.00 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, or P12,000 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 the P200,000.00. 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 of P200,000.00, 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.
















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 a
Kasunduan 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 the Kasunduan 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 a commodatum, 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 the Kasunduan 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 I ssues
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. In
Lacsamana v. Second Special Cases Division of theI ntermediate 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 I nternal Revenuev. Court of Appeals,
22
we held
that Liboros clarification of Lacsamanais 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.
Absenceof Titleover theDisputed Property will not Divest theCourts of J urisdiction to
ResolvetheI ssue 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 Pitarguev. 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 Pitarguethe 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 thepeace
and criminal disorder which would ensue fromthewithdrawal of theremedy, and the
reasonable hopesuch withdrawal would create that someadvantagemust accrue to
thosepersons who, believing themselves entitled to thepossession of property, resort
to forceto gain possession rather than to someappropriate action in thecourt 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 whileit may decideconflicts of possession in order to makeproper award, the
settlement of conflicts of possession which is recognized in thecourt herein has
another ultimate purpose, i.e., theprotection of actual possessors and occupants with
a view to theprevention of breaches of thepeace. Thepower to disposeand alienate
could not havebeen intended to includethepower to prevent or settle disorders or
breaches of thepeaceamong rival settlers or claimants prior to thefinal 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 theLands Department with authority to administer, dispose, and alienate
public lands, therefore, must not beunderstood as depriving theother branches of
theGovernment of theexerciseof therespectivefunctions or powers thereon, such as
theauthority to stop disorders and quell breaches of thepeaceby thepolice, the
authority on thepart of thecourts to takejurisdiction over possessory actions arising
therefromnot 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 theother hand, if courts weredeprived of jurisdiction
of cases involving conflicts of possession, that threat of judicial action against
breaches of thepeacecommitted on public lands would beeliminated, and a state of
lawlessness would probably beproduced between applicants, occupants or squatters,
whereforceor 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 theonly I ssue 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 theDisputed 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 the Kasunduan. Guevarra cannot now impugn the Kasunduan after he had benefited from it.
The Kasunduan 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.
























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.

























G.R. Nos. 173654-765 August 28, 2008
PEOPLE OF THE PHILIPPINES, petitioner,
vs.
TERESITA PUIG and ROMEO PORRAS, respondents.
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 graveabuseof
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 on Certiorari, 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 graveabuseof confidence, beingthe
Cashier andBookkeeper 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 graveabuseof confidenceand without the
knowledgeand 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 therespondents and theoffended party that has created a
high degreeof confidencebetween 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.


































G.R. No. 123498 November 23, 2007
BPI FAMILY BANK, Petitioner,
vs.
AMADO FRANCO and COURT OF APPEALS, Respondents.
D E C I S I O N
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 the Makati 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 the P80,000,000.00 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, 1990 with 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 of P80,000,000.00 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 of P10,000.00. 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.1wphi1
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 recover P3,800,000.00 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 the MODIFICATION 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.






























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 of P3,000,000.00 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
a P142,326.43 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.







































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 annum from 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 with legal 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
on certiorari, 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.
Tomol case, 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 for certiorari 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 annum applies 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
annum has 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 annum from 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.






















G.R. No. 173227 January 20, 2009
SEBASTIAN SIGA-AN, Petitioner,
vs.
ALICIA VILLANUEVA, Respondent.
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 the P540,000.00 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 to P540,000.00, 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 of
P50,000.00 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 following MODIFICATIONS: (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.




































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 1982 until
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 petitioners Ligutan 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.1wphi1 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.































G.R. No. 159912 August 17, 2007
UNITED COCONUT PLANTERS BANK, Petitioner,
vs.
SPOUSES SAMUEL and ODETTE BELUSO, Respondents.
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 2003 and 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.1avvphi1 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.






























G.R. Nos. 150773 & 153599 September 30, 2005
SPOUSES DAVID B. CARPO & and RECHILDA S. CARPO, Petitioners,
vs.
ELEANOR CHUA and ELMA DY NG, Respondent.
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 their Memorandum. 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 the
Order. 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.
























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.