THIRD DIVISION affirmed with modification the judgment[2] of the Regional Trial Court,

Branch 55, Manila (Manila RTC), in Civil Case No. 90-53295.

BPI FAMILY BANK, G.R. No. 123498
Petitioner,
Present: This case has its genesis in an ostensible fraud perpetrated on the
petitioner BPI Family Bank (BPI-FB) allegedly by respondent Amado
YNARES-SANTIAGO, J., (Franco) in conspiracy with other individuals,[3] some of whom
Franco
Chairperson,
opened and maintained separate accounts with BPI-FB, San Francisco
- versus - AUSTRIA-MARTINEZ,
CHICO-NAZARIO, del Monte (SFDM) branch, in a series of transactions.
NACHURA, and
REYES, JJ.
On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc.
AMADO FRANCO and COURT OF APPEALS, Promulgated: (Tevesteco) opened a savings and current account with BPI-FB. Soon
Respondents. thereafter, or on August 25, 1989, First Metro Investment Corporation
November 23, 2007 (FMIC) also opened a time deposit account with the same branch of

x--------------------------------------------------------------------------------- BPI-FB with a deposit of P100,000,000.00, to mature one year thence.

---x
DECISION
NACHURA, J.:
Banks are exhorted to treat the accounts of their depositors with
meticulous care and utmost fidelity. We reiterate this exhortation in the
case at bench.
Before us is a Petition for Review on Certiorari seeking the reversal of
the Court of Appeals (CA) Decision[1] in CA-G.R. CV No. 43424 which
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, 1990with the Manila RTC the subject suit. In his complaint,
Franco prayed for the following reliefs: (1) the interest on the remaining
balance[25] of his current account which was eventually released to him
on October 31, 1991; (2) the balance[26] on his savings account, plus
interest thereon; (3) the advance interest[27] paid to him which had been
deducted when he pre-terminated his time deposit account; and (4) the
payment of actual, moral and exemplary damages, as well as attorneys
fees.
BPI-FB traversed this complaint, insisting that it was correct in freezing
the accounts of Franco and refusing to release his deposits, claiming that
it had a better right to the amounts which consisted of part of the money
allegedly fraudulently withdrawn from it by Tevesteco and ending up in
Francos accounts. BPI-FB asseverated that the claimed consideration
of P2,000,000.00 for the introduction facilitated by Franco between
George Daantos and Eladio Teves, on the one hand, and Jaime
Sebastian, on the other, spoke volumes of Francos participation in the
fraudulent transaction.
On August 4, 1993, the Manila RTC rendered judgment, the dispositive
portion of which reads as follows:
WHEREFORE, in view of all the foregoing, judgment is
hereby rendered in favor of [Franco] and against [BPI-
FB], ordering the latter to pay to the former the following
sums:
1. P76,500.00 representing the legal rate of interest on
the amount of P450,000.00 from May 18,
1990 to October 31, 1991;
2. P498,973.23 representing the balance on [Francos]
savings account as of May 18, 1990, together with the
interest thereon in accordance with the banks guidelines
on the payment therefor;
3. P30,000.00 by way of attorneys fees; and
4. P10,000.00 as nominal damages.
The counterclaim of the defendant is DISMISSED for
lack of factual and legal anchor.
Costs against [BPI-FB].
 SO ORDERED.[28]
Unsatisfied with the decision, both parties filed their respective appeals
before the CA. Franco confined his appeal to the Manila RTCs denial
of his claim for moral and exemplary damages, and the diminutive
award of attorneys fees. In affirming with modification the lower courts
decision, the appellate court decreed, to wit:
WHEREFORE, foregoing considered, the appealed
decision is hereby AFFIRMED with modification
ordering [BPI-FB] to pay [Franco] P63,189.00
representing the interest deducted from the time deposit
of plaintiff-appellant. P200,000.00 as moral damages
and P100,000.00 as exemplary damages, deleting the
award of nominal damages (in view of the award of
moral and exemplary damages) and increasing the award
of attorneys fees from P30,000.00 to P75,000.00.
Cost against [BPI-FB].
SO ORDERED.[29]
In this recourse, BPI-FB ascribes error to the CA when it ruled that: (1)
Franco had a better right to the deposits in the subject accounts which
are part of the proceeds of a forged Authority to Debit; (2) Franco is
entitled to interest on his current account; (3) Franco can recover
the P400,000.00 deposit in Quiaoits savings account; (4) the dishonor
of Francos checks was not legally in order; (5) BPI-FB is liable for
interest on Francos time deposit, and for moral and exemplary damages;
and (6) BPI-FBs counter-claim has no factual and legal anchor.
The petition is partly meritorious.
We are in full accord with the common ruling of the lower courts that
BPI-FB cannot unilaterally freeze Francos accounts and preclude him
from withdrawing his deposits. However, contrary to the appellate
courts ruling, we hold that Franco is not entitled to unearned interest on
the time deposit as well as to moral and exemplary damages.
First. On the issue of who has a better right to the deposits in Francos
accounts, BPI-FB urges us that the legal consequence of FMICs forgery
claim is that the money transferred by BPI-FB to Tevesteco is its own,
and considering that it was able to recover possession of the same when
the money was redeposited by Franco, it had the right to set up its
ownership thereon and freeze Francos accounts.
BPI-FB contends that its position is not unlike that of an owner of
personal property who regains possession after it is stolen, and to
illustrate this point, BPI-FB gives the following example: where Xs
television set is stolen by Y who thereafter sells it to Z, and where Z
unwittingly entrusts possession of the TV set to X, the latter would have
the right to keep possession of the property and preclude Z from
recovering possession thereof. To bolster its position, BPI-FB cites
Article 559 of the Civil Code, which provides:
Article 559. The possession of movable property
acquired in good faith is equivalent to a title.
Nevertheless, one who has lost any movable or has been
unlawfully deprived thereof, may recover it from the
person in possession of the same.
If the possessor of a movable lost or of which the owner
has been unlawfully deprived, has acquired it in good
faith at a public sale, the owner cannot obtain its return
without reimbursing the price paid therefor.
BPI-FBs argument is unsound. To begin with, the movable property
mentioned in Article 559 of the Civil Code pertains to a specific or
determinate thing.[30]A determinate or specific thing is one that is
individualized and can be identified or distinguished from others of the
same kind.[31]
In this case, the deposit in Francos accounts consists of money
which, albeit characterized as a movable, is generic and fungible.[32] The
quality of being fungible depends upon the possibility of the property,
because of its nature or the will of the parties, being substituted by others
of the same kind, not having a distinct individuality.[33]
Significantly, while Article 559 permits an owner who has lost
or has been unlawfully deprived of a movable to recover the exact same
thing from the current possessor, BPI-FB simply claims ownership of
the equivalent amount of money, i.e., the value thereof, which it had
mistakenly debited from FMICs account and credited to Tevestecos, and
subsequently traced to Francos account. In fact, this is what BPI-FB did
in filing the Makati Case against Franco, et al. It staked its claim on the
money itself which passed from one account to another, commencing
with the forged Authority to Debit.
It bears emphasizing that money bears no earmarks of peculiar
ownership,[34] and this characteristic is all the more manifest in the
instant case which involves money in a banking transaction gone awry.
Its primary function is to pass from hand to hand as a medium of
exchange, without other evidence of its title.[35] Money, which had
passed through various transactions in the general course of banking
business, even if of traceable origin, is no exception.
Thus, inasmuch as what is involved is not a specific or
determinate personal property, BPI-FBs illustrative example, ostensibly
based on Article 559, is inapplicable to the instant case.
There is no doubt that BPI-FB owns the deposited monies in the
accounts of Franco, but not as a legal consequence of its unauthorized
transfer of FMICs deposits to Tevestecos account. BPI-FB conveniently
forgets that the deposit of money in banks is governed by the Civil Code
provisions on simple loan or mutuum.[36] As there is a debtor-creditor
relationship between a bank and its depositor, BPI-FB ultimately
acquired ownership of Francos deposits, but such ownership is coupled
with a corresponding obligation to pay him an equal amount on
demand.[37] Although BPI-FB owns the deposits in Francos accounts, it
cannot prevent him from demanding payment of BPI-FBs obligation by
drawing checks against his current account, or asking for the release of
the funds in his savings account. Thus, when Franco issued checks
drawn against his current account, he had every right as creditor to
expect that those checks would be honored by BPI-FB as debtor.
More importantly, BPI-FB does not have a unilateral right to
freeze the accounts of Franco based on its mere suspicion that the funds
therein were proceeds of the multi-million peso scam Franco was
allegedly involved in. To grant BPI-FB, or any bank for that matter, the
right to take whatever action it pleases on deposits which it supposes are
derived from shady transactions, would open the floodgates of public
distrust in the banking industry.
Our pronouncement in Simex International (Manila), Inc. v.
Court of Appeals[38] continues to resonate, thus:
The banking system is an indispensable institution in the
modern world and plays a vital role in the economic life
of every civilized nation. Whether as mere passive
entities for the safekeeping and saving of money or as
active instruments of business and commerce, banks
have become an ubiquitous presence among the people,
who have come to regard them with respect and even
gratitude and, most of all, confidence. Thus, even the
humble wage-earner has not hesitated to entrust his lifes
savings to the bank of his choice, knowing that they will
be safe in its custody and will even earn some interest for
him. The ordinary person, with equal faith, usually
maintains a modest checking account for security and
convenience in the settling of his monthly bills and the
payment of ordinary expenses. x x x.
In every case, the depositor expects the bank to treat his
account with the utmost fidelity, whether such account
consists only of a few hundred pesos or of millions. The
bank must record every single transaction accurately,
down to the last centavo, and as promptly as possible.
This has to be done if the account is to reflect at any
given time the amount of money the depositor can
dispose of as he sees fit, confident that the bank will
deliver it as and to whomever directs. A blunder on the
part of the bank, such as the dishonor of the check
without good reason, can cause the depositor not a little
embarrassment if not also financial loss and perhaps
even civil and criminal litigation.
The point is that as a business affected with public
interest and because of the nature of its functions, the
bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind
the fiduciary nature of their relationship. x x x.
Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty
bound to know the signatures of its customers. Having failed to detect
the forgery in the Authority to Debit and in the process inadvertently
facilitate the FMIC-Tevesteco transfer, BPI-FB cannot now shift
liability thereon to Franco and the other payees of checks issued by
Tevesteco, or prevent withdrawals from their respective accounts
without the appropriate court writ or a favorable final judgment.
Further, it boggles the mind why BPI-FB, even without delving
into the authenticity of the signature in the Authority to Debit, effected
the transfer 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.
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.
 DECISION

EN BANC
TINGA, J.:
SPOUSES RENATO G.R. No. 106064
CONSTANTINO, JR. and
LOURDES CONSTANTINO Present: The quagmire that is the foreign debt problem has
and their minor children especially confounded developing nations around the world
RENATO REDENTOR, DAVIDE, JR., CJ.,
ANNA MARIKA LISSA, PUNO, for decades. It has defied easy solutions acceptable both to
NINA ELISSA, and PANGANIBAN, debtor countries and their creditors. It has also emerged
ANNA KARMINA, QUISUMBING,
FREEDOM FROM DEBT YNARES-SANTIAGO, as cause celebre for various political movements and
COALITION, and FILOMENO SANDOVAL-GUTIERREZ, grassroots activists and the wellspring of much scholarly
STA. ANA III, CARPIO,
Petitioners , AUSTRIA-MARTINEZ, thought and debate.
CORONA,
CARPIO-MORALES,
CALLEJO, SR., The present petition illustrates some of the
- versus - AZCUNA, ideological and functional differences between experts on
TINGA,
CHICO-NAZARIO, and how to achieve debt relief. However, this being a court of
GARCIA, JJ. law, not an academic forum or a convention on
HON. JOSE B. CUISIA,
in his capacity as Governor development economics, our resolution has to hinge on the
of the Central Bank, presented legal issues which center on the appreciation of
HON. RAMON DEL ROSARIO,
in his capacity as Secretary the constitutional provision that empowers the President
of Finance, HON. EMMANUEL V. to contract and guarantee foreign loans. The ultimate
PELAEZ, in his capacity as
choice is between a restrictive reading of the constitutional
Philippine Debt Negotiating
Chairman, and the NATIONAL Promulgated: provision and an alimentative application thereof
TREASURER,
consistent with time-honored principles on executive
Respondents. October 13, 2005
x-------------------------------------------------------------------x power and the alter ego doctrine.
 This Petition for Certiorari, Prohibition and the Philippine panel tasked to negotiate with the countrys
Mandamus assails said contracts which were entered into foreign creditors pursuant to the Financing Program.
pursuant to the Philippine Comprehensive Financing
Program for 1992 (Financing Program or Program). It seeks
to enjoin respondents from executing additional debt-relief
contracts pursuant thereto. It also urges the Court to issue The operative facts are sparse and there is little need
an order compelling the Secretary of Justice to institute to elaborate on them.
criminal and administrative cases against
The Financing Program was the culmination of
respondents for acts which circumvent or negate the
efforts that began during the term of former President
provisions Art. XII of the Constitution.[1]
Corazon Aquino to manage the countrys external debt
problem through a negotiation-oriented debt strategy
Parties and Facts
involving cooperation and negotiation with foreign
creditors.[4] Pursuant to this strategy, the Aquino
The petition was filed on 17 July 1992 by petitioners
government entered into three restructuring agreements
spouses Renato Constantino, Jr. and Lourdes Constantino
with representatives of foreign creditor governments during
and their minor children, Renato Redentor, Anna Marika
the period of 1986 to 1991.[5]During the same period, three
Lissa, Nina Elissa, and Anna Karmina, Filomeno Sta. Ana
similarly-oriented restructuring agreements were executed
III, and the Freedom from Debt Coalition, a non-stock, non-
with commercial bank creditors.[6]
profit, non-government organization that advocates a pro-
people and just Philippine debt policy.[2] Named
On 28 February 1992, the Philippine Debt
respondents were the then Governor of the Bangko Sentral
Negotiating Team, chaired by respondent Pelaez,
ng Pilipinas, the Secretary of Finance, the National
negotiated an agreement with the countrys Bank Advisory
Treasurer, and the Philippine Debt Negotiation Chairman
Committee, representing all foreign commercial bank
Emmanuel V. Pelaez.[3] All respondents were members of
creditors, on the Financing Program which respondents
characterized as a multi-option financing

package.[7] The Program was scheduled to be executed
on 24 July 1992 by respondents in behalf of the Republic.
Nonetheless, petitioners alleged that even prior to the
execution of the Program respondents had already
implemented its buyback component when on 15 May
1992, the Philippines bought back P1.26 billion of external
debts pursuant to the Program.[8]
The petition sought to enjoin the ratification of the
Program, but the Court did not issue any injunctive relief.
Hence, it came to pass that the Program was signed
in London as scheduled. The petition still has to be
resolved though as petitioners seek the annulment of
any and all acts done by respondents, their subordinates
and any other public officer pursuant to the agreement and
program in question.[9] Even after the signing of the
Program, respondents themselves acknowledged that the
remaining principal objective of the petition is to set aside
respondents actions.[10]
Petitioners characterize the Financing Program as a
package offered to the countrys foreign creditors consisting
of two debt-relief options.[11] The first option was a cash
buyback of portions of the Philippine foreign debt at a
discount.[12] The second option allowed creditors to convert
existing Philippine debt instruments into any of three
kinds of bonds/securities: (1) new money bonds with a
five-year grace period and 17 years final maturity, the
purchase of which would allow the creditors to convert
their eligible debt papers into bearer bonds with the same
terms; (2) interest-reduction bonds with a maturity of 25
years; and (3) principal-collateralized interest-reduction
bonds with a maturity of 25 years.[13]
On the other hand, according to respondents the Financing
Program would cover about U.S. $5.3 billion of foreign
commercial debts and it was expected to deal
comprehensively with the commercial bank debt problem
of the country and pave the way for the countrys access to
capital markets.[14] They add that the Program carried
three basic options from which foreign bank lenders could
choose, namely: to lend money, to exchange existing
restructured Philippine debts with an interest reduction
bond; or to exchange the same Philippine debts with a
principal collateralized interest reduction bond.[15]
Issues for Resolution
Petitioners raise several issues before this Court.
 First, they object to the debt-relief contracts entered
into pursuant to the Financing Program as beyond the
powers granted to the President under Section 20,
Article VII of the Constitution.[16] The provision states that
the President may contract or guarantee foreign loans in
behalf of the Republic. It is claimed that the buyback and
securitization/bond conversion schemes are neither loans
nor guarantees, and hence beyond the power of the
President to execute.
Second, according to petitioners even assuming that
the contracts under the Financing Program are
constitutionally permissible, yet it is only the President
who may exercise the power to enter into these contracts
and such power may not be delegated to respondents.
Third, petitioners argue that the Financing Program
violates several constitutional policies and that contracts
executed or to be executed pursuant thereto were or will be
done by respondents with grave abuse of discretion
amounting to lack or excess of jurisdiction.
Petitioners contend that the Financing Program was
made available for debts that were either fraudulently
contracted or void. In this regard, petitioners rely on a 1992
Commission on Audit (COA) report which identified several
behest loans as either contracted or guaranteed
fraudulently during the Marcos regime.[17] They posit that
since these and other similar debts, such as the ones
pertaining to the Bataan Nuclear Power Plant,[18] were
eligible for buyback or conversion under the Program, the
resultant relief agreements pertaining thereto would be
void for being waivers of the Republics right to repudiate
the void or fraudulently contracted loans.
For their part, respondents dispute the points raised by
petitioners. They also question the standing of petitioners
to institute the present petition and the justiciability of the
issues presented.
The Court shall tackle the procedural questions ahead of
the substantive issues.
The Courts Rulings
Standing of Petitioners
The individual petitioners are suing as citizens of
the Philippines; those among them who are of age are suing
in their additional capacity as taxpayers.[19] It is not
indicated in what capacity the Freedom from Debt Moreover, a ruling on the issues of this case will not
Coalition is suing. only determine the validity or invalidity of the subject pre-
termination and bond-conversion of foreign debts but also
Respondents point out that petitioners have no
create a precedent for other debts or debt-related contracts
standing to file the present suit since the rule allowing
executed or to be executed in behalf of the President of the
taxpayers to assail executive or legislative acts has been
Philippines by the Secretary of Finance. Considering
applied only to cases where the constitutionality of a
the reported Philippine debt of P3.80 trillion as of
statute is involved. At the same time, however, they urge
November 2004, the foreign public borrowing component
this Court to exercise its wide discretion and waive
of which reached P1.81 trillion in November, equivalent to
petitioners lack of standing. They invoke the
47.6% of total government borrowings,[23] the importance
transcendental importance of resolving the validity of the
of the issues raised and the magnitude of the public
questioned debt-relief contracts and others of similar
interest involved are indubitable.
import.
Thus, the Courts cognizance of this petition is also
The recent trend on locus standi has veered towards
based on the consideration that the determination of the
a liberal treatment in taxpayers suits. In Tatad v. Garcia
issues presented will have a bearing on the state of the
Jr.,[20] this Court reiterated that the prevailing doctrines in
countrys economy, its international financial ratings, and
taxpayers suits are to allow taxpayers to question contracts
perhaps even the Filipinos way of life. Seen in this light,
entered into by the national government or government
the transcendental importance of the issues herein
owned and controlled corporations allegedly in
presented cannot be doubted.
contravention of law.[21] A taxpayer is allowed to sue where
there is a claim that public funds are illegally disbursed, or
Where constitutional issues are properly raised in
that public money is being deflected to any improper
the context of alleged facts, procedural questions acquire a
purpose, or that there is a wastage of public funds through
relatively minor significance.[24] We thus hold that by the
the enforcement of an invalid or unconstitutional law.[22]
very nature of the power wielded by the President, the effect
of using this power on the economy, and the well-being in
general of the Filipino nation, the Court must set aside the Moreover, asserting a right to repudiate void or
procedural barrier of standing and rule on the justiciable fraudulently contracted loans begs the question of whether
issues presented by the parties. indeed particular loans are void or fraudulently contracted.
Fraudulently contracted loans are voidable and, as such,
Ripeness/Actual Case Dimension valid and enforceable until annulled by the courts. On the
other hand, void contracts that have already been fulfilled
Even as respondents concede the transcendental must be declared void in view of the maxim that no one is
importance of the issues at bar, in their Rejoinder they ask allowed to take the law in his own hands.[26] Petitioners
this Court to dismiss the Petition. Allegedly, petitioners theory depends on a prior annulment or declaration of
arguments are mere attempts at nullity of the pre-existing loans, which thus far have not
abstraction.[25] Respondents are correct to some degree. been submitted to this Court. Additionally, void contracts
Several issues, as shall be discussed in due course, are not are unratifiable by their very nature; they are null and
ripe for adjudication. void ab initio. Consequently, from the viewpoint of civil law,
what petitioners present as the Republics right to
The allegation that respondents waived the
repudiate is yet a contingent right, one which cannot be
Philippines right to repudiate void and fraudulently
allowed as an anticipatory basis for annulling the debt-
contracted loans by executing the debt-relief agreements
relief contracts. Petitioners contention that the debt-relief
is, on many levels, not justiciable.
agreements are tantamount to waivers of the Republics
right to repudiate so-called behest loans is without legal
In the first place, records do not show whether the
foundation.
so-called behest loansor other allegedly void or
fraudulently contracted loans for that matterwere subject
It may not be amiss to recognize that there are many
of the debt-relief contracts entered into under the
advocates of the position that the Republic should renege
Financing Program.
on obligations that are considered as illegitimate. However,
should the executive branch unilaterally, and possibly
 new loans, which would make it easier for the
even without prior court determination of the validity or
country to pay interest.[28]
invalidity of these contracts, repudiate or otherwise declare
to the international community its resolve not to recognize
Sovereign default is not new to the Philippine setting.
a certain set of illegitimate loans, adverse
In October 1983, the Philippines declared a moratorium on
repercussions[27] would come into play. Dr. Felipe Medalla,
principal payments on its external debts that eventually
former Director General of the National Economic
Development Authority, has warned, thus:

One way to reduce debt service is to lasted four years,[29] that virtually closed the countrys
repudiate debts, totally or selectively. Taken to
access to new foreign money[30] and drove investors to leave
its limit, however, such a strategy would put
the Philippines at such odds with too many the Philippine market, resulting in some devastating
enemies. Foreign commercial banks by
consequences.[31] It would appear then that
themselves and without the cooperation of
creditor governments, especially the United this beguilingly attractive and dangerously simplistic
States, may not be in a position to inflict much
solution deserves the utmost circumspect cogitation before
damage, but concerted sanctions from
commercial banks, multilateral financial it is resorted to.
institutions and creditor governments would
affect not only our sources of credit but also
our access to markets for our exports and the In any event, the discretion on the matter lies not
level of development assistance. . . . [T]he with the courts but with the executive. Thus, the Program
country might face concerted sanctions even if
debts were repudiated only selectively. was conceptualized as an offshoot of the decision made by
then
The point that must be stressed is that
repudiation is not an attractive alternative if
net payments to creditors in the short and
medium-run can be reduced through an
agreement (as opposed to a unilaterally set President Aquino that the Philippines should recognize its
ceiling on debt service payments) which
provides for both rescheduling of principal and sovereign debts[32] despite the controversy that engulfed
capitalization of interest, or its equivalent in many debts incurred during the Marcos era. It is a scheme
whereby the Philippines restructured its debts following a of which in turn were used for terminating the original
negotiated approach instead of a default approach to loan.
manage the bleak Philippine debt situation.
First Issue: The Scope of Section 20, Article VII
As a final point, petitioners have no real basis to fret
over a possible waiver of the right to repudiate void For their first constitutional argument, petitioners
contracts. Even assuming that spurious loans had become submit that the buyback and bond-conversion schemes do
the subject of debt-relief contracts, respondents not constitute the loan contract or guarantee contemplated
unequivocally assert that the Republic did not waive any in the Constitution and are consequently prohibited. Sec.
right to repudiate void or fraudulently contracted loans, it 20, Art. VII of the Constitution provides, viz:
having incorporated a no-waiver clause in the
agreements.[33] The President may contract or
guarantee foreign loans in behalf of the
Republic of the Philippines with the prior
Substantive Issues concurrence of the Monetary Board and
subject to such limitations as may be provided
under law. The Monetary Board shall, within
It is helpful to put the matter in perspective before moving
thirty days from the end of every quarter of the
on to the merits. The Financing Program extinguished calendar year, submit to the Congress a
complete report of its decisions on applications
portions of the countrys pre-existing loans
for loans to be contracted or guaranteed by the
government or government-owned and
controlled corporations which would have the
effect of increasing the foreign debt, and
through either debt buyback or bond-conversion. The containing other matters as may be provided
buyback approach essentially pre-terminated portions of by law.

public debts while the bond-conversion scheme

extinguished public debts through the obtention of a new
loan by virtue of a sovereign bond issuance, the proceeds
 On Bond-conversion
Loans are transactions wherein the owner of a
property allows another party to use the property and
where customarily, the latter promises to return the
property after a specified period with payment for its use,
called interest.[34] On the other hand, bonds are interest-
bearing or discounted government or corporate securities
that obligate the issuer to pay the bondholder a specified
sum of money, usually at specific intervals, and to repay
the principal amount of the loan at maturity.[35] The word
bond means contract, agreement, or guarantee. All of these
terms are applicable to the securities known as bonds. An
investor who purchases a bond is lending money to the
issuer, and the bond represents the issuers contractual
promise to pay interest and repay principal according to
specific terms. A short-term bond is often called a note.[36]
The language of the Constitution is simple and clear
as it is broad. It allows the President to contract and
guarantee foreign loans. It makes no prohibition on the
issuance of certain kinds of loans or distinctions as to
which kinds of debt instruments are more onerous than
others. This Court may not ascribe to the Constitution
meanings and restrictions that would unduly burden the
powers of the President. The plain, clear and unambiguous
language of the Constitution should be construed in a
sense that will allow the full exercise of the power provided
therein. It would be the worst kind of judicial legislation if
the courts were to misconstrue and change the meaning of
the organic act.
The only restriction that the Constitution provides,
aside from the prior concurrence of the Monetary Board, is
that the loans must be subject to limitations provided by
law. In this regard, we note that Republic Act (R.A.) No. 245
as amended by Pres. Decree (P.D.) No. 142, s. 1973,
entitled An Act Authorizing the Secretary of Finance to
Borrow to Meet Public Expenditures Authorized by Law, and
for Other Purposes, allows foreign loans to be contracted in
the form of, inter alia, bonds. Thus:
Sec. 1. In order to meet public expenditures
authorized by law or to provide for the
purchase, redemption, or refunding of any
obligations, either direct or guaranteed of the
Philippine Government, the Secretary of
Finance, with the approval of the President
of the Philippines, after consultation with
the Monetary Board, is authorized to
borrow from time to time on the credit of
the Republic of the Philippines such sum or
sums as in his judgment may be necessary,
and to issue therefor evidences of
indebtedness of the Philippine
Government."
 Such evidences of indebtedness may be of
Constitution prohibits the President from issuing bonds
the following types:
which are far more onerous than loans.[42]
....
This line of thinking is flawed to say the least. The
c. Treasury bonds, notes, securities or other
evidences of indebtedness having negotiable character of the subject bonds is not mutually
maturities of one year or more but not
exclusive with the Republics freedom to negotiate with
exceeding twenty-five years from the date
of issue. (Emphasis supplied.) bondholders for the revision of the terms of the debt.
Moreover, the securities market provides some flexibilityif
the Philippines wants to pay in advance, it can buy out its
Under the foregoing provisions, sovereign bonds may
bonds in the market; if interest rates go down but the
be issued not only to supplement government expenditures
Philippines does not have money to retire the bonds, it can
but also to provide for the purchase,[37] redemption,[38] or
replace the old bonds with new ones; if it defaults on the
refunding[39] of any obligation, either direct or guaranteed,
bonds, the bondholders shall organize and bring about a
of the Philippine Government.
re-negotiation or settlement.[43] In fact, several countries
have restructured their sovereign bonds in view either of
Petitioners, however, point out that a supposed
difference between contracting a loan and issuing bonds is
that the former creates a definite creditor-debtor
inability and/or unwillingness to pay the
relationship between the parties while the latter does
indebtedness.[44] Petitioners have not presented a plausible
not.[40] They explain that a contract of loan enables the
reason that would preclude the Philippines from acting in
debtor to restructure or novate the loan, which benefit is
a similar fashion, should it so opt.
lost upon the conversion of the debts to bearer bonds such
that the Philippines surrenders the novatable character of
a loan contract for the irrevocable and unpostponable This theory may even be dismissed in a perfunctory
demandability of a bearer bond.[41] Allegedly, the manner since petitioners are merely expecting that
the Philippines would opt to restructure the bonds but

with the negotiable character of the bonds, would be
prevented from so doing. This is a contingency which
petitioners do not assert as having come to pass or even
imminent. Consummated acts of the executive cannot be
struck down by this Court merely on the basis of
petitioners anticipatory cavils.
On the Buyback Scheme
In their Comment, petitioners assert that the power
to pay public debts lies with Congress and was deliberately
withheld by the Constitution from the President.[45] It is
true that in the balance of power between the three
branches of government, it is Congress that manages the
countrys coffers by virtue of its taxing and spending
powers. However, the law-making authority
promulgated a law ordaining an automatic appropriations
provision for debt servicing[46] by virtue of which the
President is empowered to execute debt payments without
the need for further appropriations. Regarding these
legislative enactments, this Court has held, viz:
Congress deliberates or acts on the budget
proposals of the President, and Congress in
the exercise of its own judgment and wisdom
formulates an appropriation act precisely
following the process established by the
Constitution, which specifies that no money
may be paid from the Treasury except in
accordance with an appropriation made by
law.
Debt service is not included in the General
Appropriation Act, since authorization
therefor already exists under RA Nos. 4860
and 245, as amended, and PD 1967. Precisely
in the light of this subsisting authorization as
embodied in said Republic Acts and PD for
debt service, Congress does not concern itself
with details for implementation by the
Executive, but largely with annual levels and
approval thereof upon due deliberations as
part of the whole obligation program for the
year. Upon such approval, Congress has
spoken and cannot be said to have delegated
its wisdom to the Executive, on whose part lies
the implementation or execution of the
legislative wisdom.[47]
has
Specific legal authority for the buyback of loans is
established under Section 2 of Republic Act (R.A.) No.
240, viz:
Sec. 2. The Secretary of Finance shall
cause to be paid out of any moneys in
the National Treasury not otherwise
 appropriated, or from any sinking
funds provided for the purpose by
Petitioners claim that the buyback scheme is neither
law, any interest falling due, or
accruing, on any portion of the public a guarantee nor a loan since its underlying intent is to
debt authorized by law. He shall also
extinguish debts that are not yet due and
cause to be paid out of any such
money, or from any such sinking demandable.[48] Thus, they suggest that contracts entered
funds the principal amount of any
pursuant to the buyback scheme are unconstitutional for
obligations which have matured, or
which have been called for redemption not being among those contemplated in Sec. 20, Art. VII of
or for which redemption has been
the Constitution.
demanded in accordance with terms
prescribed by him prior to date of issue:
Provided, however, That he may, if he so Buyback is a necessary power which springs from
chooses and if the holder is willing, the grant of the foreign borrowing power. Every statute is
exchange any such obligation with any
other direct or guaranteed obligation or understood, by implication, to contain all such provisions
obligations of the Philippine as may be necessary to effectuate its object and purpose,
Government of equivalent value. In the
case of interest-bearing obligations, he or to make effective rights, powers, privileges or jurisdiction
shall pay not less than their face value; which it grants, including all such collateral and
in the case of obligations issued at a
discount he shall pay the face value at subsidiary consequences as may be fairly and logically
maturity; or, if redeemed prior to inferred from its terms.[49] The President is not empowered
maturity, such portion of the face
value as is prescribed by the terms to borrow money from foreign banks and governments on
and conditions under which such the credit of the Republic only to be left bereft of authority
obligations were originally
issued. (Emphasis supplied.) to implement the payment despite appropriations therefor.

Even petitioners concede that [t]he Constitution, as

The afore-quoted provisions of law specifically allow the
a rule, does not enumeratelet alone enumerate allthe acts
President to pre-terminate debts without further action
which the President (or any other public officer) may not
from Congress.
do,[50] and [t]he fact that the Constitution does not requirement of prior concurrence of an entity specifically
explicitly bar the President from exercising a power does named by the Constitutionthe Monetary Boardreinforces
not mean that he or she does not have that power.[51] It is the submission that not respondents but the
inescapable from the standpoint of reason and necessity President alone and personally can validly bind the
that the authority to contract foreign loans and guarantees country.
without restrictions on payment or manner thereof coupled
with the availability of the corresponding Petitioners position is negated both by explicit
appropriations, must include the power to effect payments constitutional[52] and legal[53] imprimaturs, as well as the
or to make payments unavailing by either restructuring the doctrine of qualified political agency.
loans or even refusing to make any payment altogether.
The evident exigency of having the Secretary of
More fundamentally, when taken in the context of Finance implement the decision of the President to execute
sovereign debts, a buyback is simply the purchase by the the debt-relief contracts is made manifest by the fact that
sovereign issuer of its own debts at a discount. Clearly the process of establishing and executing a strategy for
then, the objection to the validity of the buyback scheme is managing the governments debt is deep within the realm
without basis. of the expertise of the Department of Finance, primed as it
is to raise the required amount of funding, achieve its risk
Second Issue: Delegation of Power and cost objectives, and meet any other sovereign debt
management goals.[54]
Petitioners stress that unlike other powers which
If, as petitioners would have it, the President were to
may be validly delegated by the President, the power to
personally exercise every aspect of the foreign borrowing
incur foreign debts is expressly reserved by the
power, he/she would have to pause from running the
Constitution in the person of the President. They argue
country long enough to focus on a welter of time-
that the gravity by which the exercise of the power will
consuming detailed activitiesthe propriety of
affect the Filipino nation requires that the President alone
incurring/guaranteeing loans, studying and choosing
must exercise this power. They submit that the

among the many methods that may be taken toward this
end, meeting countless times with creditor representatives
to negotiate, obtaining the concurrence of the Monetary
Board, explaining and defending the negotiated deal to the
public, and more often than not, flying to the agreed place
of execution to sign the documents. This sort of
constitutional interpretation would negate the
existence of cabinet positions and the respective expertise
which the holders thereof are accorded and would unduly
hamper the Presidents effectivity in running
government.
Necessity thus gave birth to the doctrine of qualified
political agency, later adopted in Villena v. Secretary of the
Interior[55] from American jurisprudence, viz:
With reference to the Executive Department of
the government, there is one purpose which is
crystal-clear and is readily visible without the
projection of judicial searchlight, and that is
the establishment of a single, not plural,
Executive. The first section of Article VII of the
Constitution, dealing with the Executive
Department, begins with the enunciation of
the principle that "The executive power shall
be vested in a President of the Philippines."
This means that the President of
the Philippinesis the Executive of the
Government of the Philippines, and no other.
The heads of the executive departments
occupy political positions and hold office in an
advisory capacity, and, in the language of
Thomas Jefferson, "should be of the
President's bosom confidence" (7 Writings,
Ford ed., 498), and, in the language of
Attorney-General Cushing (7 Op., Attorney-
General, 453), "are subject to the direction of
the President." Without minimizing the
importance of the heads of the various
departments, their personality is in reality but
very
the projection of that of the President. Stated
otherwise, and as forcibly characterized by
Chief Justice Taft of the Supreme Court of the
United States, "each head of a department is,
the and must be, the President's alter ego in the
matters of that department where the
President is required by law to exercise
authority" (Myers vs. United States, 47 Sup.
Ct. Rep., 21 at 30; 272 U. S., 52 at 133; 71
Law. ed., 160).[56]
As it was, the backdrop consisted of a major policy
determination made by then President Aquino that
sovereign debts have to be respected and the concomitant
reality that the Philippines did not have enough funds to
pay the debts. Inevitably, it fell upon the Secretary of
Finance, as the alter ego of the President regarding the
sound and efficient management of the financial resources
of the Government,[57] to formulate a scheme for the
implementation of the policy publicly expressed by the
President herself.
 Nevertheless, there are powers vested in the habeas corpus, and the exercise of the pardoning power
President by the Constitution which may not be delegated notwithstanding the judicial determination of guilt of the
to or exercised by an agent or alter ego of the President. accused, all fall within this special class that demands the
Justice Laurel, in his ponencia in Villena, makes this clear: exclusive exercise by the President of the constitutionally
vested power. The list is by no means exclusive, but there
Withal, at first blush, the argument of
must be a showing that the executive power in question is
ratification may seem plausible under the
circumstances, it should be observed that of similar gravitas and exceptional import.
there are certain acts which, by their very
nature, cannot be validated by subsequent
We cannot conclude that the power of the President
approval or ratification by the President. There
are certain constitutional powers and to contract or guarantee foreign debts falls within the same
prerogatives of the Chief Executive of the
exceptional class. Indubitably, the decision to contract or
Nation which must be exercised by him in
person and no amount of approval or guarantee foreign debts is of vital public interest, but only
ratification will validate the exercise of any of
those powers by any other person. Such, for
instance, in his power to suspend the writ of
habeas corpus and proclaim martial law (PAR.
3, SEC. 11, Art. VII) and the exercise by him of
the benign prerogative of mercy (par. 6, sec. akin to any contractual obligation undertaken by the
11, idem).[58]
sovereign, which arises not from any extraordinary
incident, but from the established functions of governance.
These distinctions hold true to this day. There are certain
presidential powers which arise out of exceptional Another important qualification must be made. The
circumstances, and if exercised, would involve the Secretary of Finance or any designated alter ego of the
suspension of fundamental freedoms, or at least call for the President is bound to secure the latters prior consent to or
supersedence of executive prerogatives over those subsequent ratification of his acts. In the matter of
exercised by co-equal branches of government. The contracting or guaranteeing foreign loans, the repudiation
declaration of martial law, the suspension of the writ of by the President of the very acts performed in this regard
by the alter ego will definitely have binding effect. Had
petitioners herein succeeded in demonstrating that the
President actually withheld approval and/or repudiated
the Financing Program, there could be a cause of action to
nullify the acts of respondents. Notably though, petitioners
do not assert that respondents pursued the Program
without prior authorization of the President or that the
terms of the contract were agreed upon without the
Presidents authorization. Congruent with the avowed
preference of then President Aquino to honor and
restructure existing foreign debts, the lack of showing that
she countermanded the acts of respondents leads us to
conclude that said acts carried presidential approval.
With constitutional parameters already established,
we may also note, as a source of suppletory guidance, the
provisions of R.A. No. 245. The afore-quoted Section 1
thereof empowers the Secretary of Finance with the
approval of the President and after consultation[59] of the
Monetary Board, to borrow from time to time on the credit
of the Republic of the Philippines such sum or sums as in
his judgment may be necessary, and to issue therefor
evidences of indebtedness of the Philippine Government.
Ineluctably then, while the President wields the borrowing
power it is the Secretary of Finance who normally carries
out its thrusts.
In our recent rulings in Southern Cross Cement
Corporation v. The Philippine Cement Manufacturers
Corp.,[60] this Court had occasion to examine the authority
granted by Congress to the Department of Trade and
Industry (DTI) Secretary to impose safeguard measures
pursuant to the Safeguard Measures Act. In doing so, the
Court was impelled to construe Section 28(2), Article VI of
the Constitution, which allowed Congress, by law, to
authorize the President to fix within specified limits, and
subject to such limitations and restrictions as it may
impose, tariff rates, import and export quotas, tonnage and
wharfage dues, and other duties or imposts within the
framework of the national development program of the
Government.[61]
While the Court refused to uphold the broad
construction of the grant of power as preferred by the DTI
Secretary, it nonetheless tacitly acknowledged that
Congress could designate the DTI Secretary, in his capacity
as alter ego of the President, to exercise the authority
vested on the chief executive under Section 28(2), Article
VI.[62] At the same time, the Court emphasized that since
Section 28(2), Article VI authorized Congress to impose
limitations and restrictions on the authority of the
President to impose tariffs and imposts, the DTI Secretary
was necessarily subjected to the same restrictions that
Congress could impose on the President in the exercise of
this taxing power.
Similarly, in the instant case, the Constitution
allocates to the President the exercise of the foreign
borrowing power subject to such limitations as may be
provided under law. Following Southern Cross, but in line
with the limitations as defined in Villena, the presidential
prerogative may be exercised by the Presidents alter ego,
who in this case is the Secretary of Finance.
It bears emphasis that apart from the Constitution,
there is also a relevant statute, R.A. No. 245, that
establishes the parameters by which the alter egomay act
in behalf of the President with respect to the borrowing
power. This law expressly provides that the Secretary of
Finance may enter into foreign borrowing contracts. This
law neither amends nor goes contrary to the Constitution
but merely implements the subject provision in a manner
consistent with the structure of the Executive Department
and the alter ego doctine. In this regard, respondents have
declared that they have followed the restrictions provided
under R.A. No. 245,[63] which include the requisite
presidential authorization and which, in the absence of
proof and even allegation to the contrary, should be
regarded in a fashion congruent with the presumption of
regularity bestowed on acts done by public officials.
Moreover, in praying that the acts of the
respondents, especially that of the Secretary of Finance, be
nullified as being in violation of a restrictive constitutional
interpretation, petitioners in effect would have this Court
declare R.A. No. 245 unconstitutional. We will not strike
down a law or provisions thereof without so much as a
direct attack thereon when simple and logical statutory
construction would suffice.
Petitioners also submit that the unrestricted character of
the Financing Program violates the framers intent behind
Section 20, Article VII to restrict the power of the President.
This intent, petitioners note, is embodied in the proviso in
Sec. 20, Art. VII, which states that said power is subject to
such limitations as may be provided under law. However,
as previously discussed, the debt-relief contracts are
governed by the terms of R.A. No. 245, as amended by P.D.
No. 142 s. 1973, and therefore were not developed in an
unrestricted setting.
Third Issue: Grave Abuse of Discretion and
Violation of Constitutional Policies
We treat the remaining issues jointly, for in view of the
foregoing determination, the general allegation of grave
abuse of discretion on the part of respondents would arise
from the purported violation of various state policies as
expressed in the Constitution.
Petitioners allege that the Financing Program violates the
constitutional state policies to promote a social order that
will ensure the prosperity and independence of the nation
and free the people from poverty,[64] foster social justice in
all phases of national development,[65] and develop a self-
reliant and independent national economy effectively
controlled by Filipinos;[66] thus, the contracts executed or
to be executed pursuant thereto were or would be tainted
by a grave abuse of discretion amounting to lack or excess
of jurisdiction.
Respondents cite the following in support of the propriety
of their acts:[67] (1) a Department of Finance study showing
that as a result of the implementation of voluntary debt
reductions schemes, the countrys debt stock was reduced
by U.S. $4.4 billion as of December 1991;[68] (2) revelations
made by independent individuals made in a hearing before
the Senate Committee on Economic Affairs indicating that
the assailed agreements would bring about substantial
benefits to the country;[69] and (3) the Joint Legislative-
Executive Foreign Debt Councils endorsement of the
approval of the financing package containing the debt-
relief agreements and issuance of a Motion to Urge the
Philippine Debt Negotiating Panel to continue with the
negotiation on the aforesaid package.[70]
Even with these justifications, respondents aver that their
acts are within the arena of political questions which,
based on the doctrine of separation of powers,[71] the
judiciary must leave without interference lest the courts
substitute their judgment for that of the official concerned
and decide a matter which by its nature or law is for the
latter alone to decide.[72]
On the other hand, in furtherance of their argument on
respondents violation of constitutional policies, petitioners
cite an article of Jude Esguerra, The 1992 Buyback and
Securitization Agreement with Philippine Commercial Bank
Creditors,[73] in illustrating a best-case scenario in entering
the subject debt-relief agreements. The computation
results in a yield of $218.99 million, rather
than the $2,041.00 million claimed by the
negotiators.[74] On the other hand, the worst-case scenario
allegedly is that a net amount of $1.638 million will flow
out of the country as a result of the debt package.[75]
Assuming the accuracy of the foregoing for the nonce,
despite the watered-down parameters of petitioners
computations, we can make no conclusion other than that
respondents efforts were geared towards debt-relief with
marked positive results and towards achieving the
constitutional policies which petitioners so hastily declare
as having been violated by respondents. We recognize that
as with other schemes dependent on volatile market and
economic structures, the contracts entered into by
respondents may possibly have a net outflow and therefore
negative result. However, even petitioners call this latter
event the worst-case scenario. Plans are seldom foolproof.
To ask the Court to strike down debt-relief contracts,
which, according to independent third party evaluations
using historically-suggested rates would result in
substantial debt-relief,[76] based merely on the possibility
of petitioners worst-case scenario projection, hardly seems
reasonable.
Moreover, the policies set by the Constitution as litanized
by petitioners are not a panacea that can annul every
debt
governmental act sought to be struck down. The gist of
petitioners arguments on violation of constitutional
policies and grave abuse of discretion boils down to their
allegation that the debt-relief agreements entered into by
respondents do not deliver the kind of debt-relief that
petitioners would want. Petitioners cite the aforementioned
article in stating that that the agreement achieves little that
cannot be gained through less complicated means like
postponing (rescheduling) principal payments,[77] thus:
[T]he price of success in putting together this
debt-relief package (indicates) the possibility
that a simple rescheduling agreement may
well turn out to be less expensive than this
comprehensive debt-relief package. This
 means that in the next six years the humble
That the means employed to achieve the goal of debt-
and simple rescheduling process may well be
the lesser evil because there is that distinct relief do not sit well with petitioners is beyond the power of
possibility that less money will flow out of the
this Court to remedy. The exercise of the power of judicial
country as a result.
review is merely to checknot supplantthe Executive, or to
simply ascertain whether he has gone beyond the
constitutional limits of his jurisdiction but not to exercise
the power vested in him or to determine the wisdom of his
act.[78] In cases where the main purpose is to nullify
Note must be taken that from these citations, petitioners
governmental acts whether as unconstitutional or done
submit that there is possibly a better way to go about debt
with grave abuse of discretion, there is a strong
rescheduling and, on that basis, insist that the acts of
presumption in favor of the validity of the assailed acts.
respondents must be struck down. These are rather
The heavy onus is in on petitioners to overcome the
tenuous grounds to condemn the subject agreements as
presumption of regularity.
violative of constitutional principles.

We find that petitioners have not sufficiently

Conclusion
established any basis for the Court to declare the acts of
respondents as unconstitutional.
The raison d etre of the Financing Program is to manage
debts incurred by the Philippines in a manner that will
lessen the burden on the Filipino taxpayersthus the term WHEREFORE the petition is hereby DISMISSED. No
debt-relief agreements. The measures objected to by costs.
petitioners were not aimed at incurring more debts but at
terminating pre-existing debts and were backed by the
know-how of the countrys economic managers as affirmed
by third party empirical analysis.
 New Civil Code to warrant the application of that provision, the
Court of Appeals, pursuant to Section 3, Rule 50 of the Rules of
Republic of the Philippines
Court, certified the case to this Court for proper disposition.
SUPREME COURT
Manila On June 12,1961, the NAWASA entered into a contract with the
plaintiff FPFC for the latter to supply it with 4" and 6" diameter
FIRST DIVISION
centrifugally cast iron pressure pipes worth P270,187.50 to be

G.R. No. L-43446 May 3, 1988
FILIPINO PIPE AND FOUNDRY CORPORATION, plaintiff-
appellant,
vs.
NATIONAL WATERWORKS AND SEWERAGE
AUTHORITY, defendant-appellee.
GRIÑO-AQUINO, J.:
The plaintiff Filipino Pipe and Foundry Corporation (hereinafter
referred to as "FPFC" for brevity) appealed the dismissal of its
complaint against defendant National Waterworks and Sewerage
Authority (NAWASA) by the Court of First Instance of Manila on
September 5, 1973. The appeal was originally brought to the
Court of Appeals. However, finding that the principal purpose of
the action was to secure a judicial declaration that there exists
'extraordinary inflation' within the meaning of Article 1250 of the
used in the construction of the Anonoy Waterworks in Masbate
and the Barrio San Andres-Villareal Waterworks in Samar.
Defendant NAWASA paid in installments on various dates, a total
of One Hundred Thirty-Four Thousand and Six Hundred Eighty
Pesos (P134,680.00) leaving a balance of One Hundred Thirty-
Five Thousand, Five Hundred Seven Pesos and Fifty centavos
(P135,507.50) excluding interest. Having completed the delivery
of the pipes, the plaintiff demanded payment from the defendant
of the unpaid balance of the price with interest in accordance with
the terms of their contract. When the NAWASA failed to pay the
balance of its account, the plaintiff filed a collection suit on March
16, 1967 which was docketed as Civil Case No. 66784 in the
Court of First Instance of Manila.
On November 23, 1967, the trial court rendered judgment in Civil
Case No. 66784 ordering the defendant to pay the unpaid
balance of P135,507.50 in NAWASA negotiable bonds,
redeemable after ten years from their issuance with interest at 6%
per annum, P40,944.73 as interest up to March 15, 1966 and the
interest accruing thereafter to the issuance of the bonds at 6%
per annum and the costs. Defendant, however, failed to satisfy
the decision. It did not deliver the bonds to the judgment creditor.
On February 18, 1971, the plaintiff FPFC filed another complaint
which was docketed as Civil Case No. 82296, seeking an
adjustment of the unpaid balance in accordance with the value of
the Philippine peso when the decision in Civil Case No. 66784
was rendered on November 23, 1967.
On May 3, 1971, the defendant filed a motion to dismiss the
complaint on the ground that it is barred by the 1967 decision in
Civil Case No. 66784.
The trial court, in its order dated May 26, 1971, denied the motion
to dismiss on the ground that the bar by prior judgment did not
apply to the case because the causes of action in the two cases
are different: the first action being for collection of the defendant's
indebtedness for the pipes, while the second case is for
adjustment of the value of said judgment due to alleged
supervening extraordinary inflation of the Philippine peso which
has reduced the value of the bonds paid to the plaintiff.
Article 1250 of the Civil Code provides:
In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the time
of the establishment of the obligation shall be the basis of
payment, unless there is an agreement to the contrary..
The court suggested to the parties during the trial that they
present expert testimony to help it in deciding whether the
economic conditions then, and still prevailing, would justify the
application of Article 1250 of the Civil Code. The plaintiff
presented voluminous records and statistics showing that a
spiralling inflation has marked the progress of the country from
1962 up to the present. There is no denying that the price index
of commodities, which is the usual evidence of the value of the
currency has been rising.
The trial court pointed out, however, than this is a worldwide
occurence, but hardly proof that the inflation is extraordinary in
the sense contemplated by Article 1250 of the Civil Code, which
was adopted by the Code Commission to provide "a just solution"
to the "uncertainty and confusion as a result of Malabanan
contracts entered into or payments made during the last war."
(Report of the Code Commission, 132-133.)
Noting that the situation situation during the Japanese
Occupation "cannot that the be compared with the economic
conditions today," the a. Malabanan trial court, on September 5,
1973, rendered judgment dismissing the complaint.
The only issue before Us whether, on the basis of the continously
spiralling price index indisputably shown by the plaintiff, there
exists an extraordinary inflation of the currency justifying an
adjustment of defendant appellee's unpaid judgment obligation
the plaintiff-appellant.
Extraordinary inflation exists "when there is a decrease or
increase in the purchasing power of the Philippine currency which
is unusual or beyond the common fluctuation in the value said
currency, and such decrease or increase could not have
reasonably foreseen or was manifestly beyond contemplation the
the parties at the time of the establishment of the obligation.
(Tolentino Commentaries and Jurisprudence on the Civil Code
Vol. IV, p. 284.)
An example of extraordinary inflation is the following description
of what happened to the Deutschmark in 1920:
As reported, "prices were going up every week, then every day,
then every hour. Women were paid several times a day so that
they could rush out and exchange their money for something of
value before what little purchasing power was left dissolved in
their hands. Some workers tried to beat the constantly rising
prices by throwing their money out of the windows to their waiting
wives, who would rush to upload the nearly worthless paper. A
postage stamp cost millions of marks and a loaf of bread, billions."
(Sidney Rutberg, "The Money Balloon" New York: Simon and
Schuster, 1975, p. 19, cited in "Economics, An Introduction" by
Villegas & Abola, 3rd Ed.)
While appellant's voluminous records and statistics proved that
there has been a decline in the purchasing power of the Philippine
peso, this downward fall of the currency cannot be considered
"extraordinary." It is simply a universal trend that has not spared
our country.

More recently, in the 1920's Germany experienced a case of

WHEREFORE, finding no reversible error in the appealed
hyperinflation. In early 1921, the value of the German mark was
decision of the trial court, We affirm it in toto. No costs.
4.2 to the U.S. dollar. By May of the same year, it had stumbled
to 62 to the U.S. dollar. And as prices went up rapidly, so that by SO ORDERED.
October 1923, it had reached 4.2 trillion to the U.S. dollar!
Narvasa, Cruz and Gancayco, JJ., concur.
(Bernardo M. Villegas & Victor R. Abola, Economics, An
Introduction [Third Edition]).

THIRD DIVISION
[G.R. No. 137798. October 4, 2000]
LUCIA R. SINGSON, petitioner, vs. CALTEX
(PHILIPPINES), INC. respondent.
DECISION
GONZAGA-REYES, J.:
Petitioner seeks a review on certiorari of the decision of the
former Special Second Division of the Court of Appeals dated
November 27, 1998,[1] affirming the decision of the Regional Trial
Court of Manila, Branch 25[2] which dismissed petitioner's action
for reformation of contract and adjustment of rentals.
The facts of the case are undisputed ---
Petitioner and respondent entered into a contract of lease on
July 16, 1968 over a parcel of land in Cubao, Quezon City. The
land, which had an area of 1,400 square meters and was covered
by Transfer Certificates of Title No. 43329 and 81636 issued by
the Register of Deeds of Quezon City, was to be used by
respondent as a gasoline service station.
The contract of lease provides that the lease shall run for a
period of twenty (20) years and shall abide by the following rental
rates:
xxx xxx xxx xxx
Rental. --- The LESSEE agrees to pay the following rental for
said premises:
P2.50/sq.m. per month from the 1st to 10th years and
P3.00/sq.m. per month from the 11th to 20th years, payable
monthly in advance within the 1st 15 days of each month;
provided that the rentals for the 1st 5 years less a discount of
eleven (11) percent per annum computed on a monthly
diminishing balance, shall be paid to LESSOR upon
compliance of the three (3) conditions provided in clause (2)
above.
LESSEE also agrees to pay lessor, the sum of Six Thousand
Pesos (P6,000.00) as demolition expenses, upon effectivity of
this lease.
The rental herein provided for is in any event the maximum
rental which LESSOR may collect during the term of this lease
or any renewal or extension thereof. LESSEE further agrees
for thirty (30) days after written notice of such default has
actually been delivered to the General Manager of Caltex
(Philippines), Inc. LESSOR shall then have the right to
terminate this lease on thirty (30) days written notice to
LESSEE. xxx xxx xxx [3]
Thus, based on the foregoing provisions of the lease contract,
the monthly rental was fixed at P3,500.00 for the first ten years,
and at P4,200.00 for the succeeding ten years of the lease.
On June 23, 1983, or five years before the expiration of the
lease contract, petitioner asked respondent to adjust or increase
the amount of rentals citing that the country was experiencing
extraordinary inflation. In a letter dated August 3, 1983,
respondent refused petitioner's request and declared that the
terms of the lease contract are clear as to the rental amounts
therein provided being "the maximum rental which the lessor may
collect during the term of the lease."[4]
On September 21, 1983, petitioner instituted a complaint
before the RTC praying for, among other things, the payment by
respondent of adjusted rentals based on the value of the
Philippine peso at the time the contract of lease was
executed. The complaint invoked Article 1250 of the Civil Code,
stating that since the execution of the contract of lease in 1968
an extraordinary inflation had supervened resulting from the
deterioration of worldwide economic conditions, a circumstance
that was not foreseen and could not have been reasonably
foreseen by the parties at the time they entered into contract.
To substantiate its allegation of extraordinary inflation,
petitioner presented as witness Mr. Narciso Uy, Assistant Director
of the Supervising and Examining Sector of the Central Bank,
who attested that the inflation rate increased abruptly during the
period 1982 to 1985, caused mainly by the devaluation of the
peso.[5] Petitioner also submitted into evidence a certification of
the official inflation rates from 1966 to 1986 prepared by the
National Economic Development Authority ("NEDA") based on
consumer price index, which reflected that at the time the parties
entered into the subject contract, the inflation rate was only
2.06%; then, it soared to 34.51% in 1974, and in 1984, reached
a high of 50.34%.[6]
In a decision rendered on July 15, 1991, the RTC dismissed
the complaint for lack of merit. This judgment was affirmed by the
Court of Appeals. Both courts found that petitioner was unable to
prove the existence of extraordinary inflation from 1968 to 1983
(or from the year of the execution of the contract up to the year of
the filing of the complaint before the RTC) as to justify an
adjustment or increase in the rentals based upon the provisions
of Article 1250 of the Civil Code.
The Court of Appeals declared that although, admittedly,
there was an economic inflation during the period in question, it
was not such as to call for the application of Article 1250 which is
made to apply only to "violent and sudden changes in the price
level or uncommon or unusual decrease of the value of the
currency. (It) does not contemplate of a normal or ordinary
decline in the purchasing power of the peso."[7]
The Court of Appeals also found similarly with the trial court
that the terms of rental in the contract of lease dated July 16, 1968
are clear and unequivocal as to the specific amount of the rental
rates and the fact that the rentals therein provided shall be the
"maximum rental" which petitioner as lessor may collect. Absent
any showing that such contractual provisions are contrary to law,
morals, good customs, public order or public policy, the Court of
Appeals held that there was no basis for not acknowledging their
binding effect upon the parties. It also upheld the application by
the trial court of the ruling in Filipino Pipe and Foundry
Corporation vs. National Waterworks and Sewerage Authority,
161 SCRA 32, where the Court held that although there has been
a decline in the purchasing power of the Philippine peso during
the period 1961 to 1971, such downward fall of the currency could
not be considered "extraordinary" and was simply a universal
trend that has not spared the Philippines.
Thus, the dispositive portion of the decision of the Court of
Appeals reads:
WHEREFORE, in view of the foregoing, the appeal is hereby
DISMISSED and the decision appealed from is hereby
AFFIRMED.
SO ORDERED.[8]
Petitioner's motion for reconsideration of the above decision
was denied by the Court of Appeals in a resolution dated March
10, 1999.
Aggrieved, petitioner filed this petition for review
on certiorari where she assails as erroneous the decision of the
Court of Appeals, specifically, (1) in ruling that Article 1250 of the
Civil Code is inapplicable to the instant case, (2) in not
recognizing the applicability of the principle of rebus sic stantibus,
and (3) in applying the ruling in Filipino Pipe and Foundry
Corporation vs. NAWASA.
 Petitioner contends that the monthly rental of P3.00 per
square meter is patently inequitable. Based on the inflation rates
supplied by NEDA, there was an unusual increase in inflation that
could not have been foreseen by the parties; otherwise, they
would not have entered into a relatively long-term contract of
lease. She argued that the rentals in this case should not be
regarded by their quantitative or nominal value, but as "debts of
value", that is, the rental rates should be adjusted to reflect the
value of the peso at the time the lease was contracted.[9]
Petitioner also insists that the factual milieu of the present
case is distinct from that in Filipino Pipe and Foundry Corporation
vs. NAWASA. She pointed out that the inflation experienced by
the country during the period 1961 to 1971 (the pertinent time
period in the Filipino Pipe case) had a lowest of 1.35% in 1969
and a highest of 15.03% in 1971, whereas in the instant case,
involving the period 1968 to 1983, there had been highly
abnormal inflation rates like 34.51% in 1974 (triggered by the
OPEC oil price increases in 1973) and 50.34% in 1984 (caused
by the assassination of Benigno Aquino, Jr. in 1983). Petitioner
argues that the placing of the country under martial rule in 1972,
the OPEC oil price increases in 1973, and the Aquino
assassination which triggered the EDSA revolution, were
fortuitous events that drastically affected the Philippine economy
and were beyond the reasonable contemplation of the parties.
To further bolster her arguments, petitioner invokes by
analogy the principle of rebus sic stantibus in public international
law, under which a vital change of circumstances justifies a
state's unilateral withdrawal from a treaty. In the herein case,
petitioner posits that in pegging the monthly rental rates of P2.50
and P3.00 per square meter, respectively, the parties were
guided by the economic conditions prevalent in 1968, when the
Philippines faced robust economic prospects. Petitioner
contends that between her and respondent, a corporation
engaged in high stakes business and employing economic and
business experts, it is the latter who had the unmistakable
advantage to analyze the feasibility of entering into a 20-year
lease contract at such meager rates.
The only issue crucial to the present appeal is whether there
existed an extraordinary inflation during the period 1968 to 1983
that would call for the application of Article 1250 of the Civil Code
and justify an adjustment or increase of the rentals between the
parties.
Article 1250 of the Civil Code states:
In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the
time of the establishment of the obligation shall be the basis of
payment, unless there is an agreement to the contrary.
Article 1250 was inserted in the Civil Code of 1950 to abate
the uncertainty and confusion that affected contracts entered into
or payments made during World War II, and to help provide a just
solution to future cases.[10] The Court has, in more than one
occasion, been asked to interpret the provisions of Article 1250,
and to expound on the scope and limits of "extraordinary
inflation".
We have held extraordinary inflation to exist when there is a
decrease or increase in the purchasing power of the Philippine
currency which is unusual or beyond the common fluctuation in
the value of said currency, and such increase or decrease could
not have been reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the establishment of
the obligation.[11]
An example of extraordinary inflation, as cited by the Court
in Filipino Pipe and Foundry Corporation vs. NAWASA, supra, is
that which happened to the deutschmark in 1920. Thus:
"More recently, in the 1920s, Germany experienced a case of
hyperinflation. In early 1921, the value of the German mark
was 4.2 to the U.S. dollar. By May of the same year, it had
stumbled to 62 to the U.S. dollar. And as prices went up
rapidly, so that by October 1923, it had reached 4.2 trillion to
the U.S. dollar!" (Bernardo M. Villegas & Victor R. Abola,
Economics, An Introduction [Third Edition]).
As reported, "prices were going up every week, then every
day, then every hour. Women were paid several times a day so
that they could rush out and exchange their money for
something of value before what little purchasing power was
left dissolved in their hands. Some workers tried to beat the
constantly rising prices by throwing their money out of the
windows to their waiting wives, who would rush to unload the
nearly worthless paper. A postage stamp cost millions of
marks and a loaf of bread, billions." (Sidney Rutberg, "The
Money Balloon", New York: Simon and Schuster, 1975, p. 19,
cited in "Economics, An Introduction" by Villegas & Abola,
3rd Ed.)
The supervening of extraordinary inflation is never
assumed.[12] The party alleging it must lay down the factual basis
for the application of Article 1250.
Thus, in the Filipino Pipe case, the Court acknowledged that
the voluminous records and statistics submitted by plaintiff-
appellant proved that there has been a decline in the purchasing
power of the Philippine peso, but this downward fall cannot be
considered "extraordinary" but was simply a universal trend that
has not spared our country.[13] Similarly, in Huibonhoa vs. Court
of Appeals,[14] the Court dismissed plaintiff-appellant's
unsubstantiated allegation that the Aquino assassination in 1983
caused building and construction costs to double during the
period July 1983 to February 1984. In Serra vs. Court of
Appeals,[15] the Court again did not consider the decline in the
peso's purchasing power from 1983 to 1985 to be so great as to
result in an extraordinary inflation.
Like the Serra and Huibonhoa cases, the instant case also
raises as basis for the application of Article 1250 the Philippine
economic crisis in the early 1980s --- when, based on petitioner's
evidence, the inflation rate rose to 50.34% in 1984. We hold that
there is no legal or factual basis to support petitioner's allegation
of the existence of extraordinary inflation during this period, or,
for that matter, the entire time frame of 1968 to 1983, to merit the
adjustment of the rentals in the lease contract dated July 16,
1968. Although by petitioner's evidence there was a decided
decline in the purchasing power of the Philippine peso throughout
this period, we are hard put to treat this as an "extraordinary
inflation" within the meaning and intent of Article 1250. Rather,
we adopt with approval the following observations of the Court of
Appeals on petitioner's evidence, especially the NEDA
certification of inflation rates based on consumer price index:
xxx (a) from the period 1966 to 1986, the official inflation rate
never exceeded 100% in any single year; (b) the highest
official inflation rate recorded was in 1984 which reached only
50.34%; (c) over a twenty one (21) year period, the Philippines
experienced a single-digit inflation in ten (10) years (i.e., 1966,
1967, 1968, 1969, 1975, 1976, 1977, 1978, 1983 and 1986);
(d) in other years (i.e., 1970, 1971, 1972, 1973, 1974, 1979,
1980, 1981, 1982, 1984 and 1989) when the Philippines
experienced double-digit inflation rates, the average of those
rates was only 20.88%; (e) while there was a decline in the
purchasing power of the Philippine currency from the period
1966 to 1986, such cannot be considered as extraordinary;
rather, it is a normal erosion of the value of the Philippine peso
which is a characteristic of most currencies.[16]
"Erosion" is indeed an accurate description of the trend of
decline in the value of the peso in the past three to four
decades. Unfortunate as this trend may be, it is certainly distinct
from the phenomenon contemplated by Article 1250.
Moreover, this Court has held that the effects of extraordinary
inflation are not to be applied without an official declaration
thereof by competent authorities.[17]
Lastly, the provisions on rentals in the lease contract dated
July 16, 1968 between petitioner and respondent are clear and
categorical, and we have no reason to suppose that such lease 0631-AA fell due, respondent spouses paid the same partly with
contract does not reflect or express their true intention and their own funds and partly from the proceeds of another loan
agreement. The contract is the law between the parties and if which they obtained also from petitioner State designated as
there is indeed reason to adjust the rent, the parties could have Account No. IF-82-0904-AA. This new loan was secured by the
by themselves negotiated the amendment of the contract. [18] same pledge agreement executed in relation to Account No. IF-
820631-AA. When the new loan matured, State demanded
WHEREFORE, the petition seeking the reversal of the
payment. Respondents expressed willingness to pay, requesting
decision of the Court of Appeals in CA-G.R. CV No. 54115 is
that upon payment, the shares of stock pledged be released.
DENIED.
Petitioner State denied the request on the ground that the loan
Republic of the Philippines which it had extended to the spouses Jose and Marcelina Aquino
SUPREME COURT (Account No. IF-82-1379- AA) had remained unpaid.
Manila
On 29 June 1984, Atty. Rolando Salonga sent to respondent
THIRD DIVISION spouses a Notice of Notarial Sale stating that upon request of
State and by virtue of the pledge agreement, he would sell at
G.R. No. 90676 June 19, 1991 public auction the shares of stock pledged to State. This
STATE INVESTMENT HOUSE, INC., petitioner, prompted respondents to file a case before the Regional Trial
vs. Court of Quezon City alleging that the intended foreclosure sale
THE HONORABLE COURT OF APPEALS, HON. JUDGE was illegal because from the time the obligation under Account
PERLITA J. TRIA TIRONA, Presiding Judge of the Regional No. IF-82-0904-AA became due, they had been able and willing
Trial Court of Quezon City, Branch CII and SPS. RAFAEL and to pay the same, but petitioner had insisted that respondents pay
REFUGIO AQUINO, respondents. even the loan account of Jose and Marcelina Aquino which had
not been secured by the pledge. It was further alleged that their
Padilla Law Office for petitioner. failure to pay their loan (Account No. IF-82-0904-AA) was
Rodolfo T. Galing and Chaves, Hechanova & Lim Law Offices for excused because the petitioner State itself had prevented the
private respondents. satisfaction of the obligation.
The trial court, in a decision dated 14 December 1984
rendered by Judge Willelmo Fortun, initially dismissed the
FELICIANO, J.: complaint. Respondent spouses filed a motion for
reconsideration praying for a new decision ordering petitioner
On 5 April 1982, respondent spouses Rafael and Refugio State to release the shares upon payment of respondents' loan
Aquino pledged certain shares of stock to petitioner State "without interest," as the latter had not been in delay in the
Investment House, Inc. ("State") in order to secure a loan of performance of their obligation. State countered that the pledge
P120,000.00 designated as Account No. IF-82-0631-AA. Prior to executed by respondent spouses also covered the loan extended
the execution of the pledge, respondent-spouses, as an to Jose and Marcelina Aquino, which too should be paid before
accommodation to and together with the spouses Jose and the shares may be released.
Marcelina Aquino, signed an agreement (Account No. IF-82-
1379-AA) with petitioner State for the latter's purchase of Acting on the motion for reconsideration, Judge Fortun set
receivables amounting to P375,000.00. When Account No. IF-82- aside his original decision and rendered a new judgment dated
29 January 1985, ordering State to immediately release the
pledge and to deliver to respondents the share of stock "upon
payment of the loan under Code No. 82-0904-AA."
On appeal, the Court of Appeals affirmed in toto the new
decision of the trial court, holding that the loan extended to Jose
and Marcelina Aquino, having been executed prior to the pledge
was not covered by the pledge which secured only loans
executed subsequently. Thus, upon payment of the loan under
Code No. IF-0904-AA, the shares of stock should be released.
The decisions of the Court of Appeals and of Judge Fortun
became final and executory.
Upon remand of the records of the case to the trial court for
execution, there developed disagreement over the amount which
respondent spouses Rafael and Refugio Aquino should pay to
secure the release of the shares of stock — petitioner State
contending that respondents should also pay interest and
respondents arguing they should not. Respondent spouses then
filed a motion with the trial court to clarify the Fortun decision
praying that an order issue clarifying the phrase "upon payment
of plaintiffs' loan" to mean upon payment of plaintiff' loan in the
principal amount of P110,000.00 alone, "without interest,
penalties and other charges."
On 17 February 1989, the trial court, speaking this time
through Judge Perlita Tria Tirona, rendered a decision purporting
to clarify the decision of Judge Fortun and ruling that petitioner
State shall release respondents' shares of stock upon payment
by respondents of the principal of the loan as set forth in PN No.
82-0904-AA in the amount of P110,000.00, without interest,
penalties and other charges.
Petitioner State appealed Judge Tirona's decision to the
Court of Appeals; the appeal was dismissed. The Court of
Appeals agreed with Judge Tirona that no interest need be paid
and added that the clarificatory (Tirona) decision of the trial court
merely restated what had been provided for in the earlier (Fortun)
decision; that the Tirona decision did not go beyond what had
been adjudged in the earlier decision. The motion for
reconsideration filed by petitioner was accordingly denied.
Hence, this Petition for Review contending that no manifest
ambiguity existed in the decision penned by Judge Fortun; that
the trial court through Judge Tirona, erred in clarifying the
decision of Judge Fortun; and that the amendment sought to be
introduced in the Fortun decision by respondents may not be
made as the same was substantial in nature and the Fortun
decision had become final.
We begin by noting that the trial court has asserted authority
to issue the clarificatory order in respect of the decision of Judge
Fortun, even though that judgment had become final and
executory. In Reinsurance Company of the Orient, Inc. v. Court
of Appeals,1 this Court had occasion to deal with the applicable
doctrine to some extent:
- - - [E]ven a judgment which has become final and executory
may be clarified under certain circumstances. The dispositive
portion of the judgment may, for instance, contain an error clearly
clerical in nature (perhaps best illustrated by an error in
arithmetical computation) or an ambiguity arising from
inadvertent omission, which error may be rectified or ambiguity
clarified and the omission supplied by reference primarily to the
body of the decision itself Supplementary reference to the
pleadings previously filed in the case may also be resorted to by
way of corroboration of the existence of the error or of the
ambiguity in the dispositive part of the judgment. In Locsin, et al.
v. Parades, et al., this Court allowed a judgment which had
become final and executory to be clarified by supplying a word
which had been inadvertently omitted and which, when supplied,
in effect changed the literal import of the original phraseology:
. . . it clearly appears from the allegations of the complaint,
the promissory note reproduced therein and made a part thereof,
the prayer and the conclusions of fact and of law contained in the
decision of the respondent judge, that the obligation contracted
by the petitioners is joint and several and that the parties as well
as the trial judge so understood it. Under the juridical rule that the
judgment should be in accordance with the allegations, the
evidence and the conclusions of fact and law, the dispositive part
of the judgment under consideration should have ordered that the
debt be paid 'severally' and in omitting the word or adverb
'severally' inadvertently, said judgment became ambiguous. This
ambiguity may be clarified at any time after the decision is
rendered and even after it had become final (34 Corpus Juris,
235, 326). This respondent judge did not, therefore, exceed his
jurisdiction in clarifying the dispositive part of the judgment by
supplying the omission. (Emphasis supplied)
In Filipino Legion Corporation vs. Court of Appeals, et al., the
applicable principle was set out in the following terms:
[W]here there is ambiguity caused by an omission or mistake
in the dispositive portion of a decision, the court may clarify such
ambiguity by an amendment even after the judgment had
become final, and for this purpose it may resort to the pleadings
filed by the parties, the court's findings of facts and conclusions
of law as expressed in the body of the decision. (Emphasis
supplied)
In Republic Surety and Insurance Company, Inc. v.
Intermediate Appellate Court, the Court, in applying the above
doctrine, said:
. . . We clarify, in other words, what we did affirm. That is
involved here is not what is ordinarily regarded as a clerical error
in the dispositive part of the decision of the Court of First Instance,
. . . At the same time, what is involved here is not a correction of
an erroneous judgment or dispositive portion of a judgment. What
we believe is involved here is in the nature of an inadvertent
omission on the part of the Court of First Instance (which should
have been noticed by private respondents' counsel who had
prepared the complaint), of what might be described as a logical
follow-through of something set forth both in the body of the
decision and in the dispositive portion thereof; the inevitable
follow-through, or translation into, operational or behavioral
terms, of the annulment of the Deed of Sale with Assumption of
Mortgage, from which petitioners' title or claim of title embodied
in TCT 133153 flows. (Emphasis supplied)2 (Underscoring in the
original; citations omitted)
The question we must resolve is thus whether or not there is
an ambiguity or clerical error or inadvertent omission in the
dispositive portion of the decision of Judge Fortun which may be
legitimately clarified by referring to the body of the decision and
perhaps even the pleadings filed before him. The decision of
Judge Fortun disposing of the motion for reconsideration filed by
respondent spouses Rafael and Refugio Aquino consisted
basically of quoting practically the whole motion for
reconsideration. In its dispositive portion, Judge Fortun's decision
stated:
WHEREFORE, plaintiffs "Motion for Reconsideration" dated
January 3, 1985, is granted and the decision of this Court dated
December 14, 1984 is hereby revoked and set aside and another
judgment is hereby rendered in favor of plaintiffs as follows:
(1) Ordering defendants to immediately release the pledge
on, and to deliver to plaintiffs, the shares of stocks enumerated
and described in paragraph 4 of plaintiffs' complaint dated July
17, 1984, upon payment of plaintiffs loan under Code No. 82-
0904-AA to defendants;
(2) Ordering defendant State Investment House, Inc. to pay
to plaintiffs P10,000.00 as moral damages, P5,000.00 as
exemplary damages, P6,000.00 as attorney's fees, plus costs;
(3) Dismissing defendants' counterclaim, for lack of merit and
making the preliminary injunction permanent.
SO ORDERED.3
Judge Fortun evidently meant to act favorably on the motion
for reconsideration of the respondent Aquino spouses and in
effect accepted respondent spouses' argument that they
had not incurred mora considering that their failure to pay PN No.
IF82-0904-AA on time had been due to petitioner State's
unjustified refusal to release the shares pledged to it. It is not,
however, clear to what precise extent Judge Fortun meant to
grant the motion for reconsideration. The promissory note in
Account No. IF-82-0904-AA had three (3) components: (a)
principal of the loan in the amount of P110,000.00; (b) regular
interest in the amount of seventeen percent (17%) per annum;
and (c) additional or penalty interest in case of non-payment at
maturity, at the rate of two percent (2%) per month or twenty-four
percent (24%) per annum. In the dispositive part of his resolution,
Judge Fortun did not specify which of these components of the
loan he was ordering respondent spouses to pay and which
component or components he was in effect deleting. We cannot
assume that Judge Fortun meant to grant the relief prayed for by
respondent spouses in all its parts. For one thing, respondent
spouses in their motion for reconsideration asked for "at least
P50,000.00" for moral damages and "at least P50,000.00" for
exemplary damages, as well as P20,000.00 by way of attorney's
fees and litigation expenses. Judge Fortun granted respondent
spouses only P10,000.00 as moral damages and P5,000.00 as
exemplary damages, plus P6,000.00 as attorney's fees and
costs. For another, respondent spouses asked Judge Fortun to
order the release of the shares pledged "upon payment of
[respondent spouses'] loan under Code No. 82-0904-AA without
interest, as plaintiffs were not in delay in accordance with Article
69 of the New Civil Code –– " (Emphasis supplied). In other
words, respondent spouses did not themselves become very
clear what they were asking Judge Fortun to grant them; they did
not apparently distinguish between regular interest or "monetary
interest" in the amount of seventeen percent (17%) per
annum and penalty charges or "compensatory interest" in the
amount of two percent (2%) per month or twenty-four percent
(24%) per annum.
It thus appears that the Fortun decision was ambiguous in the
sense that it was cryptic. We believe that in these circumstances,
we must assume that Judge Fortun meant to decide in
accordance with law, that we cannot fairly assume that Judge
Fortun was grossly ignorant of the law, or that he intended to
grant the respondent spouses relief to which they were not
entitled under law. Thus, the ultimate question which arises is: if
respondent Aquino spouses were not in delay, what should they
have been held liable for in accordance with law?
We believe and so hold that since respondent Aquino
spouses were held not to have been in delay, they were properly
liable only for: (a) the principal of the loan or P110,000.00; and
(b) regular or monetary interest in the amount of seventeen
percent (17%) per annum. They were not liable for penalty or
compensatory interest, fixed by the promissory note in Account
No. IF-82-0904-AA at two percent (2%) per month or twenty-four
(24%) per annum. It must be stressed in this connection that
under Article 2209 of the Civil Code which provides that
. . . [i]f the obligation consists in the payment of a sum of
money, and the debtor incurs in delay. the indemnity for
damages, there being no stimulation 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 appropriate measure for damages in case of delay in
discharging an obligation consisting of the payment of a sum or
money, is the payment of penalty interest at the rate agreed upon;
and in the absence of a stipulation of a particular rate of penalty
interest, then the payment of additional interest at a rate equal to
the regular monetary interest; and if no regular interest had been
agreed upon, then payment of legal interest or six percent
(6%) per annum.4
The fact that the respondent Aquino spouses were not in
default did not mean that they, as a matter of law, were relieved
from the payment not only of penalty or compensatory interest at
the rate of twenty-four percent (24%) per annum but also of
regular or monetary interest of seventeen percent (17%) per
annum. The regular or monetary interest continued to accrue
under the terms of the relevant promissory note until actual
payment is effected. 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.
The relevant rule is set out in Article 1256 of the Civil Code which
provides as follows:
Art. 1256. If the creditor to whom tender of payment has been
made refuses without just cause to accept it, the debtor shall be
released from responsibility by the consignation of the thing or
sum due.
 Consignation alone shall produce the same effect in the
following cases:
(1) When the creditor is absent or unknown, or does not
appear at the place of payment;
(2) When he is incapacitated to receive the payment at the
time it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost. (Emphasis
supplied)
Where the creditor unjustly refuses to accept payment, the
debtor desirous of being released from his obligation must comply
with two (2) conditions: (a) tender of payment; and (b)
consignation of the sum due. Tender of payment must be
accompanied or followed by consignation in order that the effects
of payment may be produced. Thus, in Llamas v. Abaya,5 the
Supreme Court stressed that a written tender of payment alone,
without consignation in court of the sum due, does not suspend
the accruing of regular or monetary interest.
In the instant case, respondent spouses Aquino, while they
are properly regarded as having made a written tender of
payment to petitioner State, failed to consign in court the amount
due at the time of the maturity of Account No. IF-820904-AA. It
follows that their obligation to pay principal-cum-regular or
monetary interest under the terms and conditions of Account No.
IF-82-0904-AA was not extinguished by such tender of payment
alone.
For the respondent spouses to continue in possession of the
principal of the loan amounting to P110,000.00 and to continue to
use the same after maturity of the loan without payment of regular
or monetary interest, would constitute unjust enrichment on the
part of the respondent spouses at the expense of petitioner State
even though the spouses had not been guilty of mora. It is
precisely this unjust enrichment which Article 1256 of the Civil
Code prevents by requiring, in addition to tender of payment, the
consignation of the amount due in court which amount would
thereafter be deposited by the Clerk of Court in a bank and earn
interest to which the creditor would be entitled.
WHEREFORE, the Petition for Review is hereby GRANTED
DUE COURSE. The Decision of the Court of Appeals dated 30
August 1989 in C.A.-G.R. No. 17954 and the Decision of the
Regional Trial Court dated 17 February 1989 in Civil Case No. Q-
42188 are hereby REVERSED and SET ASIDE. The dispositive
portion of the decision of Judge Fortun is hereby clarified so as to
read as follows:
(1) Ordering defendants to immediately release the pledge
and to deliver to the plaintiff spouses Rafael and Refugio Aquino
the shares of stock enumerated and described in paragraph 4 of
said spouses' complaint dated 17 July 1984, upon full payment of
the amount of P110,000.00 plus seventeen percent (17%) per
annum regular interest computed from the time of maturity of the
plaintiffs' loan (Account No. IF-82-0904-AA) and until full payment
of such principal and interest to defendants;
(2) Ordering defendant State Investment House, Inc. to pay
to the plaintiff spouses Rafael and Refugio Aquino P10,000.00 as
moral damages, P5,000.00 as exemplary damages, P6,000.00
as attorney's fees, plus costs; and
(3) Dismissing defendants' counterclaim for lack of merit and
making the preliminary injunction permanent."
No pronouncement as to costs.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur.
 - versus - CALLEJO, SR.,

CHICO-NAZARIO, and

NACHURA, JJ.

FLORA SAN DIEGO- Promulgated:

SISON,
Republic of the Philippines
Respondent. April 4, 2007
Supreme Court
Manila x----------------------------------------------
--x

THIRD DIVISION
DECISION

BOBIE ROSE V. FRIAS, G.R. No. 155223

AUSTRIA-MARTINEZ, J.:
represented by her
Attorney-in-

fact, MARIE F. FUJITA,
Petitioner,
Present: 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
YNARES-SANTIAGO, J., September 11, 2002 of the Court of Appeals (CA) in CA-G.R. CV
No. 52839.
Chairperson,

AUSTRIA-MARTINEZ, 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,
3. That in case the FIRST PARTY has no other buyer within
1990.[3] The property is covered by TCT No. 168173 of the
the first six months from the execution of this contract, no interest
Register of Deeds of Makati in the name of IMRDC.[4]
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
On December 7, 1990, petitioner, as the FIRST PARTY, and Dra.
property, the FIRST PARTY has a period of another six months
Flora San Diego-Sison (respondent), as the SECOND PARTY,
within which to pay the sum of P3 million pesos provided that the
entered into a Memorandum of Agreement[5] over the property
said amount shall earn compounded bank interest for the last six
with the following terms:
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
NOW, THEREFORE, for and in consideration of the sum of which can be enforced in accordance with law.
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:
x x x x.[6]

1. That the SECOND PARTY has a period of Six (6) months

Petitioner received from respondent two million pesos in cash and
from the date of the execution of this contract within which to
one million pesos in a post-dated check dated February 28, 1990,
notify the FIRST PARTY of her intention to purchase the
instead of 1991, which rendered said check stale.[7] Petitioner
aforementioned parcel of land together within (sic) the
then gave respondent TCT No. 168173 in the name of IMRDC
improvements thereon at the price of SIX MILLION FOUR
and the Deed of Absolute Sale over the property between
HUNDRED THOUSAND PESOS (P6,400,000.00). Upon notice
petitioner and IMRDC.
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.
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
2. That prior to the six months period given to the SECOND
of their agreement that the amount of two million pesos which
PARTY within which to decide whether or not to purchase the
petitioner received from respondent should be considered as a
above-mentioned property, the FIRST PARTY may still offer the
loan payable within six months. Petitioner subsequently failed to
said property to other persons who may be interested to buy the
pay respondent the amount of two million pesos.
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
On April 1, 1993, respondent filed with the Regional Trial Court
interest plus the amount of the sale in excess of P7,000,000.00
(RTC) of Manila, a complaint[10] for sum of money with preliminary
should the property be sold at a price more than P7 million.
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 TagigPolice 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 respondent of her security for the loan; that such finding is
stipulation was made on the logical and reasonable expectation baseless since petitioner was acquitted in the case for perjury and
that such amount would be paid within the date false testimony filed by respondent against her.
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 We are not persuaded.
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]
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
Petitioner and respondent stipulated that the loaned amount shall
petitioners act of trying to deprive respondent of the security of
earn compounded bank interests, and per the certification issued
her loan by executing an affidavit of loss of the title and instituting
by Prudential Bank, the interest rate for loans in 1991 ranged from
a petition for the issuance of a new owners duplicate copy of TCT
25% to 32% per annum. The CA reduced the interest rate to 25%
No. 168173 entitles respondent to moral damages. Moral
instead of the 32% awarded by the trial court which petitioner no
damages may be awarded in culpa contractual or breach of
longer assailed.
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
In Bautista v. Pilar Development Corp.,[30] we upheld the validity
obliquity and conscious doing of wrong. It partakes of the nature
of a 21% per annum interest on a P142,326.43 loan. In Garcia v.
of fraud.[33]
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
The Memorandum of Agreement provides that in the event that
loan is fair and reasonable.
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
Petitioner next claims that moral damages were awarded on the
was testified to by respondent that after they executed the
erroneous finding that she used a fraudulent scheme to deprive
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 CALLEJO, SR., J.:
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 Before the Court is a petition for review on certiorari filed by
fees is DELETED. Samson Ching of the Decision[1] dated November 22, 1999 of
the Court of Appeals (CA) in CA-G.R. CR No. 23055. The
No pronouncement as to costs. assailed decision acquitted respondent Clarita Nicdao of
eleven (11) counts of violation of Batas Pambansa
SO ORDERED.
Bilang (BP) 22, otherwise known as The Bouncing Checks
THIRD DIVISION Law. The instant petition pertains and is limited to the civil
aspect of the case as it submits that notwithstanding
SAMSON CHING, G.R. No. 141181 respondent Nicdaos acquittal, she should be held liable to
Petitioner,
pay petitioner Ching the amounts of the dishonored checks
Present:
in the aggregate sum of P20,950,000.00.
YNARES-
SANTIAGO, J.,
Chairperson,
Factual and Procedural Antecedents
- versus - AUSTRIA-MARTINEZ,
CALLEJO, SR.,
CHICO-NAZARIO, and
On October 21, 1997, petitioner Ching, a Chinese national,
NACHURA, JJ.
CLARITA NICDAO and instituted criminal complaints for eleven (11) counts of
HON. COURT OF APPEALS, Promulgated: violation of BP 22 against respondent Nicdao. Consequently,
Respondents. eleven (11) Informations were filed with the First Municipal
April 27, 2007 Circuit Trial Court (MCTC) of Dinalupihan-
x------------------------------------------------------------------------------ Hermosa, Province of Bataan, which, except as to the
-----------x amounts and check numbers, uniformly read as follows:

The undersigned accuses Clarita S. Nicdao of a

VIOLATION OF BATAS PAMBANSA BILANG 22,
DECISION committed as follows:
That on or about October 06, 1997, at
Dinalupihan, Bataan, Philippines, and
within the jurisdiction of this Honorable
Court, the said accused did then and
there willfully and unlawfully make or
draw and issue Hermosa Savings & Loan
Bank, Inc. Check No. [002524] dated
October 06, 1997 in the amount of
[P20,000,000.00] in payment of her
obligation with complainant Samson T.Y.
Ching, the said accused knowing fully well
that at the time she issued the said check
she did not have sufficient funds in or
credit with the drawee bank for the
payment in full of the said check upon
presentment, which check when
presented for payment within ninety (90)
days from the date thereof, was
dishonored by the drawee bank for the
reason that it was drawn against
insufficient funds and notwithstanding
receipt of notice of such dishonor the said
accused failed and refused and still fails
and refuses to pay the value of the said
check in the amount of [P20,000,000.00]
or to make arrangement with the drawee
bank for the payment in full of the same
within five (5) banking days after
receiving the said notice, to the damage
and prejudice of the said Samson T.Y.
Ching in the aforementioned amount of
[P20,000,000.00], Philippine Currency.
CONTRARY TO LAW.
Dinalupihan, Bataan, October 21, 1997.
(Sgd.) SAMSON
T.Y. CHING
Complainant
The cases were docketed as Criminal Cases Nos. 9433 up to
9443 involving the following details:
Check No. Amount Date Private Reason for
Complainant the Dishonor
002524[2] P 20,000,000 Oct. 6, 1997 Samson T.Y. Ching DAIF*
008856[3] 150,000 Oct. 6, 1997 " "
012142[4] 100,000 Oct. 6, 1997 " "
004531[5] 50,000 Oct. 6, 1997 " "
002254[6] 100,000 Oct. 6, 1997 " "
008875[7] 100,000 Oct. 6, 1997 " "
008936[8] 50,000 Oct. 6, 1997 " "
002273[9] 50,000 Oct. 6, 1997 " "
008948[10] 150,000 Oct. 6, 1997 " "
008935[11] 100,000 Oct. 6, 1997 " "
010377[12] 100,000 Oct. 6, 1997 " "
At about the same time, fourteen (14) other criminal
complaints, also for violation of BP 22, were filed against
respondent Nicdao by Emma Nuguid, said to be the common
law spouse of petitioner Ching. Allegedly fourteen (14)
checks, amounting to P1,150,000.00, were issued by
respondent Nicdao to Nuguid but were dishonored for lack
of sufficient funds. The Informations were filed with the
same MCTC and docketed as Criminal Cases Nos. 9458 up to
9471.
At her arraignment, respondent Nicdao entered the plea of
not guilty to all the charges. A joint trial was then conducted
for Criminal Cases Nos. 9433-9443 and 9458-9471.
For the prosecution in Criminal Cases Nos. 9433-9443,
petitioner Ching and Imelda Yandoc, an employee of the
Hermosa Savings & Loan Bank, Inc., were presented to prove
the charges against respondent Nicdao. On direct-
examination,[13] petitioner Ching preliminarily identified
each of the eleven (11) Hermosa Savings & Loan Bank (HSLB)
checks that were allegedly issued to him by respondent
Nicdao amounting to P20,950,000.00. He identified the
signatures appearing on the checks as those of respondent
Nicdao. He recognized her signatures because respondent
Nicdao allegedly signed the checks in his presence. When
petitioner Ching presented these checks for payment, they
were dishonored by the bank, HSLB, for being DAIF or drawn
against insufficient funds.
Petitioner Ching averred that the checks were issued to him
by respondent Nicdao as security for the loans that she
obtained from him. Their transaction began sometime in
October 1995 when respondent Nicdao, proprietor/manager
of Vignette Superstore, together with her husband,
approached him to borrow money in order for them to settle
their financial obligations. They agreed that respondent
Nicdao would leave the checks undated and that she would
pay the loans within one year. However, when petitioner
Ching went to see her after the lapse of one year to ask for
payment, respondent Nicdao allegedly said that she had no
cash.
Petitioner Ching claimed that he went back to respondent
Nicdao several times more but every time, she would tell him
that she had no money. Then in September 1997,
respondent Nicdao allegedly got mad at him for being
insistent and challenged him about seeing each other in
court. Because of respondent Nicdao's alleged refusal to pay
her obligations, on October 6, 1997, petitioner Ching
deposited the checks that she issued to him. As he earlier
stated, the checks were dishonored by the bank for being
DAIF. Shortly thereafter, petitioner Ching, together with
Emma Nuguid, wrote a demand letter to respondent Nicdao
which, however, went unheeded. Accordingly, they
separately filed the criminal complaints against the latter.
On cross-examination,[14] petitioner Ching claimed that he
had been a salesman of the La Suerte Cigar and Cigarette
Manufacturing for almost ten (10) years already. As such, he
delivered the goods and had a warehouse. He received
salary and commissions. He could not, however, state his
exact gross income.According to him, it increased every year
because of his business. He asserted that aside from being a
salesman, he was also in the business of extending loans to
other people at an interest, which varied depending on the
person he was dealing with.
Petitioner Ching confirmed the truthfulness of the
allegations contained in the eleven (11) Informations that he
filed against respondent Nicdao. He reiterated that, upon
their agreement, the checks were all signed by respondent
Nicdao but she left them undated. Petitioner Ching admitted
that he was the one who wrote the date, October 6, 1997,
on those checks when respondent Nicdao refused to pay
him.
With respect to the P20,000,000.00 check (Check No.
002524), petitioner Ching explained that he wrote the date
and amount thereon when, upon his estimation, the money
that he regularly lent to respondent Nicdao beginning
October 1995 reached the said sum. He likewise intimated
that prior to 1995, they had another transaction amounting
to P1,200,000.00 and, as security therefor, respondent
Nicdao similarly issued in his favor checks in varying amounts
of P100,000.00 and P50,000.00. When the said amount was
fully paid, petitioner Ching returned the checks to
respondent Nicdao.
Petitioner Ching maintained that the eleven (11)
checks subject of Criminal Cases Nos. 9433-9443 pertained
to respondent Nicdaos loan transactions with him beginning
October 1995. He also mentioned an instance when
respondent Nicdaos husband and daughter approached him
at a casino to borrow money from him. He lent
them P300,000.00. According to petitioner Ching, since this
amount was also unpaid, he included it in the other amounts
that respondent Nicdao owed to him which
totaled P20,000,000.00 and wrote the said amount on one
of respondent Nicdaos blank checks that she delivered to
him.
Petitioner Ching explained that from October 1995 up
to 1997, he regularly delivered money to respondent Nicdao,
in the amount of P1,000,000.00 until the total amount
reached P20,000,000.00. He did not ask respondent Nicdao
to acknowledge receiving these amounts. Petitioner Ching
claimed that he was confident that he would be paid by
respondent Nicdao because he had in his possession her
blank checks. On the other hand, the latter allegedly had no
cause to fear that he would fill up the checks with just any
amount because they had trust and confidence in each
other. When asked to produce the piece of paper on which
he allegedly wrote the amounts that he lent to respondent
Nicdao, petitioner Ching could not present it; he reasoned
that it was not with him at that time.
It was also averred by petitioner Ching that
respondent Nicdao confided to him that she told her
daughter Janette, who was married to a foreigner, that her
debt to him was only between P3,000,000.00
and P5,000,000.00. Petitioner Ching claimed that he offered
to accompany respondent Nicdao to her daughter in order
that they could apprise her of the amount that she owed
him. Respondent Nicdao refused for fear that it would cause
disharmony in the family. She assured petitioner Ching,
however, that he would be paid by her daughter.
Petitioner Ching reiterated that after the lapse of one
(1) year from the time respondent Nicdao issued the checks
to him, he went to her several times to collect payment. In
all these instances, she said that she had no cash. Finally, in
September 1997, respondent Nicdao allegedly went to his
house and told him that Janette was only willing to pay him
between P3,000,000.00 and P5,000,000.00 because, as far
as her daughter was concerned, that was the only amount
borrowed from petitioner Ching. On hearing this, petitioner
Ching angrily told respondent Nicdao that she should not
have allowed her debt to reach P20,000,000.00 knowing that
she would not be able to pay the full amount.
Petitioner Ching identified the demand letter that he
and Nuguid sent to respondent Nicdao. He explained that he
no longer informed her about depositing her checks on his
account because she already made that statement about
seeing him in court. Again, he admitted writing the
date, October 6, 1997, on all these checks.
Another witness presented by the prosecution was
Imelda Yandoc, an employee of HSLB. On direct-
examination,[15] she testified that she worked as a checking
account bookkeeper/teller of the bank. As such, she received
the checks that were drawn against the bank and verified if
they were funded. On October 6, 1997, she received several
checks issued by respondent Nicdao. She knew respondent
Nicdao because the latter maintained a savings and checking
account with them. Yandoc identified the checks subject of
Criminal Cases Nos. 9433-9443 and affirmed that stamped at
the back of each was the annotation DAIF. Further, per the
banks records, as of October 8, 1997, only a balance
of P300.00 was left in respondent Nicdaos checking account
and P645.83 in her savings account. On even date, her
account with the bank was considered inactive.
On cross-examination,[16] Yandoc stated anew that
respondent Nicdaos checks bounced on October 7, 1997 for
being DAIF and her account was closed the following day,
on October 8, 1997. She informed the trial court that there
were actually twenty-five (25) checks of respondent Nicdao
that were dishonored at about the same time. The eleven
(11) checks were purportedly issued in favor of petitioner
Ching while the other fourteen (14) were purportedly issued
in favor of Nuguid. Yandoc explained that respondent Nicdao
or her employee would usually call the bank to inquire if
there was an incoming check to be funded.
For its part, the defense proffered the testimonies of
respondent Nicdao, Melanie Tolentino and Jocelyn
Nicdao. On direct-examination,[17] respondent Nicdao stated
that she only dealt with Nuguid. She vehemently denied the
allegation that she had borrowed money from both
petitioner Ching and Nuguid in the total amount
of P22,950,000.00. Respondent Nicdao admitted, however,
that she had obtained a loan from Nuguid but only
for P2,100,000.00 and the same was already fully paid. As
proof of such payment, she presented a Planters Bank
demand draft dated August 13, 1996 in the amount
of P1,200,000.00. The annotation at the back of the said
demand draft showed that it was endorsed and negotiated
to the account of petitioner Ching.
In addition, respondent Nicdao also presented and
identified several cigarette wrappers[18] at the back of which
appeared computations. She explained that Nuguid went to
the grocery store everyday to collect interest payments. The
principal loan was P2,100,000.00 with 12% interest per day.
Nuguid allegedly wrote the payments for the daily interests
at the back of the cigarette wrappers that she gave to
respondent Nicdao.
The principal loan amount of P2,100,000.00 was
allegedly delivered by Nuguid to respondent Nicdao in
varying amounts of P100,000.00
and P150,000.00. Respondent Nicdao refuted the averment
of petitioner Ching that prior to 1995, they had another
transaction.
With respect to the P20,000,000.00 check,
respondent Nicdao admitted that the signature thereon was
hers but denied that she issued the same to petitioner
Ching. Anent the other ten (10) checks, she likewise
admitted that the signatures thereon were hers while the
amounts and payee thereon were written by either Jocelyn
Nicdao or Melanie Tolentino, who were employees of
Vignette Superstore and authorized by her to do so.
Respondent Nicdao clarified that, except for
the P20,000,000.00 check, the other ten (10) checks were
handed to Nuguid on different occasions.Nuguid came to the
grocery store everyday to collect the interest
payments. Respondent Nicdao said that she purposely left
the checks undated because she would still have to notify
Nuguid if she already had the money to fund the checks.
Respondent Nicdao denied ever confiding to
petitioner Ching that she was afraid that her daughter would
get mad if she found out about the amount that she owed
him. What allegedly transpired was that when she already
had the money to pay them (presumably referring to
petitioner Ching and Nuguid), she went to them to retrieve
her checks. However, petitioner Ching and Nuguid refused to
return the checks claiming that she (respondent Nicdao) still
owed them money. She demanded that they show her the
checks in order that she would know the exact amount of her
debt, but they refused. It was at this point that she got angry
and dared them to go to court.
After the said incident, respondent Nicdao was
surprised to be notified by HSLB that her check in the amount
of P20,000,000.00 was just presented to the bank for
payment. She claimed that it was only then that she
remembered that sometime in 1995, she was informed by
her employee that one of her checks was missing. At that
time, she did not let it bother her thinking that it would
eventually surface when presented to the bank.
Respondent Nicdao could not explain how the said
check came into petitioner Chings possession. She explained
that she kept her checks in an ordinary cash box together
with a stapler and the cigarette wrappers that contained
Nuguids computations. Her saleslady had access to this
box. Respondent Nicdao averred that it was Nuguid who
offered to give her a loan as she would allegedly need money
to manage Vignette Superstore. Nuguid used to run the said
store before respondent Nicdaos daughter bought it from
Nuguids family, its previous owner. According to respondent
Nicdao, it was Nuguid who regularly delivered the cash to
respondent Nicdao or, if she was not at the grocery store, to
her saleslady. Respondent Nicdao denied any knowledge
that the money loaned to her by Nuguid belonged to
petitioner Ching.
At the continuation of her direct-
[19]
examination, respondent Nicdao said that she never dealt
with petitioner Ching because it was Nuguid who went to the
grocery store everyday to collect the interest
payments. When shown the P20,000,000.00 check,
respondent Nicdao admitted that the signature thereon was
hers but she denied issuing it as a blank check to petitioner
Ching. On the other hand, with respect to the other ten (10)
checks, she also admitted that the signatures thereon were
hers and that the amounts thereon were written by either
Josie Nicdao or Melanie Tolentino, her employees whom she
authorized to do so. With respect to the payee, it was
purposely left blank allegedly upon instruction of Nuguid
who said that she would use the checks to pay someone else.
On cross-examination,[20] respondent Nicdao
explained that Josie Nicdao and Melanie Tolentino were
caretakers of the grocery store and that they manned it
when she was not there. She likewise confirmed that she
authorized them to write the amounts on the checks after
she had affixed her signature thereon. She stressed,
however, that the P20,000,000.00 check was the one that
was reported to her as lost or missing by her saleslady
sometime in 1995. She never reported the matter to the
bank because she was confident that it would just surface
when it would be presented for payment.
Again, respondent Nicdao identified the cigarette
wrappers which indicated the daily payments she had made
to Nuguid. The latter allegedly went to the grocery store
everyday to collect the interest payments. Further, the
figures at the back of the cigarette wrappers were written by
Nuguid. Respondent Nicdao asserted that she recognized her
handwriting because Nuguid sometimes wrote them in her
presence. Respondent Nicdao maintained that she had
already paid Nuguid the amount of P1,200,000.00 as
evidenced by the Planters Bank demand draft which she gave
to the latter and which was subsequently negotiated and
deposited in petitioner Chings account. In connection
thereto, respondent Nicdao refuted the prosecutions
allegation that the demand draft was payment for a previous
transaction that she had with petitioner Ching. She clarified
that the payments that Nuguid collected from her everyday
were only for the interests due. She did not ask Nuguid to
make written acknowledgements of her payments.
Melanie Tolentino was presented to corroborate the
testimony of respondent Nicdao. On direct-
[21]
examination, Tolentino stated that she worked at the
Vignette Superstore and she knew Nuguid because her
employer, respondent Nicdao, used to borrow money from
her. She knew petitioner Ching only by name and that he was
the husband of Nuguid.
As an employee of the grocery store, Tolentino stated
that she acted as its caretaker and was entrusted with the
custody of respondent Nicdaos personal checks. Tolentino
identified her own handwriting on some of the checks
especially with respect to the amounts and figures written
thereon. She said that Nuguid instructed her to leave the
space for the payee blank as she would use the checks to pay
someone else. Tolentino added that she could not recall
respondent Nicdao issuing a check to petitioner Ching in the
amount of P20,000,000.00. She confirmed that they lost a
check sometime in 1995. When informed about it,
respondent Nicdao told her that the check could have been
issued to someone else, and that it would just surface when
presented to the bank.
Tolentino recounted that Nuguid came to the grocery
store everyday to collect the interest payments of the
loan. In some instances, upon respondent Nicdaos
instruction, Tolentino handed to Nuguid checks that were
already signed by respondent Nicdao. Sometimes, Tolentino
would be the one to write the amount on the
checks. Nuguid, in turn, wrote the amounts on pieces of
paper which were kept by respondent Nicdao.
On cross-examination,[22] Tolentino confirmed that
she was authorized by respondent Nicdao to fill up the
checks and hand them to Nuguid. The latter came to the
grocery store everyday to collect the interest
payments. Tolentino claimed that in 1995, in the course of
chronologically arranging respondent Nicdaos check
booklets, she noticed that a check was missing. Respondent
Nicdao told her that perhaps she issued it to someone and
that it would just turn up in the bank. Tolentino was certain
that the missing check was the same one that petitioner
Ching presented to the bank for payment in the amount
of P20,000,000.00.
Tolentino stated that she left the employ of
respondent Nicdao sometime in 1996. After the checks were
dishonored in October 1997, Tolentino got a call from
respondent Nicdao. After she was shown a fax copy thereof,
Tolentino confirmed that the P20,000,000.00 check was the
same one that she reported as missing in 1995.
 Jocelyn Nicdao also took the witness stand to
corroborate the testimony of the other defense
witnesses. On direct-examination,[23] she averred that she
was a saleslady at the Vignette Superstore from August 1994
up to April 1998. She knew Nuguid as well as petitioner
Ching.
Jocelyn Nicdao further testified that respondent
Nicdao was indebted to Nuguid. Jocelyn Nicdao used to fill
up the checks of respondent Nicdao that had already been
signed by her and give them to Nuguid. The latter came to
the grocery store everyday to pick up the interest payments.
Jocelyn Nicdao identified the checks on which she wrote the
amounts and, in some instances, the name of Nuguid as
payee. However, most of the time, Nuguid allegedly
instructed her to leave as blank the space for the payee.
Jocelyn Nicdao identified the cigarette wrappers as
the documents on which Nuguid acknowledged receipt of
the interest payments. She explained that she was the one
who wrote the minus entries and they represented the daily
interest payments received by Nuguid.
On cross-examination,[24] Jocelyn Nicdao stated that
she was a distant cousin of respondent Nicdao. She stopped
working for her in 1998 because she wanted to take a
rest. Jocelyn Nicdao reiterated that she handed the checks
to Nuguid at the grocery store.
After due trial, on December 8, 1998, the MCTC
rendered judgment in Criminal Cases Nos. 9433-9443
convicting respondent Nicdao of eleven (11) counts of
violation of BP 22. The MCTC gave credence to petitioner
Chings testimony that respondent Nicdao borrowed money
from him in the total amount of P20,950,000.00. Petitioner
Ching delivered P1,000,000.00 every month to respondent
Nicdao from 1995 up to 1997 until the sum
reached P20,000,000.00.The MCTC also found that
subsequent thereto, respondent Nicdao still borrowed
money from petitioner Ching. As security for these loans,
respondent Nicdao issued checks to petitioner Ching. When
the latter deposited the checks (eleven in all) on October 6,
1997, they were dishonored by the bank for being DAIF.
The MCTC explained that the crime of violation of BP
22 has the following elements: (a) the making, drawing and
issuance of any check to apply to account or for value; (b) the
knowledge of the maker, drawer or issuer that at the time of
issue he does not have sufficient funds in or credit with the
drawee bank for the payment of such check in full upon its
presentment; and (c) subsequent dishonor of the check by
the drawee bank for insufficiency of funds or credit or
dishonor for the same reason had not the drawer, without
any valid cause, ordered the bank to stop payment.[25]
According to the MCTC, all the foregoing elements are
present in the case of respondent Nicdaos issuance of the
checks subject of Criminal Cases Nos. 9433-9443. On the first
element, respondent Nicdao was found by the MCTC to have
made, drawn and issued the checks. The fact that she did not
personally write the payee and date on the checks was not
material considering that under Section 14 of the Negotiable
Instruments Law, where the instrument
is wanting in any material particular, the person in
possession thereof has a prima facie authority to complete it
by filling up the blanks therein. And a signature on a blank
paper delivered by the person making the signature in order
that the paper may be converted into a negotiable
instrument operates as a prima facie authority to fill it up as
such for any amount x x x. Respondent Nicdao admitted that
she authorized her employees to provide the details on the
checks after she had signed them.
The MCTC disbelieved respondent Nicdaos claim that
the P20,000,000.00 check was the same one that she lost in
1995. It observed that ordinary prudence would dictate that
a lost check would at least be immediately reported to the
bank to prevent its unauthorized endorsement or
negotiation.Respondent Nicdao made no such report to the
bank. Even if the said check was indeed lost, the MCTC
faulted respondent Nicdao for being negligent in keeping the
checks that she had already signed in an unsecured box.
The MCTC further ruled that there was no evidence to
show that petitioner Ching was not a holder in due course as
to cause it (the MCTC) to believe that the said check was not
issued to him. Respondent Nicdaos admission of
indebtedness was sufficient to prove that there was
consideration for the issuance of the checks.
The second element was also found by the MCTC to be
present as it held that respondent Nicdao, as maker, drawer
or issuer, had knowledge that at the time of issue she did not
have sufficient funds in or credit with the drawee bank for
the payment in full of the checks upon their presentment.
As to the third element, the MCTC established that the
checks were subsequently dishonored by the drawee bank
for being DAIF or drawn against insufficient funds. Stamped
at the back of each check was the annotation DAIF. The bank
representative likewise testified to the fact of dishonor.
Under the foregoing circumstances, the MCTC
declared that the conviction of respondent Nicdao was
warranted. It stressed that the mere act of issuing a
worthless check was malum prohibitum; hence, even if the
checks were issued in the form of deposit or guarantee, once
dishonored, the same gave rise to the prosecution for and
conviction of BP 22.[26] The decretal portion of the MCTC
decision reads:
WHEREFORE, in view of the foregoing, the
accused is found guilty of violating Batas
Pambansa Blg. 22 in 11 counts, and is hereby
ordered to pay the private complainant the
amount of P20,950,000.00 plus 12% interest per
annum from date of filing of the complaint until
the total amount had been paid. The prayer for
moral damages is denied for lack of evidence to
 prove the same. She is likewise ordered to suffer
imprisonment equivalent to 1 year for every
check issued and which penalty shall be served
successively.
SO ORDERED.[27]
Incidentally, on January 11, 1999, the MCTC likewise
rendered its judgment in Criminal Cases Nos. 9458-9471 and
convicted respondent Nicdao of the fourteen (14) counts of
violation of BP 22 filed against her by Nuguid.
On appeal, the Regional Trial Court (RTC) of
Dinalupihan, Bataan, Branch 5, in separate Decisions both
dated May 10, 1999, affirmed in toto the decisions of the
MCTC convicting respondent Nicdao of eleven (11) and
fourteen (14) counts of violation of BP 22 in Criminal Cases
Nos. 9433-9443 and 9458-9471, respectively.
Respondent Nicdao forthwith filed with the CA separate
petitions for review of the two decisions of the RTC. The
petition involving the eleven (11) checks purportedly issued
to petitioner Ching was docketed as CA-G.R. CR No. 23055
(assigned to the 13th Division). On the other hand, the
petition involving the fourteen (14) checks purportedly
issued to Nuguid was docketed as CA-G.R. CR No. 23054
(originally assigned to the 7th Division but transferred to the
6thDivision). The Office of the Solicitor General (OSG) filed its
respective comments on the said petitions. Subsequently,
the OSG filed in CA-G.R. CR No. 23055 a motion for its
consolidation with CA-G.R. CR No. 23054. The OSG prayed
that CA-G.R. CR No. 23055 pending before the 13th Division
be transferred and consolidated with CA-G.R. CR No. 23054
in accordance with the Revised Internal Rules of the Court of
Appeals (RIRCA).
Acting on the motion for consolidation, the CA in CA-G.R. CR
No. 23055 issued a Resolution dated October 19,
1999 advising the OSG to file the motion in CA-G.R. CR No.
23054 as it bore the lowest number. Respondent Nicdao
opposed the consolidation of the two cases. She likewise
filed her reply to the comment of the OSG in CA-G.R. CR No.
23055.
On November 22, 1999, the CA (13th Division) rendered the
assailed Decision in CA-G.R. CR No. 23055 acquitting
respondent Nicdao of the eleven (11) counts of violation of
BP 22 filed against her by petitioner Ching. The decretal
portion of the assailed CA Decision reads:
WHEREFORE, being meritorious, the
petition for review is hereby
GRANTED. Accordingly, the decision dated May
10, 1999, of the Regional Trial Court, 3rdJudicial
Region, Branch 5, Bataan, affirming the decision
dated December 8, 1998, of the First Municipal
Circuit Trial Court of Dinalupihan-
Hermosa, Bataan, convicting petitioner Clarita S.
Nicdao in Criminal Cases No. 9433 to 9443 of
violation of B.P. Blg. 22 is REVERSED and SET
ASIDE and another judgment rendered
 ACQUITTING her in all these cases, with costs de
oficio.
SO ORDERED.[28]
On even date, the CA issued an Entry of Judgment declaring
that the above decision has become final and executory and
is recorded in the Book of Judgments.
In acquitting respondent Nicdao in CA-G.R. CR No. 23055, the
CA made the following factual findings:
Petitioner [respondent herein] Clarita S.
Nicdao, a middle-aged mother and housekeeper
who only finished high school, has a daughter,
Janette Boyd, who is married to a wealthy
expatriate.
Complainant [petitioner herein] Samson
Ching is a Chinese national, who claimed he is a
salesman of La Suerte Cigar and Cigarette Factory.
Emma Nuguid, complainants live-in
partner, is a CPA and formerly connected with
Sycip, Gorres and Velayo. Nuguid used to own a
grocery store now known as the Vignette
Superstore. She sold this grocery store, which was
about to be foreclosed, to petitioners daughter,
Janette Boyd. Since then, petitioner began
managing said store. However, since petitioner
could not always be at the Vignette Superstore to
keep shop, she entrusted to her salesladies,
Melanie Tolentino and Jocelyn Nicdao, pre-signed
checks, which were left blank as to amount and
the payee, to cover for any delivery of
merchandise sold at the store. The blank and
personal checks were placed in a cash box at
Vignette Superstore and were filled up by said
salesladies upon instruction of petitioner as to
amount, payee and date.
Soon thereafter, Emma Nuguid befriended
petitioner and offered to lend money to the latter
which could be used in running her newly
acquired store. Nuguid represented to petitioner
that as former manager of the Vignette
Superstore, she knew that petitioner would be in
need of credit to meet the daily expenses of
running the business, particularly in the daily
purchases of merchandise to be sold at the
store. After Emma Nuguid succeeded in
befriending petitioner, Nuguid was able to gain
access to the Vignette Superstore where
petitioners blank and pre-signed checks were
kept.[29]
In addition, the CA also made the finding that respondent
Nicdao borrowed money from Nuguid in the total amount
of P2,100,000.00 secured by twenty-four (24) checks drawn
against respondent Nicdaos account with HSLB. Upon
Nuguids instruction, the checks given by respondent Nicdao
as security for the loans were left blank as to the payee and
the date. The loans consisted of (a) P950,000.00 covered by
ten (10) checks subject of the criminal complaints filed by
petitioner Ching (CA-G.R. CR No. 23055); and
(b) P1,150,000.00 covered by fourteen (14) checks subject of
the criminal complaints filed by Nuguid (CA-G.R. CR No.
23054). The loans totaled P2,100,000.00 and they were
transacted between respondent Nicdao and Nuguid
only. Respondent Nicdao never dealt with petitioner Ching.
Against the foregoing factual findings, the CA declared that,
based on the evidence, respondent Nicdao had already fully
paid the loans. In particular, the CA referred to the Planters
Bank demand draft in the amount of P1,200,000.00 which,
by his own admission, petitioner Ching had received. The
appellate court debunked petitioner Chings allegation that
the said demand draft was payment for a previous
transaction. According to the CA, petitioner Ching failed to
adduce evidence to prove the existence of a previous
transaction between him and respondent Nicdao.
Apart from the demand draft, the CA also stated that
respondent Nicdao made interest payments on a daily basis
to Nuguid as evidenced by the computations written at the
back of the cigarette wrappers. Based on these
computations, as of July 21, 1997, respondent Nicdao had
made a total of P5,780,000.00 payments to Nuguid for the
interests alone. Adding up this amount and that of the
Planters Bank demand draft, the CA placed the payments
made by respondent Nicdao to Nuguid as already amounting
to P6,980,000.00 for the principal loan amount of
only P2,100,000.00.
The CA negated petitioner Chings contention that the
payments as reflected at the back of the cigarette wrappers
could be applied only to the interests due.Since the
transactions were not evidenced by any document or
writing, the CA ratiocinated that no interests could be
collected because, under Article 1956 of the Civil Code, no
interest shall be due unless it has been expressly stipulated
in writing.
The CA gave credence to the testimony of respondent
Nicdao that when she had fully paid her loans to Nuguid, she
tried to retrieve her checks. Nuguid, however, refused to
return the checks to respondent Nicdao. Instead, Nuguid and
petitioner Ching filled up the said checks to make it appear
that: (a) petitioner Ching was the payee in five checks; (b) the
six checks were payable to cash; (c) Nuguid was the payee in
fourteen (14) checks. Petitioner Ching and Nuguid then put
the date October 6, 1997 on all these checks and deposited
them the following day. On October 8, 1997, through a joint
demand letter, they informed respondent Nicdao that her
checks were dishonored by HSLB and gave her three days to
settle her indebtedness or else face prosecution for violation
of BP 22.
With the finding that respondent Nicdao had fully paid her
loan obligations to Nuguid, the CA declared that she could no
longer be held liable for violation of BP 22. It was explained
that to be held liable under BP 22, it must be
established, inter alia, that the check was made or drawn
and issued to apply on account or for value. According to the
CA, the word account refers to a pre-existing obligation,
while for value means an obligation incurred simultaneously
with the issuance of the check. In the case of respondent
Nicdaos checks, the pre-existing obligations secured by them
were already extinguished after full payment had been made
by respondent Nicdao to Nuguid. Obligations are
extinguished by, among others, payment.[30] The CA believed
that when petitioner Ching and Nuguid refused to return
respondent Nicdaos checks despite her total payment
of P6,980,000.00 for the loans secured by the checks,
petitioner Ching and Nuguid were using BP 22 to coerce
respondent Nicdao to pay a debt which she no longer owed
them.
With respect to the P20,000,000.00 check, the CA was not
convinced by petitioner Chings claim that he
delivered P1,000,000.00 every month to respondent Nicdao
until the amount reached P20,000,000.00 and, when she
refused to pay the same, he filled up the check, which she
earlier delivered to him as security for the loans, by writing
thereon the said amount. In disbelieving petitioner Ching,
the CA pointed out that, contrary to his assertion, he was
never employed by the La Suerte Cigar and Cigarette
Manufacturing per the letter of Susan Resurreccion, Vice-
President and Legal Counsel of the said company. Moreover,
as admitted by petitioner Ching, he did not own the house
where he and Nuguid lived.
Moreover, the CA characterized as incredible and contrary to
human experience that petitioner Ching would, as he
claimed, deliver a total sum of P20,000,000.00 to
respondent Nicdao without any documentary proof
thereof, e.g., written acknowledgment that she received the
same. On the other hand, it found plausible respondent
Nicdaos version of the story that the P20,000,000.00 check
was the same one that was missing way back in 1995. The CA
opined that this missing check surfaced in the hands of
petitioner Ching who, in cahoots with Nuguid, wrote the
amount P20,000,000.00 thereon and deposited it in his
account. To the mind of the CA, the inference that the check
was stolen was anchored on competent circumstantial
evidence. Specifically, Nuguid, as previous manager/owner
of the grocery store, had access thereto. Likewise applicable,
according to the CA, was the presumption that the person in
possession of the stolen article was presumed to be guilty of
taking the stolen article.[31]
The CA emphasized that the P20,000,000.00 check was
never delivered by respondent Nicdao to petitioner
Ching. As such, the said check without the details as to the
date, amount and payee, was an incomplete and undelivered
instrument when it was stolen and ended up in petitioner
Chings hands. On this point, the CA applied Sections 15 and
16 of the Negotiable Instruments Law:
SEC. 15. Incomplete instrument not
delivered. Where an incomplete instrument has
not been delivered, it will not, if completed and
 negotiated without authority, be a valid contract
in the hands of any holder, as against any person
whose signature was placed thereon before
delivery.
SEC. 16. Delivery; when effectual; when
presumed. Every contract on a negotiable
instrument is incomplete and revocable until
delivery of the instrument for the purpose of
giving effect thereto. As between immediate
parties and as regards a remote party other than
a holder in due course, the delivery, in order to be
effectual, must be made either by or under the
authority of the party making, drawing, accepting
or indorsing, as the case may be; and, in such
case, the delivery may be shown to have been
conditional, or for a special purpose only, and not
for the purpose of transferring the property. But
where the instrument is in the hands of a holder
in due course, a valid delivery thereof by all
parties prior to him so as to make them liable to
him is conclusively presumed. And where the
instrument is no longer in the possession of a
party whose signature appears thereon, a valid
and intentional delivery by him is presumed until
the contrary is proved.
The CA held that the P20,000,000.00 check was filled up by
petitioner Ching without respondent Nicdaos
authority. Further, it was incomplete and
undelivered. Hence, petitioner Ching did not acquire any
right or
interest therein and could not assert any cause of action
founded on the
stolen checks.[32] Under these circumstances, the CA
concluded that respondent could not be held liable for
violation of BP 22.
The Petitioners Case
As mentioned earlier, the instant petition pertains and is
limited solely to the civil aspect of the case as petitioner
Ching argues that notwithstanding respondent Nicdaos
acquittal of the eleven (11) counts of violation of BP 22, she
should be held liable to pay petitioner Ching the amounts of
the dishonored checks in the aggregate sum
of P20,950,000.00.
He urges the Court to review the findings of facts made by
the CA as they are allegedly based on a misapprehension of
facts and manifestly erroneous and contradicted by the
evidence. Further, the CAs factual findings are in conflict
with those of the RTC and MCTC.
Petitioner Ching vigorously argues that notwithstanding
respondent Nicdaos acquittal by the CA, the Supreme Court
has the jurisdiction and authority to resolve and rule on her
civil liability. He invokes Section 1, Rule 111 of the Revised
Rules of Court which, prior to its amendment, provided, in
part:
SEC. 1. Institution of criminal and civil
actions. When a criminal action is instituted, the
civil action for the recovery of civil liability is
impliedly instituted with the criminal action,
unless the offended party waives the civil action,
reserves his right to institute it separately, or
institutes the civil action prior to the criminal
action.
Such civil action includes the recovery of
indemnity under the Revised Penal Code, and
damages under Articles 32, 33, 34 and 2176 of the
Civil Code of the Philippines arising from the same
act or omission of the accused. x x x
Supreme Court Circular No. 57-97[33] dated September
16, 1997 is also cited as it provides in part:
1. The criminal action for violation of Batas
Pambansa Blg. 22 shall be deemed to necessarily
include the corresponding civil action, and no
reservation to file such civil action separately shall
be allowed or recognized. x x x
Petitioner Ching theorizes that, under Section 1, Rule 111 of
the Revised Rules of Court, the civil action for the recovery
of damages under Articles 32, 33, 34, and 2176 arising from
the same act or omission of the accused is impliedly
instituted with the criminal action. Moreover, under the
above-quoted Circular, the criminal action for violation of BP
22 necessarily includes the corresponding civil action, which
is the recovery of the amount of the dishonored check
representing the civil obligation of the drawer to the payee.
In seeking to enforce the alleged civil liability of respondent
Nicdao, petitioner Ching maintains that she had loan
obligations to him totaling P20,950,000.00.The existence of
the same is allegedly established by his testimony before the
MCTC. Also, he asks the Court to take judicial notice that for
a monetary loan secured by a check, the check itself is the
evidence of indebtedness.
He insists that, contrary to her protestation, respondent
Nicdao also transacted with him, not only with
Nuguid. Petitioner Ching pointed out that during respondent
Nicdaos testimony, she referred to her creditors in plural
form, e.g. [I] told them, most checks that I issued I will
inform them if I have money. Even respondent Nicdaos
employees allegedly knew him; they testified that Nuguid
instructed them at times to leave as blank the payee on the
checks as they would be paid to someone else, who turned
out to be petitioner Ching.
It was allegedly erroneous for the CA to hold that he had no
capacity to lend P20,950,000.00 to respondent
Nicdao. Petitioner Ching clarified that what he meant when
he testified before the MCTC was that he was engaged in
dealership with La Suerte Cigar and Cigarette Manufacturing,
and not merely its sales agent. He stresses that he owns a
warehouse and is also in the business of lending
money. Further, the CAs reasoning that he could not possibly
have lent P20,950,000.00 to respondent Nicdao since
petitioner Ching and Nuguid did not own the house where
they live, is allegedly non sequitur.
Petitioner Ching maintains that, contrary to the CAs
finding, the Planters Bank demand draft for P1,200,000.00
was in payment for respondent Nicdaos previous loan
transaction with him. Apart from the P20,000,000.00 check,
the other ten (10) checks (totaling P950,000.00) were
allegedly issued by respondent Nicdao to petitioner Ching as
security for the loans that she obtained from him from 1995
to 1997. The existence of another loan obligation prior to the
said period was allegedly established by the testimony of
respondent Nicdaos own witness, Jocelyn Nicdao, who
testified that when she started working in Vignette
Superstore in 1994, she noticed that respondent Nicdao was
already indebted to Nuguid.
Petitioner Ching also takes exception to the CAs ruling
that the payments made by respondent Nicdao as reflected
on the computations at the back of the cigarette wrappers
were for both the principal loan and interests. He insists that
they were for the interests alone. Even respondent Nicdaos
testimony allegedly showed that they were daily interest
payments. Petitioner Ching further avers that the interest
payments totaling P5,780,000.00 can only mean that,
contrary to respondent Nicdaos claim, her loan obligations
amounted to much more than P2,100,000.00. Further, she is
allegedly estopped from questioning the interests because
she willingly paid the same.
Petitioner Ching also harps on respondent Nicdaos
silence when she received his and Nuguids demand letter to
her. Through the said letter, they notified her that the
twenty-five (25) checks valued at P22,100,000.00 were
dishonored by the HSLB, and that she had three days to
settle her ndebtedness with them, otherwise, face
prosecution. Respondent Nicdaos silence, i.e., her failure to
deny or protest the same by way of reply, vis--vis the
demand letter, allegedly constitutes an admission of the
statements contained therein.
On the other hand, the MCTCs decision, as affirmed by
the RTC, is allegedly based on the evidence on record; it has
been established that the checks were respondent Nicdaos
personal checks, that the signatures thereon were hers and
that she had issued them to petitioner Ching. With respect
to the P20,000,000.00 check, petitioner Ching assails the CAs
ruling that it was stolen and was never delivered or issued by
respondent Nicdao to him. The issue of the said check being
stolen was allegedly not raised during trial. Further, her
failure to report the alleged theft to the bank to stop
payment of the said lost or missing check is allegedly
contrary to human experience. Petitioner Ching describes
respondent Nicdaos defense of stolen or lost check as
incredible and, therefore, false.
Aside from the foregoing substantive issues that he
raised, petitioner Ching also faults the CA for not acting and
ordering the consolidation of CA-G.R. CR No. 23055 with CA-
G.R. CR No. 23054. He informs the Court that latter case is
still pending with the CA.
In fine, it is petitioner Chings view that the CA gravely
erred in disregarding the findings of the MCTC, as affirmed
by the RTC, and submits that there is more than sufficient
preponderant evidence to hold respondent Nicdao civilly
liable to him in the amount of P20,950,000.00. He thus prays
that the Court direct respondent Nicdao to pay him the said
amount plus 12% interest per annum computed from the
date of written demand until the total amount is fully paid.
The Respondents Counter-Arguments
Respondent Nicdao urges the Court to deny the
petition. She posits preliminarily that it is barred under
Section 2(b), Rule 111 of the Revised Rules of Court which
states:
SEC. 2. Institution of separate of civil
action. - Except in the cases provided for in
Section 3 hereof, after the criminal action has
been commenced, the civil action which has been
reserved cannot be instituted until final judgment
in the criminal action.
xxxx
(b) Extinction of the penal action does not
carry with it extinction of the civil, unless the
extinction proceeds from a declaration in a final
judgment that the fact from which the civil might
arise did not exist.
According to respondent Nicdao, the assailed CA decision
has already made a finding to the effect that the fact upon
which her civil liability might arise did not exist. She refers to
the ruling of the CA that the P20,000,000.00 check was
stolen; hence, petitioner Ching did not acquire any right or
interest over the said check and could not assert any cause
of action founded on the said check. Consequently, the CA
held that respondent Nicdao had no obligation to make good
the stolen check and cannot be held liable for violation of BP
22. She also refers to the CAs pronouncement relative to the
ten (10) other checks that they were not issued to apply on
account or for value, considering that the loan obligations
secured by these checks had already been extinguished by
her full payment thereof.
To respondent Nicdaos mind, these pronouncements are
equivalent to a finding that the facts upon which her civil
liability may arise do not exist. The instant petition, which
seeks to enforce her civil liability based on the eleven (11)
checks, is thus allegedly already barred by the final and
executory decision acquitting her.
In any case, respondent Nicdao contends that the CA did not
commit serious misapprehension of facts when it found that
the P20,000,000.00 check was a stolen check and that she
never made any transaction with petitioner
Ching. Moreover, the other ten (10) checks were not issued
to apply on account or for value. These findings are allegedly
supported by the evidence on record which consisted of the
respective testimonies of the defense witnesses to the effect
that: respondent Nicdao had the practice of leaving pre-
signed checks placed inside an unsecured cash box in the
Vignette Superstore; the salesladies were given the authority
to fill up the said checks as to the amount, payee and date;
Nuguid beguiled respondent Nicdao to obtain loans from
her; as security for the loans, respondent Nicdao issued
checks to Nuguid; when the salesladies gave the checks to
Nuguid, she instructed them to leave blank the payee and
date; Nuguid had access to the grocery store; in 1995, one of
the salesladies reported that a check was missing; in 1997,
when she had fully paid her loans to Nuguid, respondent
Nicdao tried to retrieve her checks but Nuguid and petitioner
Ching falsely told her that she still owed them money; they
then maliciously filled up the checks making it appear that
petitioner Ching was the payee in the five checks and the six
others were payable to cash; and knowing fully well that
these checks were not funded because respondent Nicdao
already fully paid her loans, petitioner Ching and Nuguid
deposited the checks and caused them to be dishonored by
HSLB.
It is pointed out by respondent Nicdao that her testimony
(that the P20,000,000.00 check was the same one that she
lost sometime in 1995) was corroborated by the respective
testimonies of her employees. Another indication that it was
stolen was the fact that among all the checks which ended
up in the hands of petitioner Ching and Nuguid, only
the P20,000,000.00 check was fully typewritten; the rest
were invariably handwritten as to the amounts, payee and
date.
Respondent Nicdao defends the CAs conclusion that
the P20,000,000.00 check was stolen on the ground that an
appeal in a criminal case throws open the whole case to the
appellate courts scrutiny. In any event, she maintains that
she had been consistent in her theory of defense and merely
relied on the disputable presumption that the person in
possession of a stolen article is presumed to be the author of
the theft.
Considering that it was stolen, respondent Nicdao argues,
the P20,000,000.00 check was an incomplete and
undelivered instrument in the hands of petitioner Ching and
he did not acquire any right or interest therein. Further, he
cannot assert any cause of action founded on the said stolen
check. Accordingly, petitioner Chings attempt to collect
payment on the said check through the instant petition must
fail.
Respondent Nicdao describes as downright incredible
petitioner Chings testimony that she owed him a total sum
of P20,950,000.00 without any documentary proof of the
loan transactions. She submits that it is contrary to human
experience for loan transactions involving such huge
amounts of money to be devoid of any documentary
proof. In relation thereto, respondent Nicdao underscores
that petitioner Ching lied about being employed as a
salesman of La Suerte Cigar and Cigarette Manufacturing. It
is underscored that he has not adequately shown that he
possessed the financial capacity to lend such a huge amount
to respondent Nicdao as he so claimed.
Neither could she be held liable for the ten (10) other checks
(in the total amount of P950,000,000.00) because as
respondent Nicdao asseverates, she merely issued them to
Nuguid as security for her loans obtained from the latter
beginning October 1995 up to 1997. As evidenced by the
Planters Bank demand draft in the amount of P1,200,000.00,
she already made payment in 1996. The said demand draft
was negotiated to petitioner Chings account and he
admitted receipt thereof. Respondent Nicdao belies his
claim that the demand draft was payment for a prior existing
obligation. She asserts that petitioner Ching was unable to
present evidence of such a previous transaction.
In addition to the Planters Bank demand draft, respondent
Nicdao insists that petitioner Ching received, through
Nuguid, cash payments as evidenced by the computations
written at the back of the cigarette wrappers. Nuguid went
to the Vignette Superstore everyday to collect these
payments. The other defense witnesses corroborated this
fact. Petitioner Ching allegedly never disputed the accuracy
of the accounts appearing on these cigarette wrappers; nor
did he dispute their authenticity and accuracy.
Based on the foregoing evidence, the CA allegedly correctly
held that, computing the amount of the Planters Bank
demand draft (P1,200,000.00) and those reflected at the
back of the cigarette wrappers (P5,780,000.00), respondent
Nicdao had already paid petitioner Ching and Nuguid a total
sum of P6,980,000.00 for her loan obligations totaling
only P950,000.00, as secured by the ten (10) HSLB checks
excluding the stolen P20,000,000.00 check.
Respondent Nicdao rebuts petitioner Chings argument (that
the daily payments were applied to the interests), and claims
that this is illegal. Petitioner Ching cannot insist that the daily
payments she made applied only to the interests on the loan
obligations, considering that there is admittedly no
document evidencing these loans, hence, no written
stipulation for the payment of interests thereon. On this
point, she invokes Article 1956 of the Civil Code, which
proscribes the collection of interest payments unless
expressly stipulated in writing.
Respondent Nicdao emphasizes that the ten (10) other
checks that she issued to Nuguid as security for her loans had
already been discharged upon her full payment thereof. It is
her belief that these checks can no longer be used to coerce
her to pay a debt that she does not owe.
On the CAs failure to consolidate CA-G.R. CR No. 23055
and CA-G.R. CR No. 23054, respondent Nicdao proffers the
explanation that under the RIRCA, consolidation of the cases
is not mandatory. In fine, respondent
Nicdao urges the Court to deny the petition as it failed to
discharge the burden of proving her civil liability with the
required preponderance of evidence.Moreover, the CAs
acquittal of respondent Nicdao is premised on the finding
that, apart from the stolen check, the ten (10) other checks
were not made to apply to a valid, due and demandable
obligation. This, in effect, is a categorical ruling that the fact
from which the civil liability of respondent Nicdao may arise
does not exist.
The Courts Rulings
The petition is denied for lack of merit.
Notwithstanding respondent Nicdaos
acquittal, petitioner Ching is entitled
to appeal the civil aspect of the case
within the reglementary period
It is axiomatic that every person criminally liable for a felony
is also civilly liable.[34] Under the pertinent provision of the
Revised Rules of Court, the civil action is generally impliedly
instituted with the criminal action. At the time of petitioner
Chings filing of the Informations against respondent Nicdao,
Section 1,[35] Rule 111 of the Revised Rules of Court, quoted
earlier, provided in part:
SEC. 1. Institution of criminal and civil
actions. When a criminal action is instituted, the
civil action for the recovery of civil liability is
impliedly instituted with the criminal action,
unless the offended party waives the civil action,
reserves his right to institute it separately, or
institutes the civil action prior to the criminal
action.
Such civil action includes the recovery of
indemnity under the Revised Penal Code, and
damages under Articles 32, 33, 34 and 2176 of the
Civil Code of the Philippines arising from the same
act or omission of the accused.
xxxx
As a corollary to the above rule, an acquittal does not
necessarily carry with it the extinguishment of the civil
liability of the accused. Section 2(b)[36] of the same Rule, also
quoted earlier, provided in part:
(b) Extinction of the penal action does not
carry with it extinction of the civil, unless the
extinction proceeds from a declaration in a final
judgment that the fact from which the civil might
arise did not exist.
It is also relevant to mention that judgments of acquittal are
required to state whether the evidence of the prosecution
absolutely failed to prove the guilt of the accused or merely
failed to prove his guilt beyond reasonable doubt. In either
case, the judgment shall determine if the act or omission
People[39] the consequences of an acquittal on the civil
from which the civil liability might arise did not exist.[37]
aspect in this wise:
In Sapiera v. Court of Appeals,[38] the Court enunciated that
the civil liability is not extinguished by acquittal: (a) where
the acquittal is based on reasonable doubt; (b) where the
court expressly declares that the liability of the accused is not
criminal but only civil in nature; and (c) where the civil
liability is not derived from or based on the criminal act of
which the accused is acquitted. Thus, under Article 29 of the
Civil Code
ART. 29. When the accused in a criminal
prosecution is acquitted on the ground that his
guilt has not been proved beyond reasonable
doubt, a civil action for damages for the same act
or omission may be instituted. Such action
requires only a preponderance of evidence. Upon
motion of the defendant, the court may require
the plaintiff to file a bond to answer for damages
in case the complaint should be found to be
malicious.
If in a criminal case the judgment of acquittal is
based upon reasonable doubt, the court shall so
declare. In the absence of any declaration to that
effect, it may be inferred from the text of the
decision whether or not the acquittal is due to
that ground.
The Court likewise expounded in Salazar v.
The acquittal of the accused does not prevent a
judgment against him on the civil aspect of the
criminal case where: (a) the acquittal is based on
reasonable doubt as only preponderance of
evidence is required; (b) the court declared that
the liability of the accused is only civil; (c) the civil
liability of the accused does not arise from or is
not based upon the crime of which the accused is
acquitted. Moreover, the civil action based on
the delict is extinguished if there is a finding in the
final judgment in the criminal action that the act
or omission from which the civil liability may arise
did not exist or where the accused did not commit
the act or omission imputed to him.

If the accused is acquitted on reasonable doubt
but the court renders judgment on the civil aspect
of the criminal case, the prosecution cannot
appeal from the judgment of acquittal as it would
place the accused in double jeopardy. However,
the aggrieved party, the offended party or the
accused or both may appeal from the judgment
on the civil aspect of the case within the period
therefor.
From the foregoing, petitioner Ching correctly argued that
he, as the offended party, may appeal the civil aspect of the
case notwithstanding respondent Nicdaos acquittal by the
CA. The civil action was impliedly instituted with the criminal
action since he did not reserve his right to institute it
separately nor did he institute the civil action prior to the
criminal action.
Following the long recognized rule that the appeal
period accorded to the accused should also be available to
the offended party who seeks redress of the civil aspect of
the decision, the period to appeal granted to petitioner
Ching is the same as that granted to the accused.[40] With
petitioner Chings timely filing of the instant petition for
review of the civil aspect of the CAs decision, the Court thus
has the jurisdiction and authority to determine the civil
liability of respondent Nicdao notwithstanding her acquittal.
In order for the petition to prosper, however, it must
establish that the judgment of the CA acquitting respondent
Nicdao falls under any of the three categories enumerated
in Salazar and Sapiera, to wit:
(a) where the acquittal is based on reasonable
doubt as only preponderance of evidence is
required;
(b) where the court declared that the liability of
the accused is only civil; and
(c) where the civil liability of the accused does
not arise from or is not based upon the crime of
which the accused is acquitted.
Salazar also enunciated that the civil action based on
the delict is extinguished if there is a finding in the final
judgment in the criminal action that the act or omission from
which the civil liability may arise did not exist or where the
accused did not commit the act or omission imputed to him.
For reasons that will be discussed shortly, the Court
holds that respondent Nicdao cannot be held civilly liable to
petitioner Ching.
The acquittal of respondent Nicdao
likewise effectively extinguished her
civil liability

A painstaking review of the case leads to the conclusion that
respondent Nicdaos acquittal likewise carried with it the
extinction of the action to enforce her civil liability. There is
simply no basis to hold respondent Nicdao civilly liable to
petitioner Ching.
First, the CAs acquittal of respondent Nicdao is not merely
based on reasonable doubt. Rather, it is based on the finding
that she did not commit the act penalized under BP 22. In
particular, the CA found that the P20,000,000.00 check was
a stolen check which was never issued nor delivered by
respondent Nicdao to petitioner Ching. As such, according to
the CA, petitioner Ching did not acquire any right or interest
over Check No. 002524 and cannot assert any cause of action
founded on said check,[41] and that respondent Nicdao has
no obligation to make good the stolen check and cannot,
therefore, be held liable for violation of B.P. Blg. 22.[42]
With respect to the ten (10) other checks, the CA established
that the loans secured by these checks had already been
extinguished after full payment had been made by
respondent Nicdao. In this connection, the second element
for the crime under BP 22, i.e., that the check is made or
drawn and issued to apply on account or for value, is not
present.
Second, in acquitting respondent Nicdao, the CA did not
adjudge her to be civilly liable to petitioner Ching. In fact, the
CA explicitly stated that she had already fully paid her
obligations. The CA computed the payments made by
respondent Nicdao vis--vis her loan obligations in this
manner:
Clearly, adding the payments recorded at the
back of the cigarette cartons by Emma Nuguid in
her own handwriting totaling P5,780,000.00 and
the P1,200,000.00 demand draft received by
Emma Nuguid, it would appear that petitioner
[respondent herein] had already made payments
in the total amount of P6,980,000.00 for her loan
obligation of only P2,100,000.00 (P950,000.00 in
the case at bar and P1,150,000.00 in CA-G.R. CR
No. 23054).[43]
On the other hand, its finding relative to the P20,000,000.00
check that it was a stolen check necessarily absolved
respondent Nicdao of any civil liability thereon as well.
Third, while petitioner Ching attempts to show that
respondent Nicdaos liability did not arise from or was not
based upon the criminal act of which she was acquitted (ex
delicto) but from her loan obligations to him (ex contractu),
however, petitioner Ching miserably failed to prove by
preponderant evidence the existence of these unpaid loan
obligations. Significantly, it can be inferred from the
following findings of the CA in its decision acquitting
respondent Nicdao that the act or omission from which her
civil liability may arise did not exist. On the P20,000,000.00
check, the CA found as follows:
True, indeed, the missing pre-signed and undated
check no. 002524 surfaced in the possession of
complainant Ching who, in cahoots with his
paramour Emma Nuguid, filled up the blank check
with his name as payee and in the fantastic
amount of P20,000,000.00, dated it October 6,
1997, and presented it to the bank on October 7,
1997, along with the other checks, for payment.
Therefore, the inference that the check was
stolen is anchored on competent circumstantial
evidence. The fact already established is that
Emma Nuguid , previous owner of the store, had
access to said store. Moreover, the possession of
a thing that was stolen , absent a credible reason,
as in this case, gives rise to the presumption that
the person in possession of the stolen article is
presumed to be guilty of taking the stolen article
(People v. Zafra, 237 SCRA 664).
As previously shown, at the time check no.
002524 was stolen, the said check was blank in its
material aspect (as to the name of payee, the
amount of the check, and the date of the check),
but was already pre-signed by petitioner. In fact,
complainant Ching himself admitted that check
no. 002524 in his possession was a blank check
(TSN, Jan. 7, 1998, pp. 24-27, Annex J, Petition).
Moreover, since it has been established that
check no. 002524 had been missing since 1995
(TSN, Sept. 9, 1998, pp. 14-15, Annex DD,
Petition; TSN, Sept. 10, 1998, pp. 43-46, Annex EE,
Petition), it is abundantly clear that said check
was never delivered to complainant Ching. Check
no. 002524 was an incomplete and undelivered
instrument when it was stolen and ended up in
the hands of complainant Ching. Sections 15 and
16 of the Negotiable Instruments Law provide:
xxxx
In the case of check no. 002524, it is admitted by
complainant Ching that said check in his
possession was a blank check and was
subsequently completed by him alone without
authority from petitioner. Inasmuch as check no.
002524 was incomplete and undelivered in the
hands of complainant Ching, he did not acquire
any right or interest therein and cannot,
therefore, assert any cause of action founded on
said stolen check (Development Bank of
the Philippines v. Sima We, 219 SCRA 736, 740).
It goes without saying that since complainant
Ching did not acquire any right or interest over
check no. 002524 and cannot assert any cause of
action founded on said check, petitioner has no
obligation to make good the stolen check and
cannot, therefore, be held liable for violation of
B.P. Blg. 22.[44]
Anent the other ten (10) checks, the CA made the
following findings:

Evidence sufficiently shows that the loans
secured by the ten (10) checks involved in the
cases subject of this petition had already been
paid. It is not controverted that petitioner gave
Emma Nuguid a demand draft valued
at P1,200,000 to pay for the loans guaranteed by
said checks and other checks issued to her.
Samson Ching admitted having received the
demand draft which he deposited in his bank
account. However, complainant Samson Ching
claimed that the said demand draft represents
payment for a previous obligation incurred by
petitioner. However, complainant Ching failed to
adduce any evidence to prove the existence of
the alleged obligation of the petitioner prior to
those secured by the subject checks.
Apart from the payment to Emma Nuguid through
said demand draft, it is also not disputed that
petitioner made cash payments to Emma Nuguid
who collected the payments almost daily at the
Vignette Superstore. As of July 21, 1997, Emma
Nuguid collected cash payments amounting to
approximately P5,780,000.00. All of these cash
payments were recorded at the back of cigarette
cartons by Emma Nuguid in her own handwriting,
the authenticity and accuracy of which were
never denied by either complainant Ching or
Emma Nuguid.
Clearly, adding the payments recorded at the
back of the cigarette cartons by Emma Nuguid in
her own handwriting totaling P5,780,000.00 and
the P1,200,000.00 demand draft received by
Emma Nuguid, it would appear that petitioner
had already made payments in the total amount
of P6,980,000.00 for her loan in the total amount
of P6,980,000.00 for her loan obligation of
only P2,100,000.00 (P950,000.00 in the case at
bar and P1,150,000.00 in CA-G.R. CR No.
23054).[45]
Generally checks may constitute evidence of
indebtedness.[46] However, in view of the CAs findings
relating to the eleven (11) checks - that the P20,000,000.00
was a stolen check and the obligations secured by the other
ten (10) checks had already been fully paid by respondent
Nicdao they can no longer be given credence to establish
respondent Nicdaos civil liability to petitioner Ching. Such
civil liability, therefore, must be established by preponderant
evidence other than the discredited checks.
After a careful examination of the records of the case,[47] the
Court holds that the existence of respondent Nicdaos civil
liability to petitioner Ching in the amount of P20,950,000.00
representing her unpaid obligations to the latter has not
been sufficiently established by preponderant evidence.
Petitioner Ching mainly relies on his testimony before the
MCTC to establish the existence of these unpaid
obligations. In gist, he testified that from October 1995 up to
1997, respondent Nicdao obtained loans from him in the
total amount of P20,950,000.00. As security for her
obligations, she issued eleven (11) checks which were
invariably blank as to the date, amounts and payee. When
respondent Nicdao allegedly refused to pay her obligations
despite his due demand, petitioner filled up the checks in his
possession with the corresponding amounts and date and
deposited them in his account. They were subsequently
dishonored by the HSLB for being DAIF and petitioner Ching
accordingly filed the criminal complaints against respondent
Nicdao for violation of BP 22.
It is a basic rule in evidence that the burden of proof lies on
the party who makes the allegations Et incumbit probatio,
qui dicit, non qui negat; cum per rerum naturam factum
negantis probatio nulla sit (The proof lies upon him who
affirms, not upon him who denies; since, by the nature of
things, he who denies a fact cannot produce any proof).[48] In
civil cases, the party having the burden of proof must
establish his case by a preponderance of
evidence. Preponderance of evidence is the weight, credit,
and value of the aggregate evidence on either side and is
usually considered to be synonymous with the term greater
weight of evidence or greater weight of the credible
evidence. Preponderance of evidence is a phrase which, in
the last analysis, means probability of the truth. It is evidence
which is more convincing to the court as worthy of belief
than that which is offered in opposition thereto.[49] Section
1, Rule 133 of the Revised Rules of Court offers the guidelines
in determining preponderance of evidence:
SEC. 1. Preponderance of evidence, how
determined. In civil cases, the party having the
burden of proof must establish his case by a
preponderance of evidence. In determining
where the preponderance or superior weight of
evidence on the issues involved lies, the court
may consider all the facts and circumstances of
the case, the witnesses manner of testifying, their
intelligence, their means and opportunity of
knowing the facts to which they are testifying, the
nature of the facts to which they testify, the
probability or improbability of their testimony,
their interest or want of interest, and also their
personal credibility so far as the same may
legitimately appear upon the trial. The court may
also consider the number of witnesses, though
the preponderance is not necessarily with the
greater number.
Unfortunately, petitioner Chings testimony alone does
not constitute preponderant evidence to establish
respondent Nicdaos civil liability to him amounting
to P20,950,000.00. Apart from the discredited checks, he
failed to adduce any other documentary evidence to prove
that respondent Nicdao still has unpaid obligations to him in
the said amount. Bare allegations, unsubstantiated by
evidence, are not equivalent to proof under our Rules.[50]
In contrast, respondent Nicdaos defense consisted in, among
others, her allegation that she had already paid her
obligations to petitioner Ching through Nuguid. In support
thereof, she presented the Planters Bank demand draft
for P1,200,000.00. The said demand draft was negotiated to
petitioner Chings account and he admitted receipt of the
value thereof. Petitioner Ching tried to controvert this by
claiming that it was payment for a previous transaction
between him and respondent Nicdao. However, other than
his self-serving claim, petitioner Ching did not proffer any
documentary evidence to prove the existence of the said
previous transaction. Considering that the Planters Bank
demand draft was dated August 13, 1996, it is logical to
conclude that, absent any evidence to the contrary, it
formed part of respondent Nicdaos payment to petitioner
Ching on account of the loan obligations that she obtained
from him since October 1995.
Additionally, respondent Nicdao submitted as
evidence the cigarette wrappers at the back of which were
written the computations of the daily payments that she had
made to Nuguid. The fact of the daily payments was
corroborated by the other witnesses for the defense,
namely, Jocelyn Nicdao and Tolentino. As found by the CA,
based on these computations, respondent Nicdao had made
a total payment of P5,780,000.00 to Nuguid as of July 21,
1997.[51] Again, the payments made, as reflected at the back
of these cigarette wrappers, were not disputed by petitioner
Ching. Hence, these payments as well as the amount of the
Planters Bank demand draft establish that respondent
Nicdao already paid the total amount of P6,980,000.00 to
Nuguid and petitioner Ching.
The Court agrees with the CA that the daily payments
made by respondent Nicdao amounting to P5,780,000.00
cannot be considered as interest payments only. Even
respondent Nicdao testified that the daily payments that she
made to Nuguid were for the interests due. However, as
correctly ruled by the CA, no interests could be properly
collected in the loan transactions between petitioner Ching
and respondent Nicdao because there was no stipulation
therefor in writing. To reiterate, under Article 1956 of the
Civil Code, no interest shall be due unless it has been
expressly stipulated in writing.
Neither could respondent Nicdao be considered to be
estopped from denying the validity of these
interests. Estoppel cannot give validity to an act that is
prohibited by law or one that is against public
policy.[52] Clearly, the collection of interests without any
stipulation therefor in writing is prohibited by
law. Consequently, the daily payments made by respondent
Nicdao amounting to P5,780,000.00 were properly
considered by the CA as applying to the principal amount of
her loan obligations.
With respect to the P20,000,000.00 check, the
defense of respondent Nicdao that it was stolen and that she
never issued or delivered the same to petitioner Ching was
corroborated by the other defense witnesses, namely,
Tolentino and Jocelyn Nicdao.

All told, as between petitioner Ching and respondent
Nicdao, the requisite quantum of evidence - preponderance
of evidence - indubitably lies with respondent Nicdao. As
earlier intimated, she cannot be held civilly liable to
petitioner Ching for her acquittal; under the circumstances
which have just been discussed lengthily, such acquittal
carried with it the extinction of her civil liability as well.
The use of the word may denotes the permissive, not
mandatory, nature of the above provision, Thus, no grave
error could be imputed to the CA when it proceeded to
render its decision in CA-G.R. CR No. 23055, without
consolidating it with CA-G.R. CR No. 23054.
WHEREFORE, premises considered, the Petition
is DENIED for lack of merit.

The CA committed no reversible error SO ORDERED.

in not consolidating CA-G.R. CR No.
23055 and CA-G.R. CR No. 23054

During the pendency of CA-G.R. CR No. 23055 and CA-

G.R. CR No. 23054 in the CA, the pertinent provision of the
RIRCA on consolidation of cases provided:

SEC. 7. Consolidation of Cases. Whenever

two or more allied cases are assigned to different
Justices, they may be consolidated for study and
report to a single Justice.

(a) At the instance of any party or Justice to

whom the case is assigned for study and report,
and with the conformity of all the Justices
concerned, the consolidation may be allowed
when the cases to be consolidated involve the
same parties and/or related questions of fact
and/or law.[53]

THIRD DIVISION
[G.R. No. 138739. July 6, 2000]
RADIOWEALTH FINANCE COMPANY, petitioner,
vs. Spouses VICENTE and MA. SUMILANG
DEL ROSARIO, respondents.
DECISION
PANGANIBAN, J.:
When a demurrer to evidence granted by a trial court is
reversed on appeal, the reviewing court cannot remand the case
for further proceedings. Rather, it should render judgment on the
basis of the evidence proffered by the plaintiff. Inasmuch as
defendants in the present case admitted the due execution of the
Promissory Note both in their Answer and during the pretrial, the
appellate court should have rendered judgment on the bases of
that Note and on the other pieces of evidence adduced during the
trial.
The Case
Before us is a Petition for Review on Certiorari of the
December 9, 1997 Decision[1] and the May 3, 1999 Resolution[2] of
the Court of Appeals in CA-GR CV No. 47737. The assailed
Decision disposed as follows:
WHEREFORE, premises considered, the appealed order
(dated November 4, 1994) of the Regional Trial Court
(Branch XIV) in the City of Manila in Civil Case No. 93-
66507 is hereby REVERSED and SET ASIDE. Let the
records of this case be remanded to the court a quo for
further proceedings. No pronouncement as to costs.[3]
The assailed Resolution denied the petitioners Partial Motion
for Reconsideration.[4]
The Facts
The facts of this case are undisputed. On March 2, 1991,
Spouses Vicente and Maria Sumilang del Rosario (herein
respondents), jointly and severally executed, signed and
delivered in favor of Radiowealth Finance Company (herein
petitioner), a Promissory Note[5] for P138,948. Pertinent
provisions of the Promissory Note read:
FOR VALUE RECEIVED, on or before the date listed
below, I/We promise to pay jointly and
severally Radiowealth Finance Co. or order the sum
of ONE HUNDRED THIRTY EIGHT THOUSAND NINE
HUNDRED FORTY EIGHT Pesos (P138,948.00) without
need of notice or demand, in installments as follows:
P11,579.00 payable for 12 consecutive months
starting on ________ 19__ until the amount
of P11,579.00 is fully paid. Each installment shall
be due every ____ day of each month. A late
payment penalty charge of two and a half (2.5%)
 percent per month shall be added to each unpaid
installment from due date thereof until fully paid.
xxxxxxxxx
It is hereby agreed that if default be made in the payment
of any of the installments or late payment charges
thereon as and when the same becomes due and
payable as specified above, the total principal sum then
remaining unpaid, together with the agreed late payment
charges thereon, shall at once become due and payable
without need of notice or demand.
xxxxxxxxx
If any amount due on this Note is not paid at its maturity
and this Note is placed in the hands of an attorney or
collection agency for collection, I/We jointly and severally
agree to pay, in addition to the aggregate of the principal
amount and interest due, a sum equivalent to ten (10%)
per cent thereof as attorneys and/or collection fees, in
case no legal action is filed, otherwise, the sum will be
equivalent to twenty-five (25%) percent of the amount
due which shall not in any case be less than FIVE
HUNDRED PESOS (P500.00) plus the cost of suit and
other litigation expenses and, in addition, a further sum
of ten per cent (10%) of said amount which in no case
shall be less than FIVE HUNDRED PESOS (P500.00),
as and for liquidated damages.[6]
Thereafter, respondents defaulted on the monthly
installments. Despite repeated demands, they failed to pay their
obligations under their Promissory Note.
On June 7, 1993, petitioner filed a Complaint[7] for the
collection of a sum of money before the Regional Trial Court of
Manila, Branch 14.[8] During the trial, Jasmer Famatico, the credit
and collection officer of petitioner, presented in evidence the
respondents check payments, the demand letter dated July 12,
1991, the customers ledger card for the respondents, another
demand letter and Metropolitan Bank dishonor slips. Famatico
admitted that he did not have personal knowledge of the
transaction or the execution of any of these pieces of
documentary evidence, which had merely been endorsed to him.
On July 4, 1994, the trial court issued an Order terminating
the presentation of evidence for the petitioner.[9] Thus, the latter
formally offered its evidence and exhibits and rested its case on
July 5, 1994.
Respondents filed on July 29, 1994 a Demurrer to
Evidence[10] for alleged lack of cause of action. On November 4,
1994, the trial court dismissed[11] the complaint for failure of
petitioner to substantiate its claims, the evidence it had presented
being merely hearsay.
On appeal, the Court of Appeals (CA) reversed the trial court
and remanded the case for further proceedings.
Hence, this recourse.[12]
Ruling of the Court of Appeals
According to the appellate court, the judicial admissions of
respondents established their indebtedness to the petitioner, on
the grounds that they admitted the due execution of the
Promissory Note, and that their only defense was the absence of
an agreement on when the installment payments were to
begin. Indeed, during the pretrial, they admitted the genuineness
not only of the Promissory Note, but also of the demand letter
dated July 12, 1991. Even if the petitioners witness had no
personal knowledge of these documents, they would still be
admissible if the purpose for which [they are] produced is merely
to establish the fact that the statement or document was in fact
made or to show its tenor[,] and such fact or tenor is of
independent relevance.
Besides, Articles 19 and 22 of the Civil Code require that
every person must -- in the exercise of rights and in the
performance of duties -- act with justice, give all else their due,
and observe honesty and good faith. Further, the rules on
evidence are to be liberally construed in order to promote their
objective and to assist the parties in obtaining just, speedy and
inexpensive determination of an action.
Issue
The petitioner raises this lone issue:
The Honorable Court of Appeals patently erred in
ordering the remand of this case to the trial court instead
of rendering judgment on the basis of petitioners
evidence.[13]
For an orderly discussion, we shall divide the issue into two
parts: (a) legal effect of the Demurrer to Evidence, and (b) the
date when the obligation became due and demandable.
The Courts Ruling
The Petition has merit. While the CA correctly reversed the
trial court, it erred in remanding the case "for further
proceedings."
Consequences of a Reversal, on Appeal, of a Demurrer to Evidence
Petitioner contends that if a demurrer to evidence is reversed
on appeal, the defendant should be deemed to have waived the
right to present evidence, and the appellate court should render
judgment on the basis of the evidence submitted by the plaintiff. A
remand to the trial court "for further proceedings" would be an
outright defiance of Rule 33, Section 1 of the 1997 Rules of Court.
On the other hand, respondents argue that the petitioner was
not necessarily entitled to its claim, simply on the ground that they
lost their right to present evidence in support of their defense
when the Demurrer to Evidence was reversed on appeal. They
stress that the CA merely found them indebted to petitioner, but
was silent on when their obligation became due and demandable.
The old Rule 35 of the Rules of Court was reworded under
Rule 33 of the 1997 Rules, but the consequence on appeal of a
demurrer to evidence was not changed.As amended, the
pertinent provision of Rule 33 reads as follows:
SECTION 1. Demurrer to evidence.After the plaintiff has
completed the presentation of his evidence, the
defendant may move for dismissal on the ground that
upon the facts and the law the plaintiff has shown no
right to relief. If his motion is denied, he shall have the
right to present evidence. If the motion is granted but on
appeal the order of dismissal is reversed he shall be
deemed to have waived the right to present evidence.[14]
Explaining the consequence of a demurrer to evidence, the
Court in Villanueva Transit v. Javellana[15] pronounced:
The rationale behind the rule and doctrine is simple and
logical. The defendant is permitted, without waiving his
right to offer evidence in the event that his motion is not
granted, to move for a dismissal (i.e., demur to the
plaintiffs evidence) on the ground that upon the facts as
thus established and the applicable law, the plaintiff has
shown no right to relief. If the trial court denies the
dismissal motion, i.e., finds that plaintiffs evidence is
sufficient for an award of judgment in the absence of
contrary evidence, the case still remains before the trial
court which should then proceed to hear and receive the
defendants evidence so that all the facts and evidence of
the contending parties may be properly placed before it
for adjudication as well as before the appellate courts, in
case of appeal. Nothing is lost. The doctrine is but in line
with the established procedural precepts in the conduct
of trials that the trial court liberally receive all proffered
evidence at the trial to enable it to render its decision
with all possibly relevant proofs in the record, thus
assuring that the appellate courts upon appeal have all
the material before them necessary to make a correct
judgment, and avoiding the need of remanding the case
for retrial or reception of improperly excluded evidence,
with the possibility thereafter of still another appeal, with
all the concomitant delays. The rule, however, imposes
the condition by the same token that if his demurrer
is granted by the trial court, and the order of dismissal
is reversed on appeal, the movant losses his right to
present evidence in his behalf and he shall have been
deemed to have elected to stand on the insufficiency of
plaintiffs case and evidence. In such event, the appellate
court which reverses the order of dismissal shall proceed
to render judgment on the merits on the basis of plaintiffs
evidence. (Underscoring supplied)
In other words, defendants who present a demurrer to the
plaintiffs evidence retain the right to present their own evidence, if
the trial court disagrees with them; if the trial court agrees with
them, but on appeal, the appellate court disagrees with both of
them and reverses the dismissal order, the defendants lose the
right to present their own evidence.[16] The appellate court shall,
in addition, resolve the case and render judgment on the merits,
inasmuch as a demurrer aims to discourage prolonged
litigations.[17]
In the case at bar, the trial court, acting on respondents
demurrer to evidence, dismissed the Complaint on the ground
that the plaintiff had adduced mere hearsay evidence. However,
on appeal, the appellate court reversed the trial court because
the genuineness and the due execution of the disputed pieces of
evidence had in fact been admitted by defendants.
Applying Rule 33, Section 1 of the 1997 Rules of Court, the
CA should have rendered judgment on the basis of the evidence
submitted by the petitioner. While the appellate court correctly
ruled that the documentary evidence submitted by the [petitioner]
should have been allowed and appreciated xxx, and that the
petitioner presented quite a number of documentary exhibits xxx
enumerated in the appealed order,[18] we agree with petitioner that
the CA had sufficient evidence on record to decide the collection
suit. A remand is not only frowned upon by the Rules, it is also
logically unnecessary on the basis of the facts on record.
Due and Demandable Obligation
Petitioner claims that respondents are liable for the whole
amount of their debt and the interest thereon, after they defaulted
on the monthly installments.
Respondents, on the other hand, counter that the
installments were not yet due and demandable. Petitioner had
allegedly allowed them to apply their promotion services for its
financing business as payment of the Promissory Note. This was
supposedly evidenced by the blank space left for the date on
which the installments should have commenced.[19] In other
words, respondents theorize that the action for immediate
enforcement of their obligation is premature because its
fulfillment is dependent on the sole will of the debtor. Hence, they
consider that the proper court should first fix a period for payment,
pursuant to Articles 1180 and 1197 of the Civil Code.
 This contention is untenable. The act of leaving blank the due
date of the first installment did not necessarily mean that the
debtors were allowed to pay as and when they could. If this was
the intention of the parties, they should have so indicated in the
Promissory Note. However, it did not reflect any such intention.
On the contrary, the Note expressly stipulated that the debt
should be amortized monthly in installments of P11,579 for twelve
consecutive months. While the specific date on which each
installment would be due was left blank, the Note clearly provided
that each installment should be payable each month.
Furthermore, it also provided for an acceleration clause and
a late payment penalty, both of which showed the intention of the
parties that the installments should be paid at a definite date. Had
they intended that the debtors could pay as and when they could,
there would have been no need for these two clauses.
Verily, the contemporaneous and subsequent acts of the
parties manifest their intention and knowledge that the monthly
installments would be due and demandable each month.[20] In this
case, the conclusion that the installments had already became
due and demandable is bolstered by the fact that respondents
started paying installments on the Promissory Note, even if the
checks were dishonored by their drawee bank. We are convinced
neither by their avowals that the obligation had not yet matured
nor by their claim that a period for payment should be fixed by a
court.
Convincingly, petitioner has established not only a cause of
action against the respondents, but also a due and demandable
obligation. The obligation of the respondents had matured and
they clearly defaulted when their checks bounced. Per the
acceleration clause, the whole debt became due one month (April
2, 1991) after the date of the Note because the check
representing their first installment bounced.
As for the disputed documents submitted by the petitioner,
the CA ruling in favor of their admissibility, which was not
challenged by the respondents, stands. A party who did not
appeal cannot obtain affirmative relief other than that granted in
the appealed decision.[21]
It should be stressed that respondents do not contest the
amount of the principal obligation. Their liability as expressly
stated in the Promissory Note and found by the CA
is P13[8],948.00[22] which is payable in twelve (12) installments
at P11,579.00 a month for twelve (12) consecutive months. As
correctly found by the CA, the "ambiguity" in the Promissory Note
is clearly attributable to human error.[23]
Petitioner, in its Complaint, prayed for 14% interest per
annum from May 6, 1993 until fully paid. We disagree. The Note
already stipulated a late payment penalty of 2.5 percent monthly
to be added to each unpaid installment until fully paid. Payment
of interest was not expressly stipulated in the Note. Thus, it
should be deemed included in such penalty.
In addition, the Note also provided that the debtors would be
liable for attorneys fees equivalent to 25 percent of the amount
due in case a legal action was instituted and 10 percent of the
same amount as liquidated damages. Liquidated damages,
however, should no longer be imposed for being
unconscionable.[24] Such damages should also be deemed
included in the 2.5 percent monthly penalty. Furthermore, we hold
that petitioner is entitled to attorneys fees, but only in a sum equal
to 10 percent of the amount due which we deem reasonable
under the proven facts.[25]
The Court deems it improper to discuss respondents' claim
for moral and other damages. Not having appealed the CA
Decision, they are not entitled to affirmative relief, as already
explained earlier.[26]
WHEREFORE, the Petition is GRANTED. The appealed
Decision is MODIFIED in that the remand is SET ASIDE and
respondents are ordered TO PAY P138,948, plus 2.5 percent
penalty charge per month beginning April 2, 1991 until fully paid,
and 10 percent of the amount due as attorneys fees. No costs.
SO ORDERED.
 Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur. ALICIA VILLANUEVA, Promulgated:
Respondent.
January 20, 2009

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

DECISION

THIRD DIVISION 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
SEBASTIAN SIGA-AN, G.R. No. 173227 16 December 2005, and Resolution,[3] dated 19 June 2006 of the
Court of Appeals in CA-G.R. CV No. 71814, which affirmed
Petitioner, in toto the Decision,[4] dated 26 January 2001, of the Las Pinas
Present: City Regional Trial Court, Branch 255, in Civil Case No. LP-98-
0068.

YNARES-SANTIAGO,
The facts gathered from the records are as follows:
Chairperson,
AUSTRIA-MARTINEZ,
On 30 March 1998, respondent Alicia Villanueva filed a
-versus CHICO-NAZARIO, complaint[5] for sum of money against petitioner Sebastian Siga-
NACHURA, and an before the Las Pinas City Regional Trial Court (RTC), Branch
255, docketed as Civil Case No. LP-98-0068. Respondent
LEONARDO-DE alleged that she was a businesswoman engaged in supplying
CASTRO,* JJ. 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 by way of example or correction for the public good, plus
obligation. Subsequently, he presented the six checks for attorneys fees and costs of suit.
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 The dispositive portion of the RTC Decision reads:
Checks Law (Batas Pambansa Blg. 22) against respondent. The
cases were assigned to the Metropolitan Trial Court of Makati
City, Branch 65 (MeTC).[12] 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
Petitioner insisted that there was no overpayment because the defendant as follows:
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 (1) Ordering defendant to pay plaintiff the amount
respondent was already estopped from complaining that she of P660,000.00 plus legal interest of 12% per annum computed
should not have paid any interest, because she was given several from 3 March 1998 until the amount is paid in full;
times to settle her obligation but failed to do so. He maintained
that to rule in favor of respondent is tantamount to concluding that (2) Ordering defendant to pay plaintiff the amount of P300,000.00
the loan was given interest-free. Based on the foregoing as moral damages;
averments, he asked the RTC to dismiss respondents complaint.
(3) Ordering defendant to pay plaintiff the amount of P50,000.00
After trial, the RTC rendered a Decision on 26 January 2001 as exemplary damages;
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 (4) Ordering defendant to pay plaintiff the amount equivalent to
obligation was only to pay the loaned amount of P540,000.00, 25% of P660,000.00 as attorneys fees; and
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 (5) Ordering defendant to pay the costs of suit.[14]
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] Petitioner appealed to the Court of Appeals. On 16 December
2005, the appellate court promulgated its Decision affirming in
toto the RTC Decision, thus:
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
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.
 Petitioners reliance on respondents alleged admission in the
Batas Pambansa Blg. 22 cases that they had agreed on the
Petitioner, nevertheless, claims that both the RTC and the Court
payment of interest at the rate of 7% deserves scant
of Appeals found that he and respondent agreed on the payment
consideration. In the said case, respondent merely testified that
of 7% rate of interest on the loan; that the agreed 7% rate of
after paying the total amount of loan, petitioner ordered her to pay
interest was duly admitted by respondent in her testimony in the
interest.[28] Respondent did not categorically declare in the same
Batas Pambansa Blg. 22 cases he filed against respondent; that
case that she and respondent made an express stipulation in
despite such judicial admission by respondent, the RTC and the
writing as regards payment of interest at the rate of 7%. As earlier
Court of Appeals, citing Article 1956 of the Civil Code, still held
discussed, monetary interest is due only if there was
that no interest was due him since the agreement on interest was
an express stipulation in writing for the payment of interest.
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
There are instances in which an interest may be imposed even in
admits that a specific rate of interest was agreed upon as in the
the absence of express stipulation, verbal or written, regarding
present case; and that it would be unfair to allow respondent to
payment of interest. Article 2209 of the Civil Code states that if
pay only the loan when the latter very well knew and even
the obligation consists in the payment of a sum of money, and the
admitted in the Batas Pambansa Blg. 22 cases that there was an
debtor incurs delay, a legal interest of 12% per annum may be
agreed 7% rate of interest on the loan.[25]
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
We have carefully examined the RTC Decision and found that the
from the time it is judicially demanded, although the obligation
RTC did not make a ruling therein that petitioner and respondent
may be silent on this point.
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
All the same, the interest under these two instances may be
to P540,000.00, they, nonetheless, never intended the payment
imposed only as a penalty or damages for breach of contractual
of interest thereon.[26] While the Court of Appeals mentioned in its
obligations. It cannot be charged as a compensation for the use
Decision that it concurred in the RTCs ruling that petitioner and
or forbearance of money. In other words, the two instances apply
respondent agreed on a certain rate of interest as regards the
only to compensatory interest and not to monetary
loan, we consider this as merely an inadvertence because, as
interest.[29] The case at bar involves petitioners claim for
earlier elucidated, both the RTC and the Court of Appeals ruled
monetary interest.
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
Further, said compensatory interest is not chargeable in the
appellate court.[27] We found no compelling reason to disturb the
instant case because it was not duly proven that respondent
ruling of both courts.
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.
 We shall now determine the propriety of the monetary award and
damages imposed by the RTC and the Court of Appeals.
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
Records show that respondent received a loan amounting
amount paid by respondent as interest.[30]
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
Under Article 1960 of the Civil Code, if the borrower of loan pays
encashed by petitioner.[36] Obviously, there was an excess
interest when there has been no stipulation therefor, the
of P160,000.00 in the payment for the loan. Petitioner claims that
provisions of the Civil Code concerning solutio indebiti shall be
the excess of P160,000.00 serves as interest on the loan to which
applied. Article 2154 of the Civil Code explains the principle
he was entitled. Aside from issuing the said two checks,
of solutio indebiti. Said provision provides that if something is
respondent also paid cash in the total amount of P175,000.00 to
received when there is no right to demand it, and it was unduly
petitioner as interest.[37] Although no receipts reflecting the same
delivered through mistake, the obligation to return it arises. In
were presented because petitioner refused to issue such to
such a case, a creditor-debtor relationship is created under a
respondent, petitioner, nonetheless, admitted in his Reply-
quasi-contract whereby the payor becomes the creditor who then
Affidavit[38] in the Batas Pambansa Blg. 22 cases that respondent
has the right to demand the return of payment made by mistake,
paid him a total amount of P175,000.00 cash in addition to the
and the person who has no right to receive such payment
two checks. Section 26 Rule 130 of the Rules of Evidence
becomes obligated to return the same. The quasi-contract
provides that the declaration of a party as to a relevant fact may
of solutio indebiti harks back to the ancient principle that no one
be given in evidence against him. Aside from the amounts
shall enrich himself unjustly at the expense of another. [31] The
of P160,000.00 and P175,000.00 paid as interest, no other proof
principle of solutio indebiti applies where (1) a payment is made
of additional payment as interest was presented by
when there exists no binding relation between the payor, who has
respondent. Since we have previously found that petitioner is not
no duty to pay, and the person who received the payment; and
entitled to payment of interest and that the principle of solutio
(2) the payment is made through mistake, and not through
indebiti applies to the instant case, petitioner should return to
liberality or some other cause.[32] We have held that the principle
respondent the excess amount of P160,000.00 and P175,000.00
of solutio indebiti applies in case of erroneous payment of undue
or the total amount of P335,000.00. Accordingly, the
interest.[33]
reimbursable amount to respondent fixed by the RTC and the
Court of Appeals should be reduced from P660,000.00
to P335,000.00.
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
As earlier stated, petitioner filed five (5) criminal cases for
effect. There was no binding relation between petitioner and
violation of Batas Pambansa Blg. 22 against respondent. In the
respondent as regards the payment of interest. The payment was
said cases, the MeTC found respondent guilty of violating Batas
clearly a mistake. Since petitioner received something when
Pambansa Blg. 22 for issuing five dishonored checks to
there was no right to demand it, he has an obligation to return it.
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
Jurisprudence instructs that in awarding attorneys fees, the trial
among the five checks found to be dishonored or bounced in the
court must state the factual, legal or equitable justification for
five criminal cases. Further, the MeTC found that respondent
awarding the same.[42]In the case under consideration, the RTC
made an overpayment of the loan by reason of the interest which
stated in its Decision that the award of attorneys fees equivalent
the latter paid to petitioner.[39]
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
Article 2217 of the Civil Code provides that moral damages may
that it dragged on for several years.[43] Further, respondent
be recovered if the party underwent physical suffering, mental
testified that she agreed to compensate her lawyer handling the
anguish, fright, serious anxiety, besmirched reputation, wounded
instant case such amount.[44] The award, therefore, of attorneys
feelings, moral shock, social humiliation and similar injury.
fees and its amount equivalent to 25% of the amount paid as
Respondent testified that she experienced sleepless nights and
interest by respondent to petitioner is proper.
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
Finally, the RTC and the Court of Appeals imposed a 12% rate of
of P300,000.00, as fixed by the RTC and the Court of Appeals, is
legal interest on the amount refundable to respondent computed
exorbitant and should be equitably reduced. Article 2216 of the
from 3 March 1998 until its full payment. This is erroneous.
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
We held in Eastern Shipping Lines, Inc. v. Court of
awarded should not be palpably excessive as to indicate that it
Appeals,[45] that when an obligation, not constituting a loan or
was the result of prejudice or corruption on the part of the trial
forbearance of money is breached, an interest on the amount of
court.[40] To our mind, the amount of P150,000.00 as moral
damages awarded may be imposed at the rate of 6% per
damages is fair, reasonable, and proportionate to the injury
annum. We further declared that when the judgment of the court
suffered by respondent.
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,
Article 2232 of the Civil Code states that in a quasi-contract, such
this interim period being deemed equivalent to a forbearance of
as solutio indebiti, exemplary damages may be imposed if the
credit.
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
In the present case, petitioners obligation arose from a quasi-
not pay interest. This forced respondent to pay interest despite
contract of solutio indebiti and not from a loan or forbearance of
lack of agreement thereto. Thus, the award of exemplary
money. Thus, an interest of 6% per annum should be imposed on
damages is appropriate. The amount of P50,000.00 imposed as
the amount to be refunded as well as on the damages awarded
exemplary damages by the RTC and the Court is fitting so as to
and on the attorneys fees, to be computed from the time of the
deter petitioner and other lenders from committing similar and
extra-judicial demand on 3 March 1998,[46] up to the finality of this
other serious wrongdoings.[41]
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.
 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
Republic of the Philippines from Yokohama, Japan for delivery vessel "SS EASTERN
SUPREME COURT COMET" owned by defendant Eastern Shipping Lines under Bill
Manila of Lading
EN BANC 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
G.R. No. 97412 July 12, 1994 was discharged unto the custody of defendant Metro Port
EASTERN SHIPPING LINES, INC., petitioner, Service, Inc. The latter excepted to one drum, said to be in bad
vs. order, which damage was unknown to plaintiff.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE On January 7, 1982 defendant Allied Brokerage Corporation
COMPANY, INC., respondents. received the shipment from defendant Metro Port Service, Inc.,
Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner. one drum opened and without seal (per "Request for Bad Order
Survey." Exh. D).
Zapa Law Office for private respondent.
On January 8 and 14, 1982, defendant Allied Brokerage
Corporation made deliveries of the shipment to the consignee's
VITUG, J.: warehouse. The latter excepted to one drum which contained
spillages, while the rest of the contents was adulterated/fake (per
The issues, albeit not completely novel, are: (a) whether or not a "Bad Order Waybill" No. 10649, Exh. E).
claim for damage sustained on a shipment of goods can be a
solidary, or joint and several, liability of the common carrier, the Plaintiff contended that due to the losses/damage sustained by
arrastre operator and the customs broker; (b) whether the said drum, the consignee suffered losses totaling P19,032.95,
payment of legal interest on an award for loss or damage is to be due to the fault and negligence of defendants. Claims were
computed from the time the complaint is filed or from the date the presented against defendants who failed and refused to pay the
decision appealed from is rendered; and (c) whether 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
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.
of
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 17341 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 by the parties, in lieu of proof, the amount of P1,447.51 was
operator is akin to that of a depositor and warehouseman (Lua agreed upon. The trial court rendered judgment ordering the
Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship appellants (defendants) Manila Port Service and Manila Railroad
between the consignee and the common carrier is similar to that Company to pay appellee Malayan Insurance the sum of
of the consignee and the arrastre operator (Northern Motors, Inc. P1,447.51 with legal interest thereon from the date the complaint
v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of was filed on 28 December 1962 until full payment thereof. The
the ARRASTRE to take good care of the goods that are in its appellants then assailed, inter alia, the award of legal interest. In
custody and to deliver them in good condition to the consignee, sustaining the appellants, this Court ruled:
such responsibility also devolves upon the CARRIER. Both the
Interest upon an obligation which calls for the payment of money,
ARRASTRE and the CARRIER are therefore charged with the
absent a stipulation, is the legal rate. Such interest normally is
obligation to deliver the goods in good condition to the consignee.
allowable from the date of demand, judicial or extrajudicial. The
We do not, of course, imply by the above pronouncement that the trial court opted for judicial demand as the starting point.
arrastre operator and the customs broker are themselves always
But then upon the provisions of Article 2213 of the Civil Code,
and necessarily liable solidarily with the carrier, or vice-versa, nor
interest "cannot be recovered upon unliquidated claims or
that attendant facts in a given case may not vary the rule. The
damages, except when the demand can be established with
instant petition has been brought solely by Eastern Shipping
reasonable certainty." And as was held by this Court in Rivera
Lines, which, being the carrier and not having been able to rebut
vs. Perez,4 L-6998, February 29, 1956, if the suit were for
the presumption of fault, is, in any event, to be held liable in this
damages, "unliquidated and not known until definitely
particular case. A factual finding of both the court a quo and the
ascertained, assessed and determined by the courts after proof
appellate court, we take note, is that "there is sufficient evidence
(Montilla c. Corporacion de P.P. Agustinos, 25 Phil. 447;
that the shipment sustained damage while in the successive
Lichauco v. Guzman,
possession of appellants" (the herein petitioner among them).
38 Phil. 302)," then, interest "should be from the date of the
Accordingly, the liability imposed on Eastern Shipping Lines, Inc.,
decision." (Emphasis supplied)
the sole petitioner in this case, is inevitable regardless of whether
there are others solidarily liable with it. The case of Reformina vs. Tomol,5 rendered on 11 October
1985, was for "Recovery of Damages for Injury to Person and
It is over the issue of legal interest adjudged by the appellate court
Loss of Property." After trial, the lower court decreed:
that deserves more than just a passing remark.
WHEREFORE, judgment is hereby rendered in favor of the
Let us first see a chronological recitation of the major rulings of
plaintiffs and third party defendants and against the defendants
this Court:
and third party plaintiffs as follows:
The early case of Malayan Insurance Co., Inc., vs. Manila Port
Ordering defendants and third party plaintiffs Shell and Michael,
Service,2 decided3 on 15 May 1969, involved a suit for recovery
Incorporated to pay jointly and severally the following persons:
of money arising out of short deliveries and pilferage of goods. In
this case, appellee Malayan Insurance (the plaintiff in the lower xxx xxx xxx
court) averred in its complaint that the total amount of its claim for
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the
the value of the undelivered goods amounted to P3,947.20. This
sum of P131,084.00 which is the value of the boat F B Pacita III
demand, however, was neither established in its totality nor
together with its accessories, fishing gear and equipment minus
definitely ascertained. In the stipulation of facts later entered into
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 Court6 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
8
Court 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 Court10 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 Court11 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 Court12 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. Ruiz13 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,14decided 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 Court15 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 forbearance16 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,17depending 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 demand can be established with reasonable
decision.'" American Express International v. IAC, introduced a 26
certainty. Accordingly, where the demand is established with
different time frame for reckoning the 6% interest by ordering it to reasonable certainty, the interest shall begin to run from the time
be "computed from the finality of (the) decision until paid." The the claim is made judicially or extrajudicially (Art. 1169, Civil
Nakpil and Sons case ruled that 12% interest per annum should Code) but when such certainty cannot be so reasonably
be imposed from the finality of the decision until the judgment established at the time the demand is made, the interest shall
amount is paid. 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
The ostensible discord is not difficult to explain. The factual
have been reasonably ascertained). The actual base for the
circumstances may have called for different applications, guided
computation of legal interest shall, in any case, be on the amount
by the rule that the courts are vested with discretion, depending
finally adjudged.
on the equities of each case, on the award of interest.
Nonetheless, it may not be unwise, by way of clarification and 3. When the judgment of the court awarding a sum of money
reconciliation, to suggest the following rules of thumb for future becomes final and executory, the rate of legal interest, whether
guidance. the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this interim
I. When an obligation, regardless of its source, i.e., law, contracts,
period being deemed to be by then an equivalent to a forbearance
quasi-contracts, delicts or quasi-delicts18 is breached, the
of credit.
contravenor can be held liable for damages.19 The provisions
under Title XVIII on "Damages" of the Civil Code govern in WHEREFORE, the petition is partly GRANTED. The appealed
determining the measure of recoverable damages.20 decision is AFFIRMED with the MODIFICATION that the legal
interest to be paid is SIX PERCENT (6%) on the amount due
II. With regard particularly to an award of interest in the concept
computed from the decision, dated
of actual and compensatory damages, the rate of interest, as well
03 February 1988, of the court a quo. A TWELVE PERCENT
as the accrual thereof, is imposed, as follows:
(12%) interest, in lieu of SIX PERCENT (6%), shall be imposed
1. When the obligation is breached, and it consists in the payment on such amount upon finality of this decision until the payment
of a sum of money, i.e., a loan or forbearance of money, the thereof.
interest due should be that which may have been stipulated in
SO ORDERED.
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 court24 at the
rate of 6% per annum.25 No interest, however, shall be adjudged
on unliquidated claims or damages except when or until the